Background and Rationale

Rooftop solar in Tamil Nadu offers an opportunity to modernize the state’s welfare delivery approach. With 24.02 million active domestic electricity service connections as of FY 2023–24, Tamil Nadu has achieved universal electricity access. However, this achievement has come at a steep financial cost. In FY 2025–26, the state allocated subsidies, representing nearly 4% of the state budget.

A significant share of Tamil Nadu’s households are economically vulnerable. Of the 1.15 crore ration cards issued under the National Food Security Act, 96.68 lakh (84%) are Priority Household (PHH) cards and 18.64 lakh (16%) are Antyodaya Anna Yojana (AAY) cards, representing families living below the poverty line. These households are the primary intended beneficiaries of electricity subsidies. Current electricity subsidies have expanded access and affordability but increasingly benefit higher-consuming households, weakening their effectiveness as a welfare tool.

The PM Surya Ghar: Muft Bijli Yojana (PMSG), launched by the Ministry of New and Renewable Energy (MNRE), provides an opportunity to link renewable energy with welfare delivery. By aligning rooftop solar adoption with subsidy reform through innovative business models, Tamil Nadu can reduce fiscal pressure, build household energy assets, and advance its net-zero and sustainable development goals.

Challenges in Tamil Nadu’s Current Subsidy System

Tamil Nadu’s domestic electricity consumption is growing rapidly. Between FY 2023–24 and FY 2029–30, it is projected to increase by 57%, further raising subsidy costs. Current subsidy allocation patterns reveal inefficient targeting:

• Households consuming over 200 units bi-monthly absorb 61.9% of total subsidies.
• The lowest-consuming slab (up to 100 units) accounts for just 5.14% of consumption but receives 11.12% of subsidies.

This creates a fiscal sustainability challenge for the power sector, as rising demand will continue to drive up subsidy allocations without improving welfare outcomes.

Linking Rooftop Solar with Subsidy Reform

The PMSG scheme provides Central Financial Assistance (CFA) to households for installing rooftop solar, 60% CFA for systems up to 2 kW, and 40% CFA for systems between 2-3 kW. Despite its potential, rooftop solar adoption in Tamil Nadu remains low. As of September 2025, installed capacity under PMSG was 140.8 MW, representing less than 0.5% of households.
The barriers include:

• Limited financial incentive for low-income households receiving free or heavily subsidized electricity.
• High upfront costs, as households must still mobilize 40% of system costs after the MNRE subsidy.

By specifically targeting low-income households, the government can redirect recurring fiscal outflows into one-time capital investments. This approach improves household energy security and reduces long-term costs.

Business Models for Rooftop Solar

Auroville Consulting’s study explores different business models to accelerate PMSG implementation for low-income households:

1. Market Driven Model– The current business-as-usual (BAU) approach, where consumers install rooftop solar under the existing subsidy.
2. Full Subsidy Model – Government fully funds installation costs to enable rapid adoption among low-income households.
3. Build–Operate–Transfer (BOT) Model – A public entity installs and operates the system during loan repayment, later transferring ownership to households.
4. Peer-to-Government (P2G) Model – Surplus solar energy is sold directly to government facilities such as schools and hospitals at premium rates through a secure escrow mechanism.
5. Super RESCO Model – Third-party developers install and operate systems, paying households for rooftop leasing while exporting power to the grid.
6. Zero-Interest Finance: Similar to market-driven model, but consumers get an interest-free loan to finance rooftop solar (with MNRE subsidy), and the government pays the interest.

These models demonstrate that Tamil Nadu can design tailored strategies to meet its dual goals of welfare improvement and fiscal sustainability.

Conclusion

The upcoming challenge for Tamil Nadu’s power sector is balancing household welfare, fiscal responsibility, and climate action. PM Surya Ghar offers a strategic opportunity to convert subsidies into assets, benefiting low-income households, utilities, and the state. Decision makers must weigh the trade-offs of different models and select a pathway that aligns with Tamil Nadu’s energy transition and welfare priorities. By doing so, the state can create an equitable, and resilient energy system that empowers millions of households.