The Drivers and Challenges of Third Party Financing for Rooftop Solar Power in India

The report analyzes the third party financing model for rooftop solar in India, where developers install and own systems and sell power to consumers via long-term agreements. While the model is financially viable in most states for industrial and commercial segments—often achieving grid parity without incentives—its growth is hindered by limited debt finance, consumer credit risk, and inconsistent net metering implementation. The report suggests policy interventions such as training bank officials, involving DISCOMs in power purchase agreements, and creating specialized dispute courts, alongside financial instruments like peer-to-peer lending platforms and green bond securitization.

• India has a government target of 40 GW of rooftop solar power by 2022, but growth is currently slower than required, with only 0.7 GW installed as of March 2016.
• The third party financing model, which currently supports approximately 102 MW (13%) of installations, has the potential to provide over 20 GW by 2022, potentially meeting more than half of the national target.
• The most significant barriers to general rooftop solar adoption are high upfront installation costs (scored 8.5/10) and limited access to debt finance (scored 8/10).
• Third party financing is financially viable for industrial and commercial segments in most states with current incentives, and in many states even without them due to the achievement of grid parity.
• The residential segment is currently less viable due to low profitability and high transaction costs, but is expected to reach grid parity around 2020.
• Limited access to debt finance is a critical challenge; for the industrial segment, the model is only financially viable if the debt proportion is around 70%.
• Net metering is essential for viability; without it, the average internal rate of return (IRR) for the industrial segment is 12%, which is below the required 14% threshold.
• Consumer credit risk is a major specific challenge for the third party model due to long contract terms (15-25 years) and India's poor ranking in contract enforcement (178 out of 189 countries).
• Key policy recommendations include training bank officials to assess solar loans, involving DISCOMs in power purchase agreements to reduce credit risk, and providing higher Renewable Purchase Obligation (RPO) credits to incentivize DISCOMs.
• Proposed financial instruments include Loans4SME (a peer-to-peer lending platform), a Rooftop Solar Private Sector Financing Facility using green bonds, and a Rooftop Solar Investment Trust (RSIT) for equity bundling.

APA

Gupta, S., Sharda, J., & Shrimali, G. (2016). The Drivers and Challenges of Third Party Financing for Rooftop Solar Power in India. Climate Policy Initiative. https://climatepolicyinitiative.org/wp-content/uploads/2016/09/The-Drivers-and-Challenges-of-Third-Party-Financing-for-Rooftop-Solar-Power-in-India.pdf

Chicago

Gupta, Sandeep, Jai Sharda, and Gireesh Shrimali. The Drivers and Challenges of Third Party Financing for Rooftop Solar Power in India. Climate Policy Initiative, 2016. https://climatepolicyinitiative.org/wp-content/uploads/2016/09/The-Drivers-and-Challenges-of-Third-Party-Financing-for-Rooftop-Solar-Power-in-India.pdf.

Wikipedia

{{cite report |last1=Gupta |first1=Sandeep |last2=Sharda |first2=Jai |last3=Shrimali |first3=Gireesh |title=The Drivers and Challenges of Third Party Financing for Rooftop Solar Power in India |publisher=Climate Policy Initiative |date=September 2016 |url=https://climatepolicyinitiative.org/wp-content/uploads/2016/09/The-Drivers-and-Challenges-of-Third-Party-Financing-for-Rooftop-Solar-Power-in-India.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gupta2016drivers, author = {Gupta, Sandeep and Sharda, Jai and Shrimali, Gireesh}, title = {{The Drivers and Challenges of Third Party Financing for Rooftop Solar Power in India}}, institution = {Climate Policy Initiative}, year = {2016}, month = sep, url = {https://climatepolicyinitiative.org/wp-content/uploads/2016/09/The-Drivers-and-Challenges-of-Third-Party-Financing-for-Rooftop-Solar-Power-in-India.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }