01

Powering Agriculture in India

Strategies to Boost Components A and C
Under PM-KUSUM Scheme

Anas Rahman, Shalu Agrawal, and Abhishek Jain

Report | August 2021

02 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM
Scheme

India has seen a massive growth

in solar-powered irrigation with
more than three lakh solar pumps
installed in the last decade.

Image: Sasmita Patnaik

 Powering Agriculture
in India
Strategies to Boost Components A and
C Under PM-KUSUM Scheme

Anas Rahman, Shalu Agrawal, and Abhishek Jain

Report
August 2021
ceew.in
 Copyright © 2021 Council on Energy, Environment and Water (CEEW).

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Suggested citation: Rahman, Anas, Shalu Agrawal, and Abhishek Jain. 2021. Powering Agriculture in India:
Strategies to Boost Components A & C Under PM-KUSUM Scheme. New Delhi: Council
on Energy, Environment and Water.

Disclaimer: The views expressed in this issue brief are those of the authors and do not necessarily reflect
the views and policies of Council on Energy, Environment and Water.
The views/ analysis expressed in this study do not necessarily reflect the views of the
Shakti Sustainable Energy Foundation. The Foundation also does not guarantee the accuracy
of any data included in this publication nor does it accept any responsibility for the
consequences of its use. For private circulation only.

Cover image: iStock.

Peer reviewers: Christopher Beaton, Lead, Sustainable Energy Consumption, IISD; Ashwini Swain, Fellow, CPR;
Prateek Aggarwal, Programme Associate and Neeraj Kuldeep, Programme Lead, from
CEEW.

Publication team: Alina Sen (CEEW), Amit Dixit, Aspire Design, and Friends Digital.

Organisations: The Council on Energy, Environment and Water (ceew.in) is one of Asia’s leading not-for-
profit policy research institutions. The Council uses data, integrated analysis, and strategic
outreach to explain — and change — the use, reuse, and misuse of resources. It prides
itself on the independence of its high-quality research, develops partnerships with public
and private institutions, and engages with the wider public. In 2021, CEEW once again
featured extensively across ten categories in the 2020 Global Go To Think Tank Index
Report. The Council has also been consistently ranked among the world’s top climate
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@CEEWIndia for the latest updates.

Shakti Sustainable Energy Foundation seeks to facilitate India’s transition to a sustainable

energy future by aiding the design and implementation of policies in the following areas: clean
power, energy efficiency, sustainable urban transport, climate change mitigation and clean
energy finance.

Council on Energy, Environment and Water

Sanskrit Bhawan, A-10, Qutab Institutional Area,
Aruna Asaf Ali Marg, New Delhi - 110067,
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 iii

About CEEW
The Council on Energy, Environment and Water (CEEW) is one of Asia’s leading not-for-profit policy research
institutions. The Council uses data, integrated analysis, and strategic outreach to explain — and
change
— the use, reuse, and misuse of resources. The Council addresses pressing global challenges through an
integrated and internationally focused approach. It prides itself on the independence of its high-quality
research, develops partnerships with public and private institutions, and engages with the wider public.

The Council’s illustrious Board comprises Mr Jamshyd Godrej (Chairperson), Mr Tarun Das, Dr Anil
Kakodkar, Mr S. Ramadorai, Mr Montek Singh Ahluwalia, Dr Naushad Forbes, Ambassador Nengcha
Lhouvum Mukhopadhaya, and Dr Janmejaya Sinha. The 120-plus executive team is led by Dr Arunabha
Ghosh. CEEW is certified as a Great Place To Work®.

In 2021, CEEW once again featured extensively across ten categories in the 2020 Global Go To Think Tank Index
Report, including being ranked as South Asia’s top think tank (15 globally) in our category for the
th

eighth year in a row. CEEW has also been ranked as South Asia’s top energy and resource policy think
tank for the third year running. It has consistently featured among the world’s best managed and
independent think tanks, and twice among the world’s 20 best climate think tanks.

In ten years of operations, The Council has engaged in 278 research projects, published 212 peer-reviewed
books, policy reports and papers, created 100+ new databases or improved access to data, advised governments
around the world nearly 700 times, promoted bilateral and multilateral initiatives on 80+ occasions, and
organised 350+ seminars and conferences. In July 2019, Minister Dharmendra Pradhan and Dr Fatih Birol (IEA)
launched the CEEW Centre for Energy Finance. In August 2020, Powering Livelihoods — a CEEW and
Villgro initiative for rural start-ups — was launched by Minister Mr Piyush Goyal, Dr Rajiv Kumar (NITI
Aayog), and
H.E. Ms Damilola Ogunbiyi (SEforAll).

The Council’s major contributions include: The 584-page National Water Resources Framework Study for
India’s 12 Five Year Plan; the first independent evaluation of the National Solar Mission; India’s first
th

report on global governance, submitted to the National Security Adviser; irrigation reform for Bihar; the birth
of the Clean Energy Access Network; work for the PMO on accelerated targets for renewables, power sector
reforms, environmental clearances, Swachh Bharat; pathbreaking work for the Paris Agreement, the HFC
deal, the
aviation emissions agreement, and international climate technology cooperation; the concept and strategy
for the International Solar Alliance (ISA); the Common Risk Mitigation Mechanism (CRMM); critical minerals
for Make in India; modelling uncertainties across 200+ scenarios for India’s low-carbon pathways; India’s
largest multidimensional energy access survey (ACCESS); climate geoengineering governance; circular economy
of water and waste; and the flagship event, Energy Horizons. It recently published Jobs, Growth and
Sustainability: A New Social Contract for India’s Recovery.

The Council’s current initiatives include: A go-to-market programme for decentralised renewable energy-
powered livelihood appliances; examining country-wide residential energy consumption patterns; raising
consumer engagement on power issues; piloting business models for solar rooftop adoption; developing a
renewable energy project performance dashboard; green hydrogen for industry decarbonisation; state-level
modelling for energy and climate policy; reallocating water for faster economic growth; creating a democratic
demand for clean air; raising consumer awareness on sustainable cooling; and supporting India’s electric
vehicle and battery ambitions. It also analyses the energy transition in emerging economies, including
Indonesia, South Africa, Sri Lanka and Vietnam.

The Council has a footprint in 22 Indian states, working extensively with state governments and
grassroots NGOs. It is supporting power sector reforms in Uttar Pradesh and Tamil Nadu, scaling up solar-
powered irrigation in Chhattisgarh, supporting climate action plans in Gujarat and Madhya Pradesh,
evaluating community-based natural farming in Andhra Pradesh, examining crop residue burning in Punjab,
promoting and deploying solar rooftops in Delhi, Bihar and Meghalaya.
 v

Acknowledgment
The authors would like to acknowledge the valuable support of a number of people who contributed to
this study. First of all, our sincerest gratitude to the Shakti Sustainable Energy Foundation (SSEF) for financially
supporting this study.

We are particularly thankful to all the participants in the stakeholder consultations for their time and
valuable suggestions, including representatives from - Gujarat Urja Vikas Nigam Ltd (Gujarat); Bangalore
Electricity Supply Company Ltd (Karnataka); Andhra Pradesh Eastern Power Distribution Company Ltd
(Andhra Pradesh); Jodhpur Vidyut Vitran Nigam Ltd (Rajasthan); Chhattisgarh State Power Distribution
Company
Ltd (Chhattisgarh); Kerala State Electricity Board (Kerala); Karnataka Renewable Energy Development Ltd
(Karnataka); Rajasthan Renewable Energy Corporation Ltd (Rajasthan); Chhattisgarh Renewable Energy
Development Agency (Chhattisgarh); and five private organisations.

A special thanks to our reviewers – Christopher Beaton, International Institute for Sustainable Development
(IISD); Ashwini K Swain, Centre for Policy Research (CPR); Neeraj Kuldeep, CEEW; and Prateek Aggarwal,
CEEW —for their critical comments and feedback, which helped us immensely in enhancing the quality of the
report.

Finally, we thank the editors and the outreach team at CEEW, for their support in the publication of this report
and its outreach.
 vii

The authors

Anas Rahman Shalu Agrawal Abhishek Jain

[email protected] [email protected] | [email protected] | @ajainme
@ShaluAgrawal12

Anas is a Programme Associate As a Fellow at CEEW, Abhishek

Shalu, a Senior Programme
at CEEW working on solar- built and leads its practices on
Lead, leads The Council’s work
powered irrigation and energy energy access, rural livelihoods,
on residential energy access,
access for rural livelihoods. His and sustainable food systems. He
demand-side management
research at The Council focuses also directs ‘Powering Livelihoods’,
and power sector reforms. She
on developing strategies to scale a $3 million initiative. He co-
uses data to study the
up solar-powered irrigation conceptualised and leads CEEW’s
changing energy landscape
sustainably. He is a Prime flagship research, ‘Access to Clean
and devise strategies to
Minister’s Rural Development Cooking Energy and Electricity
ensure universal
Fellow and an alumnus of the Tata – Survey of States’. With more
access to affordable, reliable, and
Institute of Social Sciences and IIT than 10 years of experience,
sustainable energy. She recently
Madras. Abhishek has worked on multiple
led India’s first-ever Residential
Energy Survey (IRES) that covered issues at the confluence of
~15,000 households across energy, development, and the
21 Indian states. A environment. He is a Chevening
Chevening Fellow and an alumnus of the
scholar, Shalu holds an MSc from University of Cambridge and IIT
University College London and a Roorkee.
BTech from IIT Roorkee.
“Decentralised solar energy has “PM-KUSUM holds a massive
huge potential to improve irrigation potential to solarise Indian
access and farmers’ income. The agriculture and enhance farmer
“An integrated approach, which
report highlights the importance incomes. We hope that this
is sensitive to concerns of all
of innovating and adapting the report will help address the
stakeholders, the political
different models to suit the local implementation gaps to realise the
economy of farm-power subsidies,
context for PM-KUSUM to achieve potential on the ground.”
and
its objectives sustainably.”
has farmers at its centre, can
help unlock solar-power for
Indian farms. Conducting
pilots, demonstrations, and
actively seeking on-ground
feedback will
provide critical ingredients for PM-
KUSUM’s success.”
 ix

Contents
Executive summary xiii

1. Introduction 1
1.1 Component-A: Decentralised solar plants on farmlands 2
1.2 Component-C: Grid-connected solar irrigation pumps 3
1.3 Study objectives 5

2. Methodology 7

3. Component-A: Key insights and challenges 9

3.1 Commercial viability of the component 9
3.2 Financing farmer-owned projects 15
3.3 Challenges related to land regulations 16
3.4 Gaps in inter-departmental coordination 16

4. Component-C: Key insights and challenges 19

4.1 Commercial viability of the component 19
4.2 Regulatory challenges 25
4.3 Technical considerations 25
4.4 Challenges to groundwater regulation 27
4.5 Operational issues 28
4.6 Choice of implementing agency 31

5. Conclusion 33

References 35

Annexures 37

Agriculture is one of the major power

consuming sectors. Promoting solar-
powered irrigation sustainably can
ensure a more just and equtable
transition to clean energy in the agri
sector.
x Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Figures

Figure 1 More than 200,000 standalone solar pumps have been deployed in India during 2015-20 2
Figure 2 A Karnataka discom would gain a net benefit of INR 0.54 for each unit produced from the
Component-A power plant over 25 years 10
Figure 3 In most states, the ceiling tariff for Component-A is lower than their average
cost of power purchase 11
Figure 4 All three stakeholders would theoretically benefit from Component-C 20
Figure 5 At higher self-consumption, feed-in tariff earnings for farmers would not be sufficient
to repay the loan 21
Figure 6 There is a strong negative correlation between farmer’s income and combined net
savings for the government and discom 22
Figure 7 Government savings are highly sensitive to farmer’s self-consumption in the
full-subsidy model 23
Figure 8 There is a strong trade-off between government’s and farmer’s income in
Gujarat’s SKY model 24
Figure 9 In the SKY model, the discom may incur an additional cost for repaying the loans 24

