Feed-in Tariff

What Is a Feed-in Tariff?

A Feed-in Tariff (FiT) is a regulated, per-kWh price that an electricity distribution company or government agency pays a renewable energy generator for power injected into the grid. The price is set in advance by a regulator, applies to all eligible generators within a defined category and capacity band, and is locked into a long-term Power Purchase Agreement that runs for the life of the project, typically 20 to 25 years.

The FiT mechanism originated in European renewable energy policy during the 1990s, where Germany and Spain used guaranteed tariffs to seed early solar and wind investment. India adopted the model for early grid-connected solar projects under the Jawaharlal Nehru National Solar Mission and the first state solar policies.

In current Indian rooftop solar, the FiT is most relevant in three arrangements:

• Gross metering: 100% of solar generation is exported to the grid and paid at the FiT.
• Net billing: Surplus generation after self-consumption is exported and paid at the FiT.
• Net metering settlement: At the end of the settlement period, unused export credits are cashed out at the Average Pooled Power Purchase Cost (APPC), which functions like a FiT for residual energy.

At Heaven Green Energy, Gujarat’s #1 ranked PM Surya Ghar installer, we help customers understand whether FiT-based gross metering or net metering delivers better returns for their specific consumption pattern and roof capacity.

Why Feed-in Tariffs Matter

FiTs have been the primary policy tool driving solar adoption globally and in India.

De-Risking Solar Investment

Solar projects require large upfront capital and generate returns over decades. The FiT de-risks this investment by:

• Price certainty: The per-kWh rate is known before construction begins.
• Long-term contract: The PPA locks the FiT for 20 to 25 years.
• Creditworthy offtaker: The DISCOM or government agency is the payment counterparty.
• Predictable revenue: Annual revenue equals generation multiplied by FiT, enabling precise financial modelling.

For a 500 kW commercial rooftop in Gujarat, a FiT of Rs 3.00 per kWh and annual generation of 7,50,000 kWh produces Rs 22.5 lakh in predictable annual revenue, sufficient to service debt and deliver equity returns.

Accelerating Market Development

Early Indian solar policies used attractive FiTs (Rs 15 to 17 per kWh in 2010-2011) to attract first-mover developers. As the market matured and costs fell, FiTs declined to current levels of Rs 2.50 to 4.00 per kWh, but the mechanism itself created the market infrastructure that now supports competitive bidding.

Enabling Project Finance

Banks and NBFCs will lend against solar cash flows only when revenue is predictable. The FiT-backed PPA provides this predictability, enabling non-recourse project finance at 70% to 80% debt-to-equity ratios.

Important: For PM Surya Ghar residential installations, the scheme provides central financial assistance (subsidy) rather than a FiT. The homeowner’s savings come from reduced grid imports, not from selling power to the DISCOM.

How a Feed-in Tariff Works

The FiT operates through a structured process from tariff determination to payment settlement.

Step 1: Tariff Determination

State regulators follow a published tariff determination process:

1. Draft order: The SERC issues a draft tariff order with proposed FiT levels.
2. Stakeholder comments: DISCOMs, developers, consumer groups, and industry associations submit feedback.
3. Public hearings: The SERC conducts hearings to gather additional input.
4. Final order: The SERC publishes the final tariff order with locked FiT levels.

Inputs to the calculation include:

• Capital cost benchmarks (based on actual project costs).
• O&M expenses over project life.
• Expected generation per kWp (CUF-based).
• Depreciation schedule.
• Return on equity (typically 14% to 16% pre-tax).
• Interest on term loan and working capital.
• Working capital allowance.

The resulting tariff is the levelised price that delivers the target IRR over the project life.

For central utility-scale projects, SECI runs reverse auctions where developers bid the lowest tariff they will accept. The lowest-discovered tariff becomes the contract price, often 20% to 30% below the cost-plus FiT a regulator would have set.

Step 2: PPA Execution

Once the FiT is notified:

• Eligible developers apply for connectivity and PPA execution.
• The DISCOM or nodal agency signs a PPA at the notified FiT.
• The PPA specifies capacity, tariff, term, metering arrangement, and payment terms.

Step 3: Generation and Metering

The solar plant exports electricity to the DISCOM grid through an export meter:

• Gross metering: All generation flows through the export meter.
• Net billing: Only surplus after self-consumption flows through the export meter.
• Net metering: A bi-directional meter records both import and export; export is credited at retail tariff during the month.

