Financing Solar Rooftop Power Systems In India

From heat to light to everything that is bright; the sun performs innumerable functions that enables humans to continue living on earth. And today, financing solar power projects to meet our energy needs has become much easier.

But many a times, we take the sun for granted and forget about its nurturing abilities. In fact, many times news articles and reports remind us of its significance. One such article in Business Insider specified that the amount of solar power striking the earth in one hour is enough to meet all of humanity’s energy needs for an entire year. This really makes one wonder why so many people around the world still do not have access to electricity. One also questions why the major sources of energy used are still non-renewable and polluting.

For a long time now, humans have been dependent on non-renewable sources of energy for their power needs. These polluting fossil fuels drove the industrial revolution in the West and became the bedrock of development and growth. As time progressed and humans started realizing the negative effects of these energy sources, a movement towards more sustainable means caught on. But at that time, alternate sources of energy such as solar were too expensive to harness. It is only in the last couple of years, with momentous technological progress, that the cost of harnessing these sources of energy has diminished to the point of making them economically viable. Our decision making has not been able to adapt as fast as the changes in market dynamics. The initial thought when we consider producing energy through solar or wind still revolves around the costs associated with installation and the upfront investment requirements.

The above scenario is why, it is important to propagate information pertaining to solar’s economic viability and create mechanisms to encourage the adoption of renewable sources of energy. Today we will talk about the various financing options available to people and organizations in India for installing Solar Photo-Voltaic(PV) projects.


Rooftop Solar PV Projects

Talking specifically about India, the Jawaharlal Nehru National Solar Mission (JNNSM), under the Ministry of New and Renewable Sources of Energy, targets creating a solar capacity of 100GW by 2022, of which 40GW will principally comprise of rooftop. Rooftop solar projects are of three types– grid tied, hybrid and off- grid. Grid tied systems are connected to the grid and do not generate power during power failures. Hybrid systems, in addition to being connected to the grid, are also connected to a battery or diesel set so that electricity can be generated even during a power failure. Finally, off-grid systems rely entirely on either a battery or diesel set.

The components of a rooftop system’s cost structure are as follows:

  1. PV Modules
  2. Inverters
  3. Structure
  4. Balance of Systems (e.g. Cables, connectors)
  5. Design, Installation and Commissioning

On average, a 1KW system costs around Rs. 70,000 of which, the PV modules contribute to around 50% of the cost. There are, of course, some economies of scale resulting in a 1MW system costing much less.


Financing Solar Power Projects

There are two broad models through which financing for solar rooftop projects can be availed:


In this financing option, the customer has to pay 100% of the cost of the project upfront. This is a very popular model for smaller residential projects. Consumers need to invest a relatively small amount initially, which can be earned back in 3-4 years.

The consumer can choose to either pay using cash or by taking up a bank loan. Consumers with residential solar project requirements can also include the cost of solar PV projects in home loans or home improvement loans. The Department of Financial Services, Ministry of Finance in 2014 issued the following advisory to all Public Sector Banks: “All banks are advised to encourage the home loan/home improvement loan seekers to install rooftop solar PVs and include the cost of such equipment in their home loan proposals just like non solar lighting, wiring and other such fittings”.

A list of banks that are actively involved in providing solar energy financing can be found here.


In this model, a third party finances and installs the rooftop project. The main advantage is that there is no upfront payment by the consumer. Within this model, depending on the consumption, there are two further possibilities:

  1. Rooftop Leasing – the third party will pay a fixed amount to the building owner on a monthly basis for the space to install solar panels
  2. Power Purchase Agreements (PPAs) – The building owner can obtain solar energy at a lower costs from the developer in return for the space being provided.


Subsidies and Incentives

The widespread incentives available to individuals and corporations for adopting renewable means of producing and generating electricity, fall into three broad categories:

  1. Accelerated Depreciation (for commercial entities)
  2. Capital Subsidy
  3. Priority Sector Lending

Accelerated Depreciation (AD)

A solar panel project is an asset for any organization or company. This solar asset can enable a company to pay lower taxes in the first few years because of a concept known as Accelerated Depreciation (AD).  AD is a method of depreciation wherein larger deductions in the early life of an asset can be made for tax purposes if the asset is in use for more than 180 days. The tax benefits have to be spread across multiple years if the asset has been in use for less than 180 days.

After the 2016-17 budget, the government reduced the cap on Accelerated Depreciation from 80% to 40%. Despite this reduction, companies can still avail of an overall depreciation of around 40%, 40% and 20% in year 1, 2 and 3 respectively. This can substantially reduce tax burden for tax paying companies that own Solar PV systems.

Capital Subsidy

The Ministry of New and Renewable Energy also provides a capital subsidy for the investments in solar PV systems. According to the Central Financial Assistance, the terms of the subsidy are as follows:

  • General category states & Union Territories – around 30% subsidy on the system cost
  • Special category states i.e. NE, Sikkim, Uttarakhand, HP, J&K, Lakshadweep, A&N Islands – 90% subsidy on the system cost
  • The policy mandates the use of ‘Made in India’ components to be eligible to receive CFA

ZunRoof is able to provide this subsidy for all its residential customers as an upfront discount.

Priority Sector Lending

The RBI in 2015, released a notification categorizing renewable energy as a priority sector for lending. According to this notification, borrowers can take a loan of up to Rs. 15 crore for solar based power generators. Individual households can request for a loan of up to Rs. 10 lac per borrower.

The terms of the loans for commercial purposes tends to be as follows:

  1. Debt to equity ratio is 70:30 which can sometimes also go up to 75:25.
  2. Tenure of loans varies from 7 to 15 years, depending on the amount of loan and the nature of the corporation applying for the same.
  3. The interest rates vary from 11.5 to 12.5% but can be as low as 10.2% if the loan is provided by the Indian Renewable Energy Development Agency (IREDA).
  4. International financing options are also available. They offer lower interest rates(8-10%) for a tenure of around 16-18 years. However, consumers need to consider additional factors like fluctuating exchange rates when availing of international options. Also, they take almost 9 months to process, which is much higher than domestic financing options.
  5. In most cases, borrowers need to put up a collateral equal to 100% of project cost. Indian banks provide financing with recourse where the bank has recourse to the company’s assets if you default in payments.

Overall, despite the plummeting costs of solar panels, there are still several financing options available in India that can help both homeowners and businesses in their quest for cheaper and cleaner means of generating power.


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