Coal-dependent India is advancing an ambitious plan to boost adoption of rooftop solar to power homes. A generous new subsidy program, coupled with improving off-grid solar technologies, is generating consumer-led momentum for a shift to cheaper, cleaner and reliable renewable energy.
Through Surya Ghar Muft Bijli Yojana — literally the “Solar Home Free Electricity Program” — the government is planning to invest 750 billion rupees, or $9 billion, to facilitate rooftop solar for 10 million households. The program, launched in February, promises a subsidy for rooftop solar systems of up to three kilowatts, which is enough to power basic appliances in a small, middle-class home.
By targeting middle and lower-middle class homeowners, “this will now become a people led-energy transition,” says Neeraj Kuldeep of the Council on Energy, Environment and Water, or CEEW, a policy research institute in Delhi. “It will be the middle class championing it.”
Stirring the energy mix
Coal is the main source of India’s energy, accounting for half of total installed power capacity of 446 GW as of June, according to the India Climate and Energy dashboard. Solar energy made up only 19% of the installed capacity. Within that, rooftop solar is a small fraction, but its potential is large.
Surya Ghar is part of India’s plan to increase its renewable energy production to 500 gigawatts by 2030, up from around 195 gigawatts today. Its household-focused approach is similar to the generous subsidies and tax advantages for catalyzing green home upgrades in the US under the Inflation Reduction Act.
There are about 250 million homes in India that could be suitable for rooftop solar. They could generate a combined 637 gigawatts of solar energy, estimates CEEW. If even one-third of this rooftop solar potential is captured, it could support the entire electricity demand of India’s residential sector.
“The scheme has generated remarkable response” with 1.4 million applications since its launch, India’s Finance Minister Nirmala Sitharaman said recently.
Kuldeep expects most of the interest and adoption to come from households in smaller towns, where people have independent houses with roofs, as opposed to the large metro areas where people are living in high-rise buildings that don’t have large enough roofs to generate the amount of electricity they use.
Positive reinforcement
India has tried in the past to promote rooftop solar, but those efforts didn’t meet targets. In 2015, Prime Minister Narendra Modi’s government had set a goal of generating 100 gigawatts of solar power, of which 40 gigawatts would be from rooftop solar, by 2022. As of June, however, grid-connected rooftop solar amounted to only 13 gigawatts.
Over the last decade however, significant progress has been made building solar infrastructure, aligning electricity distribution companies with the goal of increasing solar capacity and adoption, and making solar a priority for all state governments. Market observers are hopeful the new government program will help reach, and possibly exceed, those targets.
Freyr Energy Services, a rooftop solar company in Hyderabad, has seen its solar installations grow from 100 installations in all of 2021 to 100 every five to 10 days this year, says Saurabh Marda, the company’s co-founder.
One key reason why industry experts expect greater adoption of rooftop solar is a heightened awareness among homeowners about how solar can lower electricity bills.
“People have become more comfortable towards thinking of solar as an investment that they want to make,” says Manish Advani of Elevation Capital, an early stage, India-focused venture fund.
Elevation invested in solar rooftop startup SolarSquare Energy in 2022 with a thesis that residential solar in India was at the cusp of going big. In research of solar markets globally, Elevation found that residential solar typically picks up after commercial and industrial solar, but when it does, it grows as large as utility and commercial-scale solar.
It backed SolarSquare because of its alignment with Elevation’s vision of how to build a residential solar business, says Advani. “We believe that in the next five to seven years, [this could be a business] that IPOs and eventually becomes one of the flag bearers of climate tech in India.”
Like Freyr, SolarSquare is seeing results from the government’s effort to push rooftop solar. “[Their] marketing costs have remained the same, but the business has tripled in the last six months,” notes Advani.
Solar financing
One aspect of rooftop solar that needs more resources is consumer financing to help homeowners cover installation costs. There have been a number of recent deals to unlock lending capital to speed home solar adoption.
Non-banking finance company Metafin, which provides rooftop solar loans, in February raised $5 million from Prime Venture Partners and Varanium Capital. In April, LeapFrog Investments and Aavishkaar Capital invested $48 million in Pune-based Electronica Finance, which provides rooftop solar loans to micro and small businesses, along with other types of credit.
“We need much more,” says Vibhuti Garg of Institute for Energy Economics and Financial Analysis, a think tank. Garg says blended finance and tools like first-loss guarantees are needed to engage private investors.
To achieve the government’s target of 10 million solar-powered homes will require a $40 billion investment — more than three times the government’s current allocation for the program, observes Freyr’s Marda.
With household energy demands growing by 10% to 15% each year, the next phase of residential renewable energy could require up to $200 billion, he adds. “It’s a multi-decade opportunity.”
