Incentive to Switch

Government schemes need to prioritise small farmers to improve solar pump uptake

India has been making rapid progress in adopting solar energy. With growing climate concerns and falling prices of solar technology, the country has planned an energy overhaul. Significant progress has been made in the utility-scale segment and the government has stepped up efforts to promote decentralised solar technologies. With farmers representing a large part of the country’s occupational structure, the agriculture sector seemed like an apt starting point.

The Ministry of New and Renewable Energy (MNRE) reports that the annual electricity consumption for agriculture is about 200 billion units, which represents 18 per cent of the total electricity consumption in the country. A large part of this electricity goes into powering 30 million agricultural pumps across Indian farms. With electricity for agriculture being subsidised heavily, this has led to rapid groundwater depletion and poor financial position of discoms. In an attempt to improve farmer incomes, ease discoms’ burden and reduce groundwater depletion, the central and state governments have offered a series of incentives to farmers to make the switch to decentralised solar technologies for powering their needs.

PM-KUSUM

Targets and specifics: The idea of a nationwide solar pump scheme for farmers was proposed to the Cabinet Committee on Economic Affairs (CCEA) by the MNRE in March 2018. About 11 months later, the CCEA approved the launch of the programme known as the Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM).

Under PM-KUSUM, the government had set targets to install 25,750 MW of solar capacity by 2024, dividing it into three components. Under Component-A, 10,000 MW of decentralised ground-mounted, grid-connected renewable capacity were to be set up. This would comprise individual plants of less than 2 MW that could be connected directly to existing 33/11 kV or 66/11 kV or 110/11 kV substations of discoms. Under Component B of the scheme, 1.75 million stand-alone solar-powered agricultural pumps of individual capacity of up to 7.5 HP were to be installed across the country. Finally, under Component C, 1 million grid-connected agricultural pumps of individual capacity of up to 7.5 HP would be solarised. The scheme is also expected to provide an option to farmers to sell additional power to the grid.

The PM-KUSUM scheme will be eligible for central financial assistance (CFA) of Rs 3.44 billion, including service charges to implementing agencies. For Component A, this amount would be used for procurement-based incentives for discoms at 40 paise per kWh or Rs 660,000 per MW per year, whichever is lower. For Components B and C, the CFA would be equivalent to 30 per cent of the benchmark or the tender cost, whichever is lower. The respective states will also be required to provide a subsidy of 30 per cent, while farmers must pay the remaining 40 per cent. In some states such as Sikkim, Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Lakshadweep and the Andaman & Nicobar Islands, the government will provide an increased CFA of 50 per cent, while farmers will only have to pay 20 per cent of the cost.

Revision of targets and performance: When the scheme was launched, Components A and C were implemented in pilot mode for a capacity of 1,000 MW and 100,000 pumps during 2019-20. At the end of the pilot period, the MNRE reported that the target for Component A was met while that for Component C fell short by about 30,000 pumps. Despite this, in November 2020, the MNRE scaled up targets and reduced funding. The ministry announced that the overall target would now be 30,800 MW of solar capacity, with a CFA of about Rs 4 billion less. While Component A of the programme remained unchanged, the MNRE has increased the original targets under Components B and C. Under Component B, 2 million stand-alone solar pumps will now be installed, 0.25 million more than its previous target. Component C targets have been revised to aim for the solarisation of 1.5 million grid-connected agricultural pumps from its initial target of 1 million.

Since its inception in 2019, the central policy for the solarisation of pumps has made significant headway. As of February 2021, the MNRE reported that 4,859 MW of decentralised grid-connected solar power plants were sanctioned under Component A of the scheme. However, nine states accounted for about 93 per cent of the total sanctioned capacity. Under Component-B of the scheme, 372,999 solar pumps have been sanctioned, of which only 24,688 stand-alone solar pumps have been installed. However, installations have been concentrated in a few states with Maharashtra, Rajasthan and Madhya Pradesh accounting for almost 65 per cent of the sanctioned pumps. Under Component C, 77,068 individual pumps and 167,500 feeders have been sanctioned for solarisation. However, only 64 existing grid-connected agricultural pumps have been solarised so far.

Of the total allotted CFA of Rs 34 billion, Rs 24.4 billion (72 per cent) has already been sent to 12 states. Further, the revenue generated from projects under Component A and Component C is either under installation or recently installed and can only be exactly assessed on the completion of one year of operation. Despite additional benefits offered to selected states, only Tripura and Himachal Pradesh have managed to generate sufficient demand to carry out development under the scheme. Despite its progress, there is still some way to go before PM-KUSUM meets its intended target, and at this point, it is unclear whether the current budgetary allocation would be sufficient.

Challenges on the ground: The scheme was designed to provide a whole host of benefits to farmers, in addition to helping India meet its renewable energy goals. First, the scheme was set to provide a continuous source of income to rural landowners who would be able to generate income from uncultivable land. It was to also allow provisions for farmers to grow crops and set up solar panels on them. Finally, the policy was designed to help discoms minimise transmission losses and still help meet their renewable purchase obligations (RPOs).

