On January 22, the Prime Minister launched the ‘Pradhan Mantri Suryodaya Yojana’ (PMSY), aiming to provide rooftop solar (RTS) panels to 10 million low and middle-income households. In the interim Budget 2024, the Finance Minister announced that beneficiaries will receive free electricity up to 300 units per month and can sell surplus solar energy, potentially saving them ₹15,000-18,000 annually.

A November 2023 CEEW report estimates the technical potential of residential RTS to be around 637 GW, underscoring the significance of the PMSY scheme. The initiative will hopefully help bridge the historical gap in RTS uptake compared to ground-mounted solar installations. As of December 31, 2023, India had installed only 11.08 GW of grid-connected RTS, contrasting with 56.92 GW of ground-mounted solar plants.

Recently, the government has increased subsidies for indigenously manufactured, grid-connected residential RTS plants in general and special category states (see Table). The PMSY in tandem with the Central Financial Assistance scheme, is expected to significantly boost the adoption of rooftop solar plants in India.

The PMSY scheme also comes at an opportune time as it precedes the implementation of the time of day (ToD) tariff for household consumers, slated to commence by April 1, 2025. Last year, the government amended the Electricity (Rights of Consumers) Rules, 2020, introducing ToD tariffs that provisions separate rates for peak, solar, and normal hours. The Rules shall enable reductions in tariffs of up to 20 per cent during solar hours and increases of up to 20 per cent during peak night hours — a move anticipated to nudge consumers to adopt and use solar energy solutions.

The PMSY scheme represents a positive stride toward achieving India’s energy security objectives and meeting our international obligations to transition to a low-carbon economy. However, from a policy perspective, certain issues pertaining to the adoption of RTS in general, and PMSY in particular, warrant attention.

First, the urgency of enhancing the end-to-end supply chain becomes apparent when considering the scale of PMSY. Assuming a minimum installation of 1 kW per household, the required solar modules, inverters, and accessories for one crore households amount to 10GW, which is nearly 90 per cent of the cumulative rooftop solar capacity installed to date. Further, one crore additional solar and net meters would be required to commission these sites successfully. Although there are plans for 7.4GW of solar module production via production-linked initiatives by October 2024, evaluating whether this production capacity can meet the overall requirements is essential. Emphasis should be placed on indigenously manufactured components to avoid vulnerabilities in the external supply chain.

Second, as the PMSY scheme involves installing at least 10GW of new solar capacity, there is a pressing need to enhance the skill and capability of individuals throughout the value chain. This includes training additional workforce in designing and installing solar systems and educating consumers on proper maintenance. State regulatory commissions should also explore ways to effectively manage demand by encouraging end-users to use electricity during solar hours.

Third, the transition of end-users from consumers to prosumers necessitates the creation of a digital repository of installed capacity. Currently, many Distribution Companies (Discoms) lack complete information about the actual behind-the-meter RTS installed capacity. Access to such data can improve forecast accuracy and streamline the integration of renewables into the grid.

Fourth, to support the widespread adoption of RTS, there is a critical need to upgrade the entire power supply chain. Given the intermittent nature of renewable energy, emphasis should be placed on energy storage solutions and optimised grid operations to better match demand with supply. Further, the increasing interconnectedness of the power sector also demands an upgrade in cybersecurity and additional safety measures to prevent breaches.

Fifth, given that electricity comes under the Concurrent List, it is imperative to acknowledge the diverse policies, regulations, and tariff structures across States. Comprehensive input and feedback from all stakeholders will be crucial to optimise the economic benefits of solar adoption across the country. The strategy should not only account for how greater RTS adoption will benefit consumers by reducing their energy costs, but also consider means to enhance the financial viability of Discoms to foster overall economic growth at the sub-national level.

That said, the PMSY, if executed effectively, holds the promise of positioning India as a credible global leader in advancing the goal of sustainable economic growth.

Nandy is Assistant Professor, Economics Area, IIM Ranchi, and Anand is Executive, BSNL. Views are personal