Launched in February 2024, the PM Surya Ghar: Muft Bijli Yojana aims to provide financial support for the installation of rooftop solar systems in 10 million households by 2026-27. The subsidy for a 3 kW system is ₹78,000 (~$910), which is expected to generate approximately 360 kWh per month at a capacity utilization factor (CUF) of around 16%.

Under the program, a collateral-free loan of up to ₹200,000 ($2,333) is available at an interest rate of 6%, with a loan tenure of 10 years. For a 3 kW system costing ₹180,000 ($2,100), if the full amount is financed through the loan, the equated monthly installment (EMI) would be ₹1,998 ($23.20). This can be offset by an electricity bill with a tariff of ₹5.50 ($0.064)/kWh or higher, assuming monthly consumption of 360 kWh.

If the government subsidy is applied, the EMI drops to ₹1,132 ($13.20), which can be offset by a tariff of ₹3.15 ($0.037)/kWh or more. Once the loan is fully repaid, the electricity generated by the 3 kW system will be free for the remaining 15 years of its estimated life.

By March 2025, rooftop solar installations under PM Surya Ghar crossed the one-million milestone. In the first quarter of 2025, India added 1.2 GW of rooftop solar capacity. The quarter’s installations were driven by the residential segment under PM Surya Ghar, which made up nearly 77% of the capacity additions, according to Mercom’s Q1 2025 India Rooftop Solar Report.

In the case of Kerala, Maharashtra, and Rajasthan, the electricity tariff for residential consumers with a monthly consumption of 300 kWh or higher is more than ₹7 (~$0.082)/kWh, which makes rooftop solar financially viable even without a subsidy. In Gujarat and Uttar Pradesh, the tariff is around ₹5 (~$0.058)/kWh. However, the high rate of installations in Gujarat is due to the favorable policy ecosystem for rooftop solar in the state. Uttar Pradesh provides an additional state subsidy of ₹15,000 (~$175)/kW up to 2 kW.

These examples strengthen the case for rationalizing the subsidy available under the PM Surya Ghar program.

Under distribution companies (DISCOMs) where the tariff for residential consumers is higher than the average power purchase cost (APPC), rooftop solar results in revenue loss to DISCOMs on two accounts:

• The difference between the retail tariff and the APPC
• The solar power generated by the consumer during the daytime is adjusted by the power supplied mostly during peak hours, which is comparatively costlier than the power available during the daytime. For example, in Maharashtra, the tariff for residential consumers with monthly consumption above 300 kWh is ₹9.69 (~$0.11)/kWh. With an APPC of around ₹5.8 (~$0.68)/kWh, Maharashtra DISCOMs will lose revenue if consumers install rooftop solar. A similar case exists in Kerala and Rajasthan, where the tariff exceeds ₹7 (~$0.082)/kWh, which is significantly higher than the APPC.

In several states, the electricity tariff for rural domestic consumers is heavily subsidized. In rural areas, the connected load is typically low, around 1 kW, and electricity consumption is also limited. Moreover, shadow-free rooftops or roofs with sufficient structural strength to support the load of a rooftop solar system are often not available.

For smaller rooftop solar systems, the cost is high (over ₹75,000 (~₹875) for a 1-kW system in rural areas). Even with a central subsidy of ₹30,000 (~$350), the rural consumer has to invest ₹45,000 (~$525), which is not viable due to the highly subsidized tariff.

The Case for Community Solar

To reduce the subsidy burden on states and DISCOMs and promote energy independence in villages, community solar appears to be a more viable alternative. In a rural habitation, if 100 households participate in a community solar project, the aggregated demand would be around 100 kW. A 100 kW solar system would cost approximately ₹50,000 ($583)/kW, compared to ₹75,000 ($875) for individual 1 kW rooftop systems. Moreover, such a system is easier to maintain and can operate at a higher capacity utilization factor (CUF) of 17–19%. In April 2022, the Prime Minister inaugurated one such project in Palli Gram Panchayat, Jammu, declaring it the country’s first carbon-neutral Panchayat.

According to a report, “ Shared Solar: Current Landscape, Market Potential, and the Impact of Federal Securities Regulation” by the U.S. National Renewable Energy Laboratory, 49% of households and 48% of businesses in the country are unwilling or unable to install rooftop solar. This may be due to factors such as lack of homeownership, unsuitable roof conditions (e.g., shading or limited roof size), or high upfront installation costs.

For such consumers, community solar is being actively promoted. As of December 2024, more than 3,760 community solar projects with a combined capacity exceeding 10 GW had been installed across 44 U.S. states. Additionally, 23 states have enacted policies that support the development of community solar projects.

The European Union in a directive to the European Parliament on June 5, 2019, on common rules for the internal market for electricity, mandated that all member countries implement laws to make community energy not only feasible but also financially viable. In northwestern Europe, experts estimate that over 10,000 community energy associations are active, primarily in Germany, Denmark, Belgium, the Netherlands, and the United Kingdom.

To evaluate the financial viability of community solar projects in rural areas under the PM Surya Ghar subsidy scheme, a cost-benefit analysis is provided below:

The above analysis indicates that even with a subsidy under PM Surya Ghar, a 1-kW rooftop solar installation in rural areas is not viable for an LCOE less than ₹3.09 ($0.015)/kWh. In special category states where the subsidy is 10% higher, the LCOE for community solar would be ₹1.16 (~$0.014)/kWh.

Community solar implemented with a DISCOM/RESCO model in rural areas where electricity is free or highly subsidized will enable both the DISCOM and the state to reduce the electricity subsidy amount to a large extent, thereby enhancing the reliability of the power supply.

With an APPC of ₹5 ($0.073)/kWh on purchasing electricity to supply in rural areas. With the adoption of community solar under PM Surya Ghar, not only will the subsidy outgo from the exchequer be reduced to zero, but the DISCOM will also be able to save around ₹5 (~$0.058)/kWh.

From the above analysis, it is evident that aggregating demand across a village or a cluster of households significantly reduces installation costs for community solar. It also operates at a CUF of around 17–19%, compared to 12–14% for individual rooftop solar, owing to enhanced flexibility in design and orientation, as well as better maintenance. Community solar would benefit states, DISCOMs, and end-consumers, and improve the government’s resource utilization efficiency.

The views and analysis presented in this article are solely those of the author.
(Pulkit Jethani is a researcher at IIT Delhi and can be reached at pulkitjethani@gmail.com.)