Additionally, India aims to reduce its emission-intensity by 45% below 2005 levels and increase non-fossil power capacity to 50% by 2030, as part of its August 2022 Nationally Determined Contribution (NDC) update. As the same government continues in India, it is likely that these commitments will continue to occupy prominence in policy pronouncements.
While tackling climate change (to reduce greenhouse gases and carbon intensity) involves a host of measures that include reduced vehicular emissions, less use of fossil fuels, etc, one area in need of greater policy attention is rooftop solar power as an alternative to traditional sources of power. In India, most power is from fossil fuels.
To meet emission reduction targets, increasing rooftop solar capacity is crucial. However, India’s installation of solar panels lags the national target of achieving 40 gigawatts (GW) of it by 2022, with only 7.3GW achieved by 30 November 2022 (official data).
Recognizing the vital role that rooftop panels play, Prime Minister Narendra Modi launched the PM Suryodaya Yojana on 22 January this year to support rooftop solar panel installations for households consuming less than 300 units of electricity per month.
The PM highlighted India’s significant rooftop potential in the context of the 2070 net-zero goal. As the green-energy sector continues to grow, Modi has expressed his belief that both investors and industry will benefit. In the past, Union budgets have often been used to provide incentives for climate-control measures.
However, the Budget for 2024-25 is expected to go further on India’s climate commitments. Thankfully, there is a way to boost the adoption of rooftop solar power without major financial commitments or loss of government revenues. This is because it can help households lower their power bills.
Cheapen rooftop solar panel installations: Apart from a battery, solar panels require lithium wafers (almost solely made by China), solar cells and the final element, solar modules. Solar cells and modules are crucial components. However, since April 2022, India has imposed a 40% customs duty on solar modules and a 25% duty on solar cells (with some country/firm specific exemptions), despite the country’s limited domestic production capacity.
The social (and private) benefits of eliminating customs duties on solar panel inputs like cells and modules can be calculated. To calculate its benefit in terms of saving on electricity usage expenditure by households (the consumer surplus), we first identified the levellized cost of electricity (LCOE) for rooftop solar power.
The ‘levellized cost’ is calculated assuming tariff-free imports of solar cells and modules, and is found to range between ₹3 per kilo Watt hour (kWh) and ₹5 per kWh, based on research findings. Next, we obtained the average electricity tariff rates from the Niti Aayog’s India Climate and Energy Dashboard.
These rates were ₹6.74 per kWh nationally and ₹9.36 per kWh in Delhi. We then calculated the electricity-bill expenditure savings for households by subtracting the LCOE of rooftop systems from the average electricity tariffs. This difference represents the financial benefit per kWh of electricity generated by rooftop solar installations.
We obtained India’s total consumer surplus by multiplying this difference with the projected total solar energy generation capacity. Our calculations show a consumer surplus of ₹96,000 crore if the 2026 target of 40GW is achieved. If India’s full residential rooftop solar potential of 637GW (according to CEEW 2022) is achieved, it would result in a far larger consumer surplus of ₹15.2 trillion nationally and ₹75,000 crore in Delhi alone.
This assumes that the consumer pays the full cost of installing and maintaining rooftop solar panels. So these savings could be even higher if the government subsidizes installation costs, as is the current practice.
In 2022-23, the government collected ₹2,160 crore in duty charges on imported solar modules meant for 2.6GW of power capacity. If India were to import solar modules for 637GW of capacity to fulfil its entire residential rooftop potential, the duty collected would still amount to just ₹5.2 trillion.
This is far less than the aggregate energy cost benefit of ₹15.2 trillion. Even if we assume that only 25% of the full potential will be fulfilled, the realizable gains would be large enough to justify ending import duties on key inputs for solar installations.
Given that sunlight, the planet’s ultimate power source, is free, what consumers could save from rooftop panels (even as they contribute to carbon-exhaust reduction) far outweighs the loss from reduced import duties on solar modules.
Reducing duties on solar modules and cells would lower costs for domestic assemblers and decrease the final price of solar panels in India, thereby encouraging wider adoption of solar energy.
At the very least, the forthcoming budget should start phasing out duties on imported cells and modules over the next few years to better enable everyone to work towards India’s climate commitments.
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