Tile based terrain lighting

Hi Guys,

So I’ve been trying to write a shader to light the terrain in my 2d tile based game, I’d like to achieve something that looks like Starbound’s terrain lighting:
http://flamingbard.files.wordpress.com/2013/12/starbound_mushrooms.jpg

My attempts so far have not been so successful:

It’s not as smooth as Starbound, plus it does not penetrate the ground as much.

My approach is something along the lines of:
Render transparent pixels to FBO, then apply some form of blur:

Blend this FBO with my foreground:

The performance isn’t stella, ground penetration is low, the blur isn’t smooth…

Does anyone have any pointers that could steer me towards a better solution?

thanks.