Cash Crops

 KUSUM aims to solarise the agricultural segment and enhance farmer incomes

By Ashay Abbhi

On February 19, 2019, the Cabinet Committee on Economic Affairs chaired by the prime minister approved the Kisan Urja Suraksha evam Utthan Mahabhiyan (KUSUM), over a year after it was announced in the Union Budget 2018-19. Broadly, the KUSUM scheme is aimed at promoting the use of solar energy in the agricultural sector. This will be done through the extensive solarisation of existing pumps, installation of new solar pumps and grid-connected ground-mounted solar power plants. The primary objective of KUSUM is to encourage farmers to utilise advanced technology to generate power. The scheme will not only ensure that the farms are irrigated with sustainable technology, but will also allow farmers to generate and sell green power to discoms to earn extra revenue. According to the KUSUM website, the scheme will end in 2021.

Components of KUSUM

  • Solar pump distribution: The power department and other wings of the government will work together to distribute solar-powered pumps to farmers.
  • Solar power factory: This involves the construction of large-scale solar power plants.
  • Solar tube wells: The third component of the KUSUM scheme envisages setting up of unique tube wells that can generate electricity.
  • Modernisation of existing pumps: The fourth component of the scheme deals with the modernisation and solarisation of existing pumps, and the replacement of old pumps with solar pumps.

Key features

The KUSUM scheme has a total outlay of Rs 1,400 billion to be distributed over a period of 10 years. Of this, the central government is estimated to contribute Rs 480 billion (34 per cent). Solar irrigation pumps provide farmers with better uninterrupted daytime power as compared to unreliable night-time supply provided by the grid. Meanwhile, these are expected to significantly reduce the use of diesel pumps for irrigation, resulting in significant financial savings for farmers and reduction in the pollution levels. The key features of the scheme are:

  • Construction of plants: As per KUSUM, the government will construct power plants, in the range of 500 kW to 2 MW (total power capacity of 28,000 MW), only on infertile land.
  • Distribution of solar pumps: The government has mandated the distribution of 1.75 million solar pumps to farmers.
  • Small-scale power generation: The KUSUM scheme will also work towards replacing diesel pumps with solar-powered pumps of about 720 MW.
  • Power from tube wells: Under this scheme, the government is looking to install unique tube wells, each of which will be able to generate 8,250 MW of power.
  • Sale of excess power: Apart from the savings incurred by using solar pumps for irrigation, the KUSUM scheme helps farmers earn revenue by selling the excess energy from solar plants to the grid.
  • Duration: According to the KUSUM website, the successful implementation of the scheme would require central government support for at least 10 years.
  • Subsidy structure: In terms of the capital expenditure required for solar pumps and power generation systems, 10 per cent of the cost will be incurred by farmers, 30 per cent will come from bank loans, and the remaining 60 per cent will be provided equally by the central and state governments in the form of subsidies.
  • Good for the environment: The use of solar energy for irrigation and power generation in the agricultural sector will lower the pollution in the region and reduce the dependence of  farmers on fossil fuels.
  • Components of budget allocation: Initially, the central government will provide an amount of Rs 220 billion for the distribution of solar pumps. The second phase of the programme will see the infusion of another Rs 48 billion by the relevent departments. Meanwhile, during the third phase, involving the solarisation of ordinary pumps, the central government will disburse around Rs 157.5 billion. Apart from this, Rs 50 billion will be required for the fourth and final phases of the KUSUM scheme.

Impact analysis

According to the IWMI-TATA Water Policy Program (ITP), an estimated 5.3 million diesel pump sets are used for irrigation in eastern India. The farmers spend about Rs 18-Rs 22 per kWh to water their fields using conventional irrigation pumps. The use of solar-powered pumps under the KUSUM scheme will help deliver significant savings for these farmers. Meanwhile, for the discoms, the replacement of old grid-connected pumps will help them save on subsidies of Rs 35,000-Rs 90,000 per year per grid-connected pump.

The KUSUM scheme allows farmers to sell surplus energy from solar pumps and solar power plants back into the grid, opening up a new revenue stream. This can be viewed as an additional “cash crop” for farmers. The ITP paper throws light on a pilot project implemented on these lines by Madhya Gujarat Vij Company Limited (MGVCL) and the International Water Management Institute (IWMI) in Dhundi village in Gujarat. Under the pilot, nine solar irrigation pump users formed a cooperative, which was given a power buyback guarantee of Rs 7.13 per kWh from MGVCL. This included a feed-in tariff (FiT) of Rs 4.63 per kWh by MGVCL, a green energy bonus of Rs 1.25 per kWh by IWMI and a groundwater conservation bonus of Rs 1.25 per kWh. The farmers were able to earn an average of Rs 6,000 per month only through energy sales and water conservation. In return, the farmers surrendered their grid connections for 25 years.

However, for farmers who are provided with free electricity and subsidised connections, how can KUSUM, a scheme that requires upfront capital investment, be attractive? Thus, the scheme will be relevant only if farmers have metered agricultural connections, or a better deal than free power is offered. KUSUM attempts to take the second route by supplying reliable and uninterrupted daytime quality power to farmers and providing them with an additional source of income. The discoms will have to buy back the power at FiTs higher than the lowest solar bids (around Rs 2.50 per kWh). The ITP paper estimates that Rs 5 per kWh of remunerative FiT for power fed into the grid by farmers would offer them an annual revenue of Rs 18,750. Considering this is nearly double the existing solar tariff, it may be unacceptable to the discoms. Therefore, the paper argues that the KUSUM scheme could offer the discoms an evacuation-based incentive of Rs 2 per kWh instead of Re 0.50- per kWh. Coupled with FiT of Rs 3 per kWh, the total revenue generated for farmers will stand at Rs 5 per kWh. For the discoms, the reduction in subsidies, operational costs involved in running agricultural feeders, and vigilance and transactional costs will lead to significant savings under KUSUM.

Conclusion

The ITP paper suggests that the benefits derived under KUSUM (in the form of high FiTs and additional income) may be equivalent to the benefits of free grid-connected power delivered to farmers. However, it is important to take into account the intangible benefits of energy and water conservation offered by the scheme. The onus now is on the government to successfully implement the scheme and replace diesel-powered and grid-connected pump sets with solar pump sets.

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