In 2012, Tamil Nadu released its Solar Energy Policy and introduced a net-metering mechanism for rooftop solar panels, becoming the first Indian State to do so. This policy marked a paradigm shift as electricity consumers could now simultaneously become electricity producers.
The net-metering arrangement allowed surplus solar energy exported by consumers to the grid to be credited in energy units (kWh). Consumers paid for the net-imported energy units (import minus export). They received monetary benefits, equivalent to the regular tariff, for the units exported. Consumers with higher electricity tariffs benefited more than those with lower tariffs and most domestic users did not find the mechanism financially attractive.
The Tamil Nadu Solar Energy Policy 2019, announced in February this year, replaced net metering with a net feed-in mechanism. Under this, surplus solar energy exported to the grid will be credited at a tariff fixed by the Tamil Nadu Electricity Regulatory Commission. While for self-consumed units, consumers will get a monetary benefit equivalent to the consumer tariff, for units they export they will receive a feed-in tariff determined by the regulator. The attractiveness of this net feed-in tariff will determine the success of this measure, especially at the domestic-consumer level.
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Capacity targets not met
The 2012 policy set a solar energy capacity target of 3,000 MW to be achieved by 2015. Nearly four years later, in January 2019, about 81% of this target had been met, the majority of it having been installed by commercial and industrial entities. The 2019 policy has scaled the capacity target up to 9,000 MW by 2023. About 40% of this, 3,600 MW, is to be met by the consumer category.
Here, an incomprehensible provision is that all High Tension (HT) consumers have been excluded from the net feed-in facility. This means that educational campuses, commercial, industrial and institutional entities and other consumers with an HT connection cannot make use of the facility.
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So, why has the rooftop solar model failed to take off in a big way in Tamil Nadu, seven years after the announcement of the first policy? This can be attributed primarily to the State’s electricity tariff model.
Take the example of a domestic user with a monthly consumption of 350 kWh. Under the current slab, after accounting for the 50 units per month provided free of cost, the consumer will pay a monthly electricity charge of ₹1,550 — ₹4.43 per kWh of electricity. The utility company, Tamil Nadu Generation and Distribution Corporation (TANGEDCO), incurs an expenditure of ₹8 for every kwh of power delivered, making a steep loss.
Cross-subsidising low-tariff users
To recover this extra cost, the company imposes higher charges on commercial and industrial entities. Hence, the higher-paying consumers end up cross-subsidising the low-tariff ones, creating a vicious cycle. This results in the high-paying consumers either moving their manufacturing base to States with lower electricity tariffs or entering into power-purchase agreements with independent power producers. Hence, TANGEDCO loses its high-value consumers, with the result that the utility’s financial losses keep mounting.
To address this issue, electricity tariffs that allow the power distribution company to cover its cost of supply would be a good start. Subsidy, where required, can be provided through a direct cash transfer to those in need, unlike today where the rich and poor consumers receive the same subsidy.
However, apart from such tariff rationalisation, additional elements are required to enable consumer-category rooftop solar power to thrive. First, a fair and transparent net feed-in tariff setting process is needed. In March, a formula was established to determine the tariff, based on which it came to ₹2.28 per kWh for solar photovoltaic systems commissioned during the Financial Year 2019-20. This is extremely low and represents only about 50% of the actual cost of small-scale solar energy generation. With this tariff, the chance of the State meeting its consumer-category solar energy target is close to zero.
Second, innovative rooftop solar programmes, which include alternative financing mechanisms and demand aggregation to reduce the capital cost of solar energy production, will have to be designed.
Lastly, the State may do well in starting with a dedicated feed-in tariff for battery storage system. This would prepare the state to transition into a smart grid future of the 21st century.
Martin Scherfler is a co-founder of Auroville Consulting, a unit of the Auroville Foundation