Step 4: Billing and Settlement

The DISCOM reads the meter monthly and calculates:

• Gross metering: Exported kWh × FiT = monthly solar revenue.
• Net billing: Exported surplus kWh × FiT = monthly export revenue.
• Net metering: Import kWh × retail tariff minus export kWh × retail tariff = net bill. End-of-year surplus is paid at APPC.

Payment is typically settled monthly or quarterly, either as a credit on the consumer’s electricity bill or as a direct bank transfer.

Visual Explanation

Real-World Example

A 200 kW commercial rooftop in Bengaluru was commissioned in 2023 under Karnataka’s gross-metering framework. The owner signed a PPA with BESCOM at a FiT of Rs 3.07 per kWh for 25 years.

Plant economics:

• Capacity: 200 kW
• Annual generation: 3,00,000 kWh (CUF ~17%)
• FiT: Rs 3.07 per kWh
• Annual solar revenue: 3,00,000 × 3.07 = Rs 9,21,000
• Project cost: Rs 80 lakh
• Debt: Rs 56 lakh (70%) at 9.5% for 12 years
• Annual debt service: Rs 7,80,000
• Annual O&M reserve: Rs 1,20,000
• Net cash flow after debt: Rs 21,000 (first year, rising as debt is repaid)

Comparison with net metering:

The same building’s retail tariff from BESCOM was Rs 8.50 per kWh. Under net metering, each self-consumed kWh saves Rs 8.50 instead of earning Rs 3.07. With 80% self-consumption:

• Net metering savings: 2,40,000 kWh × Rs 8.50 = Rs 20,40,000
• Export revenue (20% surplus): 60,000 kWh × APPC (~Rs 3.50) = Rs 2,10,000
• Total net metering benefit: Rs 22,50,000

Net metering delivered 2.4x the financial benefit compared to gross metering FiT for this building. This is why most commercial buildings with high daytime load prefer net metering, when available. QBits Energy’s complete guide to net metering in India covers the eligibility rules and billing mechanics behind this comparison in more depth.

Technical Specifications and Benchmarks

Note: These figures are indicative and change with each tariff order. Always verify the latest SERC order before signing a PPA.

Benefits and Advantages of Feed-in Tariffs

• Price certainty: The FiT is fixed for the PPA term, eliminating market price risk for generators.
• Long-term revenue visibility: 20 to 25 year contracts enable precise project finance modelling and lender confidence.
• Simple revenue calculation: Revenue equals generation × FiT. No complex market exposure, no basis risk.
• Creditworthy counterparty: DISCOMs and government agencies are generally reliable payers (though payment delays occur).
• Policy stability: FiT orders provide regulatory certainty that supports long-term investment planning.
• Technology-neutral: The same FiT applies regardless of panel technology, allowing market-driven technology selection.
• Scalable deployment: Standardised FiT levels enable rapid replication across multiple projects.
• Rural energy access: FiT-based mini-grids and distributed solar bring power to unelectrified areas.
• Grid stability contribution: Distributed generation at FiT reduces transmission losses and peak load burden.
• Employment creation: FiT-driven deployment creates jobs in manufacturing, EPC, and O&M across the solar value chain.

Limitations and Drawbacks of Feed-in Tariffs

• Financial burden on DISCOMs: Fixed-price guarantees create long-term liabilities. Several Indian DISCOMs struggled to pay early high FiTs, leading to payment delays and policy reform.
• No quality premium: A plant with better modules, lower soiling, or optimal tilt generates more units, but each unit earns the same fixed tariff. There is no reward for superior performance.
• No time-of-day differentiation: Most Indian FiTs pay the same rate regardless of when power is generated. Solar output peaks at midday, which may not align with peak demand.
• Inflation risk: Most Indian FiTs are flat in nominal rupees. A 25-year PPA at Rs 3.20 per kWh signed in 2026 still pays Rs 3.20 in 2046, even if costs have doubled.
• Declining FiT trap: Each tariff cycle reduces the FiT for new projects. A project delayed by one year may lock in a lower FiT for its full 25-year term.
• Self-consumption penalty: Gross metering FiTs are almost always lower than retail tariffs. Buildings that could self-consume solar power lose value by exporting everything at FiT.
• Administrative complexity: Separate metering, billing, and settlement systems for FiT-based projects add DISCOM administrative burden.
• Political risk: FiT levels can be retroactively adjusted or PPA terms renegotiated under fiscal stress, as seen in some European markets and Indian states.

