India’s Ministry of New and Renewable Energy (MNRE) has said it is to continue to subsidise rooftop solar.

The announcement on 26 June is one of the first moves regarding solar energy by the newly elected government of India.

MNRE said it would continue its subsidy scheme for rooftop solar, part of the second phase of India’s JNNSM national solar programme.

This provides capital subsidy of up to 30% off the upfront cost of rooftop installations implemented by the MNRE’s so-called “channel partners” or state nodal agencies, bodies set up by state governments to implement renewable energy programmes.

Under changes to the programme, these bodies have an enhanced role that allows them to independently approve or reject rooftop projects up to 50kW in size, and set their own targets.

It is hoped that states and municipal authorities will to take a more active role in the process of approving solar installations.

The minimum size eligible for subsidy is 1kW, while the upper limit for projects to receive the subsidy has been raised from 100kW to 500kW.

With the subsidy, MNRE estimates it may be possible to generate power between INR5.0 -INR6.50 per unit, for 20 years. This is cheaper than diesel-based electricity, and could also be cheaper than grid priced electricity.

Consultancy Bridge to India said in its latest newsletter that it expects the changes to the rooftop programme to be "broadly positive".

But it also blamed the MNRE budget cuts for the postponement of payments under the subsidy programme.

In March it was announced that MNRE is to have its budget slashed. The 2014-2015 MNRE budget is US$72 million, down from US$246 million allocated last year.

Last year, due to long processes for awards, MNRE only disbursed US$69 million, out of its US$246 million budget.

As a result of these cuts, many rooftop projects that should have been receiving the subsidy have not received anything: payments have come to a halt.

The sudden stop in subsidy payments has “frozen the market” as users defer installations, even when they are economically viable without subsidy, Bridge to India said.

End users are expecting the subsidised system cost, but with no payments received, installers are not able to quote the lower prices.

“A bad subsidy scheme is worse than no subsidy scheme,” Bridge to India said.

In response to the subsidy decline, industry bodies have asked for a scrapping of the subsidy and to allow the market to operate independently.

Bridge to India said it was of the view that even a well funded subsidy programme for rooftop solar projects would "only restrict the market", as budgetary constraints restrict its growth. "It might be a better idea to incentivise faster adoption by focusing on larger regulatory aspects around grid connectivity and net-metering along with easier and cheaper access to finance for solar projects," the organisation said.