Distributed solar is set to play a crucial role in achieving renewable energy ambitions, with its rising deployment, both domestically and globally. As per International Energy Agency estimates, in 2022, the annual expansion of distributed photovoltaic (PV) marked a historic high, constituting 48 per cent of the global solar PV capacity additions. Globally, by 2024, the distributed solar segment is projected to achieve a capacity of 140 GW, signifying a growth of over 30 per cent, compared to the levels recorded in 2022. Meanwhile, as on December 31, 2023, India has an installed rooftop solar capacity of 11 GW, with 2.7 GW allocated to the residential sector. In addition, the country has an installed capacity of 2.74 GW under the offgrid solar/Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM) scheme, as per the Ministry of New and Renewable Energy (MNRE).
Recently, India witnessed key developments in the policy and regulatory framework within the distributed solar segment. Renewable Watch provides an overview of these key initiatives and the future outlook for the distributed solar segment…
Key recent developments
Pradhan Mantri Suryodaya Yojana
The Indian prime minister has recently unveiled a new initiative under the Pradhan Mantri Suryodaya Yojana, aiming to deploy rooftop solar systems for 10 million households throughout the country. Under this initiative, in the recent interim budget 2024-25, the finance minister announced that these households will have the opportunity to receive up to 300 units of electricity for free every month. This initiative is expected to lead to annual savings ranging from Rs 15,000 to Rs 18,000. REC Limited has been appointed as the central agency for the initiative. As part of this significant effort to promote green energy, the PSU is set to provide loans amounting to Rs 1.2 trillion for the rooftop solar mission. The board of REC Limited has approved a credit line of around Rs 150 million for central PSUs that will serve as renewable energy service providers for the programme’s execution. Moreover, under the PMSY, the central government is set to increase the subsidy for rooftop solar installations to 60 per cent, signifying an increase from the existing subsidy rate of 40 per cent.
New CFA benchmarks under Phase II of the rooftop solar programme
The MNRE has sanctioned updated benchmarks for central financial assistance (CFA) under Phase II of the rooftop solar programme. The updated CFA offers distinct rates for different segments and is structured according to project capacity and classifications. For 1-3 kW capacity individual household projects, the charges are Rs 18,000 per kW in general states and Rs 20,000 per kW in special category states. Meanwhile, projects in the 3-10 kW range have adjusted rates of Rs 9,000 per kW in general category states and Rs 10,000 per kW in special category states. Moreover, the updated CFA is fixed at Rs 9,000 per kW for general category and Rs 10,000 per kW for special category states for resident welfare associations or group housing societies and common facilities for projects up to 500 kW. In order to ensure adherence to the scheme criteria, the acceptable CFA in tender mode will be either revised benchmark rates or 40 per cent and 20 per cent of the discovered rates for 1-3 kW and 3-10 kW systems respectively, whichever is lower.
Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan
The President of India has granted approval to the MNRE for the execution of this initiative. With a budget of Rs 5.15 billion, this programme is designated for habitations and villages of Particularly Vulnerable Tribal Groups (PVTGs). The objective of the initiative is to provide electricity to 100,000 households belonging to PVTGs in regions where grid-based electricity supply is not considered technologically and economically viable. This will be achieved through the installation of 0.3 kW offgrid solar power systems. Each household will receive financial assistance of either Rs 50,000 or the actual cost of the system, whichever is lower. Additionally, the initiative involves arrangements for solar lighting in 1,500 multi purpose centres located in PVTG areas, where grid-based electricity is not accessible. The government is set to allocate Rs 100,000 per multipurpose centre, with a designated budget of Rs 150 million for this programme. The programme will take effect during fiscal years 2023-24 through 2025-26. The Ministry of Tribal Affairs has identified PVTG areas in Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Odisha, Rajasthan, Tamil Nadu, Telangana, Tripura, Uttar Pradesh, Uttarakhand, West Bengal and Andaman & Nicobar Islands. The programme’s funding will be derived from the MNRE’s development action plan for scheduled Tribes, with disbursements planned over three years – Rs 200 million in 2023-24, Rs 2.55 billion in 2024-25 and Rs 2.4 billion in 2025-26.
Amended guidelines for the implementation of the PM-KUSUM scheme
The MNRE has introduced amended guidelines for the implementation of the PM-KUSUM programme. The goal of Component A is to enable farmers to install 10,000 MW of decentralised ground or stilt-mounted grid-connected solar power plants, or other renewable energy-based power plants, on their land. The renewable power generators (RPGs) will establish these plants, featuring capacities ranging from 500 kW to 2 MW, within a 5 km radius of substations. This placement is intended to reduce transmission costs and losses. Farmers have the option to either install these plants on their land individually or engage in partnerships with groups, cooperatives, panchayats, or other organisations. Under mutually agreed lease terms, the scheme permits farmers to lease their land to discoms, functioning as RPGs. Discoms will evaluate and inform about the renewable generation capacity that can be integrated into substations of rural areas.
