Renewable Energy – Scope and Schemes for MSMEs
Published on : Friday 10-06-2022
Darshana Thakkar provides vital information about rooftop solar solutions for manufacturing companies and MSMEs.
India is the world's third‐largest energy-consuming country. Because of rising incomes and improving standards of living, energy use has doubled since 2000. India is one of the world's fastest-growing economies. Rapid commercialisation has led to the nation's high carbon footprint.
One of the most feasible ways to make India cleaner and greener is to adopt alternative energy sources such as wind and solar.
India's commitment to Green Energy
The Government of India is very much active in reducing its carbon footprint. The targets set under the Paris Agreement for the Period 2021-2030 are:
a. To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from the 2005 level
b. To achieve about 40 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 with the help of technology and low-cost international finance.
Our country is on the right path to achieving the above targets. India has reached a cumulative installed renewable energy capacity (excluding large hydro) of 92.54 GW, of which 5.47 GW was added from April 2020 to January 2021. During the period from April 2014 to January 2021, the installed RE capacity of India has increased by two-and-half times. The installed solar energy capacity has increased 15 times in the same period.
Today, India stands 4th in REpower capacity, 4th in Wind Power, and 5th in Solar Power capacity. India has one of the highest growth rates for renewable energy in the world. As per the Global Trends in Renewable Energy Investment 2020 report, during the period 2014-2019, renewable energy programs and projects in India attracted an investment of US$ 64.2 billion (Rs 4.7 lakh crore).
To promote the generation and consumption of renewable energy, the Government of India has launched many schemes for different sectors. A few major schemes are as follows:
1. PM KUSUM
Pradhan Mantri Kisan Urja Suraksha Evam Utthan Mahabhiyan (PM KUSUM) scheme is one of the largest initiatives in the world to provide clean energy to more than 3.5 million farmers by solarising their agriculture pumps. The scheme aims to install grid-connected ground-mounted solar power plants (up to 2 MW) aggregating to a total capacity of 10 GW. In addition, there is another 20 lakh standalone solar pump installation plan to solarise 15 lakh grid-connected agricultural pumps. Together, the combined installation of additional solar capacity of 30.80 GW.
2. RTF (Rooftop Solar) Program
Under the rooftop solar scheme, Central Financial Assistance (CFA) is available, up to 40% for RTS systems. As per a government report, over 3.7 GW of RTS have been installed in the country and over 2.6 GW of capacity is under installation in the residential segment.
3. Solar Parks
The government has introduced a Solar Parks program intending to facilitate the plug and play model of the solar projects. The scheme for developing solar parks has a target capacity of 40 GW. All the States and Union Territories are eligible for getting benefits under the scheme. Solar parks are being developed by Central/State Government agencies, joint ventures between Central and State Government agencies, and private entrepreneurs.
4. Green Energy Corridors
The GoI has launched this scheme to facilitate the transmission and evacuation of green energy for inter-state and intrastate transmission. The Inter-State Transmission System (ISTS) component consisting of 3200 km transmission lines and 17,000 MVA substations, were completed in March 2020. The Intra-State Transmission System (InSTS) component has sanctioned to eight RE rich states of Tamil Nadu, Rajasthan, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Himachal Pradesh, and Madhya Pradesh for evacuation of over 20,000 MW of renewable power
5. Greening of Islands
The government intends to fully convert Andaman and Nicobar, and Lakshadweep islands to green energy, where RE sources will meet all energy needs. Under this program, the ministry provides 40% capital subsidy for projects under the scheme. Projects of 20 MW SPV with 16 MW/8MWH BESS in Port Blair, South Andaman; and a project of 1.95 MW with 2.15 MWH BESS in 4 islands of Lakshadweep are expected to be completed shortly.
With this background in RE in India, I quickly jump to the MSME sector. Being an MSME activist, my core focus is to empower MSMEs and their sustainable growth and profitability in this global hyper-competitive world. In India, solar energy is available in abundance for almost the whole year. So rooftop solar is the most effective and affordable solution for our MSMEs.
Apart from all the benefits of renewable energy, the adoption ratio for green energy is very low, especially in the MSME sector. Most manufacturing units are power hungry and have a good surface area where rooftop solar can benefit the company. But most MSMEs face a cash crunch, making it challenging for them to install rooftop solar. Further, the high initial cost of solar adds another obstacle.
To overcome this challenge, I would like to give vital information about rooftop solar solutions for manufacturing companies and MSMEs.
As a thumb rule, a 10 sq.m area is required for a 1 kW capacity solar system. A 1 kW capacity solar system generates 1600-1700 kWh of electricity per year. Even a micro-enterprise has a minimum of 10 sq.m space on the rooftop.
The cost of grid-connected PV systems ranges from Rs 50,000 to 75,000 per kW, and the cost varies according to the inverter and type of panel chosen.
The cost of off-grid solar PV systems is approximately Rs 100,000 per kW, as these PV systems require costly batteries. This cost includes the installation charges, and most companies provide five years full warranty for the whole system and 25 years limited power warranty.
Some incentives can reduce this cost. The Ministry of New and Renewable Energy (MNRE) offers a subsidy to users. A subsidy of up to 30% is being provided for installing rooftop solar panels in residential, institutional, and social buildings. Furthermore, under the Income Tax Act, 80% accelerated depreciation is offered for rooftop solar systems. So, after subsidy and accelerated depreciation, the net cost of a typical rooftop solar system could come down to approximately 50,400 per kW.
