By Karan Sharma
At the India Distributed Renewable Energy Summit (IDRES) 2026, organised by the Clean Energy Access Network in February 2026, several stakeholders and financiers shared first-hand accounts of building distributed renewable energy (DRE) projects in India. Out of the many stories shared, the most intriguing example of the financing challenges in the DRE space was of a silk-spinning cooperative in Assam. The cooperative received the solar equipment through a straightforward delivery; however, arranging the financing was an arduous task. Although the initial 10 micro-loans of around Rs 15,000 were easily arranged through a small bank product, when the cooperative sought the next tranche, the bank’s risk appetite had hardened, and it stopped entertaining any loan request with a ticket size of less than Rs 50,000. Eventually, the non-profit organisation that facilitated the deal ended up putting its own board members’ personal guarantees on the loans and negotiated with an Indian peer-to-peer (P2P) lender to design a customised product.
Such stories portray a pattern widely observed across rural India, whether for solar rooftops, solar irrigation or village microgrids. It captures a key trend in India’s DRE space: technical feasibility and household demand do exist, but the shape, size and risk profile of available finance frequently do not.
While commercial capital for utility-scale, developer-led renewable energy projects in India is readily available and competitively priced, financing remains structurally constrained for small, decentralised projects that directly serve households, farmers, micro, small and medium enterprises (MSMEs) and community institutions.
Ground realities of India’s DRE space
The DRE space in India today is dominated by three market segments: residential rooftop solar, decentralised livelihood-linked applications such as solar irrigation pumps, and community or anchor-load minigrids. From a financing as well as a capacity perspective, rooftop solar now represents the single largest and most visible demand driver, particularly due to the PM Surya Ghar: Muft Bijli Yojana (PMSGMBY). As per the Ministry of New and Renewable Energy, 2,085,514 rooftop systems have been installed, covering some 2.61 million households with Rs 147.718 billion of central financial assistance already disbursed as of December 2025.
Before the launch of the PMSGMBY, rooftop solar adoption in India was primarily concentrated among commercial and industrial consumers. Households were deterred by high upfront costs, complex approval processes and limited awareness of both technology and subsidies. The intent of PMSGMBY was to reverse this trend through a standardised national framework that combined uniform capital incentives with simplified procedures. While this approach has succeeded in expanding the application base, execution challenges have diluted its impact at the household level. Only 39.52 per cent of total applications have translated into completed installations as per the PM Surya Ghar portal, accessed on March 6, 2026. Stakeholders have often pointed out that financing, approvals and supply-side constraints are the key reasons for the slow execution.
Financial accessibility, in fact, remains one of the most persistent barriers. This is not only true for rooftop solar, but also for several other segments of DRE. Public sector banks typically offer rooftop solar loans at 7-8 per cent interest, but approval timelines are often slow, documentation requirements are tedious and processing is time-consuming. In contrast, non-banking financial companies (NBFCs) provide faster processing but at higher interest rates of 10-14 per cent. This trade-off often discourages adoption among lower-and middle-income households across the country.
Why finance fails at the last mile
At IDRES 2026, stakeholders identified several challenges at the last mile of DRE financing. First, loan origination and servicing costs for sub-Rs 100,000 tickets are high, with banks often setting minimum ticket thresholds that rule out the smallest productive-use investments. Small finance banks often adopt more conservative policies post-licensing. Second, there is a documentation and collateral mismatch. Smallholders typically lack land titles or steady salary income statements. Third, operations and maintenance (O&M) and supply continuity are often not certain. Many DRE projects reportedly fail after 6-18 months because installers cease to exist. As a result, lenders penalise portfolios without credible local O&M networks. Fourth, commercial lenders generally request standardised, comparable cash-flow evidence and seasonality adjustments.
Strengthening the financing ecosystem
In order to address the various financing concerns in the DRE space, stakeholders are taking several steps. For instance, the Climate Policy Initiative, in August 2025, invited applications for the next phase of the India Clean Energy Finance to support the commercialisation and mobilisation of commercial capital for DRE solutions ranging from agrivoltaics, rooftop solar and sustainable fuel to cooling solutions. It particularly targets unlocking capital for early-stage DRE technologies and places strong emphasis on DRE-focused financial intermediaries and lending platforms.
Additionally, the public green finance stack is expanding. The Small Industries Development Bank of India (SIDBI) secured the approval of a $216 million major concessional facility of Financing Mitigation and Adaptation Projects support from the Green Climate Fund in 2024, for lending to mitigation and adaptation projects in MSMEs and DRE-relevant segments, indicating that blended concessional lines are becoming instrumentally available. These facilities are increasingly being channelled alongside and through private sector participation, by utilising investments from NBFCs, small finance banks and microfinance institutions (MFIs). Private NBFCs, MFIs and small finance banks, despite the higher interest rates, are now playing a key role in many rural markets simply because they can tailor underwriting and reach customers without formal credit histories.
P2P and purpose-built impact platforms that use social capital scorecards and partner aggregation complement this by originating and underwriting small-ticket DRE loans that conventional banks typically decline, while aligning the repayment structures with local cash-flow patterns. This integrated approach shortens sales cycles and reduces paperwork. At the institutional level, digital public finance programmes are also supporting MSME-linked clean energy investments through automated, end-to-end online lending processes. These include SIDBI’s Electronics and Green Products Scheme and the End-to-End for Energy Efficiency Programme that finance MSMEs with automated online loans of up to Rs 50 million and Rs 150 million respectively.
Beyond financing structures, risk mitigation instruments are also gaining importance. Durable maintenance contracts and warranty bonds can significantly reduce technical downtime and, in turn, the default risk for lenders. Additionally, philanthropic and development finance institution grants that support standardised monitoring frameworks, impact metrics and localised business-case documentation have proven catalytic in unlocking commercial capital for DRE projects.
Outlook
Distributed renewables can change livelihoods across India if finance, skills and market links are combined with good implementation. It can be a strong source of rural jobs, provided skilling and innovative green financing needs are met. When DRE is matched to productive uses, it becomes an income engine for the people.
The immediate priority is simplification. A coordinated task force of banks and NBFCs could standardise documentation, offer pre-approved small-ticket products and enable faster digital credit decisions for DRE assets. This would directly address the delays and uncertainty that households and micro-enterprises face currently.
At the same time, there must be a shift towards building permanent last-mile delivery capacity. The idea of a basic energy service provider model, already demonstrated by organisations such as the SELCO Foundation, offers a practical way forward. Under this approach, local entrepreneurs act as franchise-style energy service providers, managing installation, servicing and customer relationships, while financial institutions and impact funds channel capital through these local entities. This creates stable service networks for DRE applications and directly reduces operational and credit risk for lenders.
Moreover, experience across multiple DRE programmes also shows that capital subsidies often reach households and enterprises with stronger paying capacity, rather than marginalised end-users who are truly deserving. This makes a strong case for affordable credit, accountable delivery systems and long-term service support for marginalised users.
Looking ahead, the next phase of DRE in India may not only depend on one-time subsidy announcements but far more on fixing how everyday financing needs are met on the ground. In other words, affordable capital and not top-down subsidy schemes may be the solution to the last-mile DRE financing problem. Until DRE uptake spreads across the grassroots, the promise of a truly inclusive energy transition will remain incomplete. Solving the DRE financing conundrum is perhaps the panacea for this segment.
