CarbonCopy explores the consumer categories prevalent in India, the challenges that they face, and their process of adopting solar power
Last year in December, India’s Parliament passed a “futuristic” amendment to the Energy Conservation Bill that aims to make clean energy compulsory. The Bill, among other things, mandates emission norms for the construction and building sectors. It aims to promote energy conservation among large residential buildings as well as commercial establishments. This will give consumers a better opportunity to switch to cleaner energy sources such as solar and wind.
In discussing consumer interest to adopt solar, however, we must first focus on the market segments that determine the various types of consumers. Each has their specific preferences which determine the type of solar energy provider that is able to cater to their specific requirements. Broadly speaking, there are three—residential, commercial & industrial (abbreviated as C&I), and utility-scale.
Residential energy consumers
These include private homeowners and apartment residential welfare associations. Private homeowners are looking at system size between 2-5 kWp (in larger villas these could go up to 25 kWp as well). They expect a return on their investment between 4-7 years and are further segregated into technology buyers and economic buyers.
a) The challenges
High-end technologies that will increase the yield of the solar power plant and thereby also include integration methodologies with EV charging systems or batteries at home can significantly increase the cost of the solar power plant at home. Technology buyers want what is best available in the market (Enphase microinverters, EV charging systems, home batteries to take them off the grid).
However, the challenge unfortunately sometimes is that these additions are still quite expensive and the conversion of their transition to solar depends on the solar EPCs (companies that provide end-to-end services of engineering, procurement, and construction) ability to optimise this increase in cost with an equitable appreciation in efficiency.
Smaller homes require < 5 kWp of solar power plants and homeowners sometimes do not see a massive cost-benefit to high-range technology products and equipment for such a small-size system. They prefer polycrystalline modules as they are cheaper, string inverters in lieu of microinverters, and aluminum structures as a replacement for mild steel. However, they are quite specific on the design aesthetic and utility of the solar power plant. High-rise structures are often requested so the use of their rooftop is not encumbered, perhaps for plants or other household requirements. Both of these buyers are keen on incentives to adopt solar, i.e. government subsidies.
b) Subsidies as an incentive
Many states in India have subsidies for residential consumers to adopt solar power plants. These require an elaborate process for solar EPCs to impanel with the local distributor and apply for subsidies on behalf of the consumer. This process, while effective in communicating the availability of subsidies, places a barrier to entry for those solar EPCs that do not receive the empanelment from DISCOM.
In order to become competitive in this space, solar EPCs must be able to provide subsidies, and net-metering approvals and execute the project within two months of winning the order. Their ability to scale depends on the speed at which they can turn around project execution. Attracting similar customers in a residential villa society is key.
Apartment residential welfare associations have the challenge of receiving approvals from all residents of the apartment before issuing an order to the solar EPC. And while that is a task on its own, the solar power plant will only be able to cater to the common loads of the buildings. In many states, termination of the solar power plant is restricted to the building atop which the plant is located—this creates some increase in costs.
The typical process to sell a solar power plant to a residential consumer is through a site visit and a study of their electricity bills. This allows us to size the system and put together a simple techno-commercial offer. Solar EPCs that exclusively cater to the residential market have a large lead time from inquiry to conversion since many homeowners make this investment out-of-pocket and take their time to arrive at a decision. Moreover, often the client reaches out to the solar EPC while their home is still under construction, so it is quite normal for a minimum of 4-6 month conversion.
Commercial and industrial consumers
The C&I segment has an increasing demand for solar energy due to ESG reporting, clean energy mandates (such as RE100) as well as a clear business case as solar has achieved grid parity. Installing a solar power plant reduces the Opex costs on energy consumption for C&I clients, with energy rates varying from Rs8-12/unit, as compared to Rs4-5/unit for solar, a clear 50-70% reduction. While there is not much in terms of subsidies within this market segment, the incentive to adopt solar is quite clear, therefore there are many solar EPCs that are available to cater to these clients.
a) The challenges
However, with larger system sizes of 50-500 kWp, the importance of design, engineering, and execution are crucial. Errors in mismatched stringing or wrongly sized power plants could not only reduce the potential savings that a consumer may lose out on, but also create issues in the safety and operations of the asset.