Comparison: FiT vs Other Commercial Structures

For most rooftop solar customers with significant daytime electricity consumption, net metering delivers higher returns than a FiT-based gross-metering arrangement. FiTs become relevant when:

• Self-consumption is low (weekend-only buildings, seasonal operations).
• System size exceeds the net-metering ceiling.
• Net metering is not available in the state or DISCOM area.
• The building is leased, and the tenant cannot benefit from net metering credits.

Applications of Feed-in Tariffs

Residential Solar

For home solar under PM Surya Ghar, the central subsidy (Rs 30,000 to 78,000 depending on system size) replaces the need for a FiT. Homeowners save by reducing grid imports, not by selling power. FiT-based gross metering is rarely used for residential systems.

Commercial and Industrial Solar

For C&I solar, FiTs apply in gross-metering or net-billing states where net metering is unavailable or capped. In Gujarat, net metering is available for C&I up to the sanctioned load, making FiT less relevant for most buildings.

Utility-Scale Solar Parks

For ground-mount solar parks, utility-scale tariffs are discovered through SECI reverse auctions rather than cost-plus FiTs. The auction-discovered tariff functions similarly, a fixed per-kWh price for 25 years, but is market-driven rather than regulator-set.

Agricultural Solar

Under PM-KUSUM Component C, solar pumps and small plants receive benchmark tariffs or subsidies. The FiT mechanism ensures farmers receive predictable revenue from surplus generation. QBits Energy’s KUSUM Yojana agricultural solar subsidy guide walks through the component-wise eligibility and subsidy structure behind these benchmark tariffs.

Industry Standards and Regulations

Feed-in Tariffs in India operate within a comprehensive regulatory framework:

• Electricity Act 2003, Sections 61 and 86: Give SERCs the authority to determine tariffs and promote renewable energy.
• MNRE Rooftop Programme Guidelines: Harmonise central subsidy and net-metering norms but leave FiT determination to states.
• State SERC Tariff Orders: Each state’s regulatory commission publishes FiT levels, eligibility criteria, and PPA terms.
• CERC Framework: Governs inter-state transmission and central scheme tariffs, including SECI auction processes.
• Appellate Tribunal for Electricity (APTEL): Hears appeals against SERC tariff orders.

A signed PPA at a state FiT is a legally enforceable contract. Disputes are resolved at the relevant State Commission, with appeal to APTEL and the Supreme Court if needed.

India-Specific Context

Evolution of FiT Policy in India

India’s FiT journey reflects the maturation of its solar market:

• Phase 1 (2010-2013): High FiTs (Rs 15 to 19 per kWh) under JNNSM to attract early developers. Gujarat’s pioneering solar policy set the template.
• Phase 2 (2014-2017): FiTs declined to Rs 5 to 7 per kWh as costs fell. Competitive bidding introduced for utility-scale projects.
• Phase 3 (2018-2022): Rooftop FiTs stabilised at Rs 3 to 4 per kWh. Net metering gained preference over gross metering.
• Phase 4 (2023-present): Focus on PM Surya Ghar subsidies for residential. C&I increasingly uses net metering or open access rather than FiT.

Gujarat’s FiT Landscape

Gujarat has been at the forefront of solar FiT policy:

• 2009 Solar Policy: Introduced India’s first state-level solar FiT (Rs 13 per kWh for 25 years), catalysing the Charanka Solar Park.
• Current GERC orders: Rooftop FiTs range from Rs 2.83 to 3.20 per kWh depending on voltage level and consumer category.
• Net metering preference: Gujarat allows net metering for rooftop up to sanctioned load, making FiT relevant only for surplus export or gross-metering cases.
• Discom reliability: UGVCL, MGVCL, PGVCL, and DGVCL generally maintain good payment discipline for FiT settlements. See Heaven Designs’ UGVCL net metering process guide for the documentation and application steps specific to that discom.

Heaven Green Energy advises Gujarat customers to prioritise net metering over FiT-based gross metering whenever possible, as the retail tariff savings (Rs 6 to 9 per kWh) significantly exceed FiT earnings (Rs 2.83 to 3.20 per kWh).

State-by-State Variation

FiT levels and policies vary significantly across states. Heaven Designs’ state-by-state discom net metering process guide breaks down the application workflow discom by discom, which is useful context alongside the FiT variation below.

