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Solar energy development and the financial continuum

Published 29th October 2010 - 3 comments - 26812 views -

The sectors covered under the Renewable energy are wind power, small hydro power, Bio mass power, Urban and Industrial waste to energy, Solar energy, small wind and hybrid system, small hydro power, Biomass gasifier, Biogas power. All these sectors are financed either through Ministry of New and Renewable energy (MNRE), Indian Renewable Energy Department AgencyLtd (IREDA), Nationalised banks or Private sector.  Of all these, solar energy is gaining huge development due to the recent release of the National Solar Mission, under the National Action Plan on climate change. There are several incentives for upscaling the solar energy development in India ranging from small and large renewable energy projects to individual residential projects. These incentives can give a boost for the soalr energy deployment in India.  


  1.   Small and large renewable energy project development 

The incentives for solar energy small and large projects are classified into two types: solar power generation projects and solar thermal power generation projects:

 Solar power generation projects: Generation based Incentives

The Ministry will consider support for a maximum capacity up to 50 MW during the 11th plan period. A generation-based incentive of a maximum of Rs. 12 per kWh to the eligible projects. Any project that is commissioned after 31st December, 2009 would be eligible for a maximum incentive with a 5% reduction and ceiling of Rs. 11.40 per kWh.

Solar thermal power generation projects: Generation based Incentives

The MNRE may provide, through IREDA, a generation-based incentive of a maximum of Rs. 10 per kWh to the eligible projects. Any project that is commissioned after 31st December, 2009 would be eligible for a maximum incentive with a 5% reduction and ceiling of Rs. 9.50 per kWh.

Solar lighting: The use of solar lights for lighting purposes would be promoted in settlements without   access to grid electricity and since most of these settlements are remote tribal settlements, 90% subsidy is provided.


  1. Technology innovation:

Solar energy to power computers to assist learning in schools and hostels, Management Information System (MIS) to assist special projects in new areas, are being tried successfully in the country. The solar Mission would consider up to 30 percent capital subsidy (which would progressively decline over time) for promoting such innovative applications of solar energy. IREDA would in turn provide refinance to NBFCs & banks with the condition that it is on-lend to the consumer at rates of interest not more than 5 per cent. There are also other incentives like:

  • Zero import duty on capital equipment, raw materials and excise duty exemption
  • Low interest rate loans, priority sector lending
  • Incentives under Special Incentive Package (SIPs) policy to set up integrated manufacturing plants; (i) from poly silicon material to solar modules; and (ii) thin film based module manufacturing plants. .


  1. End user finance:

The end-user finance is provided for solar water heating systems through capital subsidies from MNRE ,soft loans from IREDA and banks. The finance programmes are as below:

 National Subsidy scheme of MNRE:

To institutions/commercial establishements:

Capital subsidy equivalent to upfront interest subsidy @ Rs. 1750/- per sq. m. of collector area to registered institutions (non-profit making) and @ Rs. 1400/- per sq. m. to registered institutions/commercial establishments (profit making) that do not avail soft loans will be available. The systems installed in ESCO mode will also be eligible for capital subsidy

To builders/developers:

Upfront interest subsidy will be available for systems having capacity of 2500 lpd or more:

  • Housing complexes : @ Rs. 1900 /- per sq. m.
  • Institutional buildings : @ Rs. 1750 /- per sq. m.
  • Commercial buildings : @ Rs. 1400 /- per sq. m.

 IREDA subsidy scheme:


Interest rate (% p.a.)

Repayment Period including moratorium period (Maximum in years)

moratorium period (Maximum in years)

Minimum Promoter contribution (%)

Term loan / Lending norms of IREDA


a) Non-Commercial:

Institutions, Trusts, Charitable Organizations etc. (Non – Profit making Organization i.e. not claiming 100% depreciation)






Upto 80% of total project cost


a) Non-Commercial $:

Individuals, Institutions, Trusts, Charitable Organizations (Non - Profit making

Organization i.e. not claiming

100% depreciation)






Upto 80% of total project cost

b) Commercial $$:

Industry, Hotels, Hospitals other business establishments / commercial organizations (Profit making Organization i.e. claiming

100% depreciation)






Upto 80% of total project cost


  • Banks/financing institutions providing soft loans for solar water heating programme (as prescribed by IREDA)
  • Differentiated electric tariff by electricity boards like rebate on consumer bills who install solar water heating systems.

Though there are many incentives they are not sufficient and there are opportunities provided for solar energy, entrepreneurs and financial institutions are not rushing to cash on the opportunity. The main barriers from demand side are awareness and willingness of the society or familiarity with the renewable energy practices. Power grid operators are reluctant to deal with decentralized supply. RE is unfamiliar to financiers due to lack of information and the uncertainity of the payback in the public. Thus on a whole, huge marketing and awareness drives are the only ways of developing renewable energy projects in India. 

As one of the most important barriers in implementation of solar energy are the frame work conditions and the deficiencies of the financial sector with improving awareness and willingness, there should be certain tasks to be undertaken to strengthen and sustain the solar energy sector. The market initiatives and the financial instruments have to be taken different for rural and urban areas. Some of the financial instruments that can be applicable to India for solar energy are as explained below-

 For rural areas:

  • For rural areas, there is a requirement of Participatory Rural Appraisals (PRAs) of the villages with an energy focus. Information critical such as applicability and awareness of solar energy for productive uses, has to be shared with the public
  • Market outlets for products, and dealers and vendors information involved in the solar energy has to be shared.
  • Solar lighting with more incentives and capital subsidies to provided for tribal and backward areas
  • Solar drying for agro-products is a recent technological innovation and is a viable business activity. Incentives to provided for the solar dryers meant for small-scale drying of agro-products.

 For Urban areas:

Though there are many incentives in urban areas, the provided incentives are not sufficient. The following innovative economic models can provide a boost to the solar energy sector in India.

  • Clean Development Mechanism (CDM)
  • Dealer-Credit Model    
  • Consumer Credit Model
  • Supplier Credit Model
  • Energy Service Company Model
  • Revolving Fund

Category: Sustainable Development, | Tags:


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