Tables

Table 1 Only Rajasthan has made any significant progress in rolling out Component-A 3
Table 2 Grid-connected solar pump model under Component-C is yet to take off in most states 5
Table 3 The study covers 15 key informants from five stakeholder categories 8
Table 4 Tariff determination methodology varies between different states 25
Table 5 Exporting energy is not always preferred by the farmer 28
Table 6 Smart-meter solutions are comparatively more effective and scalable strategy for
metering and billing challenges 29
Table 7 Among the different strategies, technology-based monitoring is the most scalable
solution to tackle the free-rider problem 30
Table A 1 Key assumptions used for cost-benefit analysis of Component-A 37
Table A 2 Formulae used for estimating cost and benefit component under VGRS framework 37
Table A 3 Key assumptions for cost-benefit analysis of grid-connected pump schemes 38
Table A 4 Formulae used for different cost and benefit components of grid-connected pump schemes 40
 xi

Acronyms
AC alternating current
AGCC avoided generation capacity cost
APEPDCL Andhra Pradesh Eastern Power Distribution Company Limited
APPC avoided power purchase cost
ARPC avoided REC purchase cost
ATCC avoided transmission capacity cost
BCD basic customs duty
BESCOM Bangalore Electricity Supply Company
Limited BLDC brushless DC
CAPEX capital expenditure
CBA cost-benefit analysis
CERC Central Electricity Regulatory Commission
CREDA Chhattisgarh Renewable Energy Development Agency
CSPDCL Chhattisgarh State Power Distribution Company Limited
DC direct current
DGVCL Dakshin Gujarat Vij Company
Limited DISCOM distribution company
FOR Forum of Regulators
GoI Government of India
GUVNL Gujarat Urja Vikas Nigam Limited
HESCOM Hubbali Electricity Supply Company
Limited HP horse power
INR Indian rupees
ISTS Inter-State Transmission System
JVVNL Jaipur Vidyut Vitran Nigam
Limited
KERC Karnataka Electricity Regulatory Commission
KREDL Karnataka Renewable Energy Development Limited
KSEB Kerala State Electricity Board
LoA Letter of Approval
MEDA Maharashtra Energy Development Agency
MERC Maharashtra Electricity Regulatory Commission
MGVCL Madhya Gujarat Vij Company Limited
MNRE Ministry of New and Renewable Energy
MPERC Madhya Pradesh Electricity Regulatory Commission
MSKVY Mukhyamantri Saur Krushi Vahini Yojana
MW megawatt
NPV net present value
OPEX operational expenditure
PBI performance-based incentive
PGVCL Dakshin Gujarat Vij Company Limited
PM-KUSUM Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan
PPA power-purchase agreements
REC renewable energy certificate
RPG renewable power generator
RPO renewable purchase obligation
RRECL Rajasthan Renewable Energy Corporation Limited
SARFAESI The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act
SCADA supervisory control and data acquisition
SECI Solar Energy Corporation of India
SERC state electricity regulatory commissions
SIA state implementing agency
SKY Saur Kranti Yojana
SME small and medium enterprises
SNA state nodal agency
SPV special-purpose vehicle
UGVCL Uttar Gujarat Vij Company Limited
VGRS Valuing Grid-connected Rooftop
Solar
xii Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM
Scheme

In India, where agriculture is a

significant contributor to growth
and livelihoods, access to reliable
irrigation is a major policy objective.

Image: iStock
 xiii

Executive summary

he Government of India launched the Pradhan Mantri Kisan Urja Suraksha evam

T Utthaan Mahabhiyan (PM-KUSUM) scheme in 2019 to improve irrigation access and

farmers’
income through solar-powered irrigation. Under its components A and C, the scheme aims
to promote innovative models for solar-powered irrigation by setting up solar power plants
on agricultural land, and solarising existing grid-connected pumps, respectively. These Components A
components intend to support farmers to be net energy producers and earn an additional & C of the
income. Concomitantly, the state governments are expected to reduce their agriculture PM- KUSUM
power subsidy bills, while the discoms procure low-cost solar power sourced closer to
the consumers through these models.
scheme have
not taken
off in most states
Component-A Component-B Component-C

for setting up for installation of for solarising

10,000 MW 2 million 1.5 million
of decentralised stand-alone existing
solar or other solar pumps grid-connected
renewable energy for off-grid areas irrigation pumps
plants on and to replace
agricultural diesel pumps
lands

We interviewed 15 stakeholders
from seven states to assess the 6 1
discoms
state-level challenges for
PM-KUSUM

1
controller
manufacturer 2

5
developers
3

3
Pilot states state nodal agencies
4
Other
states
xiv Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Notwithstanding the pandemic-related challenges, with almost half the scheme’s target
period already over, these components have not taken off in most states. Only the
Rajasthan government has offered letters of award for projects under Component-A.
Rajasthan is also the only state that has begun installing grid-connected solar pumps under
Component-C, that too on an experimental basis. In contrast, Component-B of the scheme
promotes Surplus
stand-alone solar pumps and is progressing well across many states. Therefore, this study contracted
investigates the reasons behind the slow uptake of the components A and C of the PM-
KUSUM scheme and proposes solutions to overcome the key barriers.
generation
capacity and
We do so by capturing the experience of seven Indian states in the implementation of the
components A and C of the PM-KUSUM scheme and related previous pilots. Our findings are
unattractive
based on detailed interviews with 15 key informants across power distribution companies, tariffs emerged as
state nodal agencies, developers, system integrators, and manufacturers. During the semi- key challenges
structured interviews, which lasted for 45-90 minutes, we focused on identifying potential
administrative, regulatory, financial, operational, and technical challenges hindering
the scheme’s rollout. We also discussed possible solutions to address these challenges.
In addition, we conducted a scenario-based economic analysis to assess the economic
viability of Component-C for farmers, the power distribution companies (discoms), and the
government. Below we summarise our key findings and recommendations.

Component-A
Under Component-A, farmers can set up solar or other renewable power plants on their
land (directly or by leasing out land to developers), and the discom would purchase power
from them. Most discom respondents were enthusiastic about this component due to its
potential to reduce the power-purchase cost, but shared concerns about several
implementation challenges, including surplus of contracted generation capacity.
Unattractive tariffs for developers, delays in land leasing/conversion and inability of
farmers to mobilise equity or debt finance also emerged as key challenges. To overcome
these challenges, we propose the following recommendations for Component-A.

1. Modify the scheme timelines to enable the inclusion of Component-A in

discoms’ power-purchase planning
Many discoms are not in a position to benefit in the short term from the component
due to surplus contracted capacity and low variable cost of power from conventional
power plants. Many are not in a position to shoulder the additional burden for long-
term benefits, a situation further exacerbated by the pandemic-induced stress on
discoms’ finances. Savings from renewable purchase obligation (RPO) fulfilment
also depends
on the discoms’ power-purchase plans and the level of enforcement of RPO regulations.
The Ministry of New and Renewable Energy (MNRE) should modify the timelines for
the scheme to enable the discoms to align the component with their power-purchase
planning and gain maximum benefit from the component. The central government
should also strengthen the RPO regulations enabling the discoms to plan for RPO
fulfilment through Component-A power plants.

2. Reduce risks and improve the competitiveness of decentralised power plants

The MNRE should study the impact of new customs duty on the cost competitiveness of
small-capacity power plants and take appropriate measures to mitigate the associated
disadvantages. The MNRE, in consultation with the Forum of Regulators (FOR), should
also prepare a guidance note for the state SERCs to standardise an approach for
tariff for Component-A power plants considering the factors like limited economies
of scale, lower DC-to-AC conversion efficiency, etc. Two key risks concerning the
deployments under Component-A are grid unavailability and counter-party risk. The
MNRE should strengthen the compensation clauses in grid unavailability and put the
onus on the
 Executive summary xv

discoms to ensure a minimum grid availability. The discoms should be penalised

in the event of failure to honour the power-purchase agreements (PPAs) to
reduce the counterparty risks for the developers.

3. Undertake broader policy reforms to address the bias against distributed

solar power plants
Under the current Inter-State Transmission System (ISTS) regulations, solar power
plants are exempt from transmission charges, and no transmission losses are
accounted for towards solar generation. This statute, which was brought in over a
decade ago to promote the solar power sector, has unintendingly favoured large
utility-scale solar power plants in a few states with high generation potential, like
Rajasthan, over the distributed solar plants. The former offers cheaper rates due to
favourable generation conditions and the discoms do not have to bear the inter-state
transmission costs, thus reducing the effective cost of power by about INR 0.5-2.2 per kWh
(Menghani 2021).
The central government should do away with this archaic statute and initiate policies
favouring distributed power plants if Component-A or similar schemes are to succeed.

4. Streamline land regulations to ensure smooth implementation

State regulations concerning land leasing and land conversion from agricultural to
non- agricultural uses have been a critical barrier in the scheme’s implementation.
Some states prohibit the leasing of agricultural lands for non-agricultural purposes.
Even states like Karnataka, with provision for ‘deemed diversion’ of agricultural land for
solar projects, have witnessed administrative delays in this regard. Implementing
agencies should work closely with the state revenue department to identify and
address these challenges.

5. Adopt innovative models to overcome financing challenges with farmer-

owned power plants
Usual means of project financing for developers are inadequate for farmer-owned power
plants for two reasons. One, farmers are not able to raise/contribute the 30 per cent
equity for the power plant. Two, in the absence of any track record as a developer,
they cannot access loans from banks without collateral. Banks do not take agricultural
land as collateral for non-agricultural purposes. State nodal agencies (SNAs) need to
work with financial institutions to try innovative models such as the farmer-developer
special- purpose vehicle (SPV) piloted in Karnataka.

6. Ensure inter-departmental coordination to mitigate any issues in the

planning and implementation phases
Multiple agencies like the discoms, SNAs and revenue departments have roles to play
at different stages of implementing this component. States should form a PM-KUSUM
steering committee, led by the implementing agency, with state-level representatives
from all the concerned departments. Such an arrangement can anticipate any inter- Without farmer
department coordination issues in the planning and implementation phases and
address them.
contribution, the
economic viability
Component-C of the individual
grid-connected
The Component-C of the PM-KUSUM scheme aims to support the solarisation of the existing
grid-connected pumps through two models – individual-pump solarisation and feeder- pump solarisation
level solarisation. In this study, we focused only on the individual solarisation model as model is uncertain
many of the challenges and issues concerning feeder-level solarisation are akin to
Component-A.
xvi Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

We find that most stakeholders are not enthusiastic about this model. The discom
representatives unanimously anticipated difficulty getting farmers to pay the upfront
contribution, as most target farmers already benefit from free or highly subsidised power.
In the absence of upfront beneficiary contribution from the farmers, the economic
viability of the component is uncertain. The alternative financing options – either
increasing the farmer’s loan component or increasing the government subsidy share – Carefully
both necessitate a lower feed-in tariff (FiT) while balancing the burden on the exchequer. designed
In such cases, the opportunity cost of selling power becomes higher for the farmer, as they financial models
could benefit more by growing more crops or selling water to neighbours. We find that, in
specific contexts, farmers have chosen such alternative options, which in turn affects the should be piloted
loan repayment and the financial viability of the model. We also found that the SERCs in different
are not adequately equipped to assess the opportunity costs of selling surplus power while contexts before
deciding the FiT, leading to a wide variation in the FiT under Component-C across states.
scaling-up
We also identify operational challenges for the discoms pertaining to metering and Component-C
billing, free-ridership, and gaps in infrastructure. While metering is critical for
accounting under Component-C, it is affiicted by issues of trust deficit between the
farmers and the discoms and challenges in billing sparsely distributed agricultural
connections. The free-rider problem emerges when only some farmers in a feeder
participate in the scheme, while the rest gain access to reliable day-time supply without
investing in the solar asset. Finally, inadequate maintenance of the agricultural feeders
by the discoms due to poor revenue recovery is also a concern, as Component-C
requires that feeders are well-maintained and on, at least during the daytime.

Overall, there remain significant uncertainties around the economic viability and
operational sustainability of Component-C. We propose the following steps to address the
unknowns before implementing the model at scale.

1. Discoms should lead the component’s implementation

The study makes it abundantly clear that the implementation of the component
will throw up many challenges that only the discoms can tackle. The discoms’
role in Component-C is pre-eminent, and all the states should appoint the
discoms as the implementing agency for the component.

