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Kick-starting the Kisan Urja Suraksha evam Utthaan Mahabhiyan

Tushaar Shah (t.shah@cgiar.org) works with the IWMI-Tata Water Policy Program, Anand, Gujarat.

The Union Budget 2018 announced the Kisan Urja Suraksha evam Utthaan Mahabhiyan, a scheme to replace diesel pumps and grid-connected electric tube wells for irrigation with solar irrigation pumps, including a buy-back arrangement for farmers’ surplus solar energy at a remunerative price. KUSUM can be a game changer as it can check groundwater over-exploitation, offer farmers uninterrupted daytime power supply, reduce the carbon footprint of agriculture, curtail the farm power subsidy burden, and provide a new source of risk-free income for farmers.

A version of this article has previously appeared in the IWMI–Tata Program’s Water Policy Research Highlight # 1 (“Kick-starting KUSUM [Kisan Urja Suraksha evam Utthaan Mahabhiyan],” 6 July 2018).

The author would like to thank Shilp Verma for providing critical comments on the article.

In his 2018 budget speech, Finance Minister Arun Jaitley outlined the contours of the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM), a new scheme to subsidise solar irrigation pumps (SIPs) for farmers, with the option to sell surplus power to distribution companies (DISCOMs) (Economic Times 2018). KUSUM would entail a total outlay of ₹1,40,000 crore over 10 years, of which the central government is to contribute ₹48,000 crore (ET Energy World 2018). Farmers are to contribute 10% of the capital cost upfront and cover 30% by bank loans, while the remaining 60% is to be borne equally by a subsidy provided by the union government and respective state governments.

Economics and Ecology of SIPs

KUSUM can be a game changer for India’s irrigation and energy economies. Studies show that farmers’ experience with SIPs is highly satisfactory (Gupta 2017; Kishore et al 2014). For farmers in western India, hassled by unreliable and night-time power supply, SIPs offer a welcome relief by providing uninterrupted daytime power. For some 53 lakh diesel pump irrigators in eastern India, irrigating with energy costing ₹18–₹22 per kilowatt-hour (kWh), SIPs drastically reduce irrigation costs and permit irrigation expansion. Up to 6% of India’s total greenhouse gas emissions can be attributed to groundwater irrigation (Shah 2009). Replacing diesel and electric pumps by SIPs will significantly reduce the carbon footprint of Indian agriculture. The biggest gainers are the DISCOMs. Depending on the location and pumping depth, every grid-connected pump replaced by an SIP can save the country farm power subsidy ranging from ₹35,000 to ₹90,000 per year.

However, SIPs have two downsides, which are economic and ecological in nature. An SIP costs next to nothing to operate, but entails 10–15 times more capital investment as compared to diesel or electric pumps. Without a 70%–95% capital subsidy currently on offer, solar pumps would have few takers in India. Such capital-intensive technology becomes viable only with a high utilisation rate. India’s diesel pumps operate only for an average of 460 hours per year (ITP 2017), but are viable because of the low capital investment. This is not so with SIPs. A five kilowatt-peak (kWp) SIP costing ₹5 lakh and operated for 500 hours per year in irrigation—against its potential of 2,500 hours—is a poor investment for the farmer and for society. An SIP owner will always be tempted to “encash” free solar energy by irrigating water intensive crops, increasing cropping intensity and selling more water to neighbours at a low price; all of which will increase groundwater draft, deepening the crisis in western India’s parched aquifers. Free electricity is blamed for groundwater over-exploitation from Punjab to Tamil Nadu, but its destructive impact is limited by restricted hours and unreliable supply. With reliable and free daytime solar power, SIPs can be much more lethal for our aquifers.