Solar power plants that are designed and constructed well are rare since many EPCs look at cost-cutting mechanisms to close projects at very low prices. This, however, can be combated by consumers by paying close attention to the RFX process. At U-Solar, a technical consultant is appointed to the client early on at the lead stage. The technical consultant supports the client in developing the RFX and, therefore, curating a strong Bill of Materials that can be floated in the market. Standardising equipment and components in the solar power plant allow the consumer to base pricing decisions systematically. In this method, projects are not always awarded to the lowest bidder, but rather to the most realistic bidder who matches a higher percentage of the RFX.
There are also financing options available to the C&I segment that are a replacement for the lack of incentives from subsidies.
The Opex/BOOT model (build-own-operate-transfer) caters to clients with strong financials and the ability to enter into long-term Power Purchase Agreements (PPAs) for 20-25 years. The solar EPC and solar developer, in tandem, create the asset and maintain it through the duration of the PPA. A tariff set by the developer and the client is typically fixed or comes with an escalation component. Again, the pricing of which is highly determined by the technical consulting and RFX process—herein done internally by the developer and EPC.
The challenge, however, is that the Opex / BOOT model is quite elite and selective in nature. Developers set individual investment mandates on client selection criteria and rates vary from state to state depending on the investor appetite for the markets in which they operate.
Furthermore, operations and maintenance of solar power plants in the C&I segment are quite important. A fault in one string could result in quite high power and savings losses to the end consumer. A strong combination of preventative and reactive maintenance techniques could set a solar EPC or developer apart from the competition. Offerings such as AI predictive analysis, fault resolution within a specific time period, the ability to maintain generation guarantees, and cleaning cycles through pumps or robots improve customer satisfaction on O&M.
b) Customer satisfaction is key to making sales
The sales cycle in the C&I segment is quite unique and highly driven by customer success. Once a sale is made future potential sales could be made with ease if the projects and operations team delivers satisfactorily as well as if the operations and maintenance team is efficient in providing basic expectations on generations.
Typically these are longer to close—around 10-12 months—both as a result of higher Capex investment required due to the size of the systems as well as corporate structures set in place for procurement of solar equipment by the end consumers. The ability to scale within each consumer account is quite high once an entry is made, but not always granted if safety, quality, and service do not match industry standards.
Therefore, it is imperative for the U-Solar team that we have a strong customer success and support structure to provide our existing clients with satisfactory experiences.
These consumers could be government or private. Very large government tenders are floated to cater to state/central energy demands. These include round-the-clock energy as well as hybrid energy systems. Pricing can be extremely low and there are limited players in the solar industry that are able to operate at this scale. However, another section that requires large-scale consumption of clean energy is very large operators in the C&I sector. Cement, steel, conglomerates, MNC corporate, etc, that have a massive commitment to going green are purchasing power through open-access agreements.
Open-access solar power plants are set up by allocating a portfolio of contracts or a large lump sum requirement of power towards the development of projects. The former is called Group Captive and the latter is Captive/third-party PPA (depending on the financing mechanism).
Open access is an arrangement where the power producer installs a solar power plant and signs a medium- or long-term purchase agreement with the consumer. Open access arrangement helps the consumer to pay for the power they consume from the installation. Open access arrangement helps the consumer to pay for the power they consume from the installation. Open access can be classified into two categories.
Inter-state open access arrangement: The consumer and power producer is located in different states and must follow the Central Electricity Regulatory Commission (CERC) regulations.
Intra-state open access arrangement: The consumer and power producer is located in the same states and must follow the State Electricity Regulatory Commission (SERC) regulations.
The new green energy access rule has opened the doors for many solar installations in the nation. The recent changes in open access policy have brought an impact on solar power. The new rule, reducing the open access transaction limit from 1MW to 100 kW, will help a lot of common consumers get renewable energy at a reasonable price. This is a big change that will help make renewable energy more accessible and affordable for everyone.
Dhwani Sunku is the head of business development at U-Solar Clean Energy. The views expressed in this article are personal.
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