2. Pilot the model in different contexts

The experience from the limited number of pilots on the individual-pump solarisation
model so far suggests that the outcome of Component-C depends on an array of
localised factors. The current cropping pattern, the existing power supply conditions
and alternative options with surplus power are some of these determinants. Given
that these factors vary immensely even within states, states must carry out pilots in
different agroeconomic contexts before scaling up the model. The pilots should
specifically test out the following aspects:
Beneficiary contribution and metering modalities: Farmer’s willingness
to pay for solarisation would depend on many factors like the
current supply condition, the FiT and the metering modality. The
discoms need to test out different combinations of financing
structure and metering options acceptable to farmers and assess their
economic viability.
Use of surplus power and impact on groundwater: Using surplus power
for selling water or cultivating more crops can put more stress on
the groundwater, particularly in water-scarce regions. The discoms
should conduct pilots to study farmers’ behaviour concerning
surplus power and water use, to better plan their deployment
strategy. They should
 Executive summary
xvii

also prioritise farmers using water-efficient practices to achieve the

component objectives sustainably.
Feasible approaches to address metering, billing and free-rider problem:
Technological solutions like smart meters and smart transformers
can address some of the operational concerns but come with their
own challenges. Network connectivity and trust issues with remote
billing can pose a challenge. The discoms must engage with the
farmers in the target feeder to ensure maximum participation in a
feeder, build trust, and promote community ownership of the scheme
during the pilots.
Infrastructure costs: The discoms should carry out comprehensive
infrastructure assessment in the pilot projects to assess the
infrastructure challenges and costs. The study should include
pump sizes in use by the farmers, the status of grid
infrastructure, and sources of other commercial losses before
implementing the
component in any feeder.

3. Complement the component with other key measures to make it viable

The states along with the MNRE could take some essential steps to make Component-C
more feasible and sustainable.
Larger reforms in agriculture power supply: It is pretty difficult to get
farmers to contribute to the scheme component in the backdrop of
free agriculture power. Component-C cannot be decoupled from the
larger reforms needed in the sector. Instead, it should be
implemented in consonance with subsidy and tariff reform
measures.
Pump replacement: Although the states are not receiving the central
government’s subsidy share for pump replacement, replacing old
inefficient pumps with efficient ones is likely to have a net positive
outcome for both the state and the farmer. The discoms can test out
the overall benefit from pump replacement through pilot studies.
Framework for determining FiT: As the conventional methods
of determining electricity tariffs are inadequate to capture the
complexities of the scheme, the MNRE should create a framework
to guide the SERCs to determine a FiT that is viable for the discom,
farmers, and the state government.
xviii Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

The poor quality and unreliability

of agricultural power supply has
been a major impediment in
improving productivy. Solar power
can ensure quality daytime power
supply. Image: iStock
 1

1. Introduction

I n March 2019, the Government of India launched the Pradhan Mantri Kisan Urja Suraksha
evam Utthaan Mahabhiyan (PM-KUSUM) scheme. The scheme has four main objectives:
to improve farmers’ income from agriculture, to improve access to reliable power, to reduce
the agriculture sector’s dependency on fossil fuels, and to reduce the power subsidy to
agriculture (MNRE 2019). The scheme aims to achieve these objectives by facilitating the
deployment of more than 25,000 MW of solar capacity by 2022 under three components.
These are:

Component-A
Component-B Component-C

for setting up
for installation of for solarising
10,000 MW 2 million 1.5 million
of decentralised
solar or other stand-alone existing
renewable energy solar pumps for grid-connected
plants on off-grid areas and irrigation pumps
agricultural to replace diesel
lands pumps

While the stand-alone solar pumps have been promoted in India for nearly a decade,
components A and C are novel approaches, with only a few pilots so far. As of March 2020,
more than 280,000 stand-alone solar pumps have been installed in the country (Figure
1). Under Component-B of the PM-KUSUM scheme, 24,688 stand-alone pumps have been
installed (as of 24 March 2021), nearly 15 per cent of the targeted 0.17 million pumps for
2020- 21; the installation is ongoing in 11 states (Lok Sabha 2021). However, halfway
through the scheme’s target period, components A and C are yet to take off in most states as
planned.
2 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

300,000
280,844 Figure 1
More
256,156
250,000
than
237,120 200,000
Cumulative solar pumps deployed

standalone solar
200,000
pumps have been
deployed in India
171,228 during 2015-20
150,000 Source: Authors’
analysis of the MNRE
114,878 annual reports
100,000 and parliamentary
questions
61,834

50,000

0
2015 2016 2017 2018 2019 2020

Other schemes PM-KUSUM

1.1 Component-A: Decentralised solar plants

on farmlands
Under PM-KUSUM’s Component-A, farmers can set up renewable energy power plants of 0.5-
2 MW capacity on their lands. The concerned power distribution company (discom)
would purchase the power at a predetermined levelised tariff. The participating farmers
have two choices: (i) invest and own the power plant or (ii) lease their farmland to a
developer.

Component-A is inspired by the Solar Farmer scheme launched by the Karnataka government
in 2014, which allowed farmers to install solar power plants of 1-3 MW capacity on their land
and sell the power to the discom. But unlike Component-A, the tariff under the Karnataka
scheme was fixed (at INR 8.4/kWh) and not discovered through competitive bidding (KERC
2017). The farmers were selected on a ‘first-come-first-serve’ basis. Against a target of 310
MW by 2019, 296 MW of solar capacity was installed under the scheme (KREDL 2020). After
completing the initial target, the state government did not scale up the scheme further.

The Mukhyamantri Saur Krushi Vahini Yojana (MSKVY) scheme in Maharashtra also
promotes distributed solar power plants. The experience from the scheme provides insights
on the potential commercial and technical challenges for Component-A.

Through Component-A, the PM-KUSUM scheme aims to benefit farmers by enabling an

alternative income source from their agricultural lands. The power plant can also improve
the power supply situation in the locality, especially in areas with poor quality supply,
thus improving access to electricity for other farmers. The discoms are expected to gain
by reducing their power procurement cost, transmission capacity requirements, and
transmission and distribution (T&D) losses. To make the proposition attractive for the
discoms, the MNRE provides a performance-based incentive to the discoms for the renewable
energy generated under the scheme. MNRE had kept
The MNRE had kept a target of 4,344 MW for the year 2020-21 (MNRE 2021). Table 1 presents a target of ~4.3
the scheme’s progress in different states as of 31 March 2021. Only the Rajasthan state GW capacity for
government has offered the letter of award (LoA) for 725 MW of solar capacity to 2020-21 under
successful bidders. The first solar power plant in the country under Component-A was
commissioned on 31 March 2021 in Rajasthan (The Hindu 2021). Component A
 Introduction 3

Table 1 Only Rajasthan has made any significant progress in rolling out Component-A

States Notification Determining Tender Letter of approval Commissioning

of scheme ceiling tariff stage for work

Rajasthan 🗸 🗸 🗸 🗸 🗸

Haryana, Karnataka, Madhya Pradesh, Tamil Nadu, Kerala, 🗸 🗸 🗸

Tripura, Uttar Pradesh, Odisha
Punjab, Telangana, Jharkhand 🗸 🗸

Himachal Pradesh, Gujarat, Chhattisgarh, 🗸

Maharashtra, Meghalaya

Total number of states reaching the stage of 17 12 9 1 1

implementation

Implementing agency: blue - State nodal agency (SNA); black - discom

Source: Authors’ analysis based on government notifications, SERC petitions and orders, and news articles

1.2 Component-C: Grid-connected solar irrigation pumps

Component-C of PM-KUSUM aims to reduce the power subsidy burden for states through the
solarisation of existing agriculture feeders and connections. Solarisation would ensure good
quality daytime power for the farmers. For the state, a one-time capital investment could
help reduce the recurring power subsidy burden. Power procured from decentralised solar
units and plants close to the consumption could reduce the cost of power supply for the
discom. Component-C proposes two models:

1. Solarisation of individual existing grid-connected pumps: Under this model,

farmers with existing grid-connected pump sets are eligible for subsidies to
solarise their connections. In addition to the benefit of adequate daytime supply,
farmers would be able to sell any excess power to the grid at a predetermined
tariff, gaining supplementary income.
2. Feeder-level solarisation: Under this model, the discoms could develop decentralised
solar power plants near agriculture feeders to cater to the entire feeder loads, to
reduce their cost of power supply to agricultural consumers. This model, unlike the
individual pump solarisation, does not have the involvement of farmers. This model has
similarities with Component-A and took inspiration from an ongoing MSKVY scheme in
Maharashtra (Box 1).

BOX 1 Mukhyamantri Saur Krushi Vahini Yojana (MSKVY)

MSKVY, launched in 2015 in Maharashtra, aims to solarise agriculture feeders in the state through
decentralised solar plants (2-10 MW capacity). Unlike Component-A in the PM-KUSUM scheme,
solar plants under the Maharashtra scheme can also be set up on private and revenue Solarising grid-
lands, besides agricultural land. The primary aim of MSKVY is to reduce the cost of power connected pumps
supply to agriculture connections. Against a targeted capacity of 3,654 MW, the Maharashtra
Electricity Regulation Commission (MERC) has granted approval for projects totalling 1,826
would ensure
MW capacity. These projects are at various stages of development (Gambhir et al. 2021). quality daytime
power supply
and help reduce
The MNRE introduced the feeder-level solarisation model only in December 2020. This study subsidy burden
focuses only on the individual pump solarisation model.
4 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

There have been three previous or ongoing schemes by different state governments that
supported grid-connected solar pumps.

• Surya Raitha Scheme (Karnataka): This was a pilot project launched in 2015, in which
Bangalore Electricity Supply Company Ltd (BESCOM) solarised 310 pumps of up to
7.5 HP capacity in a feeder (Institute of Social and Economic Change 2018). As per
the respondent from the discom, the discom adopted unidirectional metering under
There have been
which farmers can only feed-in power implying that the irrigation pump can run only three previous or
on solar power. The farmers could sell the surplus power to the grid for INR 7.2 per ongoing schemes
unit. The project financing came from the MNRE subsidy and loans availed by the by different
discom on behalf of farmers. The discom apportioned INR 6 per unit from the feed-in
tariff for the repayment of loans. The discom also formed a collective of the state
participating farmers for smooth implementation of the project. The state government governments that
did not scale up the project beyond the pilot feeder. supported grid-
• Grid-connected pumps (Andhra Pradesh): This was a pilot project launched by the connected solar
Andhra Pradesh Eastern Power Distribution Company Ltd (APEPDCL) in 2016. Under
this project, APEPDCL replaced 216 grid-connected pumps of up to 5 HP capacity pumps
with solar panels and brushless direct current (BLDC) pumps. In this arrangement, the
farmer could run the pump exclusively on solar power, and sell any surplus power
to the grid for a feed-in-tariff of INR 1.5/kWh. The discom fully financed the scheme
from its fund. A farmers’ cooperative, formed by the participating farmers, facilitated
the implementation of the scheme. The state did not scale the project up beyond
the pilot feeder.
• Suryashakti Kisan Yojana or SKY (Gujarat): Launched in 2018, the scheme solarised
individual pumps with bidirectional metering (the pump can run both on solar
power and grid power). The farmers make an upfront contribution of five per cent
of the capital cost, the MNRE contributes 30 per cent of the cost, and the discoms
source the remaining amount through loans on behalf of the farmers. The feed-in
tariff for the
scheme is INR 3.5/kWh. In addition, the state government provides an evacuation-based
incentive to the farmer of INR 3.5/kWh (with an upper limit of 1,000 unit/HP/year). A
part of the income generated from energy sale is apportioned for paying back the loans
in seven years. Gujarat has implemented the scheme in 91 feeders constituting 97 MW
solar capacity so far. As per the respondent from GUVNL, the state will continue the
implementation of SKY on the 137 feeders initially targeted. The state plans to cover the
remaining feeders under PM-KUSUM.

The remaining report will use the terms ‘pilot schemes’ and ‘pilot states’ for the three
projects and states mentioned above.

