Clean energy sources, including solar, can deliver long-term cost savings and improve resilience against power supply volatility. As India accelerates its renewable energy transition, financing for clean energy adoption is becoming more accessible for small and medium-sized businesses, driven by faster digital lending products from banks and other financiers, as well as government incentives for renewable installations.

These measures are helping speed up approvals, strengthen customer confidence in project financing, enable larger project sizes, and reduce payment risks.

However, before approaching lenders, customers should evaluate key factors that influence approval odds and long-term project performance, such as their credit profile, awareness of applicable government programs, the quality of system components, and their expected outcomes over the project life.

Moreover, customers should engage early with their financial partners to align on the right incentive programs and structure the most efficient financing plan.

Incentive-Linked Financing Options

Sachin S, AGM at Small Industries Development Bank of India (SIDBI), highlighted government programs to help Micro, Small, and Medium Enterprises (MSMEs), such as the Micro and Small Enterprises Scheme for Promotion and Investment in Circular Economy (MSE SPICE). Under this program, solar projects up to ₹5 million (~$55,432) by companies that use machines to recycle or reuse their waste are eligible for a 25% capital subsidy, up to a maximum of ₹1.25 million (~$13,858). The program aims to encourage MSMEs to adopt circular economy practices, focusing on sectors such as plastic, rubber, and electronics waste management to comply with international environmental goals and improve operational efficiency.

Sachin also highlighted the MSE Green Investment and Financing for Transformation (GIFT) program. This program offers a 2% per annum loan interest subvention for five years, up to a term loan limit of ₹20 million (~$221,727) to support MSMEs in accessing institutional finance at concessional rates to adopt clean energy technologies.

SIDBI loan applicants may be eligible for a 2% interest subvention on solar projects and a 0.25% general subvention on clean energy projects.

Amit Kumar Singh, AGM at Bank of India (BoI), said the bank seeks to de-risk the customer’s project by linking it to various government incentives.

He referred to initiatives such as the PM KUSUM and the Assistance in Deploying Energy Efficient Technologies in Industries and Establishments (ADEETIE) programs. Under ADEETIE, MSMEs are eligible for a 5% interest subvention on loans, and medium enterprises are eligible for a 3% interest subvention.

BoI also offers MSMEs loans ranging from ₹1 million (~$11,094) to ₹300 million (~$3.33 million). This funding will cover rooftop solar installations, energy-efficient machinery, and solar projects that transmit energy under an escrow or tripartite agreement.

The bank provides loans for up to 85% of the project costs.

The Bank of Maharashtra (BoM) also offers financing under government incentives, said Rajesh Deshmukh, Deputy General Manager and Zonal Manager.

Sangram Sathe, Relationship Manager, SME at State Bank of India (SBI), stated that the bank is funding solar, green hydrogen, and methane gas generation projects.

SBI supports entrepreneurs’ research and development in green steel manufacturing to help reduce carbon emissions during production. India’s steel industry will be impacted significantly by The European Union’s (EU) tariffs under the Carbon Border Adjustment Mechanism (CBAM). CBAM aims to put a fair price on carbon emitted during the production of goods entering the EU and to ensure European manufacturers are not undercut by imports made under looser climate rules.

Interest Rates

Giving Maharashtra’s example, Sathe stated that SBI is funding projects under the state’s 2018 captive policy, offering interest rates on project loans of 8% to 9%. These rates depend on the strength of the power purchase agreements (PPAs), the quoted rates, and the buyer’s financial profile.

Interest rates at SIDBI depend on the applicant company’s ratings, including its sales performance and financial ratios, said Sachin. SIDBI’s interest rates generally range from 8.1% to 9.15%.

Singh stated that interest rates at BoI typically depend on the applicant’s project scope and size, as well as the bank’s financial and subjective non-financial parameters. Subjective parameters include the project promoter’s financial standing,  account history, industry outlook, and business risks.

Credit ratings have become an important factor in the loan approval process. BoI takes external credit ratings from the Reserve Bank of India-accredited rating agencies for projects costing over ₹500 million (~$5.45 million).

“If a project receives an internal rating between one and three (credit rating) bands, BoI offers a pricing rate of interest that is 0.25% less than what it offers to companies that are rated between four and five,” said Singh.

SIDBI uses similar credit rating metrics for projects over ₹500 million (~$5.45 million).

SBI’s interest rates depend on project risks; less risky projects will have lower interest rates. PPA rates also help determine the interest rate. “When the PPA rate is over ₹6 (~$0.065)/kWh, the profitability and other financial indicators of such units are slightly above the industry average. Conversely, financial indicators for projects with PPAs below ₹6 (~$0.065)/kWh are slightly below the industry average.”

Sathe said that customers applying for loans at SBI can get external credit ratings from accredited agencies even for projects below ₹500 million (~$5.45 million).

Deshmukh said BoM provides interest rates of 8.5%, depending on the applicant’s credit monitoring rating, internal credit rating, and external credit rating for projects over ₹250 million (~$2.73 million).

Parameters for internal rating and other financial requirements are the same as those of other lenders.

Responsibilities and Mistakes

Customers must note the important steps and common mistakes many make when applying for loans or installing solar or other renewable energy systems.

Sachin stated that financial responsibility will help significantly when applying for loans, noting that digitization and AI implementation are enabling more efficient tracking of such history.

He also called for renewable energy projects to incorporate newer technologies for greater efficiency.  Additionally, he advocated for greater awareness of government programs and encouraged customers to take advantage of them.

Singh observed that many customers choose cheaper components for their projects rather than higher-quality ones. He advises customers to undertake cost-benefit analysis when making such decisions. Renewable energy systems not working properly due to lower-quality components can result in negative effects on the customer’s balance sheets or financial performance.

Additionally, Singh advises customers to select reputable engineering, procurement, and construction (EPC) contractors.

Concurring with Sachin on government programs’ awareness, he added, “Many customers have not linked their projects or financing with government programs. Such programs can help de-risk their projects and balance sheets.”

He advises customers to work closely with their financial partners, who can choose suitable incentive programs.

Sathe also advises carefully choosing EPC contractors. He said, “When open access or ground-mounted projects fail, many times the project promoters choose EPC contractors without great reputations.”

Deshmukh stated that many MSMEs do not consider renewable energy options, such as solar, due to initial installation costs. “I believe this is a mistake. Since we (the banks) are ready to provide financing, MSMEs should invest in solar; it is the most cost-beneficial solution.”

Long-Term View

Experts believe customers should approach renewable energy installations with a long-term perspective.

Deshmukh stated that installing solar systems will yield financial returns within five to six years. Customers will benefit from such a system for approximately 25 years, making it attractive for long-term use by MSMEs.

Singh noted that many MSMEs consider renewable energy installations necessary to meet compliance requirements. “However, such installations should be considered as strategic tools for competitive advantages, which can strengthen their balance sheets and make their ecosystems greener.”

Sathe called for greater adoption of renewable energy amid a volatile geopolitical environment, which could lead to restrictions on non-renewable fuels. He stated that adopting renewable power will provide energy resilience.

These insights were shared at the recent C&I Clean Energy Event held in Nashik.

For C&I consumers exploring clean energy adoption, Mercom is hosting a series of C&I Clean Energy Events across India. The next event will be held in Coimbatore on February 5, 2026.