India Rooftop Solar Heads for Record 4 GW Year Despite Regulatory Hurdles

India's rooftop solar market is on course to add a record 4 gigawatts of capacity in fiscal year 2024, according to a joint IEEFA and JMK Research report, with nearly 2 GW already installed in the April to July 2023 period. The micro, small and medium enterprise sector — which accounts for roughly half of India's industrial electricity consumption but holds 15 GW of largely untapped rooftop solar potential — is expected to drive the next phase of market growth.

Cumulative rooftop solar capacity in India reached 10.9 GW as of July 2023, representing about 15% of total solar installations. The government missed its original 40 GW rooftop solar target by end-2022 by approximately 80%, prompting the MNRE to extend Phase II of the Grid-Connected Rooftop Solar Programme to March 2026. Gujarat, Andhra Pradesh, Telangana and Delhi are identified as the most favourable states for commercial and industrial rooftop solar due to supportive net metering policies and streamlined approvals. Tamil Nadu and Uttar Pradesh are continuing to discourage high-value C&I consumers from shifting to rooftop solar.

Regulatory barriers remain significant: inconsistent net metering policies, delays by distribution companies in granting metering approvals, and the partial shift toward gross metering in several states have reduced the financial attractiveness of rooftop solar for C&I customers. The Green Open Access Rules 2022 have redirected some C&I solar demand toward open access installations, competing with rooftop solar for developer and policy attention. Financing challenges persist, with rooftop solar loans carrying higher interest rates and longer approval processes than comparable utility-scale solar financing.

The World Bank is expected to approve a credit guarantee mechanism with a US$100 million payment guarantee fund covering up to 50% of debt financing for MSME rooftop solar projects through participating financial institutions. Virtual net metering — allowing consumers at separate locations to aggregate power from a single large installation — and peer-to-peer trading are being explored by regulators as mechanisms to broaden market access and improve economics for both consumers and distribution companies. The report recommends separate renewable purchase obligations for rooftop solar, uniform central regulatory provisions, and strict enforcement of MSME solar procurement targets to sustain growth momentum toward India's 500 GW renewable energy goal by 2030.

Key figure — US$100 million — World Bank payment guarantee fund expected to be approved for MSME rooftop solar project financing, covering up to 50% of participating lenders' debt exposure.