India’s Rooftop Solar Mission
In the village of Ghoramara, found in the Sundarban archipelago of West Bengal, 3,000 villagers depend on one thing to prevent their home from slipping into darkness reminiscent of pre-Edison times:
Solar panels.
These black and blue solar panels co-exist in complete harmony on tarpaulin-covered roofs, alongside paddy fields and coconut trees. You will see these on almost every single house in this village.
Distributed at heavily subsidised rates, these panels are the only source of electricity for this cyclone-ravaged island, where electricity lines never reached.
Solar has become a simple(r) solution to energy-hungry India’s clean power requirements. The government’s push to ramp up solar production has led to a substantial increase in the country's installed solar capacity - 30x of what it was a decade ago - at 75GW at the end of 2023.
Residential Solar
A stable government and a stable policy around the growth of solar energy has given an impetus to this industry. If we zoom into the residential solar industry, only about 500k homes in India have residential solar today. That’s a penetration rate of only 0.4%!
For context, if we compare this to other nations, Brazil has a 7% penetration rate, Germany stands at 10% and, in Australia, 1 in every 3 homes have rooftop solar panels!
While this picture doesn’t look rosy, the pace of change in this industry is tremendous.
For context, if we compare this to other nations, Brazil has a 7% penetration rate, Germany stands at 10% and, in Australia, 1 in every 3 homes have rooftop solar panels!
While this picture doesn’t look rosy, the pace of change in this industry is tremendous.
In 2023 alone, 125k homes installed rooftop solar panels in their homes. In the recently announced Union Budget for next financial year, the Pradhan Mantri Suryoday Yojana was one of the major programs that was unveiled; with a promise to provide free electricity for 10MN households through rooftop solar in the next 3 years. A subsidy increase of 23% was also announced for households looking to install rooftop solar panels. That increases the market size of rooftop solar by 30x, backed by government policy and ease of regulatory process.
To ensure that this is a holistic priority, the government has backed these ambitions with robust administrative and IT support. India has become the first country in the world to make solar net metering (aka a connection to the grid) a legal right for residential customers. Nowhere else in the world - be it China or the USA - is this a legal right for every homeowner. Secondly, in 2022, India launched a national solar portal which is a best-in-class example of IT infrastructure for residential solar. This portal has made it incredibly easy for consumers to redeem solar subsidies through a paperless and fast process. They can also get government permits for rooftop solar within a record 21 days, the fastest process in the world today (it takes 8 weeks in Germany!)
One of our portfolio companies, Solar Square, is a leading name in the rooftop solar market, second only to the publicly listed behemoth Tata Power. Shreya Mishra, co-founder, says “The government's plans are backed by real action and powerful technological infrastructure, creating a $30BN market opportunity that did not exist until a few years ago. Policy backing and stability of government have catapulted this industry to the forefront of nation-building over the next few years.”
What do consumers think?
There are two sides to this subsidy: households consuming under 300 units of electricity per month can install rooftop solar with nearly zero cost; those consuming over 300 units will get up to 40% subsidy.
A standard house with 4 people and 3 air conditioners probably uses about 20-25 electricity units every day. That's 600-700 units per month, now that hot summers make ACs a must-have rather than a luxury in lots of places. Subsidising 300 units would cover 40-50% of total use or 60-70% of daytime use when the ACs are blasting. Bottom line, a 300-unit subsidy knocks out almost half the electricity a normal 4-person household would eat up. For them, it's a pretty sweet deal.
Imminent challenges
However, there’s a lack of easy-access loans for residential solar. Mainstream banking institutions have not jumped into this game for a couple of reasons:
Roofs are not standardised
Rooftop solar products are not standardised
The loan book is not big enough
Non-bank lenders are showing interest in this category - especially since the average lending rate is high. Firms like Welfund, Ecofy, Aerem and state-owned Sidbi (for commercial installations) have entered this category. IREDA (Indian Renewable Energy Development Agency) is also looking to open its rooftop solar portfolio, a goal that is likely to become reality as the power ministry chases the 10MN households goal.
The national portal mentioned above also allows consumers to select any vendor and choose the brand/efficiency of solar equipment too. While the net-metering process is taking anywhere up to 3 months today, the government’s ambitious goals are expected to hasten that process too. In order to make rooftop solar a reality in every home, the operational process will need to become seamless and standardised - much like it was when dish TV or water tanks were becoming the new norm.
India’s time under the sun is just starting and the momentum within this industry feels like it’s the right time for companies to strike.
