A place on the roof top
Billionaire investor and inventor Elon Musk is widely credited with the quote, “The first step is to establish something that is possible and then probability will occur.” Apart from Musk’s own success with Tesla, a fine example of his theory about businesses is the Indian solar power industry where probability has followed after the possible has been established.
Since the beginning of the decade, the world has increased pressure on India to cut down emissions and embrace its responsibility towards the environment. Sliding costs of solar panels and a high amount of solar irradiation made it possible for India to have success with rooftop solar.
However, successive governments have looked at rooftop solar panels only as a means for powering remote districts and habitations. Even though the Narendra Modi-led government has set an ambitious target of having 40,000 MW of rooftop solar capacity by 2022, the segment has not seen as much policy support as ground-based large solar projects have. State governments like Haryana are only now coming out with regulations mandating rooftop solar plants in residential, commercial and industrial spaces.
Away from the limelight of tariffs of ground-based large solar projects reaching record lows and with little policy support, a new business model has evolved. The thirst for clean energy amongst big businesses in the country in order to be responsible corporate citizens has increased the probability of rooftop solar being a viable business model.
It is this probability that a new-breed of entrepreneurs have begun to cash in on, by offering business houses a proposition that is hard to refuse. Today companies like ITC Ltd, Tata Motors, Maruti Suzuki and even airports, who have large rooftop spaces and empty areas in their manufacturing units, can set up a solar power plant without a single penny of investment.
Essentially, companies like CleanMax Solar, SunSource Energy, and others started by new entrepreneurs are ready to set up the entire project at their own investment. In return, a long-term power purchase agreement will be signed offering the industrial house tariffs cheaper than diesel generators and at times even lower than industrial and commercial rates offered by electricity distribution utilities. In industry parlance, this is known as the OPEX model.
Such a model reduces the entry barriers for new players as the pressure of keeping tariffs as low as a utility-scale solar project is not present. Unlike utility-scale solar projects which sell their electricity to distribution utilities while competing with conventional sources of electricity, rooftop solar projects compete with diesel generators and industrial/commercial electricity rates. As a result, a rooftop solar project developer can easily expect tariffs of ₹6-7 a unit while tariffs for utility-scale solar projects have slid to Rs. 4.5-5 a unit.
Luckily for the rooftop solar project developers, big industrial houses across India are lapping up the OPEX model to rapidly ramp up their capacity of rooftop solar plants.
In the last year alone, Tata Motors has set up a 1.8 MW solar plant at its Pune plant and a 2 MW plant at its Sanand plant in Gujarat. Combined, the company is saving ₹ 0.76 crore in its annual electricity bill and also cutting down 3,806 tonnes of CO2 emissions annually.
According to Sanjiv Puri, ITC Ltd’s Chief Operating Officer, 47 per cent of the company’s energy consumption comes from renewable sources, which has a large share of solar power. Puri also said at a recent event of the Confederation of Indian Industry that the company aims to generate nearly 50 per cent of its energy requirements from renewable sources over the next two years.
Even new-economy businesses like Snapdeal are embracing rooftop solar. Snapdeal’s warehouses in Gurgaon and Hyderabad operated by Vulcan Express recently commissioned 1MW of rooftop solar power capacity.
“Energy conservation for us is not only cost savings but also our commitment to reduce our carbon footprint through various small and big initiatives,” said Hardeep Singh, Chief Executive Officer, Vulcan Express.
According to solar power consulting and research firm Bridge To India, as on March 31, 2016, the total installed capacity of rooftop solar plants stands at 740 MW. Commercial and industrial segment makes up for 73 per cent of this capacity. The firm expects the segment to grow at an annual rate of 248 per cent till 2020. Further, Bridge To India said that the OPEX model in the rooftop solar space is growing at a rate of 150 per cent annually.
Such growth is increasing the optimism amongst the rooftop solar power developers and entrepreneurs who have set up such ventures. Kuldeep Jain, Managing Director of CleanMax Solar, set up the company in 2011 after leaving a cushy job as a Global Partner in consulting firm McKinsey & Co.
“The proposition we offer is clean energy, cheap energy which is a big deal for a corporate. We have seen a massive growth in adoption by corporate clients. It did take time initially but 80-90 per cent of our clients repeat volumes with us so they know that the proposition sounds too good to be true but it is real,” Jain told BusinessLine.
Apart from setting up projects for various automotive component manufacturers, Jain’s CleanMax Solar has also put in place rooftop solar plants for Bangalore International Airport Ltd and Carlsberg’s brewery in Rajasthan. The company has set up a total capacity of 50 MW of rooftop solar projects across the country. According to Jain, 27 MW of this capacity took four years to achieve while the rest came up in the last six months. “I think this is the year when the market is really kicking off,” he added.
In the current year, the company expects to add another 100 MW of projects for corporate customers. It is also setting up a 30 MW project for Tata Communications, where the latter is also an equity holder in the project.
Another such new venture SunSource Energy started by Adarsh Das and Kushagra Nandan has also remained focussed on the rooftop space ever since it set one up for the Vasant Valley School in New Delhi.
However, Das pointed out some of the perils of operating in the rooftop solar space. According to him, there are customers who try to squeeze costs and pointed to cases where a client would get all the engineering ideas and either offer the contract to someone else or attempt to set it up themselves.
To overcome customer quality issues, firms like Bosch India and Jain’s CleanMax Solar ensure that the client is a household name. Bosch India for example is leveraging its existing relations with industrial clients like Maruti Suzuki to set up rooftop solar power plants. Despite having the financial muscle to compete in the ground-based large solar project space, Bosch India’s Head-Energy Division, Venugopalan C M told BusinessLine that the company will focus on industrial clients to double its existing capacity.
Across the solar power industry, people agree that the rooftop space is one to watch. But whether the government’s target of 40,000 MW from rooftop solar projects is met is a guess no one is willing to make. For now, these young entrepreneurs are just glad that they too have become electricity generators.