UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.
New Energy World magazine logo
New Energy World magazine logo
ISSN 2753-7757 (Online)

The evolution of rooftop solar energy in India


10 min read

Solar panels on rooftop of house Photo: Adobe Stock/Grower
A new Indian government initiative aims to support installation of small-scale solar power on residential rooftops

Photo: Adobe Stock/Grower

Oxford Energy Senior Research Fellow Mohua Mukherjee explains where rooftop solar (RTS) fits in today’s energy sector in India. Why are RTS projects lagging far behind utility-scale solar projects in the country? What is being done by the government to increase the pace of RTS installations and why might it succeed?

The Indian economy is growing at one of the fastest rates in the world, around 7% per year. Growth, combined with unprecedented heat waves and longer spells of hot weather, has pushed up the demand for electricity to all-time highs, sometimes with month-on-month increases of 10%. India’s target is to have 500 GW of installed renewable energy capacity by 2030, of which 230 GW will be solar. However, doing this with ground-mounted projects would mean utilising 75,000 km2 of India’s land mass for solar generation.


About 81% of India’s current solar capacity is already ground mounted. Disputes over land use are slowly increasing. Therefore, it is imperative to boost India’s grid-connected rooftop solar (RTS) capacity so that ambitious solar targets can be achieved smoothly.


In February 2024, the Indian government announced a $9bn plan, called Surya Ghar Yojana (SGY), to accelerate the installation of RTS on 10 million residential rooftops of low- and middle-income households. This would also mainstream the clean energy transition by expanding clean energy access to new segments of the population.


India (unlike more capital-constrained developing countries that are awaiting climate finance flows) is using its public and private domestic funds for a $44bn total annual renewable energy investment effort. It is the only developing country trying to tackle the RTS sector at scale today. However, despite these efforts, the conundrum is that RTS is growing very slowly relative to other renewables.


The majority of India’s solar installed capacity is in the form of very large utility-scale projects, located in some of the largest solar parks in the world. Surprisingly, only 11.3 GW (or 13%) of the total 84.2 GW of solar capacity consists of RTS, despite the government having set a target of 40 GW of RTS by 2026. The remaining 73 GW or so are all large-scale ground-mounted solar projects. RTS is a rare area in India’s solar sector where progress is behind schedule, despite its numerous advantages in a densely populated country. RTS’ principal advantage is that it is not land intensive.


It is imperative to boost India’s grid-connected rooftop solar capacity so that ambitious solar targets can be achieved smoothly.


Three questions 
So, where does RTS fit in today’s energy sector in India? Why are RTS projects lagging far behind utility-scale solar projects in the country? And what is being done by the government to increase the pace of RTS installations, and why might it succeed?


First, here is some context on the recent evolution of India’s overall energy sector, in terms of total installed generation capacity:


table showing India’s energy mix in terms of installed capacityTable 1: India’s energy mix in terms of installed capacity on 31.3.2024
Source: Author’s compilation based on official data from India’s Central Electricity Authority


Thermal energy (mainly coal) used to account for nearly three-quarters of India’s installed capacity as recently as 2017–2018. It has rapidly declined to 54% as a share of the total in the last 6–7 years. Investment in renewable energy has progressed rapidly during the same period.  


Table showing the composition of India’s installed renewable energy capacity

Table 2: The composition of India’s installed renewable energy capacity on 31.3.2024
Source: Author’s compilation based on official data from India’s Central Electricity Authority


Solar energy is clearly the dominant source of renewable generation in India, and today it stands at almost double the installed capacity of wind energy. RTS is only 11% of solar capacity.


Grid infrastructure  
Secondly, why are RTS projects lagging in India?


Looking at the broader electricity sector, grid-connected RTS is inseparable from the distribution utility. Utilities own and operate the grid and must give permission to connect a privately-owned RTS installation. The utilities have four groups of customers: commercial and industrial (C&I), residential, agricultural and institutional.


India’s first wave of RTS installations, from 2017–2020, were initiated by C&I electricity customers, who pay the highest grid tariffs, and cross-subsidises residential and agricultural consumption. Paying the highest tariffs mean that the C&I segment enjoys the highest electricity bill savings, from cutting back its grid electricity purchases and switching to RTS.


As commercial lenders were not willing to provide financing, the Indian government took large sovereign loans from the World Bank and the Asian Development Bank, and ‘seeded’ the RTS market with the initial round of affordably-financed RTS installations in 2017–2018.


