Decoupling Economic Growth from Emissions with Rooftop Solar

‘Climate Change’ has undoubtedly been established as a real phenomenon and the global community has expressed its commitment to limit global warming up to 2 degree Celsius. ‘Sustainability’ has become an integral part of almost all contemporary governance, business, and academic discourses. The global population is expanding at a rate of 1.1% annually[1]. UN projects the world population to grow up to over 11 billion by the end of this century[2]. To satisfy the basic needs of this growing population, the world GDP needs to grow at around 3.5%. Reliable energy supply is the engine of GDP growth. Traditionally GDP growth has come at the cost of the natural resources that have led to the deterioration of ecosystem and climate change. ‘RCP 8.5’ scenario proposed by the experts projects global warming by up to 4 degree Celsius[3] if current trends continue. Therefore, critical interventions are needed to address the challenge of sustaining the growing population and limiting GHG emissions.

Why do we need to decouple economic growth & emissions?

Conventionally economists believed in ‘Environmental Kuznets Curve’ which hypothesizes that initially environment degrades with economic growth, but beyond a critical point, the rate of degradation reverses with further economic growth. However, contemporary researchers have concluded that we are at the risk of crossing planetary boundaries even before the critical point of reversal of environmental degradation is reached. Considering these facts, decoupling of economic growth and environmental pressures is progressively becoming the area of interest of academicians and policymakers. Initially, resource efficiency was thought of as the decoupling strategy. It has been observed that resource efficiency is associated with the ‘rebound phenomenon’ that is increasing in consumption proportionate to the efficiency achieved. Factoring-in the ‘rebound phenomenon’ experts have advocated structural interventions. One such intervention is changing the current energy-mix.

The average CO₂ emission factor for the coal-fired power plant is around 0.998 Kg/KWh[4], while that for hydropower is 0.015 Kg/kWh[5]. Operating emission factor for renewable energy (wind, solar, etc.) is zero. Thus, increasing the share of renewables into the energy mix has the substantial potential of reducing GHG emission. As per CO₂ Baseline Database 2018 of Central Electricity Authority India, average grid emission factor in 2016-17 was 0.82[6]. To achieve its NDC, the Indian government has revised its renewable energy target at 227 GW by 2022[7]. Of this 115 GW is expected to be contributed by solar energy. As per the Report on India’s Electricity Roadmap 2030 by NITI Aayog, India’s solar energy potential is over 10,000 GW.[8] In light of these facts, it can be asserted that the solar energy solely can suffice the increasing electricity demand.

How to do it

Rooftop Solar is one of the most cost-effective interventions to change energy-mix. As per a report by the Institute of Energy Economics and Financial Analysis (IEEFA), CAGR in rooftop segment has been around 116% during the 2012-18 period[9]. Of this, around 70% market has been driven by commercial and industrial consumers. Despite such a high growth rate, the rooftop solar potential remains grossly under-utilized. Various factors that would play an instrumental role in harnessing rooftop solar potential are the cost of electricity, net-metering policies, corporate social responsibility, and consumer awareness. In the residential segment, government subsidy is expected to play a significant role.

One of the major challenges being faced by industrial and commercial consumers is the upfront capital required for the installation of rooftop solar. To overcome it, Renewable Energy Service Company (RESCO) model has emerged. In this model, the energy service company owns the assets and is responsible for O&M. The consumers are supposed to pay a mutually agreed tariff that covers the capital repayment requirement and the cost of providing for maintenance and repairs. This tariff is always less than grid-tariff. RESCO model is expected to enhance the acceptability of rooftop solar thereby reducing the carbon footprint of energy consumption by decoupling economic growth and environmental degradation. Also, the cheaper rate of electricity will reduce the cost incurred on utilities thereby increase profitability.

Challenges of Rooftop Solar and how to overcome them

Certain challenges such as diurnal and seasonal fluctuations and end-of-life fate of solar panels are associated with the use of rooftop solar energy. The former one can be mitigated by continuing reliance on grid electricity while later needs further R&D for eco-friendly disposal of solar panels to post useful life. Rationalizing rooftop solar tariff remains the major business-model challenge. To overcome it, complex statistical and financial modeling is needed. Various RESCO companies are striving hard to arrive at a rational tariff rate that would be a win-win scenario for the service provider and the consumers. The emergence of various green financing instruments such as green bonds has the potential to reduce the cost of capital thereby lowering the tariff rates. The rooftop solar industry is still in infancy and has a long way to go. However, it can not be denied that large-scale adoption of rooftop solar will help in the effective decoupling of economic growth and environmental degradation. All it needs is favourable government policies and socio-economics.

[1] https://data.worldbank.org/indicator/SP.POP.GROW?view=chart

[2] https://www.un.org/development/desa/en/news/population/world-population-prospects-2017.html

[3] https://ar5-syr.ipcc.ch/topic_futurechanges.php

[4] Mittal, M. L., Sharma, C., & Singh, R. (2012, August). Estimates of emissions from coal-fired thermal power plants in India. In 2012 International emission inventory conference (pp. 13-16).

[5] Gagnon, L., & van de Vate, J. F. (1997). Greenhouse gas emissions from hydropower: the state of research in 1996. Energy Policy, 25(1), 7-13.

[6] http://www.cea.nic.in/reports/others/thermal/tpece/cdm_co2/user_guide_ver13.pdf

[7] https://economictimes.indiatimes.com/industry/energy/power/india-will-add-225-gw-renewable-energy-project-capacity-by-2022-r-k-singh/articleshow/64461995.cms

[8] https://niti.gov.in/writereaddata/files/document_publication/RE_Roadmap_ExecutiveSummary.pdf

[9] http://ieefa.org/wp-content/uploads/2019/05/IEEFA-India_Vast-Potential-of-Rooftop-Solar-In-India.pdf

Amplus Solar

July 22, 2019