Rooftop Solar: A Trade-off Between Consumer Benefit and Discom Finances

Executive Summary 

India’s energy and decarbonisation goals are closely linked to solar power—both grid-scale and rooftop. Rooftop solar (RTS) has gained global traction as a form of distributed renewable energy (DRE), offering households the potential for lower electricity bills and greater energy independence. With more than 300 sunny days a year, India is well positioned to harness solar energy. However, despite extensive government initiatives, RTS deployment has fallen short of targets. As of February 2025, only about 16.67 GW of the original 2022 target of 40 GW RTS has been achieved.

The Pradhan Mantri Surya Ghar Muft Bijli Yojana (PM Yojana), launched in February 2024, targets one crore households with RTS systems. The scheme provides capital subsidies of up to Rs 78,000 for grid-connected RTS installations and streamlines the process through a unified portal integrating vendors, distribution companies (Discoms), and consumers. While the programme is positioned as a tool for empowering lower-income households through reduced electricity bills (“Muft Bijli”),[1] its real-world impact hinges on household economics and utility finances: households must generate enough electricity to offset bills, and Discoms must withstand the revenue loss from widespread adoption. This tension is magnified by India’s progressive, slab-based residential tariff structure, where higher-usage households shoulder much of the system’s cross-subsidy.

When these high-consumption households adopt RTS, their electricity purchases from the Discom decline sharply, eliminating the cross-subsidy that keeps tariffs low for smaller users. Because Discoms recover most fixed costs[2] through per-unit energy charges (ECs)[3] (Tyagi, Rao, & Tongia, 2024), yet another distortion—the lost sales create a sizeable revenue shortfall. Net-metering deepens the gap: daytime solar exports from households are credited at the same rate as evening imports, despite higher costs to the Discom, effectively turning the grid into a nearly free “virtual battery.”[4] Being an average-cost regulated system,[5] some of the shortfall is then redistributed across the remaining fully grid-reliant customers—mostly lower-consumption, lower-income households. Against this backdrop, the study addresses two research questions:

1. How do current net metering rules influence system sizing, payback periods, and adoption likelihood across consumer categories?
2. What are the resulting financial impacts on Discoms?

To address these questions, we develop a bottom-up analytical model to assess the impact of RTS adoption across four states: Delhi, Gujarat, Karnataka, and Madhya Pradesh—each representing different tariff structures and policy environments. The model incorporates key parameters, including household sanctioned load, annual electricity consumption, average power procurement cost (APPC), residential energy charges, and feed-in tariffs (FiTs), among others.

i. Right-Sizing RTS Benefits Consumers but Hurts Discoms

The results indicate that consumers benefit most when the RTS system size closely matches their monthly electricity consumption. However, oversizing the RTS does not yield additional gains, except in Delhi, where a high FiT makes excess generation more profitable. While net metering allows for energy offsets, any surplus beyond a household’s monthly consumption is compensated at a lower FiT, limiting consumer gain.

From the Discoms’ perspective, a right-sized RTS system is the least favourable outcome. An undersized RTS still retains revenue from grid consumption, albeit at lower tariff slabs, while an oversized RTS allows Discoms to procure power at a lower FiT. However, when consumers right-size their systems, Discoms experience the greatest revenue loss, as these households maximise self-consumption while minimising their dependence on the grid.

ii. Higher-Income Households are More Likely to Adopt RTS

Net-metering policies in India create disparities in the value of electricity depending on who generates it and when. Our model indicates that lower-consumption consumers—often a proxy for lower-income households—experience longer payback periods than wealthier consumers who have optimally sized their RTS installations. This is primarily because lower-income households typically fall under lower tariff slabs, resulting in less financial benefit from solar generation. In some instances, state electricity subsidies further diminish the value of the energy they produce, sometimes even reducing it to zero. Conversely, high-consumption households derive the greatest benefits, as they can offset their higher electricity costs with self-generated solar power. This raises critical concerns about the efficacy of subsidies: are capital subsidies and net-metering benefits disproportionately favouring those who can already afford RTS, rather than those who need it most?[6]

iii. Rooftop Solar with Net Metering is a Zero-Sum Game

Higher-consumption households maximise their savings through net metering by offsetting grid purchases with self-generated power, often reducing their electricity bills to zero or moving into lower tariff slabs. Crucially, they can achieve these savings without altering their consumption patterns. Given that most states have telescopic tariff structures, wealthier households—who typically have high[7] electricity consumption, higher tariff rates, and reliable roof access—are more likely to adopt RTS. This creates a revenue challenge for Discoms, as high-paying consumers shift away from the grid, leaving a larger financial burden on lower-paying consumers.

