Grid parity will come faster in roof top segment because a lot of consumers are even today paying Rs 9 per unit for electricity, especially the commercial customers like commercial offices, malls and cinema theatres, says Santosh Kamat, Partner, KPMG India, in an interaction with Pradeep Pandey.
What kind of potential you see in rooftop solar systems market in India and how economical it would be?
We believe that there is a lot of potential in the rooftop markets. However, that potential is not being fully recognised because of government programmes and private sector largely focussing on large scale projects. Going ahead, we believe that the grid parity (the point at which solar power becomes equal cost with alternate conventional power) will come faster in roof top segment because a lot of consumers are even today paying Rs 7 to 9 a unit for electricity, especially, the commercial customers like commercial offices, malls and cinema theatres. And, solar power tariff also has come down to that level. So, in that segment the takeoff of such facility will be much faster. This gives enough reason to the entire rooftop market that is going to be very promising and large market.
There is already a precedent in Germany where about 80 per cent of their installations are rooftop. Our observation is that overall the cost has come down much faster than everybody expected and also conventional prices have gone up faster than what people expected. That is a second message for larger scope and opportunity in the market. Therefore, if you ask me these are two key messages and we are also talking in our latest report on rooftop solar about diesel replacement, which is already viable because diesel costs more than Rs 14 per unit. If you take larger solar power projects, it is even less than about Rs 8 per unit. Therefore, we are seeing diesel replacement can happen soon.
We have talked about cost factors and grid parity. How do you assess the growth prospects of such applications in the near future?
Honestly, it is all going to be driven by economics. If people find that this is cheaper than using an alternative then they will go for it and that will be the primary driver. Some people may adopt it because it is a clean and green form of energy but that is only a small percentage. Bulk of it will be driven by economics. In our recent report we have shown that grid parity will come soon. There are two things, one is distributed generation which means retail application and second is the grid scale application. As far as retail applications are concerned, we have given in our reports that how and when for different customer categories that timing that is likely to come.
If we see at a larger level, the solar energy sector is not able to attract large investments and also Indian solar cell manufacturers are finding hard on evolving technologies. What is your view on this? Why is it not happening at the expected lines? What are the challenges ailing the sector?
There are two different parts of the industry. One part is into manufacturing and the second is in installation services like EPC project and selling power. Now what you are saying applies in the manufacturing part of the industry. As far as the project part of the industry is concerned, that is not a concern primarily because what happens is once you set up the project and you start selling power to either grid or distributed applications. In this, depreciation does not matter because you already have a PPA with the grid which is for 25 years or you have already sold it to the distributed generation applications. Let us say you have sold a rooftop or a telecom tower to them, and after that it should not matter what is the depreciation rate. But you are right as far as manufacturing sector is concerned that investments are looking scarce. The reason for that is globally there is over supply as far as manufacturing is concerned and prices have crashed drastically in the recent past. So, manufacturing companies are bleeding. You are right on technology as well that technology keeps changing so fast. We used to buy computer in olden days and you had to change it every three years because new technology comes in. Same is for manufacturing because technology is changing and you have to depreciate your equipment faster. Having said that unless there is a breakthrough technology which comes and makes your entire equipment obsolete then yes the whole four years or whatever time that has to be written off, normally we do not expect that. What we expect is evolution and incremental improvement in technology, which means the same manufacturing line often can be refurbished and upgraded. But you are right that manufacturing there is a concern and that comes from a fact that there is over supply.
Many companies such as Moser Baer and Thermax among others, who are into solar equipment manufacturing, have been often complaining that market is filled with cheap Chinese equipments. Do you see a strong competition from Chinese manufacturers?
You are right. There is a Chinese competition. In fact the manufacturers have been trying to request Government of India to offer some protection for domestic industry. There is concern that Chinese government may be subsidising their industry in the form of lower cost of inputs or incentives of other forms that help China reduce its cost.
What kind of reforms or initiatives by the government is needed to promote this segment?
First and most important is market certainty because in the next 12-18 months, it is going to be driven by government announcements and government policies which mean you need to announce your phase to national solar mission. Because, what is going to happen matters more to the manufacturers or EPC vendors as they need certainty of the market. That is most important. Second thing is that there is a national clean energy fund. Since all the state electricity distribution utilities are in financial distress, they will not be able to or will hesitate to buy solar power. So, we are saying that the centre should step in and completely bear the burden of the subsidy requirements of the solar sector.
Government's recent initiatives are focusing much on reducing subsidies in all the possible segments such as fuels, fertiliser etc. How it will be justified in solar sector?
Yes right. But it is only a temporary phase for three or four years till grid parity is achieved. Further, what I am saying is they have already collected national clean energy fund. For the past one-and-a-half year, the fund has been collected at the rate of Rs 50 per tonne of coal consumption. This can be shared with the states. If a state utility is buying 100 mw of solar power at Rs 8 per unit, then its alternate cost could be bought at Rs 4. The difference of Rs 4 should be paid by Government of India. That is the second initiative we are saying. This will insulate the state because this is a national strategic priority and it is about energy security.
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