PM Modi’s Solar Rooftops Scheme: Big Opportunity And Steep Hurdles For Energy Start-Ups

In her shortest budget speech, this year, Finance Minister Nirmala Sitharaman announced 300 units of free electricity to one crore households using solar rooftops under the Pradhanmantri Suryoday Yojana' announced by Prime Minister Narendra Modi on January 22. For 2024-25, FM Sitharaman budgeted an outlay of Rs 10,000 crore for solar power, more than double the revised estimates for 2023-24. 

While industry watchers praised the move, and some called it “a watershed moment” in India’s journey towards energy independence, they also flagged various bottlenecks ranging from poor consumer awareness to a lack of financing options and complicated permits.   

“The announcement comes as a watershed moment. Solar rooftops make good economic sense since they come with a 20-40 per cent return on investment after the upfront investment made by the consumer,” Shreya Mishra, co-founder of SolarSquare Energy, a solar rooftop solution provider.   

Since India cannot put large solar plants in one place, the best way forward to meet India’s solar energy needs is to install solar rooftops, Mishra added.  

Big Opportunity Ahead  

Equity research firm Elara Securities pegged the market size for solar panels, based on the current announcement, to be 10GW, at a total investment of Rs 55,400 crore.  

“Upon full execution, PMSY has the potential to generate surplus income for rural households after the investment pay-back period is over, through the sale of surplus power to the grid. For a 3kw installation, we estimate an income rise of 6.7 per cent of the monthly average rural income, if the household does not use air conditioning units and doesn’t get any free power presently,” Elara said in its note.  

Currently, India has only about five lakh homes with solar rooftops, which shows the tremendous opportunity that lies ahead if the country were to move towards its net-zero carbon emissions goal.    

“Accelerating the adoption of rooftop solar is crucial to decarbonise the economy and help India achieve its net zero goal by 2070,” Lalit Bohra IRTS, Joint Secretary, Ministry of New and Renewable Energy (MNRE), had said in a November 2023 report by the Council on Energy, Environment and Water (CEEW).  

Challenges Aplenty For Start-Ups  

While Indian clean energy startups could play a pivotal role in providing unique solutions to address this humongous demand for solar rooftops, there are challenges aplenty ahead of them.   

The manufacturing needs to scale up in a big way and startups need to provide high-quality installation service, if consumers were to transition towards solar rooftops. “In high-ticket purchases like these, the trust bar is very high in the minds of Indian consumers. Since solar rooftops have a long life cycle, high-quality service throughout its life is a must,” said Mishra.  

Complicated permits and policy uncertainty around solar energy are slowing the adoption of solar rooftops, said experts.  

“Frequent changes in the policies and guidelines towards the implementation of rooftop solar on the ground, including lack of clarity on the mode of implementation and availability of Standard Operating Procedure (SoP) could bring uncertainty among the System Integrators and Consumers,” said Somesh Kumar, Partner and Leader – Power and Utilities, EY India.  

The government’s existing rooftop solar scheme—National Portal for Rooftop Solar (solarrooftop.gov.in), which PM Modi launched in July 2022, “is lacklustre”, Kumar said. While the portal makes it easier for residential consumers to apply for and install rooftop solar systems, only 56,733 have benefited from the scheme with little progress.  

So far, the lack of viable financing models and low subsidies have been hurting adoption by residential consumers, who need to invest a big sum upfront cost in installing it.  

Startups need to enable consumers with easy access to financing, said SolarSquare’s Mishra. Others pointed out how regulatory roadblocks could be the cause of a lack of financing options.  

“The country has a lack of adequate easy financing options for solar projects. Investors or banks may consider these projects elevated risk due to policy/regulatory instability, which also leads towards higher interest rates and makes projects non-economically viable for end consumers,” said Kumar.  

Last week, RK Singh, the Minister for New and Renewable Energy told the media that the central government has increased the subsidy for solar rooftops to 60 per cent from 40 per cent in a bid to push adoption and bring down the upfront cost of adoption. He added that the remaining 40 per cent of financing will be done through a loan facilitated by Public Sector Undertakings (PSUs). The ownership and the benefit of the excess energy produced by the rooftops will be transferred to the owners after the 10-year repayment tenure of the loan is completed.  

Besides the above challenges, consumer awareness while adopting new technology is usually low and needs patient efforts from various stakeholders in the sector. Low outreach on the ground can deter consumer interest and delay the adoption of technologies that do not have enough proven use cases.  

“It is advised that policy should have a dedicated budgetary provision for the consumer awareness and demand aggregation through various modes of activities in consultation with State Implementing Agencies (SIAs),” Kumar said.  

Start-ups also need to come together to bring mass awareness about the need for solar, the attractive returns and benefits it could offer, and the availability of various financing options. They should also engage with the local communities, households, and the public to educate them about the benefits and dispel myths and misconceptions.