For Discoms, RTS adoption presents both benefits and challenges. While it can reduce daytime demand, transmission losses, and overall power procurement costs—particularly during supply shortages—it also disrupts revenue models. This challenge is most pronounced during non-solar hours, when high-consumption RTS users rely on the grid. Discoms must procure electricity at higher costs without adequate compensation during these periods, exacerbating their financial losses. Additionally, net metering does not differentiate between peak and off-peak hours, valuing electricity uniformly throughout the day. This further distorts financial outcomes for Discoms. The current net metering framework, therefore, does not create a mutually beneficial arrangement—consumer gains come at the expense of Discoms, reinforcing the importance of understanding which consumers are shifting to RTS.

iv. Time-of-Day Tariffs Matter-Policy Should Encourage Solar-Aligned Demand

Comparing consumer tariffs and FiTs with the APPC overlooks a critical factor: the time-of-day (ToD) variation in Discoms’ procurement costs. Midday energy prices are generally lower because of cheaper utility-scale solar, whereas evening and night-time prices are higher. Households with higher solar-aligned consumption reduce their reliance on the grid during expensive, non-solar hours, thereby mitigating revenue losses for Discoms.

Although limited in residential settings, ToD tariffs offer a potential mechanism to reduce those losses. For consumers with smart meters, existing regulations recommend a 20% discount for solar-hour consumption and a 20% surcharge for non-solar hours, lowering losses compared with a non-ToD scenario. Figure 1 examines the impact of ToD pricing for consumer profiles across three RTS sizes. A more dynamic ToD design, better aligned with real-time supply conditions, could enhance Discoms’ financial sustainability while facilitating RTS integration.

However, as Figure 1 shows, a 5 kWp RTS system, optimally sized at approximately 5,500 kWh, results in the lowest net present value (NPV) for Discoms—even when the household has a high solar-aligned consumption rate of 90%. That said, a well-designed ToD tariff can help mitigate the losses associated with right-sized RTS users, as seen in a right-sized 10 kWp RTS system with around 9,000 kWh consumption. While ToD tariffs can reduce losses from right-sized consumers, they may also diminish gains from oversized or undersized consumers, such as a 1 kWp RTS system with 9,000 kWh consumption. However, such extreme cases are uncommon, as most consumers install RTS systems based on a mix of economic and technical considerations rather than on extreme oversizing or undersizing. This also highlights that ToD tariffs alone cannot address the fundamental challenges of net metering, telescopic tariffs, and solar-aligned consumption.

Towards Equitable Net-Metering Reforms

Although net metering has been an essential policy tool for incentivising RTS, it may not be the most efficient approach. While gross metering eliminates offsets, it still does not dynamically reflect the value of electricity based on time-of-day (ToD) considerations. To ensure the financial stability of Discoms while safeguarding consumer interests, this paper proposes the following policy recommendations:

1. Align Fixed Costs to Ensure Discom Recovery: Net metering allows large consumers (greater than 5 kW) to derive greater value from RTS, significantly reducing their grid consumption. Since Discoms recover most fixed costs through energy charges, this shift places a disproportionate financial burden on non-RTS commercial and industrial consumers and smaller, lower-paying households. Without proportional fixed cost adjustments, this imbalance will intensify as more high-paying consumers adopt RTS.
2. Promote RTS with Storage: For appropriately sized large consumers (greater than 5 kW), RTS payback periods range from 5–10 years without central subsidies and improve only slightly to 4–9 years with subsidies, offering limited financial advantage. To enhance grid stability and financial sustainability, subsidies for larger RTS systems should be contingent on storage integration. This would help Discoms by reducing procurement costs during evening peak hours and mitigating the financial strain of net metering offsets.
3. Transition to a Modified Net Metering Framework for Fair RTS Valuation: A differentiated approach is needed to ensure fair valuation of RTS electricity while maintaining consumer adoption and Discom sustainability. A modified framework could allow self-consumption, export valuation at wholesale rates or State Electricity Regulatory Commission-determined prices, and import charges at applicable tariffs to create a more balanced, equitable, and sustainable RTS integration.
4. Implement ToD Tariffs with Real-Time Price Signals: ToD tariffs can help reduce Discom losses by aligning consumer demand with solar generation patterns. However, for long-term sustainability, ToD tariffs should reflect real-time supply conditions and market price signals rather than fixed solar and non-solar hour distinctions. Implementing real-time pricing can improve cost recovery and enhance electricity market efficiency.
5. Balance RTS Growth with Discom Financial Sustainability: A hybrid approach is essential to scale RTS adoption while ensuring Discom financial health. This includes fixed cost recovery through appropriate charges, a differentiated metering mechanism to balance consumer and Discom interests, a flat tariff structure to minimise slab distortions, and ToD tariffs with real-time pricing for accurate market signals.

The PM Surya Ghar Muft Bijli Yojana represents a significant advancement in accelerating the adoption of RTS and enhancing consumer benefits across India. By implementing these recommendations, policymakers can achieve a balance that supports RTS growth while maintaining the financial viability of Discoms, thereby fostering a sustainable and equitable energy ecosystem. As the initiative progresses, it offers an opportunity to clearly define its overarching priorities, whether to focus on energy affordability, consumer equity, environmental sustainability, or the financial stability of Discoms. A well-structured policy framework can align these objectives, ensuring the long-term success of the PM Surya Ghar Muft Bijli Yojana and India’s clean energy transition.