What are the various policies and regulations (subsidies, incentives, permissions) that I should consider for my rooftop solar systems?

Worldwide, many central and state governments have launched various schemes to incentivise rooftop solar power. We provide an overview of the important policies to be considered for rooftop solar PV.

Accelerated Depreciation (AD)

Accelerated depreciation of 80% is available under the Income Tax act for rooftop solar PV systems. This can provide significant savings to a solar plant developer who is a taxable assesse and has sufficient profits against which the depreciation can be charged. This is illustrated in this table:

Tax savings from accelerated depreciation
Item $
Cost of a 100 kW rooftop solar plant (A) $3000
Accelerated depreciation @80% $2400
Corporate tax rate* 35%
Tax saved through depreciation (B) $840
Net cost of rooftop solar plant (A)-(B) $2160

*Tax rate can vary for different countries

Ministries in many countries provide financial assistance through capital and/or interest subsidy (depending on the nature of the applicant). The type of subsidy available varies for different types of customers, viz

S. No. Customer Category
1 Individuals for all applications
2 Individuals for Irrigation, & community drinking water applications
3 Non-commercial/
commercial/industrial applications
4 Non-commercial/
commercial/industrial mini-grids

Well, in some cases both subsidies AND accelerated depreciation might be applicable!

Federal Tax Credits

Federal tax credits allow homeowners to subtract part of the cost of the solar system from the tax owed to the government. Note that unlike a tax deduction incentive like AD where the taxable income is reduced, FTC is a dollar-for-dollar reduction in income taxes. In the US, a federal tax credit of 30% of the solar system is available for residential and commercial solar systems. In US, since the implementation of the tax credits in 2006, the cost to install solar has dropped by more than 73%.

For example, let us assume you purchase a solar panel system for $10000. With a 30% federal tax credit, you subtract $3000 from the money you owe in taxes. So, if your income tax is $5000, after the tax credit it reduces to $2000

Subsidized Loans

Subsidized loans are available in the form of zero or low interest rates from banks, utilities, governments or other organizations. These are very uncommon and are usually available only for a limited period of time. It is important to understand that until solar energy reaches grid parity, it is going to be widely supported by these financial incentive mechanisms. The effective implementation of these incentives enhances the financial viability of solar projects.

Generation-based Incentives

In this case, the customers are rewarded for the electricity that is generated from solar. The main feature of generation-based incentives is that it benefits the most efficient customer. Feed-in-tariffs and Renewable Energy Certificates (RECs) are two common types of generation based incentives.

Feed-in-Tariffs (FiT) –

This is an incentive provided by the utility to the customer wherein the customer is paid for every unit of electricity that is fed into the grid. The $/KWh paid for the electricity generated reduces over time thereby benefitting early adopters more. FiT schemes have been successfully implemented in many US and European countries like UK and Germany.

USA has offered FiT in solar for a long time, and currently has a range of incentives for solar generation that varies from state to state. FiTs can range from $0.02/kWh for 10 years to $0.37/kWh for locally sourced modules

Renewable Energy Certificates (RECs) –

Green Certificates (Renewable Energy Credits/ Renewable Energy certificates) are awarded as a proof that a certain amount of electricity is produced by a renewable energy source like solar. Typically, the solar energy provider is credited with 1 green certificate for every MWh of electricity that is produced. Rather than the physical electricity that is produced, green certificates are about taking credit for the environmental benefit brought in by use of solar energy.

  • How does the RECs or Green Certificates work?

Example : Let’s say you own a 10KW solar PV system, and say the yearly energy production by this solar plant is 15MWh (15000KWh). This means that you can avail 15 green certificates in a year. If you sell these certificates to someone who is obliged to buy these for $100 per certificate, thus earning $1500. This is the kind of monetary benefit you get with the green certificates.
Please note that, depending on your country’s policy, you might qualify for other financial incentives like tax rebates, capital subsidy etc., in addition to green certificates.

  • What is the need for green certificates?

Note that the utility does not buy the electricity from you, but only takes credit for its generation. Now, this might sound weird. Why would the utility pay you just for producing electricity from your solar panel system? The answer is simple. The utility has an obligation to produce a part of its electricity from a clean energy source. It is much cheaper to pay for clean electricity produced from an existing solar plant that to invest in developing a new one.

Depending on the country, green certificates (also called renewable energy certificates or RECs in some countries) are awarded by ensuring that no single entity gets to earn too much profit from all the different financial incentives. In order to receive a green certificate, the solar energy generator has to apply for accreditation with the relevant authority. Although the success story of green certificates is arguable as these are early days, their main benefits can be concluded as follows:

  • Provides proof of solar energy generation
  • Can be used with other renewable energy policies or incentives like feed-in-tariffs etc.
  • Helps utilities maintain transparency in meeting renewable energy obligations

State schemes

Several states in many countries worldwide have released solar policies that further incentivise rooftop solar.

Net Metering

Several policies worldwide also include net metering. It refers to an incentivising model where excess power generated by the rooftop plant (such as power generated on weekends or national holidays) can be pumped into the grid, and the generator receives a credit for the number of units supplied to the grid against the number of units received from the grid i.e., it is as if the meter ran in reverse when power flowed from the rooftop plant into the grid. In its purest form it would be calculated like this:


Particulars Solar power supplied to grid Grid power consumed
No. of units 800 2,000
Net units 1,900
Monetization from Net Metering @ grid tariff of 10 cents/kWh $80

Numbers are for illustration only

In some state policies the energy supplied to the grid is not directly credited against the number of units consumed from the grid. Instead, another tariff is used to calculate the credit for the energy supplied to the grid. This is illustrated in this calculation:


Particulars Solar power supplied to grid Grid power consumed
No. of units 800 2,000
Solar tariff for power supplied to grid:
15 cents/kWh
Grid tariff for power consumed 10 cents/kWh $200
Total $120 $200
Net bill amount $80

Numbers are for illustration only

Net metering requires a net meter that can record both power consumed from, and supplied to, the grid. It should be noted that without net metering, the excess power generated is still supplied to the grid. The generator doesn’t receive any benefit from doing so in the absence of a net metring policy.


Typically, few permissions are required to set up rooftop installations with capacity

Some local restrictions could be in effect on the capacity of rooftop solar power plants that can be connected to the grid. For e.g., in some states of countries such as Japan and USA where rooftop solar systems are growing fast, grid connectivity to rooftop solar systems is restricted to a certain % of the distribution transformer capacity. To avoid any missteps in this regard we urge you to verify with local power distribution authorities if any such restrictions apply to you, irrespective of the size of solar plant you wish to connect to the grid.

Key Takeaways
  • Central policy support for rooftop solar plants include
    • Accelerated depreciation
    • MNRE subsidy
    • Renewable Energy Certificates
    • Subsidized loans from banks, utilities, governments or other organizations.
  • Several states provide additional incentives based on their solar policies
  • FiT schemes have been successfully implemented in many US and European countries like UK and Germany.
  • In US, since the implementation of the tax credits in 2006, the cost to install solar has dropped by more than 73%.
  • Net metering, or reward for excess power supplied to the grid, is slowly gaining ground in India
  • Permissions required for installing grid connected rooftop solar systems primarily involve receiving approvals from the local power distribution authorities, who may need to ensure that the grid infrastructure does not become congested

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