Mandating storage for rooftop solar may backfire without clarity

Rooftop solar (RTS) has gained significant momentum in India following the launch of the PM Surya Ghar Muft Bijli Yojana (PM Yojana). Before the scheme, cumulative RTS installations stood at 11.07 GW, but in the past year alone, 5.21 GW has been added, predominantly in the residential sector.

 

However, as solar penetration increases, concerns about grid stability, reliability, intermittency, and local over-injection are growing. In response, the Ministry of Power issued an advisory urging distribution companies (discoms) to consider mandating two-hour storage with RTS. Although later clarified by the Central Electricity Authority (CEA) as “guidance”, this could become a mandatory requirement in the future.

 

Solar’s daytime-only output is well-known, and using storage to get power during other periods, especially the evening peak, seems like an obvious solution. However, cost remains a significant hurdle. While batteries are becoming cheaper, they are still expensive. This issue is further compounded by the fact that under current “net-metering” frameworks, households can treat the grid as a virtual battery, allowing them to draw their mid-day exported power back at night from the discom at nearly zero additional cost. 

 

The PM Yojana provided greater per unit subsidies for smaller RTS systems, prioritising support for the poor. Unfortunately, the diseconomies of scale for small users are amplified when adding storage. A quality 1 kWp (kiloWatt-peak) RTS system costs roughly ₹65,000 to ₹75,000, excluding subsidies and soft loans, but adding two hours of storage and upgrading to a storage-capable hybrid inverter nearly doubles the cost. Larger systems benefit from economies of scale, yet a 5 kWp system still costs about 1.6 times more with storage. Questions remain about additional subsidies for storage and compensation for grid support. While calculations vary by state based on tariffs, our analysis indicates that adding storage typically doubles the payback period and can render it financially unviable in some states.

 

The technical barrier

 

RTS with storage, or hybrid RTS, differs significantly from conventional grid-connected RTS. Upgrading to hybrid RTS requires two key components: A hybrid inverter that directs solar energy to household loads, the grid, and batteries, and stationary battery storage, typically lithium-ion batteries, which necessitates a Controller Area Network bus system for seamless communication between the inverter and battery.

 

Most hybrid inverters currently operate below 60V, resulting in technical inefficiencies for high-capacity systems. Inverters above 3 kW  generate higher current outputs at these low voltages, causing increased thermal losses and reduced efficiency. Additionally,  the absence of Bureau of Indian Standards guidelines for hybrid inverters concerning battery operating voltages has resulted in market inconsistencies, with some manufacturers focusing on high-voltage inverters while others remaining below the 60V threshold, creating a fragmented landscape for hybrid RTS adoption.

 

These technical challenges highlight the need for standardisation and optimised system design to enhance efficiency and reliability. India should standardise and mandate smart inverters to improve discom visibility into solar generation, provide reactive power support, and enable dynamic control over solar absorption based on grid conditions, ensuring last-mile stability.

 

Making hybrid RTS financially viable

 

The greatest advantage of battery storage is its ability to absorb excess electricity when oversupplied and discharge it during peak demand periods. To unlock its full potential, time-aware tariffs that vary according to the time of the day and compensation for additional services provided by the storage system, such as capacity support and reactive power, are essential.

 

India’s retail electricity pricing distorts solar adoption incentives, even without considering “free electricity” from electoral pledges. The rich (high electricity consumers) have the strongest motivation to adopt solar due to elevated per-unit (kWh) costs from telescopic tariff structures. Even without solar in the mix, most state tariffs under-recover fixed costs from households, whereby these costs are disproportionally covered through per-unit energy charges. This makes solar even more distortionary than existing cross-subsidies, as consumers with RTS (without storage) lower their grid usage while the fixed grid costs (last mile, transformer, etc) remain unchanged.

 

Aligning true system costs, which vary by time of day, with consumer tariffs and solar incentives is essential. California’s Net Energy Metering 3.0 serves as a precedent, compensating solar exports at time-aware wholesale electricity price while offering a $150/kWh rebate for battery storage and a 30 per cent federal tax credit on total system costs. For a 5 kWp RTS with two hours of storage, the California model effectively subsidises about one-third of the total system cost.

 

Balancing mandates and market viability

 

Without proper compensation mechanisms, only households planning to go off-grid or those concerned about grid reliability are likely to adopt hybrid RTS based on economics. Imposing a storage mandate without appropriate compensation risks slowing RTS adoption rather than accelerating it.

 

India’s residential RTS sector is at a crucial growth stage. While concerns about grid stability and excess solar injection are valid, enforcing storage requirements without a clear  technical and financial framework could deter buyers and significantly hamper RTS installations. The next logical step is to establish well-defined policies that address both technical integration and financial feasibility, enabling RTS and storage to synergise and scale sustainably.

 

The authors are, respectively,  fellow and senior fellow at the Centre for Social and Economic Progress Research Foundation. The views are personal