Steep Generation Duty Hike Casts Shadow Over Kerala’s Rooftop Solar Program

The recent hike in electricity generation duty from ₹0.012 (~$0.00014)/kWh to ₹0.15 (~$0.0018)/kWh for rooftop solar systems in Kerala is threatening to disrupt the pace of renewable energy adoption in the state. The state expects an additional annual revenue of ₹240 million (~$2.87 million) from the increased duty.

This sharp increase contradicts the central government’s policy against imposing generation duties on renewable energy sources like solar.

However, since electricity comes under the Concurrent List in the Constitution, the center and state governments have the liberty to frame their own laws. The Concurrent List consists of subjects of common interest to both the Union and the States. Parliament and the State legislatures can make laws on the subjects included in this list.

Since 1963, Kerala has been charging ₹0.012 (~$0.00014)/kWh on electricity generated through different means under the state’s Electrical Duty Act and Rules, established in 1963. However, the 1963 rules did not mention solar power.

The chief electrical inspector issued an order to impose electricity generation duty on all licensees starting the current financial year. Rooftop solar consumers realized the additional burden when they received their generation bills this month. Rooftop solar users already pay a fixed charge, meter rent, energy charges, duty, fuel surcharge, and monthly fuel surcharge.

“Prosumers are shocked by the government’s decision to increase the generation duty to ₹0.15 (~$0.0018) per unit,” said Terence Alex, Founder & CEO of Wattsun Energy. He said prosumers did not expect a hike in renewable energy generation duty since rooftop solar is not only about financial benefits but a social responsibility.

Prosumers have submitted a petition to the government urging them to remove the generation duty.

Kerala achieved an 18% growth in rooftop solar capacity between the second quarter (Q2) of 2022 and Q2 of 2023, with approximately ~276 MW of rooftop solar capacity installed. About half the capacity during the period was added under the Kerala State Electricity Board’s (KSEB) Soura program, which encourages the adoption of residential rooftop solar systems.

Alex, who is also the Vice President of the Kerala Renewable Energy Entrepreneurs and Promoters Association (KREEPA), clarified that KSEB is not responsible for the generation duty; the state government imposed it through legislative approval, and KSEB is merely collecting the duty.

The increase in duty has potential rooftop solar adopters worried. “The sales pipeline reflects a cautious sentiment, with potential clients adopting a skeptical stance due to the fear of additional charges and a slowdown in the market’s shift towards renewable energy,” said Thulasidas Nandajan, CEO of Tharayil Power & Energy Solutions.

Alex noted a significant slowdown in Kerala’s solar order confirmations and installations.

Adding to the challenge, the state recently changed the solar settlement period from October-September to April-March. Maximum solar energy generation occurs between January and March. On March 31, all banked units are settled based on the Average Power Purchase Cost (APPC) rate, leaving no units in the bank for April and May. Consequently, prosumers are forced to pay high tariffs for excess energy consumption from the grid during these months.

Transformer Capacity Limitations

Rooftop Solar also faces another hurdle in Kerala due to transformer capacity limitations. Rooftop solar installations are capped at 75% of transformer capacity across the state. However, this capacity has been exceeded in many areas, leading authorities to halt feasibility studies for new installations.

Alex said rooftop solar users want the limit increased to 100% of transformer capacity.

While many states have waived the feasibility study requirement for rooftop solar systems up to 10 kW, Kerala has not done so. Sources indicate that the government could settle for a 90% limit, which could help accommodate the burgeoning growth of rooftop solar installations in urban areas.

Another roadblock is the PM Surya Ghar Yojana’s National Portal. Technical snags mar the portal. Key issues plaguing the portal include an inability to edit capacity details post-submission, leading to delays in application corrections. Installers are also grappling with opaque application tracking mechanisms, leaving them in the dark about the status of their submission.

At a time when rooftop solar is being seen as an effective and sustainable solution, the generation duty imposition has come as a rude shock to prosumers and potential adopters of solar energy in the state.

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