Solar Power as Remunerative Crop

The need is to promote SIPs as an integrated energy–water–livelihoods solution rather than merely a “green” energy solution. With its energy buy-back option, KUSUM will promote solar energy as a remunerative cash crop that farmers can “grow” for their irrigation needs and generate additional income from energy sales. This idea was piloted by the Madhya Gujarat Vij Company Ltd (MGVCL) and the International Water Management Institute (IWMI) in Dhundi village in Gujarat. Here, nine SIP irrigators who formed a cooperative, were given an attractive power buy-back guarantee at ₹7.13, a feed in tariff (FiT) of ₹4.63 per kWh by MGVCL, topped up by IWMI with ₹1.25 per kWh as green energy bonus and ₹1.25 per kWh as groundwater conservation bonus. In return, farmers forfeited the right to apply for a grid power connection for 25 years. The pilot was discussed by Shah et al (2017). The biannual progress report of the Dhundi Saur Urja Utpadak Sahkari Mandali (DSUUSM 2017) suggested that the solar farmers earned an average of ₹6,000 per month from the SIP: from irrigation, water sales and energy sales.

Figure 1 shows monthly solar generation by the Dhundi cooperative (in kWh per kWp of installed pumping capacity) and the proportion used for irrigation. From December 2015 to April 2016, farmers had no buy-back option and all the energy produced was used in irrigation. Things changed once the MGVCL began buying surplus power in late May 2016. The farmers began to sell much of their solar energy to the MGVCL, except during April and May, when profitable summer irrigation peaked. Arguably, without the buy-back option, over 60% of Dhundi’s solar energy would have been used for pumping more groundwater. After June 2018, when the IWMI top-up of ₹2.50 per kWh ends, we expect SIP irrigators to expand irrigation significantly and reduce energy sales.1

 

The minister of new and renewable energy recognised that KUSUM will lead to the

promotion of decentralised solar power production, reduction of transmission losses as well as providing support to the financial health of DISCOMs by reducing the subsidy burden to the agriculture sector. The scheme would also promote energy efficiency and water conservation and provide security to farmers. (Hindu 2018)

All these benefits will accrue only if farmers substitute solar for grid power, and not use the solar pump as a standby, which has mostly been the case so far (Kishore et al 2014; Gupta 2017; Durga et al 2016).

Making KUSUM Attractive

Will farmers buy into KUSUM as designed now? A farmer prospecting for a 5 kWp SIP under KUSUM will invest ₹30,000 upfront and take a loan of ₹90,000 at 12% per annum, repayable over six years.2 Over an economic life of 20 years and at a discount rate of 10% per year, this investment will turn in positive net present value only if the annual net financial benefit exceeds ₹15,000 per year.3 KUSUM will be an attractive deal for a diesel irrigator buying 500 litres of diesel per year at ₹65 per litre. The SIP will save them ₹32,500 per year, which they can top up by selling irrigation with free solar power.

But, why will an electric tube well owner in Punjab, Tamil Nadu or Telangana invest in an SIP and relinquish their free grid power connection, a hard-earned entitlement? They will, only if their electricity use is metered and charged at ₹6 per kWh, the actual cost to serve them grid power. The only other way to get them to willingly give up grid power for solar energy is to offer them a deal better than free grid power, which is free and reliable daytime solar power plus a remunerative FiT for their metered surplus solar power.

However, the DISCOMs are loath to offer farmers higher FiT than the lowest bid in solar auctions, which is around ₹2.25 per kWh. As of now, KUSUM offers to top this up by a meagre ₹0.5 per kWh, which will take the FiT to ₹2.75 per kWh. Assuming a 5 kWp solar array generates 7,500 kWh per year and half of it is injected into the grid, the net revenue flow for the farmer will be ₹10,312 per year which is a poor return on the farmer’s investment. A remunerative FiT for solar irrigators would be around ₹5 per kWh, which will offer annual revenue flows from the sale of surplus energy of ₹18,750. With the buy-back option offered only in lieu of grid connection surrender or net metering, the DISCOM will be better off even with a remunerative FiT, since solar power purchase will be a fraction of the current grid power use provided at near-zero rate. For every megawatt of solarised tube wells, the saving in grid power subsidy will be ₹60 lakh per year4 and the payout for solar power purchase will be ₹37.5 lakh,5 assuming half the solar power generated is evacuated.

Many other benefits follow a remunerative FiT. It will impart a strong impetus to groundwater conservation.6 It will make it easier to get all tube well owners on a feeder to solarise, which DISCOMs increasingly insist. Buying farmers’ solar power needs no new investment in the transmission network. The DISCOMs keep all the renewable energy credits (RECs) for solar power generated by farmers. Farmers injecting power at the tail end makes the grid more stable. Internationally, there is growing concern about expanding the “energy sprawls” from solar parks, and the need to promote distributed solar power (Bronin 2010). Grid-connected SIPs do just this.

