Why Nithin Kamath-funded SundayGrids shouldn't be seen as an investment

The concept is simple: For those living in apartments without enough space to install solar panels, SundayGrids helps you buy solar panels that are put up elsewhere. The electricity generated by these offsite panels is credited against your electricity bill.

It's a novel solution that makes users feel like they have solar installed at their place even if they don't. What's more, they don't have to invest the entire capital, just the amount they can afford. The platform will inform about the approximate credit users will get each month to offset it against their bill. It's like owning a fraction of a large solar power system.

It's a win-win for climate enthusiasts who want to go solar but lack the space and for industries that want to go solar but don't have the necessary capital.

But there is a catch. When one opens the SundayGrids website, a clause stated at the outset catches your attention– 'offsets at tax-free 11.5% XIRR'.

XIRR, or external, internal rate of return, is a metric used to calculate the return on investment. It also has a 'tax-free' prefix that would imply that there's no tax to be paid on the 11.5% return you get. This could give prospective customers the impression that it's an alternative investment option. But it's not.

The 11.5% XIRR figure is what customers can expect to save on their power bills annually, said Matthew Samuel, co-founder, SundayGrids.

"The monthly credit that a customer gets is pegged to the project based on a few parameters, such as cost of power in that location, the structure on which the system is set up, net metering and so on and so forth. These parameters determine the cost of the project and the corresponding tariff," Samuel added.

"Also, the tenure of the project too plays a role. A customer most likely will not understand these complexities, so we have worked out the calculation in such a way that across all projects, irrespective of how much money you put, you will get about 11.5% XIRR on your power bill savings annually," he explained.

SundayGrids is funded by Zerodha's non-profit fund Rainmatter.

Where does your money go?

SundayGrids lists commercial projects on its website for customers to choose from. Each listing details the project's capacity and the per-unit savings it offers. The website also has a calculator that customers can use to determine how much lump sum money they need to put in to receive the monthly credits they want to set off their power bills.

Customer funds go primarily to the solar project developer, with a portion kept as a security deposit and fees. "We keep a portion of the capital as security deposit and our fee, while the remaining goes to the developer that they can use for business cash flow," said Matthew.

The lumpsum that you deposit includes 18% GST and 1% payment gateway fee, which is calculated on the gross value inclusive of GST. When you exit, the amount refunded is net of the 18% GST and 1% fee.

The tenure of each project is 15 years basis which the monthly credit is decided. However, customers are free to exit whenever they want at no extra cost and get a full refund.

Once the deal is done, credit is deposited on your account on the SundayGrids platform each month. You can link your power bill to your SundayGrids account and use the credits to offset it each month. The remaining power bill can be paid through the same platform using other payment methods.

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Not an investment

Yash Roongta, founder, ALT Investor, a community for alternative investments, said while the idea behind Sundaygrids is novel, it should not be confused as an alternative investment option.

For one, customers sign a service agreement with the company when buying the solar panels, not an investment agreement. "Essentially, you are purchasing a service where SundayGrids will maintain the solar panels for you and provide you with credits for the electricity they generate," Roongta said.

This also raises questions about the structure of the investment vehicle through which the money flows from the customer to the developer. Since it's not an investment agreement, the money collected from customers is not parked in an escrow account or a special purpose vehicle, and it is unclear how the money will be recovered if things go wrong.

Credits given for the electricity generated by the panels you've reserved can only be used to offset power bills. "You can't convert the credits into real money and send it back to your bank account. The service agreement also states that your unused credits expire at the end of the tenure (15 years). To utilise the credits you have to pay your electricity bills or EV charging bills via their portal itself," Roongta explained.

Also, since the credits can only be used to pay the already generated bill, you don't get the benefit of differential slab pricing. "The credit can't be set off within the electric bill you get from your energy provider."

These factors should be considered by customers who are thinking of getting into this option primarily for monetary benefit.

"Over the past year of running the largest community of alternative investors, I have seen investors repeatedly make decisions based on social cues, high returns, and tax-free returns, often without paying attention to the terms, conditions, or risks involved. This has led to widespread losses of capital on platforms like Growpital, WazirX, etc," Roongta said.

"Perhaps Nithin did not intend to popularize SundayGrids as an investment product, but given his domain, any post he makes is likely to be viewed from an investment perspective. As a result of that post, SundayGrids was able to sell off a large solar project within a day," he said.

The project Roongta is referring to is Soho 195, managed by Greenlit Energy Systems.

There are other factors too that customers should be aware of like ownership of the asset, what happens in the case of bankruptcy and regulatory safeguards.

When the customer reserves a solar panel in a project, they don't become its owners. "They are either owned by the solar developers who are installing them or by SundayGrids. If anyone goes bankrupt, you are considered an operational debtor to the company. It's unclear how the assets will be distributed to the investor in case of bankruptcy. You have no right over the assets you paid for," Roongta explained.

Moreover, this is an unregulated investment option and does not fall under the ambit of the Securities and Exchange Board of India or the Reserve Bank of India. "So you can't take any help from them if things go wrong, " he added.

Also Read: Net-zero tariff policy: Ease solar panel input imports for a rooftop revolution.