Developers have reported that suppliers have struggled to meet the sourcing requirement of domestic cells for the scheme, once the project has been sanctioned. The lack of domestic cell manufacturing capacity can possibly explain the huge difference in sanctioned and installed capacities. A slow pick-up of solar pumps has been noted in states with a high solar potential, including Rajasthan, Gujarat and Andhra Pradesh. With the overall demand for domestically manufactured solar cells in India expected to go up further with the introduction of basic customs duties on solar imports, scaling up cell and module manufacturing within the country is the need of the hour.

The second issue relates to the common challenge across the entire solar segment, that is, the pressure to deliver a quality product at a low cost. Developers have also called for the scheme to offer better benchmark prices, keeping in mind the higher costs of implementation and comprehensive maintenance for five years. Stakeholders have also reported that timely payment of subsidies has been difficult to obtain from both state and central governments.

The scheme seems to have neglected the needs of small and marginal farmers as the focus so far has been on pumps with capacities of 3 HP or higher. Further, subsidies offered by the government present very little incentive for small farmers to make the shift to solar pumps. Some organisations have reported that farmers with less than an acre of cultivable land are not even eligible for the scheme. This means that the benefits of these subsidies will basically accrue to large farmers.

State-level solar pump schemes

In addition to the PM-KUSUM scheme, which is implemented at the central level, many states have made efforts to spur the adoption of solar technologies among farmers. One of the first such schemes dates to 2012 when the Bihar government launched the Bihar Saur Kranti Sinchai Yojana to combat the lack of adequate electricity for irrigation. Under this scheme, 2 kW solar panels were used to energise pumps for small farmers who own 1 to 5 acres of land, have a functional borewell and have the ability to contribute about Rs 30,000 (10 per cent of the total capital cost). In the first phase of the scheme, 527 solar pumps were made available in the districts of Supaul, Kishanganj, Araria and Purnia Saharsa. In the second phase of the scheme, solar pumps will be installed across 24 districts of the state. The scheme targets the installation of 2,939 MW of solar capacity through the deployment of 10,000 solar pumps by 2022.

The Maharashtra state government, in January 2019, launched the Mukhyamantri Saur Krishi Pump Yojana, targeting the deployment of 100,000 solar agricultural pumps over three years. The government also offered LED bulbs, a fan and a mobile charging socket as freebies to farmers as an additional incentive to make the switch to solar. As of December 2020, the state reported that about 60,000 pumps had been installed under the scheme and that the remaining 40,000 are expected to be installed by September 2021. For this policy, as in the case of similar policies in other states, the state government has focused on giving high capital subsidies. For small and marginal farmers purchasing solar pumps with a capacity of 2-3 HP and 5 HP, the expected capital subsidy is 70 per cent and 40 per cent respectively.

Last year, Uttarakhand has moved towards decentralised solar installations as a means to improve the income of those unemployed due to the Covid-19 pandemic. Under the Mukhyamantri Saur Swarojgar Yojana, individual capacities of up to 25 kWp will be allotted to the enrollees. The capacities are proposed to be installed and commissioned by March 2022. It was reported that cooperative banks would grant loans at the rate of 8 per cent per year for 15 years for the development of solar plants on private or leased land.

Many other states have offered incentives to farmers to install decentralised technologies. Uttar Pradesh, in 2018, introduced the Solar Pump Voltaic Irrigation Pump Scheme, offering subsidies of up to 70 per cent to install 10,000 solar pumps in the state. It was aimed at meeting the needs of farmers with pumps of less than 5 HP, with the maximum subsidies being offered to farmers with pumps of less than 2 HP. Around the same time, Himachal Pradesh had launched the Saur Sinchai Yojana to offer up to 100 per cent financial assistance to small and marginal farmers. Further, it was announced that 5,850 agricultural pumps would be made available to farmers. Among other initiatives, Karnataka announced that it would supply 310 solar pumps connected to agricultural feeders with net meters under its Surya Raitha Scheme in 2018. The progress and status of these are unclear as of yet.

Outlook

As the country moves towards a future powered by renewable energy-based technologies, it cannot overlook the potential of solar power in the agricultural sector. In addition to meeting the climate goals, the PM-KUSUM scheme was intended to increase farmers’ incomes. It is unclear whether this has been achieved, with many reports of small and marginal farmers having been neglected. To address the concerns of these farmers, the states have offered incentives for small-scale solar pump installations through various schemes. Although many of these do prioritise providing additional benefits to small and marginal farmers, it is not clear how these schemes will work alongside the PM-KUSUM scheme.

The achievement in terms of installations under state and central schemes has not been significant, with developers citing module supply constraints as a big reason. These delays could hold back these schemes from achieving their intended benefits of improving discoms’ financial health, reducing transmission losses and helping utilities meet their RPOs. If proper payment systems and incentives for the sale of power are not put in place, it could even lead to the overuse of water by farmers. A lot rides on the PM-KUSUM and other state schemes. Going forward, it is important to address the challenges that have been faced in implementation so far.

GET ACCESS TO OUR ARTICLES

Enter your email address