VIII. CONCLUSIONS AND RECOMMENDATIONS

VIII. CONCLUSIONS AND RECOMMENDATIONS

LOGIC OF SOLAR FEEDERS, PUMPS

This report set out to assess the costs and benefits of solarized irrigation for stakeholders in Rajasthan; namely, farmers, Discoms, and state government. It sought to explore the nexus between the supply of electricity and pumping of scarce groundwater. It focused on the Government of India’s KUSUM agricultural solarization scheme to assess whether solar feeders (as modeled by KUSUM A and C) or solar pumps (as modeled by KUSUM C) meet KUSUM objectives: reliable power supply to farmers, increased farmer incomes, relieved state and Discom financial burdens, or groundwater conservation. Judgements were made, where possible, as to which path generated the most benefits and, thus, was more attractive for future investment.

This report concludes that, under the current design of solarization schemes in Rajasthan:

• Solar feeders are more likely to attract private capital than solarized pumps. As it stands, the ceiling tariff for solar feeders is likely high enough to invite private developer investment.

The break-even tariff is lower for KUSUM C feeders than KUSUM A feeders.

• Solar feeders have greater potential to raise farmer income than solar pumps. Analysis finds that current solar pump feed-in-tariffs are too low to benefit farmers selling power back to the power grid. Unless tariffs or subsidies for solar pumps are raised, solar feeders will offer farmers greater income through land leases to feeder developers.

• Anticipated Discom savings are similar with solar feeders and pumps, but pumps’ benefits are more uncertain. Cashflow analyses in this report reveal that with solar pumps,

Discoms’ savings erode as farmers sell more electricity to the grid. Furthermore, tariffs cannot be raised to benefit farmers without depleting Discom savings.

• Solar pumps are slightly more likely to reduce state subsidies than solar feeders.

Accounting for initial capital subsidies, solar pumps will likely yield modest net savings for the

Government of Rajasthan over 25 years, compared to solar feeders, where relief hinges on tariff correction (and, thus, is more uncertain).

Taken together, these points tend to favor solar feeders over solar pumps. Benefit-cost analysis shows that while state coffers benefit slightly more from solar pumps than solar feeders, whose state benefits depend on tariff rates, farmers likely benefit more financially from solar feeders (via leasing incomes) than solar pumps—that is to say, under the current subsidy regime outlined in the KUSUM guidelines and current feed-in-tariffs offered by RERC, solar pumps are a less viable model for agricultural

solarization in Rajasthan.

Herein lies a conflict: Tariffs are too low for farmers to benefit from solar pumps, yet raising tariffs erodes Discom savings. Given that Rajasthan’s Discom debt has recently tripled and the distribution sector poses an increasing risk to state banks, rescuing Discoms is as crucial a task as improving farmer welfare. Thus, the cost of higher feed-in-tariffs would likely need to be borne by the state, not

Discoms. Whether Rajasthan pursues these subsidies depends on which KUSUM objectives it prioritizes, and whether it feels solar pumps are a viable model of achieving them.

Less clear is the outlook for groundwater. Backers of solar feeders and solar pumps both contend that their preferred model will not accelerate depletion of India’s falling groundwater table—and in some cases, may even reverse the trend. Despite the hopes many have that solarization will help to resolve Rajasthan’s groundwater problem, there is insufficient evidence to suggest either scheme will achieve this goal. Furthermore, there is some evidence to imply solarization could increase pumping and make the problem worse. Given these potentially negative impacts on water and rural livelihoods,

Rajasthan should proceed cautiously with implementing KUSUM.

BARRIERS TO ROLLOUT

Assuming either solar feeders or solar pumps could become economically viable, this report sought to to find where, if anywhere, bottlenecks would prevent rollout from happening. Acknowledging the uncertainties involved, sensitivity analyses performed as part of a broader supply chain analysis imply that despite domestic content requirements requiring domestic production of all solar components,

Rajasthan should be able to meet its goal of 4 GW distributed power by 2025.

However, significant resource barriers exist to prevent the KUSUM scheme from being implemented exactly as intended in its founding guidelines. For instance, the guidelines prefer that solar feeders be developed and operated by farmers, an extremely difficult task for people who typically have neither the skill nor experience to, say, organize cooperatives, formulate business plans, oversee construction, or delegate the necessary tasks to keep a plant running for decades. These deterrents, not to mention farmers’ general lack of collateral, should be attended to with training programs and dedicated support services if GoI is serious about retaining this modality. Support services should additionally provide communal water management training and crop selection exercises for farmers regardless of whether they develop solar feeders. Failure to address critical skills gaps will inevitably hinder KUSUM’s

implementation in Rajasthan.

