There is both an opportunity and challenges of using municipal corporation for the acceleration of rooftop solar. Therefore, if municipalities are to play a role in the necessary acceleration of rooftop solar in India, they will need to look for new sources of finance and business models to spur the required development. This will also require building partnerships with local solar developers and other stakeholders in the domestic and even international financial markets.
There are two business models to deploy rooftop solar in India.
- The first one is the CAPEX model in which the consumer fully owns finances and consumes the energy generated by the PV system. Consumers in the CAPEX model are fully responsible for all capital expenditures, and bear all risks of operations, management, and maintenance. The CAPEX model accounts for approximately 84% of currently existing rooftop solar systems in India and is mainly driven by commercial and industrial operators (BTI 2017).
- The second model, is the OPEX model or the third party financing model in which a renewable energy service company (RESCO) provides all the necessary capital and is responsible for installing, operating, and maintaining the rooftop solar system in exchange for a fixedtariff Power Purchasing Agreement (PPA) with a customer, or multiple customers. This model is also referred as third-party financing model.
As CAPEX model is a self- funding model for the rooftop solar projects as far as the end consumer is concerned, it does not require much financing support from external entities. On the other hand, the third party financing model requires significant debt investment from the capital market. Hence, the municipal corporation can collaborate with the rooftop solar developers to facilitate the access of the debt capital from the capital markets under the OPEX model route.
The OPEX model has been proposed as one of the promising solutions to address several barriers to scaling rooftop solar discussed in section 2.3. According to a previous study (CPI 2016), the third party financing model is expected to dominate the rooftop solar market, given its benefits for consumers of no upfront and installation, operation and management services being carried out by local developers. Globally, the third-party financing model has been a significant driver of growth in the rooftop solar sector. However, the third party financing model has not picked up in India at the rates expected due to the lack of availability of debt capital at competitive cost, which affects the ability for companies advancing this business model to scale.
Thus, to achieve further scale for the OPEX model for rooftop solar in India, alternative methods of financing should be considered.
Credit: Scaling up Rooftop Solar Power in India: The Potential of Solar Municipal Bonds, CEEW Report, June 2018