Financing rooftop solar is easier than thought

India has set an ambitious target of 100 Gigawatts (1 gigawatt=10lac kilowatts) of solar installations by 2022; out of which 40 GW are expected out of rooftop solar. However recent reports have indicated that only 4 GW or 10% of the target have been achieved in rooftop solar. Even amongst the rooftop solar, majority of capacity is being installed by industrial and commercial consumers while the residential rooftop solar has been very slow to pick up.

The above infographic shows the total commissioned and pipeline capacity across India. The figure throws up 2 interesting observations. Firstly, the government tenders are the prime movers of the solar implementation. Secondly, the rooftop segment clearly lags the ground mounted in implementation. There various reasons as to why this is the case, but the biggest amongst them is Financing.

Wait a minute! Isn’t solar financially viable? You may ask. Of course it is. But viability is different from financing. Let us see how.

Solar is often touted as free energy by observers and enthusiasts alike. However, while the sun shines for free, the ‘Solar Plant’ which converts the sun rays into electricity incurs a high upfront capital investment. There has been a lot of positive news on the solar front with respect to its financial viability.  We keep hearing terms like ‘falling LCOE’, ‘grid parity’, ‘lower payback period’ which make solar a wise choice. Let us first understand what these terms mean:

Levelized Cost of Energy (LCOE):

LCOE is used to determine the cost of solar energy over its entire life. It levels the high upfront capital cost and gives us a per unit cost of generation which can then be directly compared with the current cost of grid electricity.

We have been witnessing LCOE in residential solar of less than Rs. 8/kWh since the past 3 years which is lesser than the grid supplied electricity. The crux of decision making here is:

If LCOE is less than the Grid Electricity Tariff, then solar plant is viable. To put it simply, the cost of solar generation is better than or equal to the grid electricity.


Grid parity for the residential rooftops was achieved in 2016. Going forward the gap will widen further as solar energy is expected to become cheaper.

Payback Period:

Payback period is the number of years required to recover the investment. Currently the payback period for residential solar is around 5 years. With subsidy, it goes down further to 3.5 years

A payback period of 5 years for a plant with a theoretical life of 25 years is a wonderful investment.

As we can see from the 3 parameters discussed above, the financial viability for residential solar has been amply proven. Then why is the adoption slow and lagging target across the country? One of the biggest factors being overlooked here is the availability of credit. Financing or funding is different from viability and remains one of the biggest roadblocks to implementation of the Solar mission target.

There are various ways to get a residential solar plant funded and we are going to discuss a few methods.

Bank Loan:

Nationalized banks like SBI, PNB etc have enthusiastically rolled out solar financing schemes wherein loans are being offered for residential rooftop solar plants. The banks finance up to 70% of the cost of the solar plant and offer attractive interest rates, similar to the home equity interest rates. The consumer has to pay for the remaining 30% of the plant cost as well as the ongoing maintenance cost of the plant. On the flip side, the bank loan process is found to be slow and the eligibility criteria too stringent.

This mode of financing is ideal for consumers who are well-versed with the technology and are cognizant with the project risks i.e. generation risk, component failure risk etc.


NBFCs offer solar loan up to 80% of the cost of the solar plant but offer a higher interest rate than the banks. The consumer has to pay for the remaining 20% of the plant cost as well as the ongoing maintenance cost of the plant. NBFC loan processing is fast and a lot of tie-ups have also been seen in the industry wherein the installer processes the loan application of the consumer.

This mode of financing is ideal for consumers who understand project risks and are located in high electricity tariff states like Maharashtra, Andhra Pradesh etc

Solar Leasing/OPEX model:

This product is currently being offered by a handful of developers in the Residential Rooftop Solar space. Under this, the developer installs the solar plant on the rooftop of the consumer at his own expense and signs a Power Purchase Agreement (PPA) with the consumer. The consumer pays zero cost for the installation. Developer operates the plant and supplies the generated electricity to the consumer at a pre-determined tariff. The tariff is usually 50-60% of the existing grid tariff and leads to a huge saving for the consumers without having to make any upfront capital investment. A monthly bill is generated for the consumer till the end of the PPA period. At the end of the PPA period, the entire plant is transferred to the consumer at zero cost and the monthly bill payments are stopped.

This mode of financing is ideal for consumers who do not want to assume project risks. Usually group consumers like Housing societies, RWA, Gated communities opt for this option on account of its hands-off mode of operation.

While viability has been frequently talked about, funding options have not been given their share of limelight in the popular media. It is high time that appropriate awareness is created amongst the residential consumer. That along with the appropriate policy and regulatory support will truly blossom the segment and help surpass (not just meet) the ambitious target of 40GW by 2022.

| Article published on 06/01/2020 by Moulin

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