By Shreyans Jain
Sustainability for MSMEs: India is making big leaps within the renewable vitality sector. With a complete put in vitality capability of 150.54 GW (as of November 30, 2021), it stands on the fourth place on the earth by way of put in capability. This contains 48.55 GW of photo voltaic, 40.03 GW of wind, 4.83 of small hydropower, 10.62 of bio-power, and 46.51 GW of huge hydropower. Over the past 7.5 years, India’s renewable vitality capability has grown 1.97 instances, with photo voltaic vitality increasing over 18 instances.
The rooftop photo voltaic sector, nevertheless, has remained largely untapped. In opposition to the federal government’s goal of putting in 40 GW of RTS energy tasks by 2022, India has achieved an operational RTS capability of solely 7.7 GW as of June 2021. That is nowhere near the envisaged goal. Bridging this hole within the subsequent few years would require built-in efforts from all individuals within the rooftop photo voltaic ecosystem, together with shoppers, builders, policymakers, lenders, and regulators.
One space of alternative to realize this goal lies with micro, small and medium enterprises (MSMEs). The MSME phase accounts for about 48% of the whole vitality consumed by India’s industrial sector. The rooftop photo voltaic set up potential throughout the MSME phase is estimated to be about 15 GW (37.5% of the 40 GW goal). A typical MSME grid-connected rooftop photo voltaic system has a capability of 10-100 kW and prices about ₹ 38,236/kW as per the Ministry of New and Renewable Power. It has low upkeep and servicing necessities, and the system is often warranted for output peak watt capability, which shouldn’t be lower than 90% on the finish of 12 years and 80% on the finish of 25 years. The proprietor can get well her preliminary funding in a interval of simply four-five years.
Clearly, MSMEs can play a vital position in employment era whereas decarbonizing the financial system’s provide chain. Nonetheless, regardless of a major market potential and a powerful enterprise case to shift from standard grid energy and fossil fuel-based sources of energy to rooftop photo voltaic to satisfy their vitality wants, MSMEs have to date been hesitant in embracing non-conventional sources of vitality.
That is primarily because of structural and institutional obstacles like lack of entry to low-cost debt financing because of credit score threat of the buyer, challenges in implementing web metering, excessive transaction price as a result of small measurement of tasks, and issues about authorized enforceability of contracts and collateralization of borrower’s property. Addressing these challenges can unlock an enormous lending alternative for Non-Banking Monetary Firms (NBFCs), Small Finance Banks (SFBs), and business banks and pave a low carbon pathway for India to realize the goal of net-zero carbon emissions by 2070.
Challenges within the sector
Lack of market consciousness in regards to the monetary and environmental advantages of rooftop photo voltaic has led to gradual uptake within the sector. Significantly within the aftermath of the pandemic, MSMEs are left with a Hobson’s selection – whether or not to take a position their scarce working capital on their core enterprise operations (buy of uncooked materials, machines, and many others.) for speedy returns or to put in photo voltaic and tie up their funds for a protracted time frame to comprehend the potential advantages of their “inexperienced” funding.
The state of affairs is exacerbated by the poor creditworthiness of MSME debtors which acts as a significant problem for institutional lenders to finance rooftop photo voltaic tasks. The sector is often characterised by the non-availability of historic monetary information and cost monitor report of MSMEs, lack of formal credit score rankings, excessive charges of default, and uncertainty in regards to the sustainability of enterprise operations.
The absence of a secondary market to resell or redeploy the system in case of an occasion of default additional erodes the worth of the collateralized property. Decommissioning of the delicate photo voltaic tools is accompanied by degradation of system efficiency and lapse of related warranties.
Most lenders underwrite credit score threat of their product choices. The perceived dangers related to coverage uncertainty, technical efficiency of the put in system, and occasions which can be troublesome to find like the chance of MSME eager to relocate its enterprise, the chance of the character of MSME’s roof profile altering halfway by way of the mortgage, the neighbour arising with the next constructed construction within the neighborhood and many others. are, nevertheless, troublesome to underwrite.
Such dangers can’t be mitigated by way of a credit score assure mechanism and aren’t priced suitably within the present monetary choices. There may be poor innovation within the improvement of devoted lending merchandise that may be made obtainable at enticing phrases of finance. Most MSMEs thus find yourself borrowing from non-institutional lenders and native mortgage sharks at arbitrary charges of curiosity.
India’s rooftop photo voltaic market is very fragmented because of low entry obstacles. Because of the presence of numerous gamers, the standard of set up and workmanship varies considerably. There are challenges related to creating acceptable requirements for module high quality, output era, and system specs.
There may be little understanding of the structural impression of improper set up on MSME rooftops and opposed system efficiency ensuing from it. This fuels dissatisfaction amongst shoppers and makes it practically unimaginable for photo voltaic builders to penetrate current and new markets with their options. Moreover, the regulatory panorama for rooftop photo voltaic is very unpredictable with state electrical energy regulators arising with totally different provisions yearly. As soon as a mortgage has been underwritten, financers are seldom involved about regulatory flip-flops and are solely within the well timed reimbursement of principal and curiosity by the borrower.
Discovering sustainable options
Extremely leveraged current borrowing buildings of MSMEs usually constrain them from absorbing further debt for rooftop photo voltaic tasks. There are, nevertheless, options obtainable to enhance the uptake of photo voltaic. Firstly, an establishment that gives credit score assure on the loans prolonged to MSMEs and covers 50-60% of the mortgage quantity in case of default must be arrange. This establishment can additional be tasked with offering credit score rankings to the MSME debtors based mostly on their reimbursement of those loans. This can enhance their creditworthiness.
Secondly, a secondary market must be created to facilitate the resale and redeployment of defaulted photo voltaic property. Contributors on this market can supply packaging and assurance as companies by inspecting the standard of modules and offering a recent guarantee for 3-4 years on the refurbished tools.
Thirdly, insurance coverage can act as a software to mitigate the perceived dangers related to authorities coverage, system efficiency or another issue intrinsic to the borrower. Moreover, financers have to give you modern fashions of financing. For example, the MSME borrower’s equated month-to-month instalments could possibly be tailor-made in such a method that the month-to-month money outflow for servicing the mortgage is equal to the month-to-month price financial savings on electrical energy from deploying RTS at its premises.
Equally, extending short-term loans to photo voltaic builders will allow them to enter into energy buy agreements of comparable period with MSME off-takers and cut back credit score threat considerably. Lastly, state electrical energy regulators ought to give you a compensation mechanism wherein energy distribution corporations are incentivized to put money into upgradation and modernization of the grid and on the identical time compensated for these investments from the decrease common energy buy price for buying electrical energy from rooftop photo voltaic sources.
The federal government has recognized vitality transition and local weather actions as one of many visions for India@100. It has introduced quite a few near-term and long-term measures to finance the transition to a “pollution-free India with inexperienced Mom Earth and blue skies”. Rooftop photo voltaic affords one such alternative that may assist the nation additional its local weather agenda and decarbonize the financial system.