Retail Loans for Residential Solar in India: An Alternative Financial Product

Sep 26, 2024 | Reports

Labanya Prakash Jena and Vaibhav Pratap Singh

Publisher Page
csi global report

Overview

The Government of India (GoI) had a target to add a cumulative rooftop solar capacity of 40 GW by 2022 as part of the country’s Intended Nationally Determined Contributions (INDC). However, installations only made up about 30% of the target, even after the intended timeline. Within the rooftop solar sector, the household segment holds promise. However, it cannot realize its potential due to economic, regulatory, and structural reasons, including a lack of access to debt financing for households, which hinders progress. Existing solar debt financing products face challenges such as having limited financial performance records and requiring excessive collateral. Addressing these barriers is crucial for the residential rooftop sector’s growth. The proposed resolution involves a retail loan product that employs the subsidy allocated to the residential sector to guarantee the solar system loan. This loan product will address access to finance issues in the residential rooftop solar sector using the capital expenditure (CAPEX) model. Banks and Financial Institutions (FIs) will be more comfortable lending to household consumers as there is a guarantee (30% of asset value). Since the subsidy is given back to the customer after the full loan payment, the customers have a greater incentive to repay the loan. Besides, this solution will also help address the lengthy subsidy disbursal issue. The loan product presents a pioneering approach to tackling the financing obstacles in the residential rooftop solar market. It not only aims to offer crucial debt financing but also showcases the commercial feasibility of the residential rooftop sector. By aligning the financial solution with the customers’ requirements through favorable credit terms, this financing option encourages residential customers to transition to rooftop solar systems.

Author

  • Labanya prakash Jena

    Labanya is a distinguished thought leader in the field of climate finance, ESG, and sustainable finance with 22 years of experience out which 8 years in sustainable and green finance. Labanya has held key roles, including his current role as a consultant for sustainable Finance at the Institute for Energy Economics and Financial Analysis (IEEFA). His extensive experience also includes leadership positions at the Climate Policy Initiative, where he led the Centre for Sustainable Finance initiative in India, The Commonwealth, UNDP, WRI, and GIZ. He is also an agenda contributor at the World Economic Forum (WEF) and a key member of the ESG initiative at the CFA Society India.

    Mr. Jena holds a Master’s degree in Economics from Utkal University and a CFA charter holder from the CFA Institute; he has completed the sustainability and climate risk certification program at the Global Association of Risk Professionals (GARP) and Oxford University. He is also a Doctoral Scholar in Green Finance at XLRI, Jamshedpur.
    He is a regular columnist on climate and sustainable finance for prestigious platforms such as the World Economic Forum, Financial Express, and Hindu Business Line, among others. He also co-authored a book on Net-Zero financing, which will be published by Bloomsbury this September.

    Additionally, he is a regular speaker and trainer on sustainable finance. Mr. Jena’s work has involved engaging with high-level stakeholders, including NITI Aayog, SEBI, RBI, and the Ministry of Finance.