Daybreak - Why India hasn't met its solar energy goal yet

Episode Date: March 1, 2023

In 2015, the current government set an ambitious target. It said we would have 100 GW of solar capacity by 2022 and 40% of it would come from rooftop solars or RTS. Back then, the country’s solar capacity was just 3.7 GW.   But as of October 2022, this capacity rose to only a little over 60 GW. The main reason for this is the slow adoption of RTS. High transaction costs and lack of data about the long-term performance of RTS make it difficult to access loans for small-scale solar installations.Tune in to find out more.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the same. secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they managed to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into.

to the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert, as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcast. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode.

Climate change might be shrinking the little island of Goromara and the Sundarbans, but the sun never stopped shining on it. Goramara is completely cut off and can be only accessed by a fishing boat. The island is regularly hit by cyclones, and for the longest time, it did not even have access to electricity. It was only last year that the government of India, with the help of IIT Kharakpur, set up a 250-kilowatt solar power plant, the largest off-grid facility in the country. The government distributes solar power in Goramara at a subsidized rate. India happens to be the world's third largest consumer of energy.

By 2040, energy consumption in India is expected to increase more than any other country. country. India is hungry for clean energy. And what is the most reliable source? Solar, of course. In 2015, the current government set an ambitious target. It said that we would have 100 gigawatts of solar capacity by 2022. The government said that 40% of this would come from rooftop solar or RTS. In 2015, the country's solar capacity was just 3.7 gigawatts. More than seven years later, as of October 2022, this capacity rose to a little over 60 gigawatts. It wasn't even close to the target. And one of the biggest reasons for this is the slow adoption of rooftop solars or RTS.

If you're thinking of Goramara, well, as it turns out, for now at least, it is an exception. The government does not subsidize rooftop solars. In fact, installing rooftop solars for residential, and other small-scale users is actually quite expensive in India. So today, I will tell you why there are no easy access loans available for installing rooftop solos in the country. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nekhda Sharma, and I don't chase the new cycle.

Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday the 1st of March. My colleague Saswita Kundo Chaudhuri, a reporter at the Ken, actually visited Gora Mara in the Sundarbans last year. Here is how he describes the picturesque village. Shiny black blue arrays reclined proudly on Gora's tile or top-covered roofs, existing easily beside mud-brick walls, brown coconut trees and yellowing paddy fields. I saw them on pretty much every house when I was there last.

year. So I asked Shashwata about the solar panel project on the island. And here is what he told me. It's only accessible by one boat, which is a modified fishing trawler, which only makes four round trips a day. And the island has a population of about 3,000 to 3,500 right now. Due to its remote location and really less population, it wasn't really prioritized by the government in terms of getting electricity and all. so the island still does not have any electric power lines so the state government instead decided to distribute solar panels to every household at subsidized rates

about around 2005 and the villages had to pay a portion of the money it was approximately about 10,000 rupees that's what they themselves told me and now all the houses have one or two solar panels attached to their roofs and they get charged throughout the day and during the evening that charge is used to run a couple of bulbs and a fan. But during the day they don't use it because the panels are not powerful enough to support running electricity throughout the day.

The government though has big plans for Ghoramara. Dr. S.B. Gons Chowdhoudari, an expert in renewable energy, is the chairman of the project's Implementation Committee. In an interview with a Centre for Science and Environment, he said that there will be four electric rickshas on the island, which will be charged from a separate solar power station. A solar-powered electric boat will also be kept on the island to ferry people to the mainland in case of an emergency.

Jodhuri said that he believes that the project will change the lifestyle of Goraara's residence. But like I told you earlier, a project like this one is a rare case scenario as of now in the country. Coming up next, we talk about why installing rooftop solar for residential and other small-scale users is expensive in India. The cost of installing rooftop solars can go up to over 50,000 rupees per kilowatt. And this is based on the government's own benchmark rates for the year that ended in March 2022. Residential and MSME sectors are just not investing enough in rooftop solar installations.