The rollout of Component-C has been significantly delayed in most states. Only
Rajasthan has started installing pumps, and that, on an experimental basis, without any
financial contribution from the beneficiary. Table 2 summarises the progress of different
states in the implementation of Component-C.
 Introduction 5

Table 2 Grid-connected solar pump model under Component-C is yet to take off in most states

States Determining Tender Letter of approval Installation of

ceiling tariff stage for work pumps

Rajasthan 🗸 🗸 🗸 🗸*

Haryana, Gujarat, Kerala, Tripura, West Bengal 🗸 🗸

Odisha, Jharkhand, Tamil Nadu, Punjab 🗸

Total number of states reaching the stage of 11 6 1 1

implementation

Implementing agency: blue - SNA; black - discom

* 64 pumps installed on experimental basis
Source: Authors’ analysis based on government notifications, SERC petitions and orders, and news articles

1.3 Study objectives

Components A and C will have important implications for states’ agriculture and energy
landscape. It is essential to understand the reasons for the slow uptake of these
models across states, identify solutions, and do any necessary mid-term course
corrections.

With this motivation, we capture the perception and experience of relevant actors across
select Indian states regarding the scheme design and implementation. While it is too
early to do a comprehensive evaluation of the scheme, different stakeholders□
perspectives
can provide useful insights into the teething problems experienced during scheme
implementation or relevant pilots, along with potential solutions.
6 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM
Scheme

Devising context-specific
deployment strategies, in line with
feedback from farmers and other
key stakeholders, would be critical
to scale up solar-powered irrigation.

Image: Anas Rahman/CEEW

 7

2. Methodology

M-KUSUM components A and C are in the early stages of their implementation with

P limited publicly available data. Hence, we employ semi-structured interviews with key
stakeholders, programme managers, and service providers to capture their experiences so
far. Semi-structured interviews are excellent tools for formative evaluation in the early-stage
implementation of a scheme (Wholey, Hatry, and Newcomer 2010). We complement the
interview-based analysis with a cost-benefit analysis (CBA) to understand the viability of
Components A and C. We interviewed
Multiple stakeholders are involved in the implementation of PM-KUSUM components A and
government
C, as discussed below. officials,
• State governments provide subsidy support for grid-connected pumps. The scheme discom and SNA
aims to replace the recurring power subsidy borne by the state with a one-time representatives,
capital subsidy. The state’s perception of the costs and benefits of the scheme is
central to their participation in the scheme.
developers and
• Discoms are the primary interface with customers (farmers). The scheme has significant manufacturers
implications on the discom’s finances and operations with its impact on the power- to capture their
procurement cost. The discoms’ full buy-in is necessary for the scheme’s long-term experience so far
success.
• SNAs for renewable energy, being the implementing agencies in many states, are
also important stakeholders. They have domain expertise in many aspects of the
scheme.
• Developers’ and system integrators’ perception of the viability of the scheme is also
essential for their participation. For Component-C, given the novelty of the system
design, they will have to work with controller manufacturers as well.

We consulted key informants from these stakeholder groups to understand their

perspective and the challenges – administrative, financial, operational, and technical –
they are facing in implementing the scheme. We selected informants based on two
critical criteria: their prior experience in implementing pilots similar to PM-KUSUM
components A and C and the state’s relative progress in implementing these components.
Andhra Pradesh, Karnataka, Maharashtra, and Gujarat have implemented pilot projects
that inspired components A and
C. Rajasthan is a frontrunner in implementing the scheme. Kerala was among the first
states to notify the scheme, but the state delayed the later stages. Chhattisgarh is yet to
launch the scheme despite being the leading state in deploying stand-alone solar pumps.

We conducted telephonic interviews with a total of 15 informants representing 15

organisations from seven Indian states, as described in Table 3. The study also covered
8 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

publicly available documents of different states on the PM-KUSUM scheme. These include
petitions and tariff orders of state electricity regulatory commissions (SERC), government
orders and notification tender documents of multiple states, and news articles.

Table 3 The study covers 15 key informants from five stakeholder categories

S. No Stakeholder category Name of the organisation (state)

1 Gujarat Urja Vikas Nigam Ltd (Gujarat)

2 Bangalore Electricity Supply Company Ltd (Karnataka)

3 Andhra Pradesh Eastern Power Distribution Company Ltd (Andhra Pradesh)

Power discoms
4 Jodhpur Vidyut Vitran Nigam Ltd (Rajasthan)

5 Chhattisgarh State Power Distribution Company Ltd (Chhattisgarh)

6 Kerala State Electricity Board (Kerala)

7 Karnataka Renewable Energy Development Ltd (Karnataka)

State nodal agencies
8 Rajasthan Renewable Energy Corporation Ltd (Rajasthan)
(SNAs)
9 Chhattisgarh Renewable Energy Development Agency (Chhattisgarh)

10 Developer 1: Participated in the Andhra Pradesh grid-connected BLDC pump pilot project

11 Developer 2: Participated in the SKY scheme of Gujarat

12 Developers Developer 3: Participated in the MSKVY scheme of Maharashtra

13 Developer 4: Participated in the MSKVY scheme of Maharashtra

14 Developer 5: Participated in the MSKVY scheme of Maharashtra

Controller Manufacturer: Worked with the Andhra Pradesh discom for

15 Manufacturer
implementing grid-connected BLDC pump pilot project

Source: Authors’ compilation

 9

3. Component-A: key
insights and challenges

Image: Abhishek Jain

M ost stakeholders expressed a favourable opinion for Component-A. However, concerns

about its commercial viability for different stakeholders and the implementation
challenges, as discussed below, have contributed to the delays in the scheme’s
implementation.

3.1 Commercial viability of the component

One critical factor for the sustainable adoption of Component-A is its economic viability for
the key stakeholders, including the discoms, farmers and solar plant developers.

Discom perspective
To understand the discoms’ viewpoint, we analysed the potential costs and benefits for
the discoms from the component. We used the Valuing Grid-connected Rooftop Solar (VGRS)
framework developed by Kuldeep et al. (2019), which takes the following components into
account:
1. Avoided generation capacity cost (AGCC): The power generation from a Component-A
power plant will reduce the discoms’ requirement to add new capacities from a
conventional plant. This benefit will manifest as a reduction in the fixed charges of
power procurement in the future.
2. Avoided power purchase cost (APPC): Procuring solar power would reduce the quantum
of conventional power purchase. Accordingly, the discom can expect a reduction in
its outlay against the variable cost of power procurement.
10 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

3. Avoided transmission capacity cost (ATCC): With the reduction in power procured from
conventional power plants comes the additional benefit of reducing the requirement
for new transmission capacity. This would help reduce associated transmission
charges, which are fixed in nature.
4. Avoided REC purchase cost (ARPC): Under RPO regulations, the discoms must
purchase a fixed portion of their power from renewable energy sources. In the event of a Discoms can benefit
shortfall, the discoms have to make it up by purchasing renewable energy certificates
from Component-A
(RECs). Component-A will reduce the discoms’ requirement to purchase RECs.
in the long term.
5. Performance-based incentive (PBI): Under Component-A, the central government offers
a PBI of INR 0.4/kWh for energy generated from the solar power plants for the first
But several
five years. considerations
influence their
Note: The savings from reduction in T&D losses are accounted for in AGCC and APPC. We
have assumed that the power generated from the Component-A power plant is decision in
consumed within the supply area of the substation.1 the short
Figure 2 demonstrates the costs and benefits of setting up a 1 MW solar plant under
term
Component-A for a discom in Karnataka. Our analysis shows that, in the long term, the
Karnataka discoms are expected to benefit by INR 0.54 for every unit of power they purchase
under Component-A. However, several considerations influence the discoms’ decision in the
short term.

1.60
Figure 2
0.06 1.42 A Karnataka
0.29
1.40 discom would
gain a net benefit
1.20 of INR
0.08 0.54 for each unit
0.90 produced from
INR/unit generated

1.00
the Component-A
power plant over
0.80 25 years
Source: Authors’
0.60 0.54 analysis using VGRS
-0.88 framework developed
0.40 by Kuldeep et.al. (2019).
See Annexure I for
detailed calculations
0.20 and assumptionsand
0.10
parliamentary
0 questions
AGCC APCC ATCC ARPC PBI Total Tariff Net
benefits payment benefits
Cost/benefit componts

Benefits Costs Total

First, the power procurement costs vary across states. Figure 3 illustrates how the average
cost of power (including variable and fixed component) compares with the FiT notified by
select states under Component-A. In states like Kerala and Odisha, where the current power
cost is lower than the FiTs, Component-A offers a limited incentive. However, in most other
states, solar power FiT is lower than the total power costs and may lead to cost savings.

However, most discoms in India have contracted capacities in excess of their current
demand (CERC 2020). Such discoms will have to continue paying the fixed generation and

1 As per the respondents from multiple discoms, the discom has kept an upper limit for the
Component-A power plant, typically at 60-70 per cent of substation capacity. We assume that this
practice would limit the instances of generation exceeding the demand from the substation.
 Component-A: Key insights and challenges 11

transmission charges throughout the contract period. In the short term, their benefits from
procuring solar power under Component-A would be limited to the variable cost
component and savings from T&D losses. But it is also pertinent to note that some states
like Karnataka and Rajasthan provide only six hours of power supply to agricultural
connections and many other states provide power supply to pumps at night-time to
balance load. This practice discounts the actual power demand and the consumers end up
paying for it with reduced productivity. If the actual demand is considered, the AGCC
savings will kick in early on.

Component-A still makes economic sense for states like Punjab, with variable cost higher
than the FiT. However, in most states, the FiT is higher than the current average variable
costs. It should be noted that, though here we have used average variable cost, there will
be many PPAs with variable costs higher than the FiT. It is quite possible that the power
purchase avoided due to Component-A are from such PPAs, in which case the component is
beneficial for the discom even in the short term. However, it would depend upon the time
of the day and seasonal factors, and not all conventional power can be replaced by solar
power. Thus, savings for the discoms in the short term would depend on the current
power-purchase scenario. In Karnataka, for instance, the electricity regulator raised this
concern during the tariff hearing and approved only a pilot phase with a capacity of 50
MW, according to the representative from the SNA.

Figure 3 In most states, the ceiling tariff for Component-A is lower than their average cost of power purchase

5
1.82

1.52

4 1.67 1.14
1.94 1.47
2.09
3.
3 5 3.31
3.1 3.1 3.0 3.1 3.0 3.09
3.0 3
INR/unit

4 1 8 3 8 7
2.
6
2
4.04
3.64

2.8 2.87
2.8 2.9
1 4 6 2.46
2.2 9
2.2
8
1.8 6
5 1.3
4

0
Rajasthan
Haryana Karnataka Telangana Kerala Odisha MP Punjab TN Jharkhand Tripura

Total cost
Variable cost Fixed cost Feed-in Tariff

Source: Authors’ analysis of latest SERC tariff orders from respective states and CERC2 documents

Second, the savings against RPO fulfilment are not a significant factor for most discoms simply
because these are poorly enforced. Most states have achieved less than 60 per cent of the
mandated target under RPO (Mercom India 2019). For states with a renewable share in
excess of the RPO mandate, such as Karnataka, the option of selling the surplus in the REC
market is not a powerful incentive due to the subdued REC prices. However, the Ministry
of Power has increased the target for solar RPO steeply, from 2.75 per cent in 2018-19 (Lok
Sabha 2017) to 10.5 per cent in 2021-22 (MoP 2021). Depending on the RPO enforcement,
savings from RPO could become a significant incentive for implementing Component-A for
many states going forward.

2 The tariff orders of Kerala, Odisha, Jharkhand, and Tripura do not provide enough data to disaggregate
the power-purchase cost into variable and fixed costs.
12 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Regardless of the current power-purchase scenario and RPO fulfilment states, energy
demand will only increase for all the discoms in the future. Under Component-A, there is
an excellent opportunity for the discoms to reduce their power-procurement cost in the
medium and long term. However, most discoms are in a poor financial state, and their
current priority is to improve their financial health in the short term. Respondents from
one of the discoms pointed out that the PM-KUSUM scheme in its current form, with
time-bound targets, does not give enough space for the discoms to include it in their
power-procurement planning.
The central government should modify the scheme to provide more flexibility with timelines
and let the discoms realise its full commercial benefit. States like Maharashtra have
included distributed solar-power generation in their power-procurement policy, giving
adequate time for the discoms for planning and implementation (MEDA 2020).

