How Distributed Solar Can Reinvigorate India’s Electricity Distribution Companies

Distributed solar can bring financial relief for India’s electricity distribution companies, help achieve national renewable targets, and foster a clean and modernized energy ecosystem in India.

The sun is shining bright on India’s distributed solar sector. The national government has recently enhanced the central financial assistance for residential rooftop solar (RTS) consumers under the Pradhan Mantri Surya Ghar Muft Bijli Yojana (PM Surya Ghar scheme). The program aims to solarize 10 million households and covers nearly 60 percent of the total cost of the system. This comes in the wake of several measures that reaffirm the government’s commitment to the decentralized renewable energy (DRE) sector.

The Ministry of Power mandates the procurement of almost 5 percent of India’s electricity from DRE sources by 2030, equivalent to 63 GW, as per the latest renewable energy purchase obligations (RPO). Furthermore, the Pradhan Mantri Kisaan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM scheme) provides financial support for 1 million grid-connected solar pumps and for adding solar power to agricultural feeders. States such as Uttar Pradesh and Delhi offer additional capital subsidies and generation-based incentives to residential consumers to incentivize the uptake of rooftop solar.

With over 10 million applications received, the response to the latest PM Surya Ghar scheme in just a month of its launch is remarkable. The long-term success of this, however, will hinge on the ability of India’s electric distribution companies (Discoms) to integrate rooftop solar systems on the grid and provide net-metering benefits to households in a timely manner.

Discoms may perceive this integration as a challenge as it can lead to shrinking revenues from consumers switching to rooftop solar systems to meet their demand. At the same time, the migration of domestic and agricultural consumers toward DRE is an opportunity for Discoms to mitigate their financial distress and lay the foundation for a clean and modernized grid.

Distributed Solar Can Bring Financial Relief to Discoms

Subsidized consumers (mostly domestic and agricultural) across India pay tariffs that are lower than Discoms’ supply costs. Recent data indicates the average revenue accrued by Discoms covers only about 85 percent of the average cost of supply of electricity, with states filling the remaining gap with tariff subsidies.

With rising power procurement costs, Discoms are at risk of under-recovering their costs from subsidized consumers leading to a heavy cross-subsidy burden that commercial and industrial (C&I) consumers support with higher electricity tariffs. However, with renewable energy (RE) costs continuing to plummet and new RE procurement pathways (such as green energy open access) being operationalized, C&I consumers are migrating to low-cost RE pathways to meet their demand. This can lead to significant revenue losses for Discoms. Hence, the solarization of subsidized consumers can play a critical role in shrinking the gap between Discom’s revenue and costs and relieve the cross-subsidy burden supported by C&I consumers. The benefits can trickle further down and potentially shrink the tariff subsidy burden of state governments.

In addition, the recent announcement that all central government buildings will be solarized by 2025 coupled with several state governments announcing similar targets for state government buildings can help Discoms mitigate the challenges of under-recovery of bills from government buildings. Hence, prioritizing the solarization of government buildings can help governments reduce their electricity bills and outstanding Discom dues.

Moreover, solarization of agricultural consumers can help Discoms reduce power procurement costs and reduce transmission losses as well. This is demonstrated by India’s largest distributed solar project announced in Maharashtra, which aims to roll out 9 GW of distributed RE capacity to supply daytime electricity for agriculture across the state. The aggregated solar capacity will minimize power purchase costs in the state by 45 percent, and lead to INR 1 trillion (US$15.38 billion) in power purchase costs over 25 years while reducing the subsidy burden and transmission losses.

Distributed Solar Can Accelerate India’s Pursuit of RE Targets

Accelerating deployment under the PM Surya Ghar Scheme could lead to a cumulative deployment of 30 GW. This makes up over 10 percent of the 2030 solar target of 280 GW and nearly 50 percent of the 2030 DRE RPO target of 63 GW. With India needing to add about 50 GW of new RE generation capacity annually to meet its 2030 targets, rapid deployment of DRE capacity can provide the momentum needed to achieve this target.

Distributed solar can play a catalytic role for states to catch up with their RPO targets. This is because only four states have more than 60 percent RPO compliance, while 25 states had less than 30 percent compliance as of 2023. Notably, over half of India’s RE capacity comes from just five states due to the higher RE resource availability. However, Discoms in states with limited land or RE resources can now leverage DRE and distributed solar to meet their RPO targets that require 4.5 percent of electricity consumption to be met via DRE by 2030.  

With India’s electricity demand projected to rise by over 6.5 percent annually until 2026, compared with the global growth forecast of 3.4 percent, Discoms can proactively develop future power procurement plans with low-cost solar power. The sunset on the waiver of the interstate transmission system charges for interstate procurement of RE set in June 2025 could lead to a level playing field for the development of in-state deployment of distributed solar for many states, given the significant benefits it offers to Discoms, governments, and consumers.

Envisioning a Clean and Modernized Grid with Distributed Solar

Distributed solar, as part of a growing number of distributed energy assets, can support the development of local electricity networks or virtual power plants (VPPs). Distributed solar coupled with batteries can support Discoms by shaving demand during peak periods. As a result, VPPs can help Discoms avoid expensive peak power procurement from marginal and often less efficient generators or power exchanges.

International examples showcase the benefits of VPP models. For instance, various utility programs running across the United States, such as in Massachusetts and Hawaii, give cash incentives to consumers to adopt batteries with existing or new rooftop solar systems and share stored energy with utilities in certain hours. In fact, VPPs could reduce US peak demand by 60 GW by 2030. Utilization of distributed assets as part of VPPs can also support the continued provision of critical services during emergencies involving power cuts.

Discoms Are Critical to the Growth of Distributed Solar

Discoms will play a central role in advancing the future of the DRE landscape in India. For instance, Kerala, which turned to rooftop solar to meet its RPO with resources available within the state, demonstrates the success of Discom-led rooftop solar deployment models. In a state with a little over 1 percent of India’s total land area and where the residential segment forms the majority of consumers, 66 percent of Kerala’s total solar capacity comes via rooftop solar. The state Discom has financed rooftop solar systems combined with different electricity sharing and compensation mechanisms with consumers. Another example of Discom-driven success in rooftop solar can be seen in Gujarat, which boasts of nearly 30 percent of India’s total rooftop solar deployment. Discoms played a central role in expanding the vendor pool, digitalizing the rooftop solar adoption process, and addressing information asymmetry with consumer awareness programs.

RE integration is inevitable in the pursuit of India’s 2030 nationally determined contributions which requires imagining new ways of addressing demand. Discoms are intrinsic to this process and embracing distributed solar as strategic assets can bring financial relief, help achieve national RE targets, and foster a clean and modernized energy ecosystem in India.