Had renewable purchase obligations been vigorously enforced, which is not the case now (Nayar 2016), DISCOMs would find SIPs a very cheap source of RECs, since they would pay only for the power evacuated, but claim REC for all the power generated.7 In such a scenario, the DISCOMs would agree to offer a high FiT to attract more tube well owners to solarise. However, since farmer-produced RECs have no economic value as yet, there is a strong case for KUSUM to offer DISCOMs ₹2 per kWh, instead of ₹0.5 per kWh, as evacuation-based incentive (EBI) for every unit they buy from SIP irrigators is at a FiT of ₹3 per kWh, so that farmers get ₹5 per unit of the power evacuated. KUSUM should also offer to subsidise panels to the tune of 1.25 times the pump capacity, so that farmers can increase tube well operation by an hour or two on peak irrigation days and sell more energy on other days. Even with this, the farmers’ investment will just pass the viability threshold for shifting from free grid power to SIPs. But, farmers may still buy in because of reliable power supply, and steady and risk-free income from solar energy sales right at the farm gate. This is the only way to reap the SIPs’ multiple collateral socioecological benefits and to make KUSUM attractive enough for tube well owners to give up free or nearly-free grid power.

Getting DISCOMs on Board

KUSUM can help DISCOMs by: (i) reducing the subsidy burden, (ii) making possible real time metering of energy and water use, and (iii) reducing anarchy and restoring order on the rural network (Srivastava 2018). Yet, DISCOMs are likely to be lukewarm in their response to KUSUM for four reasons, which need to be satisfactorily addressed. The first is concerning organisational culture. DISCOMs have always been retail sellers of energy and buying power from tiny distributed generators is a culture shock, which would need a vigorous campaign to change the attitudes and the skill sets of the staff. The second is related to operational economics. Many states are saddled with surplus power which they find hard to dispose off, making them give a lukewarm response to farmers as new power sellers. Since subsidies are absorbed by the government and industrial consumers, saving subsidies is not an urgent priority. Pushing off-peak night-time power to agriculture helps DISCOMs flatten their load curves.

The third has to do with technical issues. To buy farmers’ solar power, DISCOMs have to keep agricultural feeders permanently running during the day. If only a few tube wells on a feeder are solarised, the remaining tube wells enjoy permanent daytime grid power, which will raise the ire of other feeders and undermine power rostering. In Gujarat, DISCOMs are enthusiastic about solar power as a remunerative crop, but only after solarising all tube wells on an agricultural feeder (Government of Gujarat 2018). Last but not the least, vigilance and transaction costs need to be accounted for. The DISCOMs apprehend a high vigilance load and this significantly raises their transaction costs. To prevent a farmer from exploiting the arbitrage between subsidised grid power and remunerative FiT for solar power, the DISCOMs want them to surrender their grid connection before the solar power purchase starts. But, not many farmers are willing to permanently surrender their hard-won tube well connections. Gujarat is now considering the net metering of SIPs so that farmers can also draw grid power to be charged at the same rate as is paid for solar power sales (Government of Gujarat 2018). Net-metering will make it easier to solarise feeders, but will not reduce vigilance and transaction costs for DISCOMs.

Role of Cooperative Enterprises

Dealing with feeder-level solar pump irrigators’ cooperative enterprises (FL-SPICEs)—be they registered cooperatives, farmer producer organisations, or limited liability partnerships—instead of individual solar irrigators can relieve DISCOMs from the burden of high vigilance and transaction costs.

FL-SPICEs can provide such intermediation by playing six distinct roles to ensure stability, integrity and equity in the transactions between the DISCOMs and solar farmers. First, as an aggregator, with the FL-SPICE pooling members’ surplus solar power, the DISCOM only needs to meter the net energy export of the feeder at a single point and pay the cooperative on a monthly cycle. Second, as a guarantor, the FL-SPICE will vouchsafe the integrity of transactions between its members and the DISCOM and ensure the timely repayment of loans by its members, since it will control the cash flow between the DISCOM and its members. Third, with smart-metering, the FL-SPICE can ring fence the DISCOM from farmer malfeasance by ensuring, with the help of smart meters on a real time basis, that solar power generation (G) is always equal to the solar energy evacuation (E) plus the energy use in irrigation (I) and minus the import of grid power (M). It will also do smart-metering of the G, E, M and I of each member and allocate the total payout amongst members based on the net export of solar power by each member. Smart-metering can be jigged to shut off the feeder outside daylight hours and with every violation of the G=E+I–M identity at the feeder level.