In the case of industrial installations, the above subsidy is not applicable, but the depreciation benefit under the IT act plays a significant role. Moreover, the investment cost is recovered in almost 3 to 5 years with a direct saving of electricity cost. As a result, the long-term electricity cost-saving benefit is the key advantage.
To help the MSMEs against the huge initial investment of rooftop solar, many finance options at reasonable cost are available nowadays.
There are two different finance models available.
1. CAPEX Model
The most common solar rooftop financing option is where a customer has to pay 100% cost upfront. Finance is available at a rate between 10 to 12 %. The main benefit of this model is the accelerated depreciation to gain tax savings and make a reasonable return on investment. Organisations facing high liquidity problems are not advised to opt for this finance option. Here Operations and Maintenance are the responsibilities of the rooftop owner.
2. RESCO Model
Under the RESCO model, third-party company finance, installs, operates, and maintains the rooftop solar project. A power purchase agreement/lease agreement is signed between the installer and the consumer at a mutually agreed price (tariff). The main advantage of this model is that consumers can install a solar PV system and simultaneously choose whether or not to consume the electricity. Based on the consumer choice, the model is further divided into two types –
i. Rooftop Leasing – Under this, the project developer will be paying a fixed lease payment to a building owner over the time of the lease period for installing the solar panel on the rooftop
ii. Power Purchasing – Under this agreement, the project developer can sell the power back to the building owner in favour of a lower solar power tariff. The developer can sell the excess energy to the utility company.
Benefits of RESCO Model
1. No upfront payment, payment is in mutually agreed monthly instalments.
2. Consumers enjoy solar savings on their electricity bills without any upfront investment.
3. Consumers also have the flexibility to own the plant at a defined duration after paying a defined percentage of the cost of the system and enjoy electricity at a very low cost.
Collateral free loan for MSMEs
Tata Power and SIDBI (Small Industrial Development Bank of India) joined hands to provide collateral-free affordable finance, typically below 10%, to MSMEs for rooftop solar solutions.
This finance option is exclusively for MSMEs consumers of Tata Power.
MSMEs require such finance options for rooftop solar projects. The lack of creditworthiness of MSME limits rooftop solar developers' capability to offer their services to these companies.
To incentivise MSMEs to shift to rooftop solar, the Gujarat government came up with a new industrial policy in August 2020. The government increased the purchase price of surplus solar power from ₹1.75 /kWh to ₹2.25/kWh. It also announced an interest subsidy on term loans to MSMEs to switch to solar energy.
Last year, the Gujarat government allowed MSMEs to install solar projects over 100% of their sanction load or contract demand. While earlier solar sanction was limited to 50% of the sanctioned load.
Benefits of solar installation
Rooftop solar is an ideal solution for harnessing the sun's energy. Apart from saving on electricity costs, it fulfils the role of the responsible citizen to contribute toward the environment.
1. Electricity cost-saving up to 80%
-Over 25 years of the lifetime of solar, up to Rs 2 crore saving for MSMEs can be estimated.
-The typical payback period is 3 to 5 years.
-Grid independence against raising electricity tariff. (Electricity tariffs have been raised by around 50% in the last five years in many states).
2. Good for the environment
For MSME, up to 3000 tonnes of carbon emission mitigated over a lifetime of the solar system equivalent to the planting of 5000 trees
3. Minimum maintenance
No moving parts, so minimal maintenance is required. Maintenance is only in the cleaning of the panel to have higher efficiency.
4. Green building certification
Additional certifications such as IGBC (Indian Green Building Certification) and LEED (Leadership in Energy and Environmental Design). The latter is an ecology-oriented building certification program run under the US Green Building Council (USGBC).
5. Accelerated depreciation for business
Up to 40% accelerated depreciation in the first year of the commissioning as a tax benefit.
Key highlights of the Indian RE system
a. Solar capacity increased in the last 7.5 years from around 2.6 GW to more than 46 GW
b. World's largest renewable energy expansion program 175 GW till the end of 2022
c. Renewable energy has a share of 26.53% of the total installed generation capacity in the country
d. India is now in 4th global position for overall installed renewable energy capacity
e. Solar power tariff reduced by more than 75% using plug and play model
f. About 19 times higher solar pumps were installed between 2014-19 – 2.25 lakh versus up to 2014 – 11,626
g. Renewable energy installed capacity increased 286% in the last 7.5 years
h. The solar park scheme doubled from 20 GW to 40 GW
i. Record low solar tariff Rs. 1.99/unit achieved, and
j. Highest ever wind capacity addition of 5.5 GW in 2016-2017.
Darshana Thakkar is MSME Transformation Specialist and Founder, Transformation – The Strategy Hub. An Electrical Engineer followed by MBA – Operations with rich industry experience, Darshana is an expert in transformation, cost reduction, and utilisation of resources. She has invested 25 years in transforming Micro and Small Enterprises. Her rich experience in resolving pain areas and real-life problems of SMEs helps organisations achieve quick results. Her expertise in managing business operations with limited resources helps clients transform their business practices from person driven to system driven with existing resources.
Darshana has helped many organisations to increase profitability and achieve sustainable growth. She is passionate to support the start-up ecosystem of our country. She is associated with CED, Government of Gujarat as a Business Function Expert in the Entrepreneurship Development program, as faculty for industrial subjects in the Second Generation Program (SGP), and as a start-up mentor and member of the start-up selection committee in the CED incubation centre. She is a certified corporate director registered with IICA and the Ministry of Corporate Affairs, Government of India. Apart from this, she is an author and publishing her blog, article, and case study related to the MSME industry. Email: email@example.com