Explained: The Fine-Print In Modi Govt’s Rooftop Solar/Free Electricity Scheme

The scheme could be the leg-up the residential rooftop solar industry has needed for years. But with poor awareness, issues of import reliance, net metering and the apathy of discoms, the challenges before the sector could affect the success of the scheme, which has been introduced ahead of the upcoming general elections.

After announcing the Pradhanmantri Suryodaya Yojana with the 10 million target on January 22, Prime Minister Narendra Modi announced the Surya Ghar: Muft Bijli Yojana just three weeks later. The latter promises up to 300 units of free electricity per month for consumers who install rooftop solar. As per the new scheme, houses with solar plants up to 3 KW will now get up to Rs 78,000 subsidy as compared to the Rs 43,764 of the earlier scheme. The scheme’s target group is low- and middle-income households.

The subsidy for group housing societies or residents’ welfare associations, which used to be Rs 7,294 per KW for a maximum capacity of 500 KW, has been changed to include common areas and electric vehicle charging stations at Rs 18,000 per KW up to 500 KW. The subsidy for households that require more than 10 KW units was fixed at Rs 94,822 earlier, but has been reduced wherein units larger than 3 KW have a cap of Rs 78,000.

While there is no deadline for achieving the 10 million mark, the government already has a 40 GW target for rooftop solar for 2026, and to meet it will mean addressing the various challenges. States that are lagging behind in uptake of rooftop solar also need impetus to improve their policies and increase awareness.

“Between 2014 and 2024, rooftop solar’s progress has been 11 GW,” said Binit Das, deputy programme manager at the Delhi-based Centre for Science and Environment. “The number of households that have solar is less than 10 lakh [1 million]. Even with the ‘free electricity’ tag, is it possible we will get to 1 crore [10 million] households? There is a 2026 target but I find this difficult even in the next five years.”

IndiaSpend wrote to the Ministry of New and Renewable Energy (MNRE) for comments on the concerns around rooftop solar. We will update this story when we receive a response.

Sunshine sector

India ranks fifth in the world in solar power installed capacity. It has pledged to have 50% of its cumulative electricity installed capacity from non-fossil fuels by the year 2030. Currently, this stands at 42.2%. While solar dominates the non-fossil fuel group with 17%, India is still far behind its target of 100 GW electricity through solar power by 2026, including 40 GW through rooftop solar. It has installed only around 11 GW rooftop solar so far.

India is trying to position itself as a global leader with initiatives such as the International Solar Alliance that has 94 countries as members by now. Under India’s G20 presidency last year, global leaders had agreed to triple their renewables capacity. Even at COP28, countries agreed on the same and pledged to transition away from fossil fuels. As per India’s own climate pledges, it is supposed to achieve carbon neutrality by the year 2070 and renewable energy is an essential step towards that.

If all suitable rooftops are entirely covered with solar panels, India has a potential of 637 GW solar power. But based on demand, technical factors, consumers’ willingness to pay and the payback period of around five years, this had reduced to only 11 GW so far, research shows.

To improve uptake, and with the approaching Lok Sabha elections in mind, the new rooftop solar and free electricity scheme was announced by PM Modi on social media platform X on February 13, pegged at Rs 75,000 crore. If successful, the bid to solarise 10 million rooftops might lead to a capacity addition of around 30 GW and result in the reduction of 720 million tonnes of CO2 equivalent emissions over the 25-year lifetime of rooftop systems. The government estimates that the scheme will create around 1.7 million direct jobs in manufacturing, logistics, supply chain, sales, installation, operation, maintenance and other services.

As part of the new scheme, the national portal has been renamed to Surya Ghar Muft Bijli scheme. People can still make online applications for rooftop solar. If they receive technical approval from a government body such as a power distribution company (discom), people can select a vendor in their area and have a solar plant (unit) installed. Once a ‘net meter’ is installed (which tracks generation and consumption) and commissioning certificate issued, the consumer can apply for a subsidy from the government which is supposed to come into their bank account within 30 days. The new part of the scheme is the rejigged and substantially hiked subsidy structure mentioned earlier.

Neeraj Bajpai of the Renewable Energy Development Association of Uttar Pradesh is not convinced.

“Ye sab shabdon ka khel hai (This is a jugglery of words),” said Bajpai. “There is a lot of confusion. We are getting 20 calls a day from people enquiring about free electricity. We have to then explain to them that it is the subsidy on the solar plant and not a direct reduction in power tariffs. The free electricity is basically the outcome of the heavily subsidised rooftop solar units. If people opt for it, that itself will lead to savings. There is no separate gain. The subsidy is the gain,” explained Bajpai.

How has the government calculated savings of 300 units? Aman Verma, Founder and Director of the Rajasthan-based Power XP Consultants Pvt. Ltd., shared a rough estimate as follows:

A low- or middle-income household of four people has an average consumption of 375 units per month (this can be higher in summers, lower in winters). A 3 KW unit is needed to generate that much electricity, which is worth around Rs 3,000. Therefore the cost of power can come down to zero by installing rooftop solar, and consumers can sell any surplus power to the government as well. Industry observers believe that this broad calculation was used when finance minister Nirmala Sitharaman said that the scheme could lead to savings between Rs 15,000-18,000.

“Rs 18,000 is still a conservative estimate. If we consider power worth Rs 3,000 per month, then the Rs 72,000 invested by the consumer either by themselves or through a loan can be recovered within two years,” said Verma. He was speaking in the context of a 3 KW solar plant costing around Rs 1.5 lakh. After availing a subsidy of Rs 78,000, people can opt for self-financing or collateral-free low-interest loan products at around 7% interest rate for the remaining Rs 72,000.

