India's Rooftop Solar Capacity: Financing Models And Growth

In the past five years, India's cumulative rooftop solar capacity has grown at an annualised rate of 46% to 10.4 GW in 2023 from 1.8 GW in 2019, former Union Power Minister RK Singh said in response to a query in Parliament last year.

Developers have introduced various financing models, including Capex, Opex, Capex Plus, deferred payment method, and green power to help customers overcome funding challenges. While Capex and Opex were the most common methods in the past years, developers have introduced the Capex Plus or Green Power models.

Let's take a look at the financing models:

1. Capital Expenditure (Capex) Model: In this model, consumers can self-finance or take a loan to cover the entire installation cost. Popular for residential, commercial, and industrial rooftops, this model offers cost savings and surplus power sale benefits.

2. Operational Expenditure (Opex) Model: A Renewable Energy Service Company installs and owns the rooftop solar PV system, selling power to consumers at an agreed tariff. This model benefits consumers who don't want to invest the entire capital cost.

3. Deferred Payment Agreement (DPA) Model: This model allows businesses to transition to solar by paying some share as equity and the remaining share as debt, financed by non-banking financial companies or other financiers.

Each model offers unique benefits, and understanding these options can help consumers and businesses make informed decisions about adopting rooftop solar capacity.

Since tariff gets locked for 25 years under Opex model, there has been a visible shift in customers' preferences. Many customers had sought a shift in the Capex model.

Under the proposed tweak, developers would take over operations and maintenance activities, while customers would pay a discounted tariff lower than the Opex model rate.

According to Ishan Chaturvedi, co-founder and head of sales and business development of Vareyn Solar, customers are looking for a hybrid approach, where they can benefit from the reduced tariff and the developer's expertise in O&M.

This tweak aims to strike a balance between the Capex and Opex models, offering a win-win situation for both parties. "By adopting this modified Capex model, customers can enjoy lower tariffs while leveraging the developer's expertise in O&M, ensuring optimal performance and maintenance of the solar PV systems," Chaturvedi told NDTV Profit.

In unique situations, a customer can opt for an Opex model and invest a portion of the project cost as his share of equity—based on mutual understanding, said SK Gupta, CFO of AMPIN Energy Transition.

This demonstrates their increased commitment to the project, especially when the customer's credit rating is lower or just touching investment grade. "This approach strengthens the case both for the Independent Power Producer as well as the project lender," Gupta said.

There is also a mixed model that allows the IPPs (independent power producers) to invest in a project, transfer it to the customers via a lease, and receive lease payments. However, this model has practical issues of security adequacy and increased loan liability of the IPPs, therefore, the industry doesn't prefer or promote this model.

There is another model that is catching up globally that is called the Green Power model.

In countries with strong mechanism to trade in Green Power certificates, IPPs sell the power to the customers and take the value of the Green Power, which is then sold on Exchanges as renewable energy certificates.

"It's a trend that is prevalent in developed economies and will catch up soon in India as well," said Puneet Goyal, co-founder and director of SunAlpha Energy.

India's rooftop solar capacity has made significant strides in recent years, driven by innovative financing models that address the needs of diverse customers. As the industry evolves, a hybrid approach combining the benefits of Capex and Opex models, along with new models being tested abroad will be the way forward.