Introduction

Tamil Nadu’s power sector, being extensive and welfare-oriented, now faces the challenge of sustaining reliable, affordable and clean electricity while minimizing the rising cost of electricity and subsidies. Currently, the state spends around 4% of its budget on subsidies for households and agriculture. This experience reflects the broader question confronting many states: How to preserve welfare goals while maintaining the fiscal health of the state?

This report looks at how distributed energy resources (DER) such as rooftop solar through schemes like PM Surya Ghar and  PM KUSUM can align with welfare goals and meet rising demand while reducing the strain of electricity subsidies. Despite Tamil Nadu’s estimated rooftop solar potential of 60,479 MW, enough to meet nearly half of its projected 2030-31 electricity demand, installed capacity remains below 2% of this potential. By expanding DER adoption and linking to welfare delivery through well-designed policy support and innovative business models, Tamil Nadu can unlock significant benefits for low-income households, marginal farmers, utilities and the state.

Why DER?

Large-scale solar projects deliver power at scale but cannot solve every challenge. Distributed solar has different advantages, as highlighted in the report. Tamil Nadu needs both large and distributed solar. The investment in ultra mega watt projects is needed to meet its clean energy targets, but expanding rooftop and small-scale systems will make the grid more resilient and bring other benefits such as employment, grid benefits and better welfare delivery.

Global and National Lessons for Tamil Nadu 

Globally, in countries like Australia, Brazil, China and Germany, distributed solar, particularly rooftop, has grown rapidly when supported by enabling policies, accessible finance, and targeted beneficiary programmes.  Many Indian states like Gujarat, Kerala, and Maharashtra are leading in rooftop solar deployment. Their experiences are highlighted in the report, offering lessons for Tamil Nadu to expand DER adoption..

Electricity Subsidy Reform through PM Surya Ghar and PM KUSUM

Electricity subsidy is central to Tamil Nadu’s power sector, but also a heavy burden. Agricultural supply is free, and domestic tariffs are subsidised. To pay for this, industry and commerce face higher tariffs, creating cross-subsidies. The report explains how this system works and why it is under strain. Tamil Nadu’s welfare policy has always aimed at fairness. But blanket subsidies often reach both rich and poor, diluting their impact. DER allows support to be targeted better. PM Surya Ghar and PM KUSUM are the key schemes for distributed solar in Tamil Nadu. Their design and delivery are very important for Households and Agriculture.

• Low-income households PM Surya Ghar can help families install rooftop solar. This means savings and better utilization of the state subsidy.
• Marginal farmers can be supported through PM KUSUM-C (IPS). This means a reliable supply and reduced pressure on the subsidy budget, and additional income from surplus sales of electricity.

By efficient beneficiary targeting, distributed solar connects directly with Tamil Nadu’s welfare goals while also reducing fiscal stress.

Business Models for Distributed Solar Expansion

The report outlines how different business models can accelerate deployment across consumer segments:

• Market-Driven Model (consumer driven BAU): consumers own the asset, choose vendors, and finance via savings, loans, or credit-linked subsidies.
• Full Subsidy Model – government bears the entire capital cost for low-income households and marginal farmer groups.
• Build–Operate–Transfer (BOT) – infrastructure is handed over to beneficiaries after cost recovery.
• Peer-to-Government (P2G) – consumers supply power to the state.
• Super RESCO: developers finance, install, and operate systems, reducing upfront costs for consumers.
• Zero- Interest Finance – similar to market driven, but the consumer gets a loan at zero percent interest, only pays the principal amount. The interest is paid by the government.

Each model aligns differently with consumer, utilities and state priorities. Their strategic combination can turn subsidy into an investment that delivers long-term savings for consumers, utilities and the state. 

Recommendations

• Move beyond aggregate solar MW targets to adoption targets,  prioritising low-income households and marginal farmers.
• Tamil Nadu could explore alternative models, such as virtual net metering, shared community solar projects for beneficiaries who may not have access to suitable rooftop space
• Combine central schemes with tailored state-level incentives and business models.
• Reform subsidy delivery by integrating beneficiary identification mechanisms, learning from schemes like Ujjwala Yojana and China’s SEPAP, to maximise both equity and fiscal sustainability.
• Promote battery storage and advanced grid management to prepare for higher solar penetration and shifting demand peaks.

By using DER as both technological and social innovation,  the report underscores that Tamil Nadu can move towards a socially just and inclusive energy transition.