Background: Why MSMEs Need to Decarbonize
Tamil Nadu’s Micro, Small, and Medium Enterprises (MSMEs) are central to the state’s economy, powering manufacturing, exports, and employment. With global supply chains and carbon markets increasingly demanding low-emission products, MSMEs—especially in energy-intensive sectors like textiles, leather, and engineering—must rapidly decarbonize to remain competitive. Rooftop solar adoption in India has become highly cost-effective, with installation costs falling and payback periods now just 3–5 years. This makes solar not just an environmental choice but a profitability-enhancing investment, reducing grid reliance, improving compliance with buyer requirements, and opening up climate-sensitive market opportunities.
India’s climate action progress has been significant: it achieved 50% renewable capacity in June 2025—five years ahead of its target—and cut GDP emissions intensity by 36% from 2005 to 2020. Tamil Nadu is targeting net zero by 2050, 20 years ahead of India’s national goal, with its Solar Energy Policy mapping out ambitious rooftop capacity expansion.
The Demand Aggregation Model
Demand aggregation allows MSMEs in a cluster—such as an industrial park, supply chain group, or business association—to collectively procure rooftop solar systems, increasing bargaining power and achieving economies of scale while installations occur at individual rooftops.These programs are typically coordinated by expert agencies, industry associations, or government-led platforms that assist in technical analysis, financing, procurement, installation oversight, and contract management. Two flexible investment models are common:
CAPEX Model: MSMEs purchase and own the systems outright, reaping long-term savings.
OPEX/RESCO Model: A Renewable Energy Service Company installs, owns, and operates the systems, selling power under a Power Purchase Agreement, lowering upfront costs and operational responsibilities.
Aggregation also enhances MSMEs’ ability to secure concessional loans, payment risk protections, and other financial supports, making adoption viable for those with differing capital and risk appetites.
Risk Management: Payment Security & Credit Guarantees
Given the multi-stakeholder, long-term nature of aggregated rooftop solar projects, strong risk mitigation is essential.
Payment Security Mechanisms (PSMs): Tools like escrow accounts and reserve buffers ensure timely payments to developers and lenders, shielding them from defaults. Escrow structures can channel all payments through a controlled account or only be triggered in case of default, balancing risk mitigation with administrative complexity.
Credit Guarantee Mechanisms (CGMs): Under CGMs, a guarantee provider agrees to cover part of a lender’s losses if borrowers default, lowering perceived risk and enabling better financing terms. They can help both RESCO developers and CAPEX-model MSMEs access funding with reduced collateral.
Implementation in Tamil Nadu
The success of rooftop solar demand aggregation in Tamil Nadu depends on coupling it with robust payment security, credit guarantees, governance, and operational clarity. State agencies such as TIIC, FaMeTN, and Guidance Tamil Nadu can coordinate cluster engagement, financing, and oversight. Payment security could be handled by nodal agencies, guarantee funds, or multilateral banks. By pooling demand, securing better financing, and reducing risks, MSME clusters can lower solar costs, speed adoption, and build resilience. This transition will help Tamil Nadu’s industries meet climate-conscious standards, maintain market competitiveness, and contribute to the state’s economic and employment goals—all while advancing its net-zero ambitions.
