In my perspective on one of the announcements in the interim budget of 2024, I argue that by incentivizing the rooftop solar installations in the household segment through subsidies which can only be availed by procuring from empaneled domestic manufacturers, the government has ensured a significant domestic demand for these manufacturers. This will provide demand certainty, prompting the manufacturers to invest more, ultimately reaping the benefits of economies of scale necessary for price competitiveness once the import duties are withdrawn.
The interim budget of 2024 places emphasis on developing renewables – solar, wind, and green hydrogen. This underscores the commitment to become carbon neutral by 2070, with a closer target for 2030 of having 500 GW of non-fossil fuel-based electricity generation in the country. The budget allocation for major schemes consistently shows an upsend on renewables year-over-year, with the allocation for solar more than doubling this year.
The announcement of the Pradhan Mantri Suryodaya Yojana to support solar rooftop installations for 10 million households through central government subsidy stands out due to its impact on households, industry, and the nation. It is a win-win for all parties involved. This significant emphasis on solar is a strategic move to bring synergies in the economic environment for stronger and sustainable growth.
The deployment of solar rooftops reduces dependency on fossil fuels. Unlike energy sourced from fossil fuels, where raw materials such as coal are required for every unit of power generated, switching to solar power requires a one-time installation of solar panels powered by the sun for the entire lifetime of the equipment. Hence, no additional material is required for its functioning. This immediately reduces the carbon footprint for the users, whether households or commercial and industrial units. However, in India, the penetration of rooftop systems has been relatively lagging in the household segment, preventing the huge benefit of decarbonizing households and impeding a more sustainable lifestyle for them.
The main hurdle in the proliferation of residential rooftops has been the cost of solar equipment, which is reduced under the financial assistance offered by the central government. Both households and group housing societies/welfare associations are entitled to avail themselves of this financial assistance. The subsidy scheme takes into account the cost of modules and the inverter required to support during non-sunshine hours, whichever is lower. The value of the subsidy also varies by location and capacity of the unit. Households not only save on electricity bills but can also generate income by selling excess power.
Potential beneficiaries can avail themselves of the subsidy by applying at the national portal for rooftop solar, where information is sought in terms of the vendors from which the equipment would be procured. It is also required to purchase only domestically produced modules and cells. The design of the scheme ensures that the benefits of rooftop installation reach many other segments, including the domestic industry, which then benefits from an increase in demand for indigenously manufactured modules t. This encourages greater investment, which in turn helps in realizing the benefits of mass production (economies of scale) through lower cost per unit. This is crucial for an industry where the scale of operations is the rule of the game.
Available international evidence shows that doubling the production capacity of module assembly from 600 MW to 1.2 GW leads to a reduction in production costs by 9.4%. The reduction in production costs is even stronger at 21.9% when capacities are quadrupled to 2.4 GW. A reduction in the price of solar equipment will encourage more users to go solar. Moreover, the price competitiveness of Indian manufacturers will further strengthen India’s position in the global solar market. As companies operate on a larger scale, they can also allocate greater spending for in-house R&D, bringing in technological improvements for upgrades, better efficiency, resulting in reduced costs.
In addition, the demand for rooftop solar also impacts the economy by creating a greater number of jobs, both skilled and semi-skilled, within the manufacturing. At the same time, more people are engaged in installation and maintenance activities.
The budget announcement demonstrates that two birds can be struck with one arrow. By incentivizing the adoption of indigenously manufactured solar rooftops in the household segment the government has in effect introduced significant market opportunities for domestic manufacturers, while also furthering the national sustainability agenda. Even though the scheme is announced for the households where the demand is highly fragmented, the functioning of the scheme through the national portal for rooftop solar supports the industry through consolidating module demand for the empaneled manufacturers, thereby strengthening their prospects to achieve the much needed economies of scale.
By Anjali Tandon, Associate Professor, Institute for Studies in Industrial Development
Anjali holds a PhD in Economics. Presently, she is following the development of Solar Photovoltaic Industry in India. Her research focusses on energy, industry, and international trade in a multisectoral framework. She has more than two decades of experience in consultancy projects and has published in national and international journals and has written in media. Her earlier co-authored book titled ‘Measuring Structural Change and Energy Use in Indian Economy’ was published in 2019. Among her recent works is the book from Routledge titled ‘Labour and Capital Use in Indian Manufacturing: Structural Aspects’ in 2024.
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