• Progressive states (Karnataka, Gujarat, Rajasthan): Clear FiT orders, reliable payments, net metering available.
• Reforming states (Maharashtra, Tamil Nadu): Transitioning from FiT to net billing; some legacy FiT disputes.
• Lagging states (Bihar, Jharkhand): Limited FiT implementation; weak DISCOM capacity for rooftop integration.

Future Trends in Feed-in Tariffs

The FiT model is evolving as India’s solar market matures.

Declining Role for Rooftop FiTs

As net metering expands and PM Surya Ghar subsidies cover residential solar, standalone FiTs for rooftop are declining:

• Net metering expansion: More states are enabling net metering up to 1 MW or higher.
• Net billing transition: Where net metering is capped, net billing (retail for import, FiT for export) is replacing pure gross metering.
• Subsidy integration: Central subsidies reduce the need for FiT to make rooftop viable.

Time-of-Day FiTs

Some states are piloting a time-of-day tariff structure for solar export instead of a single flat FiT:

• Peak hours (evening): Higher FiT for export during 6 PM to 10 PM.
• Solar hours (midday): Lower FiT for export during 10 AM to 4 PM.
• Battery incentive: Time-of-day FiTs incentivise battery storage to shift solar export to peak hours.

Green Tariffs and Premium Products

DISCOMs are introducing green tariff options:

• Voluntary green pricing: Consumers pay a premium for 100% renewable power.
• Solar-specific tariffs: Separate retail tariffs for consumers with rooftop solar.
• Corporate PPAs: Large consumers negotiate bilateral FiTs directly with solar generators, bypassing DISCOM.

Declining Utility-Scale Tariffs

SECI auction tariffs continue to fall:

• 2016: Rs 4.34 per kWh (first mega auction).
• 2020: Rs 2.36 per kWh (record low).
• 2024-2025: Rs 2.50 to 2.70 per kWh (stabilised with module price recovery).

The auction-discovered tariff has effectively replaced the regulator-set FiT for utility-scale solar.

Common Mistakes and Misconceptions

• Confusing the FiT with the project’s LCOE: The LCOE is the cost of producing electricity. The FiT is the revenue per unit. The project is viable only when FiT exceeds LCOE plus a margin.
• Locking into a long PPA without an inflation index: Most Indian FiTs are flat in nominal terms. Twenty-five years is a long time for a flat rupee revenue stream.
• Sizing the plant to maximise self-consumption under gross metering: Under gross metering, self-consumption is zero by definition. Plant size should follow roof area and FiT economics, not load matching.
• Assuming the FiT is the same across all consumers in the state: Many state orders publish multiple FiT bands by capacity and consumer category. Always verify your specific applicable rate.
• Forgetting that FiTs degrade for new projects: Each tariff cycle reduces the FiT slightly to reflect falling CAPEX. A project commissioned a year later may earn a lower FiT for its full 25-year term.
• Ignoring payment risk: While FiTs are contractually fixed, DISCOM payment delays are common. Factor 30 to 90 day payment delays into cash flow projections.
• Assuming FiT applies to PM Surya Ghar: The residential scheme provides upfront subsidy, not a FiT. Savings come from reduced bills, not export revenue.
• Neglecting APPC for net metering surplus: Under net metering, end-of-year surplus is paid at APPC (typically Rs 2 to 3 per kWh), not retail tariff. Size systems to minimise surplus.
• Confusing FiT with open access tariffs: Open access tariffs are negotiated bilaterally and vary by project. FiTs are regulator-set and standardised.
• Believing FiT guarantees project profitability: A high FiT does not guarantee returns if the plant underperforms, O&M costs exceed projections, or financing is expensive.

Key Takeaways

• A Feed-in Tariff is the fixed per-kWh price a DISCOM pays a solar generator for energy exported to the grid, locked for 20 to 25 years under a PPA.
• In India, state SERCs set rooftop FiTs through tariff orders, while central agencies discover utility-scale tariffs through reverse auctions.
• FiTs are most relevant for gross-metered plants, net-billing surplus, and end-of-year settlement under net metering.
• For self-consuming buildings, net metering at retail tariff (Rs 6 to 9 per kWh) almost always outperforms FiT-based arrangements (Rs 2.50 to 4.00 per kWh).
• Gujarat’s current rooftop FiT ranges from Rs 2.83 to 3.20 per kWh, with net metering preferred for most C&I installations.
• FiTs provide price certainty and enable project finance, but create long-term DISCOM liabilities and do not adjust for inflation.
• Heaven Green Energy advises Gujarat customers to prioritise net metering over FiT-based gross metering whenever possible for maximum financial returns.