One vital service not reflected in the KUSUM guidelines is waste management. With massive amounts of PV waste certain to result from KUSUM, and with so much of it hazardous to human health, wastes should be controlled and potentially recycled to help manufacture panels in the future. Doing so might even relieve pressure on manufacturers to meet domestic content requirements, since recycling could displace the need for raw materials that are currently accessible only from foreign markets. As a likely candidate for continued solar development, Rajasthan should develop internal protocols for waste

management and encourage a broader, national strategy for the same.

SECONDARY EFFECTS

Rajasthan rests on a sensitive environmental, social, and political balance that threatens to be disrupted if the implementation of KUSUM produces unintended and detrimental consequences. The most immediate concern for many farmers is whether KUSUM is even accessible to them. Grid-connected, landholding farmers are the likeliest to benefit from KUSUM immediately, and these farmers normally have more wealth and come from higher social castes. Rewarding already-advantaged farmers vis-

à-vis their marginalized peers and neighbors might serve to deepen social divides.

Politically, both major parties in Rajasthan have often used the protection and provision of agriculture subsidies as rallying cries and vehicles for influence, respectively. KUSUM pump solarization proposes to substantially reduce subsidies, which would no longer be needed given farmer self-generation built into the scheme. What happens when this leverage source is no more? Will political leaders be inclined to attack or defend KUSUM based on its performance? While these consequences are, of course, not certain, KUSUM might disrupt Rajasthan’s existing political order.

RECOMMENDATIONS

With these risks and opportunities in mind, this report recommends the following:

• Explore legal, regulatory, and policy mechanisms that would position solarization to incentivize groundwater conservation. Rajasthan should explore direct benefit transfers to reward farmers who conserve water, especially in areas served by feeders. Supplementing this program ought to be accessible trainings in crop selection and communal water management.

Alternatively, legal reforms might be pursued to impose costs on the overuse of groundwater, or costs and benefits might be imposed simultaneously. Options to incentivize water conservation could also include consumption-based pricing of electricity in the case of solar feeders and increased feed-in tariffs for solar pumps. • Focus implementation on solar feeders, which seem to offer more benefits for farmers and developers; less risk for Discoms and GoR. Rajasthan could also explore higher state subsidies to make solar pumps viable for both farmers and Discoms. Analysis in this report suggests the solar pump model will not be viable for farmers unless the tariff is increased to ₹9.91/kWh, which is higher than Discoms’ already unsustainable average cost of supply. While a higher feed-in tariff may raise farmer incomes and mitigate water risk by increasing benefits for conservation, Discoms would lose money on the scheme. • Raise the upper limit on solar feeder installation capacity. The current 2 MW maximum does not allow solar feeders to meet the full agricultural demand in most cases. Based on the distribution of connected agricultural demand in Rajasthan, only 60 percent of the substation loads are below 2 MW based on Rajasthan’s sizing criteria. Increasing the upper limit could

enable Rajasthan and its Discoms to maximize cost savings from the scheme, by supplying a greater share of agricultural load with lower cost power. • Develop an initial, small-scale rollout of the KUSUM scheme to collect empirical data

on the scheme’s impacts on groundwater extraction for the purpose of evaluating and

mitigating water-related risks. It is unclear how electricity offered by solar feeders and solar pumps will change farmers’ water usage. To avoid possibly dire consequences of groundwater depletion, KUSUM should be scaled up as methodically as the need for rapid solarization will allow, and policies like drought premiums should be explored to control irrigation at sensitive times. If able, Rajasthan should track groundwater usage with direct pumping measurements where the scheme is being deployed. This small-scale rollout can also be used to measure other key uncertainties, such as impacts on farmer incomes and Discom finances. • Deploy KUSUM in ways that affirm the inclusion of marginalized groups. The current

KUSUM scheme design does not include specific provisions to ensure small and marginalized farmers can access its benefits. Groups of concern include those with pumps outside the sizing guidelines, or no pumps at all. To ensure all farmers share in the opportunities afforded by this ostensibly universal scheme, feeders in areas with high proportions of marginalized groups should be prioritized going forward, and educational barriers to entry reduced.

By making proposed changes and avoiding identified mistakes, KUSUM can be an asset to Rajasthan’s economic development and India’s ambition to reduce CO2 emissions from the energy sector. KUSUM’s potential to benefit farmers, Discoms, and state finances is evident, and is especially strong for solar feeders. Regardless of whether Rajasthan pursues solar feeders over solar pumps, all future investment must understand the societal implications of mass solarization, especially as they concern marginalized groups, political order, and Rajasthan’s uniquely tenuous environmental state. It is worth underscoring that this report does not show decisively that either solarization model advanced by KUSUM will reduce groundwater extraction, despite claims that it will. Expected economic benefits would be short-lived if scarce water was totally consumed, and as such, Rajasthan must proceed cautiously, take regular stock of its progress and make changes as needed. Balancing KUSUM’s grand ambitions with long-term sustainability will be critical for the scheme’s continued progress in Rajasthan.