Utility-scale vs distributed solar plants

From a strictly commercial perspective for the discom, utility-scale solar power plants
currently have an advantage over distributed solar plants. The tariff for utility-scale
solar plants is much lower than the Component-A ceiling tariff set by the states,
predominantly due to economies of scale. The lowest tariff for utility-scale solar power
plants discovered so far is INR 1.99/kWh (The Hindu BusinessLine 2020). Other advantages,
like avoiding generation-capacity cost and avoiding REC cost, as described in Figure 2,
apply to utility- scale plants.

The main advantage of the distributed solar power plants over utility-scale solar plants
is the reduced T&D losses due to localised production and the avoided transmission
capacity
requirements. However, the current policy framework on solar power negates this
advantage. Presently, solar power plants connected to the Inter-State Transmission System Waiver of ISTS
(ISTS) are exempted from the ISTS charges, and no transmission losses are attributed to charges for solar
solar power plants (CERC 2010). This statute implies that the discoms can get solar power
at the state periphery from a distant solar power plant without incurring any transmission
plants gives a
cost or losses. According to one estimate, the benefit of ISTS-sharing rules to utility-scale cost advatage
power plants is anywhere between INR 0.5-2.2 per kWh based on different approaches of for utility-scale
calculating the ISTS charges and losses (Menghani 2021).
solar plants over
Thus, it makes more commercial sense for the discoms to procure power from a utility-scale distributed
power plant from distant locations rather than promote small-scale solar power plants in ones
their operational area. States like Rajasthan and Gujarat can offer very low tariffs for utility-
scale plants due to favourable generation conditions. If PM-KUSUM or similar initiatives to
promote distributed solar power generation are to succeed, the central government needs
to make broader policy reforms to address the bias against distributed solar plants.

Developer perspective
The developers raised a concern that the tariffs being set for Component-A by states are
not commercially viable. The experience from Maharashtra’s MSKVY is pertinent here.
In the initial stages of the scheme, MERC had allowed a ceiling tariff of INR 3.09 (MERC
2018). But the tenders elicited very few bids, potentially due to the non-viability of the
projects at that rate. MERC has acknowledged this in their subsequent orders, and since
then, has gradually revised the tariff upwards, reaching INR 3.30 (MERC 2020). MSKVY
allows up to 10 MW capacity plants. Given that the cost per MW increases with a
decrease in plant capacity, Component-A, with a 2 MW ceiling, is likely to elicit even
lesser interest among developers.

Most states have fixed a ceiling tariff of less than INR 3.14 (see Figure 3). The developers
interviewed believed that these rates were not viable, and the states may find it difficult to
get interested bidders. The reason for the lack of interest is the increased cost expectations
of developers for Component-A power plants due to the factors discussed below.
 Component-A: Key insights and challenges 13

Rise in module prices

The MNRE has recently introduced basic customs duty (BCD) for solar PV modules and cells
(MNRE 2021). Along with other taxes and surcharges, the new rules constitute a tax rate of
~46 per cent and ~27 per cent for solar PV modules and cells, respectively. This is a quantum
jump from the safeguard duty (~15 per cent) that used to exist earlier. This measure is
meant to promote the domestic solar manufacturing sector. However, the domestic
manufacturing capacity faces multiple challenges (Jain, Dutt, and Chawla 2020), due to
which the price of domestic modules is also likely to go up by almost the same amount as
the imported ones
in the short term. Further, many government schemes, including components B and C of
PM-KUSUM, mandate domestically manufactured solar modules and cells. Given limited
domestic manufacturing capacity, there could be a supply constraint to meet the demand
for Component-A.

One of the respondents among the developers estimated an effective increase of INR
0.50/ kWh in solar tariff due to the new rules. Market experts also share this viewpoint
(ET EnergyWorld 2021). Developers are not clear whether the increase will be passed through
to the discom or be borne by them. If passed through, the component becomes an
economic burden for the discom. If not, the projects are no longer viable for the
developers at the rate decided by many states.

Higher CAPEX and OPEX for small-scale solar power plants

Compared to large-scale solar plants, many factors increase the costs of distributed
small-scale plants. These include higher equipment cost due to lower economies of scale,
lower DC-AC ratio3 for smaller capacity plants (Marcy 2018), and higher cost of the feeder
infrastructure on a per watt basis. The operation and maintenance (O&M) cost of small
power plants is also considerably higher than the large utility-scale power plants due to
the higher staff capacity required per MW. One respondent stated that the O&M costs for a
utility-scale plant are INR 2-2.5 lakh/MW; the same for a small-scale distributed power plant
increases to INR 4.5-5 lakh/MW.

We also learnt that developers in the small and medium enterprise (SME) category and
big farmers are most likely to participate in the scheme. Big developers will typically stay
away from the distributed solar power space as the economics and operations are different
from their current business model. Typically for utility-scale power plant developers, they
work with an intermediary to manage the land aggregation and administrative procedures.
But for small power plants, the overheads in dealing with multiple farmer landowners in
different locations become very high. For SMEs and farmers, the cost of debt is much
higher than large utility-scale developers, adding to the project cost.
Frequent
Poor-quality grid infrastructure outages at
Multiple stakeholders, including officials from SNAs, expressed concern about the poor 11 kV
quality of grid infrastructure at the tail end, as the 11 kV feeders are often prone to faulting. substations
Since the Component-A power plant is connected to the substation, faulting of individual
increases the
feeders should not be a concern since, theoretically, the power can then flow to some
other feeder within the substation or even upstream. However, respondents said that poor cost of electricity
maintenance of tail-end substations by many discoms often leads to frequent tripping of from
the whole substation. The generation potential during this period gets wasted. Component-A
power plants

3 DC-AC ratio, also known as inverter load ratio (ILR), is the ratio of power DC capacity of the PV arrays to
the AC capacity of the inverter. A higher DC-AC ratio implies that the inverter capacity required is lower
which reduces the cost. DC-AC ratio is typically higher for larger solar power plants (Marcy 2018).
14 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

To illustrate the challenge, a respondent who participated in the MSKVY scheme mentioned
that the grid availability of their MSKVY power plants is 95-96 per cent, while the same
for their utility-scale solar plants is 99.5-99.8 per cent. The same respondent mentioned
that Maharashtra is far better than other states when it comes to grid availability. When
they had operated a similar project in another state, the grid availability was less than 80
per cent.
Consequently, it is compulsory to deploy permanent staff in all power plants to manage the
outages, escalating the O&M cost.

The guidelines of Component-A provide a mechanism to address the issue of grid

unavailability. The relevant portion of the guidelines is reproduced below:

In the event of backdown, subject to the submission of documentary evidences from

the competent authority, the Renewable Power Generator (RPG) shall be eligible for a
minimum generation compensation, from DISCOM, restricted to the following and there
shall be no other claim, directly or indirectly against DISCOM:
Minimum Generation Compenstaion
= 50% of average generation per hour during the month
× Number of backdown hours during the month × PPA tariff
The RPG shall not be eligible for any compensation in case the backdown is on account
of events like consideration of grid security or safety of any equipment or personnel or
other such conditions.
Some developers said the compensation provided might not be sufficient as there are The MNRE
many exemptions for this condition. It is not clear if grid unavailability due to tripping or should study the
other substation faults is eligible for compensation. Moreover, since the grid
unavailability is considerably high for distributed solar plants, even a 50 per cent
impact of new
compensation would not be sufficient to ensure viability. One respondent suggested that taxes
the approach adopted in the latest MSKVY tender may be much more business-friendly. In the on small solar
MSKVY tender released in April 2021, the discom set a benchmark of 98 per cent grid
plants and enact
availability in a year. In the event of grid availability going below 98 per cent, the discom
will compensate the developer for generation loss at 75 per cent of the tariff calculated measures to
against average hourly production in the year. This provision puts a minimum guarantee in protect them from
terms of grid availability. cost escalation
Counter-party risk
Developers also expressed concerns about the track record of the discoms in honouring
PPAs. As per some respondents, apart from the discoms of a few states like Karnataka,
Maharashtra and Gujarat, most other discoms have routinely faulted on timely payment
and delayed the payments for many months. The developers prefer PPAs with central
government entities like Solar Energy Corporation of India (SECI), where payment
security exists.

To sum up, there are significant challenges in the component’s uptake both from the
perspective of the developers and the discoms. While the increase in the module prices
may still keep the utility-scale solar power plants competitive from the discoms’
perspective, the same is not true for small-scale solar plants due to their higher overhead
costs and risks involved. The MNRE should study the impact of new taxes on small solar
plants and enact measures to protect them from cost escalation. It should consider other
factors that increase the cost of small-scale plants and create a guidance note for the states
in determining the tariff. It should also reconsider the grid availability clause in the model
PPA and put the onus on the discoms to keep a minimum percentage of grid availability for
the PM-KUSUM plants.
 Component-A: Key insights and challenges 15

Benefit for the farmers

Component-A benefits farmers in two ways – (i) farmers taking part in the scheme
directly benefit from the additional income from energy sale or the rent, and (ii) the
larger community-level indirect benefits due to improvement in the power supply
quality and duration. Here we focus on the challenges associated with the former. States can
PM-KUSUM presents a peculiar challenge for the SERCs in determining tariff – it is not just a
mandate a
scheme for promoting renewable energy but also to generate income for farmers. As the tariff minimum
petition for Component-A in the Madhya Pradesh ERC (MPERC) puts it, “the word ‘Utthaan lease rent as
Mahabhiyan’ in ‘Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan’ specifies
the sole purpose of the scheme, which is to increase the income of farmers” (MPERC 2020).
a share of the
The comment was in respect to the concern raised by one of the parties that the tariff to ensure
farmers would not benefit from the scheme if the lease rent is not remunerative. MPERC remunarative
tried to accommodate this view by raising the tariff, considering a lease-rent
component that is remunerative for the farmer.
income for
farmers
However, respondents from multiple discoms opined that Component-A should be seen
purely as a commercial enterprise. Out of the two ownership models, only the developer-
owned model can benefit the poor farmers. If a farmer can arrange even 10 per cent equity
for a 0.5-2 MW solar power plant (INR 5-20 million), he/she should not deserve special
consideration from the state. Further, in the developer-owned model, higher tariffs may
not necessarily translate into higher incomes for farmers, as there is no surety that the
farmers can negotiate for higher rent from the developer. Thus, most discom respondents
supported leaving the lease rent determination to the market, a practice adopted by most
SERCs in India. As an exception, Kerala State Electricity Board (KSEB) has mandated a
minimum INR 0.1/kWh generated as lease rent for the developer-owned model (KSEB
2020). This model would ensure a minimum remunerative lease rent for the farmer and
could be a viable model for states wishing to promote the lease model.

It is also pertinent to ask who the direct beneficiaries of the component are. In Rajasthan
and Karnataka, the respondents mentioned that more than 40 per cent of applicants have
chosen to self-invest in the power plant. It indicates that the well-off farmers, who can
arrange equity, are the primary beneficiaries of the component. Only a few farmer collectives
applied for the scheme in these states, and the remaining were individual applicants opting
for the developer-owned model. Most respondents suggested that the farmer collective
model could bring benefits to small and marginal farmers. However, at least in the initial
phases, the states have not put much effort into roping in farmers’ collectives.

3.2 Financing farmer-owned projects

Financing farmer-owned projects is another key challenge in implementing Component-
A. During the interviews, we identified two issues related to financing. First, many farmers
who bid successfully for projects did not have enough funds to provide the project’s 30 per
cent equity. This has been a key challenge in Rajasthan, due to which the implementing
agency had to extend the last date for submission of performance security multiple times.
Farmers in Rajasthan have been demanding a 90:10 ratio of loan-to-equity to access bank
loans. But the proposition is not acceptable to banks.

