Energising MSMEs with rooftop solar
Curtailing 5−20% energy costs while also being environment friendly
This study has been carried out by Deloitte Touche Tohmatsu India, LLP in collaboration with the CIF. A total of 150 MSMEs were surveyed across six identified clusters (rubber and plastic; pharmaceuticals; auto; paper; food and beverage; textiles) to diagnose the key reasons for the slow growth and low investments in rooftop solar in the Micro, Small and Medium Enterprises (MSME) sector in India.
This study tries to give a plausible explanation for slow growth and low investment in the rooftop solar space by MSMEs. This is achieved by identifying the following parameters:
- Key barriers for upscaling to rooftop solar in MSMEs
- Ways to overcome these barriers
- Suitable financial instruments to cater to MSMEs' lender needs
- It is majorly driven by public-sector, private-sector commercial banks and NBFCs; all of which can lend a funding upto US$1.3B.
- The lending capacity is expected to support 600MW of additional solar rooftops.
- Under the Reeoftop Solar Investment Programme, Punjab National Bank intends to finance large solar rooftop projects using US$500M sought from CTF-Asian Development Bank in 2016.
- Solar generation can be fully absorbed: Almost 50% of the MSMEs had a connected load in the range of 50 kW to 200 kW, while in most cases the rooftop solar potential was less than 50% of the connected load.
- Electricity cost as a percentage of operating expenses: Most MSMEs spent either between 5% and 10% or between 10% and 20% of their operating income on electricity. The share of electricity cost in the overall operating expenses was determined largely by the nature of industry and cost of other raw materials.
- Ownership is not a barrier to the implementation of rooftop solar: More than 90% of MSMEs were the owners of the physical properties/buildings from where they run their companies.
- Low awareness: In general, the level of awareness about rooftop solar was very low amongst the survey sample. Many high-power consuming SMEs were hesitant to install rooftop solar because of the perceived performance risks.
- Lending preferences: Public and private banks were reported to be the most preferred financial institutions for lending. While there were variances by sector, respondents expressed a willingness to work with any institution that could offer the most attractive financial terms.
- Financial challenges: Some MSMEs found it difficult to meet collateral requirements as their plant and machinery were already committed to other term loans.
- In the initial stages target clusters where likelihood of achieving intended outcomes highest and developing customized market plans is imperative.
- Indian rooftop solar market is currently not geared to implement large-scale rooftop solar projects under the OPEX model in the MSME sector without institutional or financial interventions. A dedicated aggregation vehicle would support implementation of rooftop solar projects across target MSME clusters
- Regulatory changes for adoption of group and virtual net metering could assist in implementing aggregation models in the MSME clusters and overcoming issues related to scale, diverse customer profile, and financing to a large extent.
- Supporting dedicated MSME based portfolios within existing/new lines of concessional credit shall support development rooftop solar projects in MSME sector.
- Dedicated scheme supported by Ministry of MSMEs with financial interventions like interest subvention and the Partial Risk Guarantee Fund mechanism through budgetary allocations required for initial pilot projects across target clusters.
- Creating awareness and capacity building through dedicated initiatives to bridge knowledge gaps support the support adoption of rooftop solar in MSME sector.