The strong and creditworthy C&I segment was the first mover for RTS. This market saw the rapid emergence of innovative business models, including demand aggregation, third-party ownership and ‘solar-as-a-service’. Such experimentation helped the RTS market to grow from zero in 2017 to about 7 GW by 2022. A thriving, competitive Indian RTS supply chain ecosystem of vendors, installers, system design consultants, commercial lenders etc was built on the back of the early C&I demand for RTS.


However, by 2019 it became apparent to the government that very few residential consumers were willing or able to invest in RTS. Mostly, this heavily subsidised segment was content to stay with the grid, as RTS would have been more expensive. Only unsubsidised, large residential consumers with high bills expressed interest in RTS, but found it hard to obtain financing.


After two initial years of RTS experience, utilities complained to their owners (state governments) and to regulators about the surge of RTS applications from C&I who were fleeing the grid in search of cheaper solutions. Utilities deliberately delayed providing the required RTS approvals. They lamented losing their best C&I clients, whose tariffs were supposed to cover the costs of serving the other subsidised and non-revenue categories. Utilities complained that RTS was worsening their financial distress, and they would need larger operating subsidies.


Two things happened in 2019 as a result of utility company complaints. First, generous RTS incentives such as net metering were removed for C&I customers. Feed-in tariffs for the sale of surplus RTS generation to the grid were lowered sharply, under a new ‘net billing’ system. RTS customers now had to pay a fixed ‘network maintenance charge’ to remain connected to the utility, even if they purchased little or nothing from the grid. Second, the government also introduced financial incentives for utilities to receive payment to cooperate with RTS installations. However, RTS installations were halted six months later by the pandemic. Therefore, the impact of the new incentives was unclear.


Latest developments 
So, what is the government doing now?


Latest developments include the announcement in February 2024 of a $9bn subsidy package under the SGY scheme to support RTS for 10 million low- and middle-income households. SGY targets small electricity users, with a subsidy of 60% of the upfront cost for up to 3 kW systems, which must consist of domestically-manufactured components.


Applications for SGY subsidies are coordinated online through a web-based portal. Once a residential consumer proves that their eligible RTS system is installed and commissioned, they receive the SGY subsidy/rebate in their account within 30 days. The surge of applications in the first few weeks of SGY (far above 10 million) caused teething problems and delays in processing applications. These are currently being addressed.


Will the new SGY subsidy package work? Why should utilities help to make a success of SGY when they have scuppered earlier RTS initiatives?


The central government is now giving subsidies through SGY to a group of customers that create losses for the utilities. If RTS can help curtail these customers’ dependence on utilities, the government hopes it will reduce the utilities’ financial losses. This will also result in reducing the need for operating subsidies to utilities, and free up resources for other UN Sustainable Development Goals (SDGs).


How? Low income-low revenue (LILR) residential customers are a loss-making group for state utilities in India. They pay little or nothing for their first 200 or 250 units (kWh) of electricity consumption per month. Yet there is a large cost to the utility of delivering these units of free or nearly-free electricity to the subsidised LILR group.


The utility must pay the thermal power plant to purchase the bulk electricity for LILR customers, and then pay to transmit it over long distances. It must also absorb the cost of transmission and distribution losses by buying more than will be ultimately delivered.


Utilities cannot collect sufficient revenues from subsidised LILR consumers. They wait for a year to receive an operating subsidy from the state government to cover resultant losses. Meanwhile, there are operating expenditures to be paid; critical maintenance is deferred; and network expansion and upgrading is postponed due to cash constraints, despite rapid demand growth.


Rooftop solar for LILR customers could absolve the utility from having to purchase expensive thermal power to supply this customer segment. There is an alignment of interests, creating clear cut benefits for the utility if SGY succeeds. The government is placing a $9bn bet on helping small residential consumers to switch to RTS, and announced that they will obtain 300 units a month of ‘free, clean electricity’.


The initial positive response from LILR consumers is overwhelming. The SGY scheme’s performance, and the degree to which it succeeds, will be keenly tracked over the coming years. The final question is: Can SGY improve the utilities’ financial position, while also contributing to a reduction in demand for thermal power in India? Wait and see.


India’s solar sector as a whole has grown by 46.5%/y over the past decade, according to the Energy Institute’s latest Statistical Review of World Energy. This free annual report is the fullest, most reliable account of global energy production, consumption, trade and emissions, by country and region.


  • Further reading: ‘What does India require to achieve net zero?’ India has the world’s second largest population and one of the fastest growing economies. It is currently heavily reliant on coal for its energy needs but has pledged to achieve net zero emissions by 2070. Soumya Singhal, Associate and Coordinator for Research and Partnerships at SPRF India, reports on how this could be achieved.
  • The development of solar energy in India has been far from straightforward, with problems around power lines and the export selling price hindering market expansion.