Fourth, the FL-SPICE can design the internal FiT to minimise the arbitrage between the remunerative FiT for solar and subsidised rate of grid power. For example, paying low or zero FiT for the first half (or two-thirds) of daily solar generation and loading the daily FiT payout to the second half (or one-third) of the generation can reduce the incentive for malpractices. Fifth, with deterrents and a graduated penalty that the DISCOM can impose on the FL-SPICE for each instance of deviation in the G= I+E–M identity at the feeder-level, the FL-SPICE will need to operate as a joint-liability group in which the consequences of individual malfeasance fall on the collective, making mutual monitoring essential and gainful. Finally, as the manager of the solar feeder, the FL-SPICE will provide the whole range of techno-economic support to the members, such as maintenance and repair of SIPs, extension support to improve energy and water efficiency, maximising income from crop and energy production, etc.

Organising and capacitating FL-SPICEs will not happen on its own; it requires special skills, and it augurs well for KUSUM that organisations like the National Dairy Development Board (NDDB), which has organised thousands of successful dairy farmers’ cooperatives, have come forward to help organise FL-SPICEs on a large scale, provided the conditions are propitious.

The Way Forward

For the best socioecological outcomes, KUSUM’s top priority should be to ensure that SIPs substitute existing diesel and electric pumps rather than complement them, as is currently happening. For our 53 lakh diesel irrigation pump irrigators in eastern India, 60% capital cost subsidy under KUSUM will be a strong incentive to solarise, especially with a streamlined subsidy-loan delivery ecosystem. However, its beneficial impact on pro-poor irrigation can be multiplied by an accompanying subsidy on buried polyvinyl chloride piped distribution system. Pilot projects in Bihar show that replacing diesel pumps by SIPs supported by a buried pipe distribution system transforms a monopolistic and exploitative groundwater market into a competitive and pro-poor one (ITP 2018).

Getting electric tube well owners in western India to switch from free or subsidised grid power to solar power should be the key objective of KUSUM. Achieving this will be a challenge that can only be met by making it attractive for farmers to economise energy (and water) use in irrigation and sell more solar power to the DISCOMs. The optimal arrangement will be one in which: (i) besides 30% capital cost subsidy, the government offers an EBI of ₹2 per kWh of solar power purchased at a FiT of ₹3 per kWh by DISCOMs from farmers, taking the total to ₹5 per kWh; (ii) all tube well owners on an entire feeder are persuaded to get solarised, net metered and formed into an FL-SPICE with the help of organisations like NDDB and non-governmental organisations experienced in organising and capacitating farmer cooperatives; (iii) DISCOMs offer them a buy-back contract for net energy export (charging import of grid power at the same rate as the FiT) and make monthly evacuation-based payments which the FL-SPICE in turn distributes among members according to net evacuation by each; and (iv) the FL-SPICEs operate like joint liability groups, guaranteeing fair play and timely loan repayment by members, besides offering members technical and other support to maxi­mise their income.

Notes

1 See Eshita Gupta (2017) for similar results in Rajasthan.

2 This is assuming ₹60,000 per kWp as the capital cost of solar irrigation pump assembly (including panels, efficient pump, inverter, meters and all).

3 The annual instalment of the loan of ₹90,000 at 12% will be ₹21,890, and the present value of the total payments at a 10% discount rate will be ₹1,25,380. Over a 20-year period, only an annuity of ₹14,700 will accumulate to a present value of this amount at a 10% discount rate.

4 This is for an average grid power consumption of 1,000 kWh per kW valued at cost-to-serve of ₹6/kWh.

5 This is assuming 1,500 kWh of solar generation per year per kWp and solar power FiT of ₹5 per kWh.

6 Bradley Franklin (2015); T S Amjath-Babu et al (forthcoming) carried out simulation studies for Punjab, which showed that the shift in cropping pattern and reduction in water use accelerates as the water tables decline and the electricity price increases.

7 Assuming that DISCOMs will claim all RECs for solar power generated, and not just evacuated by SIPs, as is the case with the power purchase contract given to the Dhundi cooperative.

References

Amjath-Babu, T S, P Aggarwal, J Vitale, P Purohit and T Shah (forthcoming): “Centralized versus Decentralized Solar Electricity for Groundwater Pumping to Farmers facing Climatic Risks:
Implications on Crop Choice, Profitability and Resource Degradation,” International Journal of Water Resources Development.

Bronin, Sara (2010): “Curbing Energy Sprawl with Microgrids,” Connecticut Law Review, Vol 43, No 2, pp 547–84.

DSUUSM (2017): “Dhundi Solar Energy Producers’ Cooperative Society: First Bi-annual Progress Report, 2015–17,” Dhundi Saur Urja Utpadak Sahkari Mandali, Dhundi, https://iwmi-tata.blogspot.com/2017/10/dsuusm-bi-annual-progress-report-2015-17.html.

Durga, N, S Verma, N Gupta, R Kiran and A Pathak (2016): “Can Solar Pumps Energize Bihar’s
Agriculture?” Water Policy Research Highlight # 3, IWMI–Tata Water Policy Program (ITP), Anand.

Economic Times (2018): “Cabinet to Vet Rs 48K Crore KUSUM Scheme for Solar Power by March,”
20 February, https://economictimes.indiatimes.com/industry/energy/power/cabinet-to-vet-rs-48k-crore-kusum-scheme-for-solar-power-by-march/articleshow/62996577.cms.

ET Energy World (2018): “Cabinet Nod Soon for
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Franklin, Bradley (2015): “Solar Irrigation Pumps: Can Electricity Buy-back Curb Groundwater Over-use?,” paper presented at the International Commission on Irrigation and Drainage’s 26th Euro-Mediterranean Regional Conference and Workshop on “Innovate to Improve Irrigation performances,” Montpellier, France, 12–15 October.

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Petrochemicals, Gandhinagar.

Gupta, Eshita (2017): “Extending Solar Water Pump Subsidies: Impact on Water Use, Energy Use and Cropping Patterns in Rajasthan: Difference in Differences Analysis,” South Asian Network for Development and Environmental Economics Working Paper, September, https://www.isid.ac.in/~epu/acegd2017/papers/EshitaGupta.pdf.

Hindu (2018): “Centre’s Plan May Boost Farmers’ Solar Power Use,” 3 February, http://www.thehindu.com/business/agri-business/govt-to-spend-48000-cr-to-help-farmers-go-solar/article22637365.ece.

ITP (2017): “Fifth Census of Minor Irrigation Schemes 2013-14,” IWMI-Tata Water Policy Program, Anand.

— (2018): “Promoting Solar Irrigation Service Providers in Ganga Basin: Jobs, Affordable
Irrigation and Accelerated Green Revolution,” IWMI-Tata Water Policy Program, Anand.

Kishore, A, T Shah and N P Tewari (2014): “Solar Irrigation Pumps: Farmers’ Experience and State Policy in Rajasthan,” Economic & Political Weekly, Vol 49, No 10, pp 55–62.

Nayar, Rashmi (2016): “Enforcing Renewable Purchase Obligations,” Economic & Political Weekly, Vol 51, No 40, pp 21–23.

Shah, Tushaar (2009): “Climate Change and Groundwater: India’s Opportunities for Mitigation and Adaptation,” Environmental Research Letters, Vol 4, No 3, p 13.

Shah, T, N Durga, G P Rai, S Verma and R Rathod (2017): “Solar Power as Remunerative Crop,” Economic & Political Weekly, Vol 52, No 45, pp 14–19.

Srivastava, Arun (2018): “Solar Power Could Aid Reforms in India’s Electricity Distribution
System,” Business World, 14 April, http://www.businessworld.in/article/Solar-Power-Could-Aid-Reforms-In-Ind....

Updated On : 24th Aug, 2018

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