To incentivise greater clean energy adoption, the government is set to link the adoption of renewable energy to the long-term, interest-free loans states get from the Centre for capital expenditure. Speaking at the Confederation of Indian Industry’s Annual Business Summit 2026 on Tuesday, Minister of New and Renewable Energy Pralhad Joshi said the policy tweak has been approved by the Ministry of Finance and Ministry of Power.
“RE (renewable energy) adoption is now being linked with fiscal incentives for the states. The new policy has been accepted by the Ministry of Finance and Ministry of Power,” Joshi said, adding that consumption of greater renewable energy will be one of the conditions for availing loans under the said scheme.
The 2026-27 Union Budget allocated Rs 2 lakh crore as 50-year, interest-free capex loans for states called Special Assistance to States for Capital Investment (SASCI). Under this programme, while Rs 75,000 crore is ‘untied’ – or provided without any conditions – the majority is tied to the reform performance of each state across a variety of spheres ranging from power, mining, agriculture, and public finance, among others. As such, the better a state performs on these reform criteria, the more they can avail from the ‘tied’ component of the programme.
The loans availed under the SASCI programme count over and above each states’ net borrowing ceiling, which is capped at 3% of their Gross State Domestic Product (GSDP), as per the Fiscal Responsibility and Budget Management (FRBM) Act.
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Without revealing further details of the policy, the Minister maintained it would encourage states to further adopt renewable energy.
Polysilicon manufacturing
The Minister also said the government is working on a policy framework to support domestic manufacturing of polysilicon.
“Very shortly we are going to announce our policy and how we can do it in India itself… We are working out on this,” he said.
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The move comes as India seeks to reduce heavy import dependence on solar component manufacturing and strengthen the domestic supply chain. While India has witnessed considerable growth in solar module and cell manufacturing capacity, upstream segments such as polysilicon refining as well as ingot and wafer manufacturing continue to face challenges.
India has 172 gigawatts of solar modules and 27.2 GW of cell manufacturing capacity. However, the installed ingot and wafer manufacturing capacity in the country is limited and stands around 2 GW.
At present there is no commercial production of polysilicon in the country, the government had previously informed the Parliament.
DSM penalty norms under discussion
Deviation Settlement Mechanism (DSM) penalties — a key concern for renewable energy developers — are also being discussed with the Ministry of Power, Joshi said. He added that at least three meetings have already been held on the issue, with another round of discussions scheduled for Wednesday.
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Currently, renewable energy generators enjoy relatively relaxed norms under DSM rules due to the intermittent nature of their supply. However, from April 2027 onwards, wind and solar generators are set to face tighter deviation norms and potentially higher penalties for over or under supplying electricity compared to scheduled generation.
This came after the Central Electricity Regulatory Commission in March introduced a phased framework to tighten DSM norms for renewable energy generators using a more complex methodology. The order aims to gradually align DSM regulations for renewable energy generators with those applicable to conventional power plants by 2031.
Last month, renewable energy companies got a breather after the Karnataka High Court temporarily halted the implementation of the CERC order while hearing a case filed by the National Solar Energy Federation of India.
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