New scheme will reduce power target

In an attempt to encourage adoption of Rooftop Photovoltaic (RTPV) systems, the Karnataka Electricity Regulatory Commission (KERC) introduced a new scheme in December 2015 which allowed third party investors to develop RTPV systems for potential consumers who lacked access to finances.

Sites which were under cons-truction were also allowed to si-gn Power Purchase Agreements (PPAs) with Distribution Companies (discoms) for RTPV installations. The intention was to facilitate consumers to install RTPV systems without investing their own money and share some of the revenue under the attractive net-metering scheme with the third party investor.

This scheme led to a sharp increase in the number of applications. By March 2016, nearly 1,350 MW of applications were submitted and the KERC approved more than 600 MW of these. While the maximum installation size per PPA is 1 MW, there was no restriction on the size of the system or the amount of electricity exported. Consumers who own large tracts of land but with sanctioned loads of less than 5 kW applied for 1 MW PPAs. This allowed more than 95% of generation to be exported at Rs. 9.56 per unit. 

The investor’s project Internal Rate of Return (IRR) exceeded 19%. The PPA holder, who was earning less than Rs 5 lakh/annum from the land, could potentially earn more than Rs 20 lakh/annum by taking Rs 2 per unit as the lease rate.

While this model helps achieve capacity addition targets, it has deleterious effects on finances of discoms and electricity prices. Our calculations show that if discoms purchase electricity at this rate from more than 400 MW installations, it will lead to an increase in retail tariff of about Rs 0.25 per unit.

The primary objective behind promoting RTPV installations is to generate electricity at the point of consumption thereby reducing the load on discoms. While discoms welcome capacity addition in cities, 1 MW installations in peri-urban and rural areas lead to heavy investments for setting up additional infrastructure. Moreover, solar PV costs have dropped rapidly in the last two years and the capital cost for RTPV system is Rs 70,000/kW.

KERC has taken cognizance of these issues and facts and the RTPV policy has now been revised for applications post May 2. Gross metering has been introduced for domestic consumers, hospitals and educational institutions. Net-metering benefits were inapplicable for these users owing to low rooftop area availability. Now, they will get compensated for every unit generated from the RTPV system while paying retail rates for electricity consumption which leads to a feasible business case.

Capacity addition
According to the new policy, capacity cannot exceed 150% of the sanctioned load. There is some ambiguity in this clause since compensation is based on generation and not the capacity. Any generation from installations above this limit will be purchased at the Average Pooled Purchase Cost (APPC) of discoms. There needs to be a transparent methodology to calculate the crossover point when it comes to such installations.
Other categories of consumers will continue to be part of the net-metering regime with the revised rates. Analysis shows that only commercial establishments, and industries with high diesel consumptions, will have viable business cases for installing RTPV systems.

Consumers who want larger rooftop installations will now have to apply for commensurate increases in sanctioned loads which will also lead to higher fixed charges. Also, third party investments have been restricted to domestic consumers with sanctioned loads less than 50 kW. This ensures that while investors get a reasonable return it does not impact discoms or ratepayers adversely.

The target remains 400 MW till KERC makes revisions and further course corrections based on the national 40 GW RTPV target in the near future. The KERC’s expectation is that more than 250 MW will be commissioned in this financial year under the previous net-metering regime since the window to complete projects with signed PPAs shuts within a year. This means that there will be a tremendous rush for third party investors and EPCs/system integrators to commission their respective projects.

The remaining capacity addition required to meet the state’s target will fall under the new scheme. The policy ensures sustainable growth of RTPV systems with acceptable financial impacts on discoms and ratepayers. It will also allow discoms to strategically plan for upgradation of the distribution network infrastructure in the near future. The onus is now on domestic consumers since the gross metering rates favour this category more than others.