“The solar plants now come with a lifespan of up to 28 years. So, the initial investment will continue to benefit them for those many years,” Verma said. “But it must be noted that the bill is never zero. You still have to pay the discom their fixed charges of about Rs 200-350 for using the government’s infrastructure.”

Vocal for local

As demand for rooftop solar picks up, does India have enough solar cells, modules and all the related equipment to cater to it? As on date, India is capable of manufacturing around 50 GW worth of modules and around 6 GW worth of solar cells (for the entire solar industry).

“The country has achieved self-sufficiency in the production of solar modules / panels but is yet to achieve substantial capacity in production of solar cells,” MNRE Minister Raj Kumar Singh told Parliament in February 2023. “Around $11,171 million of solar cells and modules have been imported into the country in the last five years, which is around 0.4% of India’s total merchandise imports.”

A 2023 report by the Institute for Energy Economics and Financial Analysis (IEEFA) had underlined that India’s biggest challenge is an overreliance on imports, particularly for components of solar plants such as polysilicon, ingots/wafers, ancillaries, and photovoltaic machinery.

“China itself is augmenting its capabilities multi-fold in polysilicon and wafer manufacturing,” the report said. “Indian companies will find it hard to maintain cost competitiveness... Indian companies also continue to face a shortage of skilled manpower to handle advanced machinery for cells and other upstream components.”

As per India’s Domestic Content Requirements (DCR) rules, the subsidy for rooftop solar is applicable only when vendors install modules and cells made in India. This was part of the Indian government’s larger push to become self-reliant, give a boost to domestic manufacturing and reduce the aforementioned over-reliance on imports. However, the modules and cells made in India are costlier by Rs 7 to 8 per watt.

“To avail the subsidy, you end up spending more on DCR modules and cells that are costlier,” Bajpai said. “This is like a monopoly. In the olden days, this difference was miniscule but now the difference [between imported and domestic equipment] is Rs 7 per watt. Besides, India has a GST [goods and services tax] of 14% to 18% on solar equipment. This is a way to benefit big manufacturers.”

Vibhuti Garg, Director, South Asia of IEEFA agreed that Indian modules are expensive compared to Chinese modules currently as in that country, factories receive land and electricity at zero cost.

“Actually, in China there are so many subsidies, it will be difficult for India to bring the cost down as low as theirs,” Garg pointed out. “Indian modules are expensive for now, but with large scale deployment, cost could go down.”

The burning questions

Consumer awareness of solar is still less than 50% at the national level. Awareness in most Indian states is clustered between 30-50%, with only three states reporting awareness levels above 60%. Even among people who are aware of the benefits of solar energy, only a small fraction has actually opted for it.

When the Indian government extended the deadline for its earlier rooftop solar scheme from 2022 to 2026, it had itself listed the following reasons for poor uptake, apart from lack of awareness and the pandemic: apprehension of possible revenue loss to discoms, delay in approvals and installation of net/gross meters by discoms and lack of uniform regulations.

Discoms have been known to be apprehensive and lethargic about rooftop solar as that means losing their consumers relying on grid power. But Neeraj Kuldeep, senior programme lead at Delhi-based Council on Energy, Environment and Water (CEEW), explained that in fact, discoms stand to gain in the long run in this case.

“If I consume 100 units, I pay Rs 3 per unit but if I consume 400 units, I pay Rs 7 per unit which is closer to the actual cost (around Rs 7-8 on average) to procure and supply that power to me. So now the discom is making that loss of Rs 4-5 on every unit [towards consumers with low consumption]. If I start generating my own electricity, I won't be dependent on discoms. So, if you calculate, you can also translate that into how much these savings from the cross subsidy amount would be. According to our estimates, if India achieves 30GW rooftop solar capacity from this scheme, this could be around Rs 2.7 lakh crore over the next 25 years,” said Kuldeep.

But even if discoms are willing, the state of their administration and pace of reforms has always been poor. For example in Uttar Pradesh, despite government schemes and directives, things take years to move.

“Discoms are heavily understaffed here. We have fought a lot to make processes online but it has not happened. Net metering is still a manual process and its progress is very poor. Bills have to be rectified often. There is a lot of paperwork involved, especially in small cities. There is a lot of harassment,” said Bajpai.

Net metering means adjustment of units between import and export of power from and to the grid on a monthly basis. While installing a solar power unit, a net meter also has to be installed or the existing meter reconfigured. Over the years, it was observed that when generation of power is more than consumption, even though that excess power is fed into the grid, the benefit is not passed on to the consumer.

“It is neither carried forward to the next billing cycle nor is the equivalent amount adjusted against other charges from the utility such as fixed charges etc.,” a recent CSE report had pointed out. Power is a state subject and different states have different net metering policies as well.

The Union and state governments, discoms and industry stakeholders are now faced with the big task of addressing all these problems as India undertakes this ambitious venture of solarisation.

But Kuldeep is optimistic about the scheme and believes that the target is achievable.

“If you look at the current deployment trends, rooftop solar is concentrated in a few states, with Gujarat being the topmost,” said Kuldeep. “You can still meet the target from a handful of states, but if you have to really assess the success of the programme, I would look at it from the perspective of helping other states create a market for rooftop solar. That's where it will deliver on long term, organic growth.”

(Misha Vaid and Hanna Paul, interns with IndiaSpend, contributed to this report)

We welcome feedback. Please write to respond@indiaspend.org. We reserve the right to edit responses for language and grammar.