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India’s distributed solar capacity has increased more than 17 times to 31.5 GW in financial year (FY) 2026 from 1.8 gigawatts (GW) in FY2018, according to a new report. This growth was driven by flagship government schemes such as Pradhan Mantri Surya Ghar Muft Bijli Yojana and Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM KUSUM).
However, despite this surge, distributed energy resources (DER) continue to face regulatory, financing and implementation barriers, showed the report by the Institute for Energy Economics and Financial Analysis (IEEFA).
It compared India with Australia and Bangladesh, finding that all three countries have made progress in creating an enabling ecosystem for DERs, particularly rooftop solar, but significant gaps remained in areas such as grid connectivity, financing, smart metering and network visibility.
India performed well on technical standards and single-window digital services, but continues to lag on approval timelines and network visibility.
According to the report, government subsidies, concessional finance and supportive policies have accelerated distributed solar deployment across residential and agricultural segments. Rooftop solar capacity expanded from 1.1 GW in FY18 to 25.7 GW in FY26, while off grid solar pumps under PM KUSUM Component B increased from 0.7 GW to 5.8 GW over the same period.
India has an estimated rooftop solar potential of 637 GW, while more than 29 million irrigation pumps present a major opportunity for decentralised solarisation. The country also has an estimated 21 GW of small hydropower potential and 42 GW of bioenergy potential.
"In India, DER growth has been driven by two flagship schemes, PM Surya Ghar Muft Bijli Yojana and PM KUSUM. Backed by diverse business models, including capital expenditure (CAPEX), renewable energy service company (RESCO) or operating expenditure (OPEX), and utility led implementation models, these schemes have broadened market participation and accelerated DER deployment across urban and rural areas," said Gaurav Upadhyay, lead analyst, Sustainable Finance, South Asia, IEEFA.
Despite the capacity expansion, distributed solar’s share in India’s total renewable energy portfolio has remained broadly unchanged at around 21 to 22 per cent because utility scale solar has expanded even faster.
The report identified multiple bottlenecks slowing further deployment. Residential rooftop solar continues to face delays in approvals, subsidy disbursement, limited access to affordable finance and low consumer awareness. Commercial and industrial consumers face uncertainty over net metering regulations, banking and open access policies, lengthy approval processes and inconsistent implementation by distribution companies. Financing constraints for micro, small and medium enterprises also remain a major challenge.
Implementation of PM KUSUM has also progressed unevenly because of financing constraints for farmers, land availability issues, weak coordination with distribution companies and slower feeder solarisation. The report noted that technologies such as small hydropower and bioenergy have received relatively limited policy support despite their sizable potential.
The comparative assessment showed India has comprehensive technical standards, multiple financing mechanisms and a unified digital platform for residential rooftop solar applications under PM Surya Ghar. However, approval timelines remain inconsistent, with state regulations prescribing 15 to 30 days but stakeholders often reporting actual approvals taking 30 to 90 days. Smart meter deployment is progressing but remains uneven across states, while network visibility remains constrained by limited adoption of smart meters and remote monitoring.
Australia leads in rooftop solar adoption, with solar panels installed on around 40 per cent of homes and residential batteries emerging as the next phase of distributed energy expansion. Bangladesh, meanwhile, is rapidly scaling rooftop solar, with IEEFA estimating installed capacity at around 667 megawatts (MW) across 239 establishments, compared with the official figure of 418.1 MW.
The report recommended harmonising net metering regulations across states, introducing time-bound approvals, expanding single-window digital platforms beyond residential rooftop solar, improving access to blended finance and credit guarantees, strengthening domestic manufacturing and accelerating deployment of smart meters.
It also called for scaling virtual power plants, enabling vehicles to grid integration as electric vehicle adoption rises, and expanding renewable energy service company models and feeder solarisation to improve system flexibility and consumer participation.