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Capital Grant

Challenges to Investment

In 2009, roughly 400 million people and 28 million households lacked access to electricity, especially in rural areas. The Ministry of Power aimed to give them all access to electricity. Off-grid solutions offered a complementary tool to general grid connection to accelerate electrification. However, it faced some challenges establishing a financial strategy to defray the high upfront costs of solar energy and overcoming the lack of technical expertise in remote areas. India also faced challenges in developing a domestic market for solar, as there was limited awareness about solar technology and financing was not widely available to support solar adoption. Additionally, regulatory complexities and inconsistent policies across different states slowed down solar deployment. 


Approach

In order to address one of the several challenges, in 2010, the government launched the National Solar Mission setting up targets for grid-connected PV (Phase I & II) and off-grid solar PV (Phase II & III) and implementing right policy conditions (e.g., permitting foreign direct investment, notification of standards for deployment of solar equipment, standard bidding guidelines). In 2016, the Atal Jyoti Yojana for the installation of solar street lightning system was launched along with a scheme to distribute Solar Study lamps. In 2018, the Ministry of New and Renewable Energy (MNRE) extended capital grant support for Concentrated Solar Thermal (CST) applications until 2020. For the 2018-2019 fiscal year, the subsidy was set at 30% of the benchmark or actual investment cost (whichever was lower). This subsidy was reduced to 20% in the program's final year. States in special categories received subsidies between 60% and 40% of capital costs. The MNRE allocated USD 0.98 million (INR 70 million) to the program. In 2019, the PM-KUSUM scheme was launched to ensure energy security for farmers and included dedicated grants to farmers installing solar pumps.



Key Enabling Conditions

The off-grid capital grants programme was a key instrument in part of a broader and much longer-running solar PV application programme, established by the Indian government under its National Solar Mission in 2010. The National Solar Mission established a supportive environment for solar technology adoption, which helped catalyse aggressive scaling of India's overall solar energy capacity. In a sign of ongoing support, in April 2020, the MNRE further extended the off-grid and decentralized solar PV application programme with the goal of creating 118 MWp equivalent solar power by 31 March 2021. 


Impact / Outcomes

The updated programme aimed to catalyse deployment of 50 MWp by 2017-2018 and 68 MWp by 2019-2020. The total estimated cost was USD 266 million (INR 18,950 million), with the ministry providing USD 89 million (INR 6,370 million) in financial assistance. The capital grants supported installment of 25 kWp solar plants in areas with unreliable or unavailable grid power, often benefiting public service institutions, schools, panchayats, hostels, and police stations. As of October 2018, the programme had deployed over 4 million lanterns and lamps, 1.7 million home lights, 0.6 million streetlights, 0.2 million solar pumps, and 189.0 MWp of stand-alone solar power devices. 


Additional Sources

Locations
India & South Asia, India
Year published
01 January 2010
Policy type
Energy policy
Risk category
Power market risk, Financial sector risk, Policy and regulatory risk, Currency/macroeconomic risk
Policy lever
Incentives for clean energy

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