A growing parity based market in India will bring many new opportunities and business models
Until now, most of the solar capacity in India is ground mounted and under policy based projects. The cumulative capacity of rooftop based projects in India is under 200 MW. However, this is likely to change as solar PV becomes cheaper and the prices of conventional power move up. We have already seen mass adoption of solar PV for rooftops in the US and Germany. Increasingly, these installations are moving towards parity and away from the traditional feed-in-tariffs (FiT). India is very well positioned to move quite quickly as the parity based market. Factors such as frequent power cuts, increasing prices of conventional power, high irradiation and the falling costs of solar are music in the ears of the people looking to grasp the opportunity.
- Straight forward sales model requires consumer to pay full system cost upfront.
- In a RESCO model consumer need not pay any amount upfront but needs to pay a per unit price for power.
- The consumer can sublet his rooftop to a project developer and get monthly rent in the local micro utility model
As the parity demand for solar power begins to come in from the Indian power consumers, many new opportunities will arise in the sector. As more and more individuals and companies rush in to meet this demand, they will innovate and create various business models. The consumers will benefit as the competition and options increase. Currently, the following business models are available in India:
Straight forward sales model
A consumer can purchase a solar power plant or just solar power via different models. In the most common model, the consumer purchases a system as he would purchase any other electronics item, by making 100% of the payment upfront or financing the system through a bank.
This is the most common business model for solar deployment in India, an Engineering, Procurement and Construction (EPC) company, or individual components manufacturing company (such as modules or inverters) installs the system. The plant owner pays the full cost of the PV system upfront. This model (sometimes referred to as the ‘CAPEX model’) is pursued by the majority of solar companies, including TATA Power Solar, EMMVEE Photovoltaics or Moserbaer.
The main drawback of the CAPEX model is that the plant owner needs to be able to finance the entire plant. Solar has a heavily ‘front loaded’ cost structure, with a high initial investment and very low operating costs. A consumer might not have the required liquidity to finance a system upfront or get the best debt terms. Nevertheless, one advantage of this model is that consumers are eligible to claim accelerated depreciation.
Renewable Energy Service Company (RESCO) model
Under the RESCO model, the consumer can install a solar power plant and not pay anything upfront. A power purchase agreement is signed between the installer and the consumer at a mutual price (tariff). In another model, the consumer can get a solar system installed at his rooftop and also get rent for subletting the rooftop. The consumer need not pay anything and he has the choice whether or not to consume the electricity.
Under this model, a third party investor comes in to invest into a PV plant on a rooftop and sells solar power to a power consumer. The consumer does not make any investment. If the solar power is viable, the consumer can benefit from savings on the electricity bill right from the start. Under this model, the investor and the consumer agree on a tariff (per kWh of solar power) and timeline of a power purchase agreement. The investors typically offer a tariff lower than the current grid tariff and equally the escalation of the grid tariff is lower than the expected escalation of the grid tariff.
The most significant advantage of this system, apart from the fact that it entails zero investment, is that the RESCO is responsible for the operations, repair and maintenance of the system. It is not the consumer’s responsibility to ensure proper functioning of the system. As the size of project increases, this model becomes more feasible due to economies of scale. The size of project can either grow individually, or as a collection of small projects bundled together.
Local micro utility model
Under this model, solar power developers could rent large, bundled roof spaces from building owners in a designated area, install PV systems and sell the power generated to the rooftop owners. The project developers would particularly target those consumers who might not have the resources or would be unwilling to invest in rooftop solar. Developers can offer building owners a lease income on their rooftop space.
This model allows project developers to bundle rooftop space in a community and thereby minimize the legal, commercial and technical transaction costs by increasing the size of individual plants. This makes the model especially useful for the deployment of solar for residential consumers.
The key USP of this model is that it unlocks a greater number of residential rooftops for PV systems. This is achieved by improving the economies of scale for the developer and providing an easy income opportunity to the rooftop owner.
All the three models are already being offered in India and we can expect a lot of innovation within these models. Also, we can expect the emergence of several new models as the market matures and the competition increases.
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