The main reason for this is that getting a loan for financing a smaller solar installation is very difficult. But the Indian government has been pushing really hard for green energy. So why are banks not willing to give out these small-scale loans? I asked Shashvata. Well, banks base their decisions on available data. And first, the solar loan ecosystem, there isn't much data available as it's a fairly new technology. So banks have a certain apprehension about the long-term performance of the technology itself, which translates into hesitation when giving out loans,

especially for smaller projects, say like small businesses or residential projects, where the chances of delinquencies are higher and also defaulting of loans. The risk associated with that is higher, which is not the case for large industrial projects of companies which have really large and stable. books. According to an article by Down to Earth, based on government data, more than 75% of rooftop solar installations are in the commercial and industrial segment. Sashwatha also spoke to Shankar Sivan, the founder of Well Fund, a digital lending company which focuses on the solar power segment. He told him that if the cash flows from solar loans are not underwritten, it is like

getting a personal loan or an unsecured business loan. So there are certain disadvantages to this. One is that asset loans are expensive as they are unsecured. So the rate of interest is around 17% which is quite high. Second is that the loan tenure will also not match with the asset life. For solar, this is projected to be about 25 years. But the tenure of personal loans are a maximum of three to four years only. And the third disadvantage is that the approval rates will also be low as savings from the solar asset is not underwritten. Sevin also told Shashvata that lenders have apprehensions regarding the long-term performance

of the product itself. And this is because the use of solar panels is still quite new. So there isn't enough data for banks and lenders to properly assess risk, especially without the soft cushion of large stable books. So why this lack of data? Especially when moving to solar is an important goal for the government. Just last week, Prime Minister Modi while seeking investments had declared that the country's solar, wind and biogas potential is no less than any gold mine or oil field.

So why are we then not making enough effort to collect data? To find out, stay tuned. One of the reasons why there is a lack of data about rooftop solars is because each roof is different from the other. Each one requires customization based on multiple factors. And this is what causes a hurdle in the borrowing process. Shashwatha explained it to me and here is what he said. Installing rooftop solar is a very, very complex scheme. Firstly, it is entirely dependent on the neighbourhood and the buildings surrounding the specific buildings.

where a person wants to put up the panels. So if the heights of the buildings around that building are more than it, then the amount of light that that roof will receive is very less. This has to be kept in mind. Also, like no roof is same. There are, you know, natural slopes and the azimuth angles and heights. All of this has to be taken into account and how much sunlight that roof receives and throughout the day.

and the shadow versus light ratio and even the material material that the roof is made of or whether there are water tanks on it and on top of it you have to take into account whether any buildings which are higher will come up in that neighbourhood in the near future Sevan the well fund founder explained how this plays out in case of taking a loan

he said that underwriting a rooftop essentially means determining the specific energy generation from the rooftop which is expressed in kilowatt per hour, kilowatt per annum and kilowatt p. Now, this is a problem. Because for the same latitudinal and longitudinal coordinates, the specific energy generation can vary massively from one roof to the next. Even the material that the roof is made of,

or whether there are water tanks on it or not, makes a difference. And the complexities don't even end here. Another problem within this non-standardized installation is the product itself. Turns out there are 30 to 40 types of approved modules and inverters which result in a thousand types of combinations of solar systems which can actually be installed on rooftops. Sevan told Saswatha that because of these factors, a personalized in-depth and exclusive analysis has to be carried out before a lender determines. the loan amount. For this, the lender has to depend on a lender's independent engineering report

to get a correct prognosis. So a lot of resources are spent in just the determination phase. In fact, according to 7, this means transaction costs can hit nearly 25% of the loan amount. For general loans, this cost is just around 1%. There is also a mindset problem at play here, where banks and lenders are reluctant to lend for one roof at a time. So does this mean that no solar loans are available in India? Coming up next, I tell you about existing solar loans in the country. It is not like there are no solar loans offered in India at all. There is Tata solar power that has tied up with Union Bank of India

to give out loans for both residential as well as commercial rooftop solar installations. and the State Bank of India has a Suria Shakti program that lends to businesses installing rooftop solar systems. These schemes offer quick, easy loans with little to no collateral. But again, the question that arises is, are these good deals? Study them a little bit in more detail and they begin to look a lot like personal loans. So how can things improve? More data, of course. This will help both lenders and lenders.

debtors better assess outcomes. For example, wealth fund is taking a four-pronged approach to the solar loan shortage, including trying to create a secondary market for use solar panels. And it is also working on creating a database and rating system for rooftop solar dealers and distributors and reducing transaction costs through software solutions. Along with it, it is also trying to create a solution that can reduce the cost of producing a rooftop-specific yield report. Right now, this could end up costing as much as one-lac rupees. But like Shashwatha says, there is still some hope that we will see easy access to solar

loans soon. And it is only because of the promise of projects like these and the fact that data will only become more widely available as time passes by. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.