Expert Speak Terra Nova
Published on Jul 11, 2024

The 2024 PM Surya Ghar Yojana offers free solar electricity via subsidies for rooftop panels, potentially lowering costs and emissions, but its benefits for poorer households are unclear

Surya Ghar: Energy autonomy for households in India


PM Surya Ghar: Muft Bijli Yojana is a government programme launched in 2024 to provide free (solar) electricity to households in India. Under the scheme, households are to be provided with a subsidy to install solar panels on their roofs. The scheme promises to provide Central Financial Assistance (CFA) of 60 percent of the system cost for 2 kilowatt (kW) systems and 40 percent of additional system cost for systems between 2 to 3 kW capacity. The CFA is capped at 3kW. At current benchmark prices, this will mean INR 30,000 subsidy for 1 kW system, INR 60,000 for 2 kW systems and INR 78,000 for 3 kW systems or higher. Households are to be given collateral-free low-interest loan products of around 7 percent for the additional investment required for residential rooftop systems. The government claims that households will be able to save electricity bills and earn additional income through sale of surplus power to distribution companies (discoms) based on the assumption that a 3 kW system will generate more than 300 kilowatt hours (kWh) a month on an average. The scheme is expected to benefit 10 million households across India and save the government INR 750 billion a year in electricity “costs”. Presumably, the “costs” are electricity subsidies.  The government has also claimed that the scheme will result in addition of 30 gigawatt (GW) of solar capacity through rooftop solar (RTS) in the residential sector, generating 1000 billion KWh of electricity that will reduce 720 million tonnes of carbon dioxide(CO2) equivalent emissions over the 25-year lifetime of rooftop systems. There are many technical, financial and social issues in the scheme that need close scrutiny, but at a broad level, one of the interesting questions that may be raised is whether the scheme, if successful, leads to energy independence at the household level. If so, will it be desired by poor households and will it reduce energy inequality among households? It is too early to speculate on the Indian case but existing literature on the subject suggests that energy autonomy and its benefits are uncertain for households in developing countries such as India.

Energy autonomy and its discontent

One study that identified the benefits of energy independence at the household level achieved through RE-based systems, such as RTS using data from 20 countries including India for the period 2000-2018, observed that while government support for household energy autonomy is energy efficient, it provides the greatest benefits to higher income households and thus contributes to increasing inequality. Subsidies do not help reduce energy poverty because of the low investment capacity of households in developing countries. The study also found that offering energy autonomy to households [in the case of the Surya Ghar programme the offer of free electricity (muft bijli) and independence from monthly invoices from the distribution company indicating autonomy] cannot be achieved solely by legislative and regulatory acts and that the primary motivation must come from households that want to realise material benefits from energy independence. Material benefits may be limited in the case of the Surya Ghar programme. Many state governments offer 100-300 KWh of grid electricity free to households. This no-strings-attached subsidy is likely to remain more attractive to poor households than free solar electricity that comes with a web of bureaucratic hurdles attached.  The absence of scale advantages in decentralised systems, such as solar photovoltaic systems (PV), may also limit material benefits of energy autonomy. In addition, electricity tariff may increase for households that cannot benefit from the programme, leading to an increase in energy-poor households. For example, ownership of a proper house with a roof that can accommodate solar panels specified as a precondition to apply for the Surya Ghar programme may disqualify many poor households that do not live in a house with a good roof.

The study also pointed out the emergence of conflict of interest between the government (discoms) and households, which could manifest itself in the need for significant investment from households, which, as a result, affects the payback, period reducing the level of investment attractiveness. The study observed that household energy autonomy is not sufficiently expedient for India because of insufficient readiness for the energy transition. But the study concluded that despite the absence of a clear political priority of households’ energy autonomy, an increase in household-level energy generation can contribute to the development of additional energy resources.

Another study on the benefits and shortcomings of distributed energy systems concludes that different policy mechanisms foster different system designs and thus differ in their impact on the economic, environmental and social sustainability dimensions. One of the conclusions of the study is that energy policy should be tailored to the relative importance of the three dimensions of sustainability. The analysis shows that subsidies for solar PV reduce the cost for prosumers (owners of solar roof top systems through the Surya Ghar and other subsidy programmes), but increase the cost for consumers that cannot benefit from these subsidies. The analysis points to the importance of energy equity considerations that need to be taken into account when designing energy policy. In addition, the study identifies a trade-off between wider solar PV deployment and electrification. Subsidies that support specifically solar PV investments might defer money from electrification efforts and even results in higher CO2 emissions with respect to business as usual. Similarly, when subsidies are financed through a levy on retail electricity tariff, they can have an adverse effect and increase emissions due to a shift away from electrification, especially for heating and cooling. In other words, high subsidies that result in high levies not only lead to considerable cost increases for consumers, but also to undermine decarbonization efforts.

Issues for thought

The pursuit of decentralised RE technologies for the poor has predominately been a result of an energy policy, which is very much a market-push agenda and not a ‘development’ agenda. In the past, it was argued that grid extension to the dispersed rural poor was too costly and time-consuming while RE technologies represented a low-cost and environmentally friendly alternative. Consequently, multilateral doner agencies pushed decentralised RE technologies through national governments, and local environmental groups. The uptake was far below expectations. Now, decentralised RE is promoted among poor households to decarbonise the electricity grid and also to provide a secure market for domestic producers of solar PV equipment as it is the case with the Surya Ghar programme.  But ‘poverty does not preclude people’s role in the market’, as C K Prahalad and S L Hart recognised in their book ‘The Fortune at the bottom of the Pyramid’. The response from poor households to the proposed Surya Ghar programme will be a market response rather than a political response. If the response from poor households is below expectations, it will mean that they do not see sufficient material gain for their effort in navigating the bureaucratic process to obtain the subsidised solar system notwithstanding the promise of free solar power.

Source: Central Electricity Authority 

Lydia Powell is a Distinguished Fellow at the Observer Research Foundation.

Akhilesh Sati is a Program Manager at the Observer Research Foundation.

Vinod Kumar Tomar is a Assistant Manager at the Observer Research Foundation.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Lydia Powell

Lydia Powell

Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her ...

Read More +
Akhilesh Sati

Akhilesh Sati

Akhilesh Sati is a Programme Manager working under ORFs Energy Initiative for more than fifteen years. With Statistics as academic background his core area of ...

Read More +
Vinod Kumar Tomar

Vinod Kumar Tomar

Vinod Kumar, Assistant Manager, Energy and Climate Change Content Development of the Energy News Monitor Energy and Climate Change. Member of the Energy News Monitor production ...

Read More +