Within Component B, individual farmers will receive assistance to install 1.4 million stand alone solar agricultural pumps or replace existing diesel agricultural pumps or irrigation systems in off-grid areas where grid supply is unavailable. Small and marginal farmers, particularly in offgrid regions, will receive financial aid from both the central and state governments, in addition to loans from banks.
Component C focuses on the solarisation of 3.5 million solar power into grid-connected agricultural pumps, providing reliable solar energy to farmers during daytime. This component encompasses both individual pump solarisation and feederlevel solarisation.
Furthermore, throughout the extended duration of the scheme, beyond 2022 and up to March 2026, several modifications have been implemented. The PM-KUSUM scheme was expanded with revised targets of 4,900,000 pumps to be solarised under Components B and C. Several amendments were introduced in order to simplify the policy and thus, promote uptake. For instance, the guidelines were revised to simplify the land aggregation process in Component C.
In addition, the scheme was amended to remove the mandatory state share provision and extend the exemption of the domestic content requirement under Component C till March 31, 2024. Moreover, individual farmers in the north-eastern states, hilly states/union territories (UTs) and island UTs are now eligible for CFA for pump capacity of up to 15 HP, a significant increase from the previous 7.5 HP. Additionally, each farmer involved in cluster or community irrigation projects in high-water-table areas across all states/UTs is eligible for this assistance. The necessity for performance bank guarantees in Component A and Component C (feeder-level solarisation) has been eased. In addition, the introduction of distributed renewable energy in the renewable purchase obligation trajectory reflects the government’s commitment to further promote the segment.
The way forward
A report by the Council on Energy, Environment, and Water indicates that more than 250 million households throughout India could potentially utilise 637 GW of solar energy capacity on their rooftops. Additionally, the report highlights that harnessing just one-third of this overall solar technical potential would be sufficient to meet the entire electricity demand of the country’s residential sector, amounting to approximately 310 TWh.
However, there are several challenges and issues that must be addressed for the country to promote distributed solar uptake. Instead of capitalising on distributed solar’s advantages, India’s discoms often resist its implementation. Some discoms see a threat to their current business model from the growing adoption of distributed solar.
Concerns among discoms include an increasing uptake of distributed solar by commercial and industrial users, which could have a detrimental effect on their earnings. Furthermore, among residential consumers, the initial embracers have predominantly been those with higher incomes, rather than households in rural and semi-urban areas. Despite the potential in rural and semi-urban regions, there is considerable resistance to transitioning to rooftop solar, primarily due to factors such as limited awareness, high initial expenses, insufficient financing options and lower financial capacities.
Nevertheless, increasing the share of decentralised solar offers numerous benefits. It reduces expenses associated with constructing numerous interregional transmission lines, ensures energy availability in close proximity to consumption points, thereby saving on transmission and distribution losses. Additionally, smaller installations such as rooftop systems address the challenge of land availability for large solar parks. Furthermore, the distribution network benefits from increased reliability due to reduced peak loads, enhanced resilience and back up power.
India’s ambitious renewable energy targets necessitate a rise in distributed renewable energy projects. With the establishment of a more favourable regulatory and policy framework, these projects, despite their smaller scale, exhibit greater potential for scalability. Moreover, they circumvent the prolonged lead times and execution challenges commonly associated with public sector procurement projects. However, despite the considerable scalability potential of distributed solar, India did not meet the goal of installing 40 GW of rooftop solar capacity by 2022. The revised target for achieving the 40 GW rooftop solar capacity is now set for 2026. Likewise, the PM-KUSUM initiative has faced challenges on multiple fronts and the scheme now aims to add a solar capacity of approximately 34,800 MW by March 2026, replacing the earlier target of 30,800 MW for by 2022.
Going forward, unlocking the complete potential of distributed solar energy in India will require the creation of innovative business models such as the community solar model. This approach can effectively address market obstacles in providing solar solutions to residential households in rural and semi-urban areas, tackling issues such as limited awareness, financial accessibility and insufficient roof space. This model will also address discoms’ worries regarding revenue decline, while promoting the rapid deployment of distributed solar energy. Favourable financing mechanisms will be crucial for advancing further in this direction.
Despite the fact that India missed its planned target for 2022 in the distributed solar space, the recent positive developments are encouraging and are expected to give much-needed fillip to the segment.
By Sakshi Bansal