Frequently Asked Questions

What is a Feed-in Tariff in simple terms? A Feed-in Tariff is the price the electricity distribution company pays you for every unit of solar power you send into the grid. The rate is fixed in advance by the state regulator and locked for the life of your contract, usually 20 to 25 years.

What is the current FiT for rooftop solar in India? FiT levels vary by state and project size. As of 2026, residential and small commercial rooftop FiTs range from around Rs 2.50 to Rs 4.00 per kWh. Utility-scale solar tariffs from SECI auctions sit lower, in the Rs 2.20 to Rs 2.70 per kWh band, because of bidding competition.

Who sets the FiT in India? State Electricity Regulatory Commissions notify FiTs for rooftop and ground-mounted projects within their state. For inter-state and central schemes, the Central Electricity Regulatory Commission and SECI manage tariff determination, usually through reverse-auction bidding.

Is the FiT the same for residential and commercial solar? Not always. Several states publish separate FiTs by category and by capacity slab. Residential systems and small commercial rooftops typically receive a slightly higher FiT than larger commercial or industrial plants in the same state.

How is the FiT different from a retail electricity tariff? A retail tariff is the price you pay to buy power from the grid. A FiT is the price you receive for selling power to the grid. The two are set by the same regulator but for different transactions, and the FiT is almost always lower than the retail tariff.

Is FiT applicable under net metering? Under net metering, your exported units are credited 1:1 against your imported units at the retail tariff, so a separate FiT does not apply during the month. At the end of the settlement period, any unused export surplus is paid out at a state-notified APPC rate, which functions like a FiT for residual energy.

Does the FiT change every year? Once you sign a PPA, the FiT is locked for the contract term. New projects signed in later years may receive a lower or higher FiT depending on the latest tariff order. Many states have reduced FiTs steadily as solar CAPEX has fallen.

Can I get a higher FiT if my solar plant performs better? No. The FiT is a price per unit, not a performance bonus. You earn more revenue by generating more units, not by negotiating a higher rate after commissioning.

What is the difference between FiT and Feed-in Premium? A Feed-in Tariff is a complete price per kWh paid by the offtaker. A Feed-in Premium is a top-up paid on top of the market or pool electricity price, used in some European markets. Indian rooftop solar uses Feed-in Tariffs, not premiums.

Is GST charged on FiT payments? FiT payments to a solar generator are treated as a sale of electricity, which is currently exempt from GST in India. However, related O&M and equipment supplies attract GST at the applicable rate, which is recoverable as input credit by commercial generators.

What happens to the FiT if I sell my solar plant? The PPA and FiT transfer with the asset, subject to DISCOM approval of the change of ownership. The buyer steps into the seller’s position under the existing tariff and contract terms.

Why are some Indian states moving away from FiT-based gross metering? DISCOMs argue that high early FiTs created a long-term financial burden on the utility. Newer policies favour reverse-auction bidding for large projects and net or net-billing arrangements for rooftop projects, which expose more of the savings to the consumer and less of the burden to the DISCOM.

Related Glossary Terms

• Gross Metering
• Net Metering
• Power Purchase Agreement
• DISCOM
• Renewable Energy Certificate
• Open Access Solar
• Accelerated Depreciation

Related Resources

• Net Metering in India
• PM Surya Ghar Complete Guide
• OPEX vs CAPEX Solar
• Residential Solar Solutions
• Solar Savings Calculator
• Commercial Solar Solutions

Sources & References

• MNRE Official Website: mnre.gov.in, Rooftop Solar Programme Guidelines
• Electricity Act 2003, Sections 61 and 86, Tariff determination and regulatory authority
• State SERC Tariff Orders (GERC, MERC, KERC, TNERC, DERC, UPERC, RERC)
• SECI Reverse Auction Results, Utility-Scale Solar Tenders
• CERC (Central Electricity Regulatory Commission), Tariff Regulations for Renewable Energy
• Central Electricity Authority (CEA), National Electricity Plan and Renewable Integration Reports
• MNRE, National Solar Mission Policy Documents
• Heaven Green Energy policy advisory, Gujarat’s #1 PM Surya Ghar installer