Secondly, even if the farmers can arrange the equity, it is not easy for them to get loans
from the banks, which require collateral in the absence of a third-party guarantee (Bank of
Baroda 2020). According to the state implementation agency (SIA) respondent from
Rajasthan, often farmers want to keep their land as collateral for the project. However, the
banks have not agreed to keep the land in use for solar projects as collateral, as, despite
the state’s ‘deemed diversion’ law, it is still agricultural land in legal documents. Since
security interest is not
16 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

enforceable for agricultural lands under the SARFAESI Act’s provisions, banks do not
take agricultural lands as collateral for non-agricultural loans, as debt recovery in the
instance of loan default becomes quite complicated (GoI 2002; Sudha and Chakraborty
2019). Moreover, due to the poor track record of the discoms in payment, banks are
unwilling to take the risk without any alternative collateral. In Rajasthan, for instance, out
of 623 farmers selected for the component based on their applications, only 170 were able to
sign PPAs with the discoms (Times of India 2021).

To overcome the financing challenges, the state government in Karnataka allowed farmers
who were allotted the projects under the Solar Farmer scheme to form SPVs with developers.
Under the SPV route, farmers and developers share the initial investment and the annual
returns based on a mutual agreement. Banks were also ready to sanction loans based on
the financial track record of the developer. This provided the farmers easy access to
financing.

3.3 Challenges related to land regulations

Challenges related to leasing or conversion of agricultural land for non-agricultural uses
emerged as another key barrier to the uptake of Component-A. Land is a state subject in
the Indian constitution, and land regulations vary across states. Land leasing is either not
permitted or strictly regulated in many states, while land conversion can be expensive and
time consuming. In Madhya Pradesh, the discom, in its petition for Component-A, stated
that the state land-leasing laws do not allow agricultural lands to be leased for more than six
years (MPERC 2020). Under such provisions, only the farmer-owned model would be workable.

In contrast, Karnataka allows ‘deemed diversion’ of agricultural land for solar projects,
simply based on the application. But, in the Solar Farmer scheme, despite the ‘deemed
States should
diversion’ laws, delays in notification of procedures and lack of clarity led to delays in institute
project implementation (KERC 2017). In Rajasthan, solar power projects do not require land a steering
conversion of agricultural lands (Kumar and Thapar 2017).
committee for
All states need to carefully review, and if needed, revise their existing land-regulation laws better inter-
before planning the implementation of the PM-KUSUM scheme. The states also need to
departmental
consider expeditious clearance of land-conversion applications for the project.
coordination
3.4 Gaps in inter-departmental coordination
The Component-A design involves features that typically fall under the domain of more
than one department or agency, necessitating inter-departmental coordination for its
implementation. The stakeholder experience from Karnataka’s Solar Farmer scheme
indicates the possible challenges in such coordination. In Karnataka, multiple agencies
had roles to play:
• The SNA was the implementing agency for the scheme.
• The revenue department was responsible for approving the conversion of land for
non- agricultural use.
• The transmission company was tasked with approving the evacuation infrastructure
and interconnections.
• The discoms’ role extended to approving interconnection and construction of
an evacuation bay in the substation.

Many developers had to face delays in obtaining all the requisite approvals in the absence
of institutional coordination. Consequently, such developers could not commission the
projects in time and had to face penalties in the form of a reduced tariff (KERC 2017).
The reasons
for such delays could be many – the respondent from the SIA indicates that developers did
 Component-A: Key insights and challenges 17

not follow the procedure. But it also appears that there was a lack of coordination between
departments.

In many states where Component-A is yet to be implemented, respondents from SIAs were
unaware of possible coordination challenges like those which cropped up in the Solar
Farmer scheme. To ensure smooth and timely implementation of the projects under the
component, state governments should proactively form a PM-KUSUM steering committee
at the state level, led by the SIA and composed of representatives from all the
concerned departments. Such an arrangement would allow anticipation and resolution
of any inter- departmental coordination issues in the planning phase itself. The steering
committee
should also involve other departments and agencies related to agriculture and
groundwater. This would enable a holistic planning of the component and achieve its
objectives sustainably.
18 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM
Scheme

Metering is an important step in

solarising agriculture
connections, yet past attempts
on metering have faced strong
resistance from the farmers.

Image: Abhishek Jain

 19

4.Component-C: Key insights

and challenges

he Component-C of the PM-KUSUM scheme aims to support the solarisation of the

T existing agriculture feeders and connections to help reduce the power subsidy burden
of the state governments while enhancing farmers’ income through the sale of surplus
solar power. The discoms are the primary actors in implementing this component.
However, during our interviews, almost all the discom respondents were sceptical about
the feasibility of the grid-connected solar pump model due to significant implementation
challenges and concerns about economic viability. Only Gujarat
has
The general perception is that the scheme would not work in states that give free or
nearly free agricultural power. Among the states that had piloted the model, only Gujarat
implemented
has implemented the model at a reasonable scale. Karnataka government did not find the individual grid-
Surya Raitha Scheme suitable for scaling up due to multiple implementation challenges. connected solar
According to the respondent from the discom, Karnataka strongly favoured introducing a
pump model
feeder solarisation model within Component-C during their consultations with the MNRE.
Respondents from multiple discoms, including Andhra Pradesh – the other pilot state – at scale, under
said that their states prefer the feeder solarisation model as it is much easier for the its SKY
discom to implement. scheme
When the MNRE introduced the feeder solarisation model under Component-C in December
2020, most states with high irrigation demand preferred it over the individual pump
solarisation model.4 Notably, most of these states had not progressed in the initial year
when solarisation of individual pumps was the only option available (Table 2). But they have
raised sizeable demands under the feeder solarisation model for the financial year 2020-
21 (Annexure I). Among the large states that have opted for the individual solarised pump,
only Gujarat has made progress.

In this chapter, we reflect on the commercial viability of the grid-connected solar

pump model and discuss the key challenges in its implementation as highlighted by
various stakeholders.

4.1 Commercial viability of the component

PM-KUSUM guidelines propose a financing model with a 60 per cent subsidy (30 per cent
each from central and state governments) and the remaining as a contribution from the
beneficiary. The scheme envisages a 10 per cent upfront contribution from the beneficiary

4 States which raised demand for feeder-level solarisation include Karnataka, Madhya Pradesh,
Maharashtra, Punjab and Telangana.
20 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

and the remaining 30 per cent as a loan from a scheduled commercial bank. The state
government has the discretion to increase their share of subsidy to cover a part or full of
the beneficiary contribution.

We did a cost-benefit analysis of the component to understand its economic viability

for different stakeholders, viz. the government discom and farmers. We took the
example of Gujarat, and analysed the net present value (NPV) of the cash flows for a
representative pump of 5 HP capacity, assuming a 25-year life cycle. We assumed 1,000
hours of annual pump operation by the farmer (8 hours/day and 125 days/year) before
and after the solarisation5. We also did a sensitivity analysis around these assumptions to
cover various real-life scenarios. Other key assumptions are listed in Annexure II.

Accordingly, our analysis, summarised in Figure 4, suggests that for each 5 HP pump:
• The state government would realise net savings of ~INR 31,500 by substituting a
recurring power subsidy over 25 years with a one-time capital subsidy.
• The discom would save ~INR 70,000 over 25 years by shifting a fraction of its power
procurement from conventional sources to the solarised pump.
• The farmer would earn ~INR 73,000 over 25 years.

Figure 4 All three stakeholders would theoretically benefit from Component-C

Government Discom Farmer

2,50,000
2,35,332

2,00,000 1,87,779 45,805

INR

1,50,000
1,40,383

1,00,000 – 79,352

69,848 72,857
– 1,17,931 – 33,979
50,000
31,456
– 2,03,877

0 Upfront
Power Net Power Solar Net Feed-in Avoided Loan Upfront Net
subsidy subsidy govt purchase tariff discom tariff energy repayment contribution savings
savings savings savings savings earnings bill

Benefits Costs Total

Source: Authors’ analysis (assumptions in Annexure II) 6

Under the assumed conditions, theoretically, all three stakeholders would benefit.
However, a closer look at the numbers reveals potential challenges. Firstly, we note that
the farmers’ income from energy sale in the initial 10 years of the loan tenure is almost
zero. This is because the FiT earnings for the farmer under the assumed conditions is
barely sufficient
to cover the loan repayment. A higher self-consumption (and, thus, a lower energy export)
would mean that the farmers will have to contribute from their pockets to repay the equated

5 Due to the incoherent data on pump usage in different studies, we have based this assumption on
two studies. As per a survey with 1.33 lakh farmers in Maharashtra, a majority of farmers practice
irrigation for 100-150 days/year (MERC 2020). Further, average hours of power supply to farmers in 11 big
states is about 8 hours (Dharmadhikary et al. 2018). Hence, we assume 8 hours and 125 days for our
analysis. We have also done a sensitivity analysis of the outcomes based on other pump operation
scenarios.
6 Under the stakeholder category ‘Government’, we have included both central and state governments.
 Component-C: Key insights and challenges 21

monthly installments (EMI) of the loan. Only at lower self-consumption rates does the net
annual income become positive for the farmer during the loan tenure. Figure 5 summarises
the cash flows for the discom in the first year for different pump-usage conditions.

Figure 5 At higher self-consumption, feed-in tariff earnings for farmers would not be sufficient to repay the loan
25,000

20,000

15,000 15,398

2,563
5,202
INR

23,391
10,000 20,752
18,113
15,474
12,835
5,000
10,196

0
250 500 750 1000 1250 1500
Annual pump operation hours

Feed-in tariff earnings Shortfall Loan EMI

Source: Authors’ analysis

To have no or negative income for the first 10 years, despite paying the upfront contribution,
would be a very unattractive proposition for the farmers. They would either refuse to
participate in the scheme, or look for alternative options to derive immediate returns from
surplus power. This in turn would further reduce the quantum of energy fed into the grid,
reducing the discoms’ benefit from the component. However, it should also be noted that
there are other critical costs and benefits which have not been captured in the analysis
because of the difficulty in quantifying them. For instance, if the current quality of power
supply is poor, the farmers may prioritise improvement in power quality over monetary
benefits. It would be important to understand how the farmers perceive such factors by
testing the model on ground before scaling up.

Impact of self-consumption
Several factors like water depth, type of crops and intensity of cropping influence the
pump usage, due to which pumping hours can vary significantly across farmers. From
Figure 5, it may appear that the model is feasible for farmers with low self-consumption,
as they will have earnings even in the initial year. However, the combined net savings of
the government and the discom would be negative if they target farmers with lower
pumping needs as the avoided subsidy is much less (Figure 6). Thus, there is a strong
trade-off between the state’s economic benefit and a financing structure that would be
acceptable to the farmers.
22 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Figure 6 There is a strong negative correlation between farmer’s income and combined net savings for the
government and discom

2,50,000
2,21,377 18,000
2,00,000
1,61,341 13,500
1,50,000
Government's savings (INR)

7,993
1,00,000 9,000
5,354 1,01,304

Farmer's income (INR)

50,000 41,267 4,500
0 2,715 0
– 50,000 76
– 18,770
– 4,500
– 1,00,000 – 2,563
– 78,807 – 5,202 – 9,000
– 1,50,000

– 2,00,000 – 13,500

– 2,50,000 – 18,000
250 500 750 1000 1250 1500

Pump operational hours

Combined net savings for govt-discom Farmer's income in the first year

Source: Authors’ analysis

Challenges in financing Component-C

As per the discom respondents, notwithstanding the results from the cost-benefit analysis,
realising the farmers’ upfront contribution is a major hurdle for the discom in Component-C
implementation. Owing to the availability of free power for agriculture connections, farmers
are reluctant to pay the upfront contribution. Respondents from all the discoms consulted
in the study mentioned that it would be difficult to get even a bare minimum contribution
from the farmers.

The pilot states experienced similar challenges. Karnataka’s Surya Raitha Scheme initially
envisaged a beneficiary contribution of 15 per cent of the project cost. However, farmers
refused to make any contribution, and the portion was later converted into a discom-
supported, interest-free loan. In Gujarat’s SKY scheme, the discom earlier insisted that at
least 90 per cent of the farmers in a target feeder participate in the scheme. However, many
farmers refused to provide the initial contribution. The discom had to eventually relax
this condition, as per the respondent from GUVNL. Hence, the discoms may have to find
alternative financing models.

There are two options for the states to compensate for the farmer’s upfront contribution –
(i) increase the subsidy, and (ii) increase the loan component. Both will have
implications on the economic outcomes discussed above. The pilot states also
experimented with these variations. We extended the cost-benefit analysis to pilot
projects in two states: Andhra Pradesh and Gujarat.

Full-subsidy model to solarise electric pumps

(Andhra Pradesh’s pilot)

In Andhra Pradesh, the discom bore the entire cost of the pilot project, with zero
beneficiary contribution. The discom kept the FiT at a low INR 1.5/kWh to compensate
for the high subsidy. If this model – with zero beneficiary contribution – has to be
scaled up, the capital investment would have to come from the state government.
Figure 7 shows the net outcome for each of the beneficiaries under different scenarios.
 Component-C: Key insights and challenges 23

Figure 7 Government savings are highly sensitive to farmer’s self-consumption in the full-subsidy model

1,50,000 1,35,747
1,30,306

98,688
1,00,000

64,939 67,071
50,000
38,846

12,754
0
INR

– 1,669

– 50,000

– 1,00,000

– 1,50,000
– 1,39,084
500 1000 1500

Annual pump operational hours

Net govt savings Net discom savings Net farmer savings

Source: Authors’ analysis (assumptions in Annexure II)

For farmer’s self-consumption of 1,000 hours or less, the government stands to incur a
loss. Only by targeting farmers with higher irrigation needs can the government gain from
the scheme while providing 100 per cent capital subsidy. For farmers with 1,000 hours of
pump operation, their annual income from selling surplus power would be INR ~5,000 in
the first year. With the financial incentive in feeding power to the grid being so low, many
farmers may find it more attractive to use the surplus power for alternative purposes like
selling water to neighbours. A higher FiT may incentivise farmers to sell power to the
discoms, but that would impact the scheme’s viability for the latter. Further, the BLDC
pumps used under the project cannot operate on grid power due to unidirectional metering
(see Section 4.3.1 for details). Hence, the pump can operate only with solar power, which
would restrict pumping during non-peak hours or overcast conditions. It would be
important to test whether farmers will find this proposition reliable and attractive.

A loan-based model to solarise electric pumps

(Gujarat’s SKY scheme)
Under the SKY scheme in Gujarat, the beneficiary contribution is five per cent. Sixty-five
per cent of the total cost gets financed through a National Bank for Agriculture and Rural
Development (NABARD)7 loan taken by the discom on behalf of the farmer, while the
state government subsidises the remaining 30 per cent. The discom repays the loan by
diverting a portion of its payment to the farmer against the energy procured. However,
since the loan component is high, the amount from energy sale alone is insufficient for
the discoms to service the debt. Hence, the state government provides an additional
annual subsidy in the form of a ‘generation incentive’ of INR 3.5/kWh for the first seven
years, over and above the FiT of INR 3.5/kWh. Figure 8 summarises the net benefits for each
of the stakeholders under different scenarios.

7 NABARD, under its Rural Infrastructure Development Fund (RIDF), provides low interest-rate loans to
state governments for rural and agricultural development. For the SKY scheme, NABARD provided the
loan at a 5.5 per cent interest rate, much less than the weighted average interest rate of the
discoms.
24 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Figure 8 There is a strong trade-off between government’s and farmer’s income in Gujarat’s SKY model

3,00,000

2,50,000 2,33,329
2,00,000
1,72,506
1,50,000

1,00,000 1,01,749 90,359

INR

50,000
28,023
20,266 22,920
0

– 50,000
– 26,026
– 1,00,000

– 1,50,000
– 1,31,974
– 2,00,000

500 1000 1500

Annual pump operational hours

Net govt savings Net discom savings Net farmer savings

Source: Authors’ analysis (assumption in Annexure II)

While the net benefits largely follow the same pattern as the other two models, a major
difference is in the discom’s savings. Due to high FiT, the power-purchase savings are less
for the discom in this model. More importantly, the net benefits turn negative when
pump operation hours are higher. Unlike the Component-C model, the loan in the SKY
scheme is taken by the discoms on behalf of the farmers and is to be repaid by them by
diverting FiT
payments due to the farmer. When the farmer feeds less power into the grid, the discom
ends up paying from its own pocket to cover the shortfall (Figure 9).

Figure 9 In the SKY model, the discom may incur an additional cost for repaying the loans

60,000

50,000

40,000 27,396
37,481
24,133 2,271
8,799
20,869
INR

30,000 15,326
17,605

20,000 14,341

11,078
27,396
10,000 24,133
20,869
17,605
14,341
11,078
0
250 500 750 1000 1250 1500
Annual pump operation hours

Generation incentive
Feed-in tariff payment Cost on Loan EMI
discom

Source: Authors’ analysis

 Component-C: Key insights and challenges 25

The cost-benefit analysis shows that, on paper, there might be an ideal sweet spot of hours
of usage and farmers’ expected behaviour to feed surplus energy back to the grid, even
with no returns in the initial years. However, in practice, it is difficult to realise such a
sweet spot and expect the farmers to keep feeding energy back to the grid without any
immediate (short- term) return or gratification. We’d like to stress again that the cost-
benefit analysis may not be capturing all the economic factors that determine the outcome. Lack of a
It is important to test these models on the ground in various agroeconomic contexts. In the standardised
subsequent sections, we discuss other key challenges beyond economic constraints
highlighted by various stakeholders.
methodology
for tariff
4.2 Regulatory challenges determination is
leading to wide
As evident from the economic analysis, the FiT is a critical determinant of Component-C
viability. The tariff should be viable for the discoms and attractive enough for the farmers
variations in FiT
to encourage them to export surplus power. It has been a challenge for most states to across states
strike that balance while arriving at a FiT.

In India, SERCs approve the tariffs for all new capacity additions. For regular capacity
additions, SERCs consider different commercial aspects of the project. But in the case
of Component-C, the states do not have a standard methodology to arrive at a justifiable
tariff. This fact is evident from the SERC filings of different states, summarised in Table
5.

Table 4 Tariff determination methodology varies between different states

State Logic followed in determining tariff Final tariff

 The feed-in-tariff should be remunerative so that farmers invest in the scheme

 The current marginal variable cost of power for the discoms is INR 3.44/kWh. Power
purchase from the consumer end at a cost equal to or less than the variable
Rajasthan INR 3.44/kWh
cost is bound to reduce average power purchase
 If the tariff for Component-A is taken and adjusted for 11 kV losses @8.8%, the rate
of purchase works out to be approximately INR 3.44/kWh

 The levelised cost calculation considering the farmer’s contribution as the capital
cost gives a value of INR 2.278

Punjab  However, as a special dispensation to encourage farmers to take part in the scheme,
it can be revised upwards INR 2.60/kWh
 The minimum power purchase cost from solar power outside the state is INR 2.66/
kWh at the 400/220 kV level. Any cost less than this is beneficial for the
discoms
Gujarat  The generic tariff determined for small-scale solar projects is INR 2.83/kWh INR 2.83/kWh

Source: Authors’ compilation based on SERC orders and government notifications

It is evident that a lack of standard methodology is leading to wide variation in FiT

across states with little or no consideration of the farmers’ opportunity cost of exporting
the power to the grid. To guide the SERCs in tariff determination, the MNRE, in
consultation with the Forum of Regulators (FOR), must formulate a framework that
accounts for different factors discussed above.

4.3 Technical considerations

There are two primary technical considerations for the discoms regarding the Component-C
design. First, the metering modalities of the solarised pump, and, second, concerns about
pump replacement.
26 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Metering modality
A solarised grid-connected pump is designed to export power to the grid, which can
happen through either unidirectional or bidirectional metering with varied implications.

Unidirectional configuration allows a farmer to feed surplus solar power to the grid but
not import power from the grid. The pump runs exclusively on solar power. This Although
configuration unidirectional
is particularly suitable for DC pumps, which cannot run on grid power without an AC-
DC converter. Among the pilot states, Karnataka and Andhra Pradesh had opted for
meter
unidirectional metering. The discom respondents from these states said that unidirectional configuration
metering is beneficial for the discoms. It relieves the discom of the responsibility to supply is favoured by
power to the concerned pump in the future. For the farmers, the acceptability of the model
depends on the current power-supply scenario. For example, in the Andhra Pradesh pilot,
discoms, farmers’
despite the farmers getting the solar pump for free, they were initially reluctant to join buy-in would
the project, as they were getting good daytime power. Similarly, the respondents from the be difficult for it
Chhattisgarh discom and SNA mentioned that they are not considering a unidirectional
metering modality since the state already provides upwards of 14 hours of daily power
supply to the farmer. As the unidirectional metering would mean a considerable reduction
in the power available to farmers, it would be difficult to get farmers’ buy-in.

Bidirectional configuration, adopted for Gujarat’s SKY scheme, allows power to flow
both ways. Excess power can be sold to the grid, and the pump can intake grid power
when solar generation is inadequate. This is an attractive option since the configuration
ensures maximum availability of power. However, farmers may also draw grid power during
non-peak generation hours (when the sun is not shining), which could pose a significant
financial and technical challenge for the discoms.

Under Component-C, states can select any of the two metering modalities. Different
states’ choice of the metering modality seems to be guided by the economics and
current availability of subsidised power. Respondents from multiple discoms
mentioned that
unidirectional metering is the ideal choice. However, when there is a farmers’ contribution
to the scheme, states are reluctant to adopt unidirectional metering, as it can reduce
the scheme’s attractiveness. This is why Gujarat and Rajasthan, which have mandated
some beneficiary contribution, have adopted bidirectional metering. States that have not
mandated any beneficiary contribution should not adopt bidirectional metering as it will
further decrease the scheme’s viability. Moreover, as seen earlier, the lack of beneficiary
contribution leads to a low FiT. With low tariffs, bidirectional metering may perversely
incentivise the farmer to exploit surplus grid power.

The metering configuration also has implications for the pump’s operational aspects, as
revealed by the respondents.
• Intentional islanding: Off-the-shelf, grid-connected inverter controllers come with anti-
islanding features that shut off the internal circuit in the absence of grid power. It is a
safety feature to avoid accidents. However, this feature is not ideal for solar pumps, as
agriculture feeders are prone to frequent faults, and farmers cannot operate the pump
when the grid is not live. In areas where the discoms cannot ensure grid reliability, the
lack of an option to run pumps on solar power might dampen farmers’ interest in the
scheme. To combat this issue, pump controllers should incorporate the intentional
islanding feature. Intentional islanding is a technology to keep the internal circuit
alive safely when grid power is unavailable, allowing pump operation even if the
grid is not live. In Andhra Pradesh’s pilot project, the discom had to work with
multiple
controller manufacturers to develop suitable electronics. According to an interview with
one controller manufacturer, controllers of only DC pumps available in the market are
equipped with intentional islanding features. The states opting for AC pumps will
have to address this challenge by working with controller manufacturers.
 Component-C: Key insights and challenges 27

Pump replacement
Studies show that replacing old agricultural pumps with energy-efficient pumps can
reduce the energy required for irrigation by as much as 37 per cent (HESCOM 2014). Many
farmers operate old, inefficient pumps. Among the pilot projects, only Andhra Pradesh
carried out pump replacement. However, under Component-C, the cost of pump States can
replacement is not eligible for central financial assistance. States like Gujarat and Rajasthan benefit from
have chosen not to offer pump replacement under Component-C because of the additional replacing
financial burden, as per respondents from the respective discoms.
inefficient
For Component-C, there are two possible approaches for pump replacement: pumps with
1. Replace the existing pumps with efficient pumps of the same capacity. The panel efficient ones
capacity will remain the same, but the pump’s operational hours will reduce and by designing
energy export will increase. However, the system cost will increase due to the
additional pump cost. the scheme
2. Replace with an efficient pump of lower capacity. The panel size is also correspondingly
appropriately
decreased. Pump operational hours will remain the same, but the overall cost of the
system reduces.

We extended the cost-benefit analysis to the two scenarios. We found that the combined
savings of the government and the discom reduces in the first scenario. In the second
approach, efficiency gains of even 10 per cent increase the combined savings. Adopting the
second approach for replacement could be financially attractive for the government.

Often farmers operate irrigation pumps of capacity higher than their sanctioned load
– a common trend in areas with dropping groundwater levels or increasing irrigation
requirements. These observations were shared by a system integrator and
respondent from GUVNL. For this reason, under the SKY scheme, farmers were allowed
a one-time
opportunity to upgrade their sanctioned load. However, farmers had to bear the cost of
upgrading, due to which there were few takers. Replacing pumps through the second
approach can help farmers mitigate the need for upgrading their sanctioned load.

Both inefficient and oversized pumps diminish the component’s attractiveness for the farmer
by causing sub-optimal output (in unidirectional metering) and reduction in surplus power
(in both types of metering). Hence, the MNRE should seriously consider including pump
replacement under PM-KUSUM.

4.4 Challenges to groundwater regulation

One major attraction for the states in Component-C is the purported incentive for water
conservation built in the design. If farmers get more income from selling surplus
energy, they will use power and water judiciously. In reality, the realisation of this
benefit is highly context-dependent. Farmers with a solarised grid-connected pump can
treat the surplus power in three ways:
Export energy: As envisaged in the scheme, farmers can export the excess
energy to the grid.

Sell water: They can use the surplus power to take out more water and sell
it to others during the irrigation seasons, typically neighbours.

Intensify cultivation: They can also increase water usage for their cultivation
either by increasing the intensity of cultivation or shifting to more water-
consuming crops.
28 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

The experience from the pilot projects gives a sense of how different factors impact farmers’
choice (Table 4). Under the Surya Raitha Scheme, as mentioned earlier, farmers got a FiT
of effectively INR 1/kWh during the loan-repayment period. However, many farmers chose
to sell water to their neighbours instead of feeding-in power (Institute of Social and
Economic Change 2018). The exact price of water varies a lot between regions. Based on one
study, INR 40 per hour is a going rate in Karnataka (Yashodha 2020). The corresponding Farmers have
income for a multiple options
5 HP solar pump (with 5 kW panel) from selling of power even at its peak is INR 5 per hour.
This gives us a sense of the opportunity cost for the farmer in selling power.
with surplus
power and would
The outcome from Gujarat’s SKY scheme has been different for different discoms in the choose what is
state. As per the respondent from GUVNL, the quantity of energy exported by the consumers
of three of the four discoms were mostly along expected lines. The farmers in the area most beneficial
catered by these discoms usually cultivate two crops a year and have continued with the for them
same cropping pattern. However, in Dakshin Gujarat Vij Company Ltd (DGVCL), the power
exported by many farmers was much lower than the expected quantity. In some cases,
the income from energy procured by the discoms is not even sufficient to cover the loan
repayment. According to the respondent from GUVNL, the area catered by the discom is
a sugarcane-growing belt. Sugarcane is a water-intensive but high-value crop. The
respondent assesses that the farmers took advantage of the increased power supply and
consumed more electricity from the grid to extract more water to increase their
production.

As per the respondent, the Gujarat government has recognised this shortcoming
and is considering solutions to put an upper limit of eight hours to the time
available for
drawing power from the grid. Under Component-C, Gujarat’s discoms are mulling over a
technological solution (automatic transfer switch) to control the net-meter so that the grid
remains energised during the daytime to enable power export, but the power import is
limited to daytime eight hours (Gujarat Energy Department 2020).

Table 5 Exporting energy is not always preferred by the farmer

Discom Context Farmer preference with

excess power

BESCOM Low feed-in-tariff (during loan repayment Selling water to neighbours

(Karnataka) period), plenty of farmers without connections

DGVCL (Gujarat) Belt of intensive sugarcane cultivation Intensifying cultivation

UGVCL, MGVCL, Target farmers cultivate two crops in a year Farmers exported power to
PGVCL (Gujarat) the grid as expected

Source: Authors’ compilation based on stakeholder consultations

The main takeaway from the pilots is that the environmental and economic sustainability
of Component-C is highly contextual. Current cropping patterns and farmers’ attitude
towards adopting new cropping systems are critical determinants. However, there aren’t
enough studies dealing with these aspects at scale. Hence, the states should implement
pilots at scale combined with robust monitoring mechanisms to assess the outcomes and
farmer behaviours under different conditions before scaling up the model.

4.5 Operational issues

We identify three main operational challenges in the implementation of Component-C.
 Component-C: Key insights and challenges 29

Metering and billing

Most agricultural connections in India are unmetered due to two key reasons. Firstly,
for most discoms, metering and monitoring a large number of dispersed agricultural
connections would require significant investments and staff capacity, with limited
Smart-meter
avenues for cost recovery. Secondly, farmers have strongly resisted any attempts at
metering in the past, as they see it as a step towards removing power subsidy. In this solutions are
milieu of distrust, metering agricultural connections even to implement Component-C scalable, but
has been a significant challenge for discoms. discoms must
The three pilot states adopted different strategies to overcome this challenge, as discussed complement
below: them with farmer
1. Community-supported meter reading: In the pilot projects of Andhra Pradesh engagement to
and Karnataka, cooperatives/committees of participant farmers had a central role gain their trust
to play. In Andhra Pradesh, a team of three people – including a representative
each from the discom, the cooperative, and the farmers – together carried out the
meter reading. Karnataka envisaged a similar arrangement between the discom and
the cooperative.
As per the respondent from APEPDCL, the strategy was effective primarily because of
consistent engagement with the farmers. The discom was able to carry out meter
reading without fail. In Karnataka, however, an impact study showed that the
cooperative was not functioning properly, due to which the famers had not received
any payment. A majority of the farmers were not even aware of the amount they were
supposed to receive from the discom (Institute of Social and Economic Change 2018) .
2. Smart-metering: Gujarat introduced a remote billing system by installing smart
energy meters and the IT infrastructure for reading the energy flow remotely. As per the
respondent from GUVNL, this approach has worked well with a few minor
challenges. The implementing discoms have tried to infuse transparency by creating
a mobile application through which farmers can see their real-time energy
generation. Due to these measures, the annual bill settlement has mostly been
smooth. But in locations where the self-consumption was quite substantial, the
farmers were not happy with the bills generated (with little or no FiT earnings) and
alleged faults in the metering.

Community-supported meter-reading is very time and effort consuming and is not a scalable
approach for a state-wide scheme. Moreover, the engagement of additional staffing for meter
reading comes with additional costs. Smart-meter solutions appear promising and scalable
but need to be complemented by close engagement with farmers and a robust ecosystem
for data collection. Table 6 summarises these findings.

Table 6 Smart-meter solutions are comparatively more effective and scalable strategy for
metering and billing challenges

Strategies for Effectiveness Farmer’s Scalability Cost of implementation

meter- reading and acceptance
billing
Community-based
Medium High Low Medium
meter-reading
Smart-meter High Medium High Medium

Source: Authors’ analysis based on consultation with stakeholders from the discoms

Free-rider problem
In a feeder targeted under Component-C, all farmers need to participate, otherwise the
scheme’s administration can be challenging for the discom. For the participating farmers,
the grid has to be energised throughout the day to enable the export of power. However, this
30 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

also enables reliable day-time supply for the non-participating, essentially gaining better
supply reliability without investing in the solar asset. The non-participating farmer can free-
ride and exploit the increased availability of cheap or free power.

In the three pilot projects, the respective implementing agencies adopted different strategies
to combat this challenge.
1. Ensure 100 per cent participation in a feeder: In Andhra Pradesh, the discom
ensured that all farmers in the target feeder participated in the project. This strategy Discoms
would free up the discom from taking additional measures to curb the power supply should adopt
to non-participating farmers. However, the approach is highly time- and effort- technological
intensive. In Andhra Pradesh, for instance, the discom had to delay the project for
two years to get buy-in from all the farmers. The respondent from the discom
solutions to curb
mentioned that it took them multiple rounds of individual-level and group-level free-riding
engagements to convince the farmers.
2. Community-based monitoring: In Karnataka, the discom constituted a farmers’
committee to monitor the usage by non-participating farmers. However, as per the
discom respondent, this has been a non-starter, and the non-participants
rampantly misused the increased supply hours.
3. Technology-based solution: In Gujarat, the discom developed an accessory for the
transformer called a ‘watchdog device’, which can remotely monitor and control the
transformer’s power supply. This device was installed on all the transformers supplying
non-participating farmers to regulate their power supply schedule. Gujarat had
initially envisaged 100 per cent participation of farmers in a feeder but later
relaxed it to a minimum of 70 per cent due to lack of interest. As per a discom
representative, Karnataka also tested a mini-SCADA system to monitor energy
usage but could not effectively curtail free-riding due to network issues.

Respondents from all the discoms concurred that it is ideal to have all the farmers in a
feeder solarised for the scheme. But it is evident from the pilot projects that getting
farmers’ buy-
in requires considerable engagement efforts from the discom. A technological solution like
a watchdog transformer is costly but could be viable at scale. Discoms should strategise
to get maximum farmers’ participation, while adopting technological solutions for non-
participating farmers.

Table 7 Among the different strategies, technology-based monitoring is the most scalable
solution to tackle the free-rider problem

Strategies Effectiveness Scalability Cost of

implementation

Ensure 100% participation in a feeder High Low Low

Community-based solution Low Medium Low

Technology-based solution Medium High Medium

Source: Authors’ analysis based on consultations with stakeholders from the discoms

Infrastructure challenges
One prerequisite for the implementation of Component-C is the segregation of the feeder. It is
not a bottleneck for Component-C in most states, but some states will have to invest in
feeder segregation in the long term. In the short term, however, the condition of existing
segregated agriculture feeders is a concern in many states.
 Component-C: Key insights and challenges 31

The last-mile infrastructure is critical but often overlooked in the scheme’s planning. The
agricultural feeder networks are often poorly maintained. In the maintenance and upkeep
of the grid, the discoms give the least priority to these networks since revenue recovery is
too low (Dharmadhikary et al. 2018). As per the respondents from multiple stakeholders,
issues like power leakages and the use of non-standard wires are pretty common.

The actual cost for the discom implementation of the scheme should, therefore, factor in Discoms should
the additional costs to upgrade the infrastructure. According to multiple discom ideally lead
respondents,
a comprehensive assessment of the feeder is a must before implementing this component
Component C’s
in a feeder. The assessment should capture the connected pump capacities in use, the implementation,
status of grid infrastructure, and sources of other commercial losses before implementing aided by other
the component in any feeder. The states should adequately study the cost of
agencies
infrastructure upgrades through pilots before scaling up Component-C.

4.6 Choice of implementing agency

The implementing agency for Component-C for any state is to be decided by the respective
state administration. So far, out of the 15 states which notified the scheme, nine have
designated their respective SNAs as the implementing agencies, which may not be ideal for
the scheme’s smooth implementation.

As evident from the discussion so far, planning the scheme’s rollout requires a good
understanding of power supply operations and the discoms’ relationship with agricultural
consumers. Overcoming the multiple implementation challenges requires engagement
with farmers before and after the installation to build an atmosphere of trust. Only the
discoms are best placed for this role. The respondents from the discoms of Rajasthan and
Chhattisgarh mentioned that choosing SNA as the implementing agency carries the risk of
constant roadblocks in aspects like billing and payment.

A case attesting to this point was evident in the proceedings for approval of tariff in
Haryana, where the SNA is the implementing agency. In Haryana, the SNA proposed a
bidirectional- metering modality under Component-C to the SERC. The discom contested it
and submitted that it was not feasible to provide net-metering options to agricultural
connections.

By its design, Component-C accords a pre-eminent role to the discom in its implementation.
Hence, states should select discoms as implementing agencies unless there are compelling
reasoning to do otherwise. The discoms can undoubtedly benefit from the expertise of
SNAs in decentralised solar projects. States should set up a dedicated PM-KUSUM cell
with representatives from all concerned departments to facilitate coordination with
multiple actors.
32 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM
