HNI interest in solar rooftops wanes

Reduction in tax benefits, increase in competition driving away interest

Few years back, solar rooftops were emerging as an attractive option for high networth individuals (HNIs). However, the interest may be now fading as HNIs are making way for bigger players to dominate the segment.

Industry players point out one reason for this — the tax benefit on accelerated depreciation is no longer attractive.

“There was a lot more interest from HNIs, but it is waning now,” said Nishant Agarwal, head of products, investment advisory and family office, ASK Wealth Advisors.

Solar plant installations saw 100 per cent accelerated depreciation in the first year.

"This had gathered eyeballs in the HNI community, which saw solar power plants as a 'financial' product," said Nikunj Ghodawat, head, finance, CleanMax Solar.

Under accelerated depreciation, those putting up a rooftop solar panel can take up to 80 per cent of their cost as depreciation. Greater deductions are allowed in the first few years.

This reduces their taxable income, especially during the first year. However, the scenario is changing now.

“The accelerated depreciation was recently reduced to 60 per cent. Further, the 10-year tax holiday on the sale of solar power, earlier available under section 80-IA of the Income Tax Act, has been withdrawn from FY18,” Ghodawat explained.

Not just tax benefits, HNIs are also facing issues at the execution and maintenance level. "It is difficult to execute. Interest is going down as are unable to find a credible partner to manage these assets," Agarwal added.

The growing competition is not an attractive option for the HNI community, unlike the other major players.

"Five years back, when the industry was starting out, there were smaller investments in 5-10 Mw projects. That space is now crowded with people who have access to low cost of capital and therefore make better returns. The same story is being repeated in the solar rooftop space," said a solar energy consultant.

Others said the payback period for industrial and commercial rooftops continues to remain longer, acting as a deterrent for HNIs.

Further, such projects are likely to provide higher margins when looked as a platform model and not a standalone asset, consultants added.

However, firms such as CleanMax Solar and Tata Cleantech Capital are optimistic.

“HNIs are likely to dominate the residential segment where the size is smaller vis-à-vis industrial and commercial segments," said Manish Chourasia , managing director, Tata Cleantech Capital.

"While the benefits for solar power as a financial product have reduced, the interest among HNIs still remains. This is due to the low risk profile of solar as

"Five years back, when the industry was starting out, there were smaller investments in 5-10 Mw projects. That space is now crowded with people who have access to low cost of capital and therefore make better returns. The same story is being repeated in the solar rooftop space"

an asset class, long tenor, and high yield nature of investment, which HNI investors find very attractive. Also, the reduction in module prices and higher efficiency of solar cells has helped to off-set the reduction of tax benefits," added Ghodawat.

Other policies such as the net-metering policy are expected to boost such projects.

Chouraisa said, “Growth in rooftop projects is primarily driven by commercial and industrial consumers in states such as Delhi, Maharashtra, West Bengal, among others, wherein the electricity distribution companies tariffs are very high.”