II. INTRODUCTION

II. INTRODUCTION

PURPOSE OF THIS REPORT

This report assesses the prospects of various models of solarizing agricultural electricity in the state of Rajasthan—a state that embodies India’s national solar mission but is challenged by problems that solarization might help to solve.

The Kisan Urja Suraksha evem Utthan Mahabhiyan (KUSUM) scheme seeks to offer choice between several competing models of solarization, providing regulatory and developmental support for both substation-level solar feeders and individual solar pumps. Both models have emerged from pilots having impressed both the government and prominent NGOs, and today both are being rolled out on a national level. It is currently unclear which model provides greater benefits and, as such, deserves greater investment.

Having facilitated a successful feeder pilot in Maharashtra state, Prayas Energy Group concludes that feeders are “an excellent alternate supply option,” and in subsequent reports has endorsed feeders for their scalability and financial viability relative to solar pumps.6 7 Meanwhile, researchers from the World Bank suggest that farmers who self-generate electricity could gain a valuable secondary income stream with grid-connected solar pumps, as farmers who generate surplus electricity can then sell it to distribution companies (Discoms). Hence, this mechanism encourages farmers to economize their power use and, thus, their groundwater pumping. 8 When farmers are strictly consumers of free or lowcost electricity supplied by solar feeders, pump proponents would argue there is no incentive to conserve.

These reports from Prayas and the World Bank are by no means alone in vouching for one model of KUSUM over its alternatives—they are merely representative of the prevailing arguments being made. This report provides an independent assessment of the relative costs and benefits of both solar feeders and grid-connected solar pumps. Specifically, this report assesses the ability of each model to achieve the desired goals of stakeholders in Rajasthan, offering recommendations to increase benefits, reduce implementation barriers, and mitigate unintended consequences.

KUSUM OVERVIEW

Launched 8 March 2019, KUSUM seeks to increase farmer and Discom welfare and conserve

groundwater resources. The scheme supports installation of solar photovoltaics (PV) in agricultural areas. Its specific goals are to (1) minimize transmission and distribution (T&D) losses, (2) raise farmer income by enabling them to lease land for solar installations and/or sell solar power to Discoms, and (3) reduce agricultural subsidies. The national scheme has three components:9

In this report, all references to “KUSUM” refer hereafter to components A and C, and all references to “solar pumps” refer hereafter only to grid-connected solar pumps. KUSUM B pumps are out-of-scope for this report due to their inherent lack of grid-connectivity.

KUSUM RATIONALE AND OBJECTIVES

KUSUM seeks to provide farmers with distributed, grid-connected solar electricity. The logic behind these strategies is as follows:

• KUSUM A: Installation of 10,000 megawatts (MW) of decentralized, ground-mounted, gridconnected solar power plants with individual plant sizes up to 2 MW o In Rajasthan, the electricity ceiling tariff has been set at ₹3.14/kWh. 10 However, lower costs can be achieved through a competitive bidding process. o The Central government provides Discoms with a performance-based incentive (PBI) equal to ₹0.40/kWh/year or ₹6.6 lakh/MW/year of capacity installed (whichever is less) for five years from the Commercial Operation Date. For GoI to disburse the PBI to the Discoms, solar feeders must be operational such that actual generation can be metered and reported to GoI as an indicator of system performance.

• KUSUM B: Installation of 20 lakh standalone (off-grid) solar agriculture pumps o For solar pumps with capacities lower than 7.5 HP, Central Financial Assistance (CFA) subsidizes 30 percent of the capital cost, states subsidize 30 percent, and farmers fund the balance with 10 percent due upfront

• KUSUM C: Solarization of 15 lakh grid-connected agriculture pumps, which may be solarized at the pump-level or the feeder-level o For pump-level solarization, for pumps with capacities under 7.5 HP, CFA subsidizes 30 percent of the solar cost, states subsidize 30 percent, and farmers pay the balance with 10 percent due upfront. In Rajasthan, farmers can sell solar electricity at a fixed tariff of ₹3.44/kWh11

o For feeder-level solarization under KUSUM C, CFA subsidizes 30 percent of the solar cost. This option has two implementation models: the Capital Expenditure (CAPEX) model and the Renewable Energy Service Company (RESCO) model. With CAPEX, the Discom directly develops the solar feeder using an Engineering Procurement and

Construction (EPC) contractor. With RESCO, a private developer would develop the solar feeder, and the Discom would purchase solar generation through a 25-year PPA.

In Rajasthan, the ceiling tariff for the feeder-level KUSUM C has yet to be determined as of December 2020.

• Clustering. To draw on economies of scale and reduce transaction costs, electricity generation can occur in “clusters,” where appropriate.

KUSUM has several higher-level objectives beyond its explicit numerical targets:

Goal 1: Improve Electricity Supply to Farmers

KUSUM seeks to improve electricity access and, consequently, farm productivity. Discoms prioritize paying customers over agricultural users, whose connections are often unmetered and who often do not pay tariffs. The result, inevitably, is poor agricultural supply.13 KUSUM seeks to address availability and reliability issues by providing farmers with exclusive, distributed solar electricity, allowing for better irrigation of crops and, thus, greater productivity. Many farmers pump at all possible hours and would likely pump more if they could.14 Greater electricity allows greater pumping, directing more water to underirrigated crops and higher-value crops that are more water-intensive.

KUSUM seeks to provide electricity during daytime hours. Scarce access to daytime electricity forces farmers to irrigate during off-peak, nighttime hours. Many farmers use auto-switches to automatically run pumps whenever electricity is available.15 Increasing the dependability of daytime electricity is intended to incentivize more attentive, efficient pumping, which could increase production per water used. Additionally, farmers who irrigate at night risk run-ins with snakes and other nocturnal hazards. Nighttime electric shock incidents are also common; electrocutions in rural India have increased 5-6 percent annually over the past few decades.16

Goal 2: Raise Farmer Income

Solar feeders give farmers opportunities to generate income through leases. Although MNRE prefers that farmers themselves develop and operate solar feeders under KUSUM A, putting barren and uncultivatable land to income-generating use, farmers can also increase their income by leasing land to private developers.17 Unlike income made selling electricity to the grid, which entails some variability due to weather, generation plant performance, theft, and other risks, leasing income is fixed, or nearly so. 18 By leasing land for solar feeders, farmers lock in stable incomes over many years.19 Leases for

• Solarization. Solar electricity is low-cost and plentiful in the daytime when farming is done.

• Distribution. Unlike centralized schemes, wherein electricity is transmitted to end-users from large, often faraway generation facilities, KUSUM offers distributed generation much closer to communities where it is consumed. Doing so minimizes transmission and distribution losses, lowers prices, and improves reliability. Distributed generation does, however, complicate grid management and administration of many spread-out assets.

• Grid-connectivity. Decades of electrification initiatives have connected most Indian villages to the electricity grid in some form, rendering standalone (off-grid) pumps less attractive than options which allow self-generating customers to sell surplus power to the grid.12

Delhi’s recent Mukhyamantri Kisan Aay Bodhotri Solar Yojana (MKABSY) scheme, for instance, paid ₹8,333/acre/month for the first year, increasing at 6 percent per annum for each year thereafter.20

Solar pumps give farmers the chance to grow their income by selling electricity to the grid. A scheme in Dhundi, which set a feed-in-tariff (FiT) of ₹7.13/kWh to farmers for electricity sold to the grid, returned ₹3.71 lakh in net cash income for the six-member cooperative of participating farmers.21

Goal 3: Relieve State and Discom Burdens

KUSUM seeks to relieve Discom debts. Chronic revenue shortfalls have led to enormous Discom debt in many states. Moreover, states are supposed to reimburse Discoms for agriculture subsidies, but regularly fail to do so on time. As such, Discom debts have in many places swelled to unsustainable levels. Absent revenue and subsidy reimbursements, many Discoms have resorted to taking highinterest, short-term loans to cover operating expenses and power procurement. Subsidies have been difficult to change or repeal, given the influence of farmers’ vote bank on state and central governments.

KUSUM seeks to help reduce Discoms’ power purchase costs and, by virtue of distributed electricity generation, reduce transmission and distribution losses as well. Beyond lowering Discoms’ direct costs and average cost of supply (ACS), KUSUM could help decrease revenue gaps and the amount of cross subsidy necessitated by agricultural electricity tariffs set by State Electricity Regulatory Commissions. Doing so would create positive feedback and improve Discoms’ financial viability, allowing them to set cost-competitive tariffs and reduce industrial customers’ migration to captive power.

KUSUM seeks to help stop the bailout spiral. Because Discoms’ loans come from public banks, their health is of significant public concern. States have bailed out the distribution sector on numerous occasions. Each time, participating states22 have assumed substantial portions of Discoms’ outstanding debt. This unsustainable cycle will likely continue without serious structural reform.

Goal 4: Alleviate Stress on Groundwater Resources

Solarization of agricultural electricity might reduce groundwater use as farmers shift from night to daytime irrigation. For safety reasons, farmers prefer not to venture into fields at night, and thus often utilize ‘auto switches’ that run pumps whenever electricity is available. Reliable, daytime power reduces the need for auto switches and, thus might discourage overextraction of groundwater.

Solar pumps might reduce groundwater extraction by compensating farmers who sell solargenerated electricity to the grid. Farmers can sell surplus power to the Discom, earning a FiT for each unit sold. In theory, farmers would refrain from pumping if the marginal benefit is lower than the marginal benefit of selling electricity—that is, when the marginal benefit of pumping is lower than the FiT. The World Bank estimates that at a FiT of ₹3.69/kWh, this will indeed be the case for most crops grown in Rajasthan. 23 Furthermore, compared to variable agriculture production and markets, selling power to the grid could assure farmers a relatively stable income. Risk-averse farmers may

therefore be more willing to substitute electricity sales for water pumping than the Bank’s calculations suggest.

OTHER STRATEGIC GOALS

KUSUM seeks to contribute to state and national solar goals. Rajasthan aims to install 30 GW of solar capacity by 2025—an ambitious target that can only be met with the mass-development of distributed solar.24 Rajasthan’s Renewable Purchase Obligation (RPO) also requires Discoms to source 21 percent of their total electricity from renewables by FY 2023-24, and 10.5 percent from solar, specifically.25 Nationally, India has oriented policies around a 175 gigawatt (GW) renewable energy target, including 100 GW of solar.26 Rajasthan’s solar development could be non-trivial progress toward these goals and other commitments made under the Paris Climate Agreement.27

KUSUM seeks to bolster the “Make in India” initiative to boost domestic manufacturing.

KUSUM requires all solar cells, modules, and balance of systems to be domestically manufactured.28 At the moment, however, almost 80 percent of India’s solar value chain relies on imports (mostly from China), and domestic cell and module manufacturing amount to roughly 3 GW and 11 GW per year, respectively.29 The national government hopes to increase manufacturing capacity by inducing demand for domestic PV materials.

CURRENT PROGRESS

Solar feeders have been well-received in Rajasthan. In January 2020, the Rajasthan Electricity Regulatory Commission (RERC) fixed a price ceiling of ₹3.14/kWh for solar feeder generation, with Discoms able to discover lower prices through competitive bidding. Prices are reflected in 25-year power purchase agreements (PPA).30 Shortlisted solar feeder applications now total 815.5 MW in capacity, and the state generation company, Rajasthan Urja Vikas Nigam Ltd., recently lobbied to raise Rajasthan’s feeder allocation from 325 to 725 MW in the ongoing pilot.31 Tenders awarded for solar feeders sum to 722 MW, or 2.7 percent of Rajasthan's electricity capacity. Plans are in place to increase this total to 2,600 MW (or 9.2 percent of capacity) over the next three years.32,33

Unfortunately, however, feeder generation has yet to satisfy two of KUSUM’s objectives: increasing farmers’ incomes and incentivizing water conservation. To fill in these gaps, the Government of India (GoI) has encouraged state governments to benchmark farmers’ electricity consumption based on their average power requirement and incentivize farmers if consumption is less than this benchmark. However, these directions lack specificity and the methodology for calculating benchmark power consumption is relatively vague. Hence, it is currently unknown whether these recommendations will have the desired effects on the state governments.

Solar pumps could increase farmers’ income. Under KUSUM C, RERC fixed a ₹3.44/kWh tariff at which Discoms would purchase surplus power from grid-connected, solar pumps.34 Under KUSUM

C, Rajasthan has received sufficient solar pump applications to meet first-year targets (about 12,500 farmers), 35 and Discoms have released tenders identifying 60,008 horsepower (HP) of sanctioned load covering nearly 230 substations where 100 percent of connected farmers have provided consent, or 90 MW in capacity (assuming the PV system is sized at 1.5 times the pump capacity, as permitted by KUSUM C guidelines).36

However, despite this evidently strong interest, farmers hesitate to self-finance contributions toward solar pump projects. Private developers also struggle to secure necessary financing, as banks are as yet unprepared to accept the risk involved. The central government has recently allowed clustered, feederstyle generation under KUSUM C, with its more attractive CFA.37 The hope is that Discoms will build distributed feeders through this path, either directly or via a RESCO partner.

ROADMAP OF REPORT

The first portion of the report provides background on the key players involved in KUSUM, what is at stake for water access, and the political context in which decisions are being made. It proceeds to an economic analysis and comparison of both the feeder and grid-connected pump modalities, a deeper discussion of the schemes’ effect on water resources, and an exploration of potential obstacles to, and best paths for, a successful rollout. Lastly, it considers secondary effects on employment and equity outcomes, and concludes with policy recommendations.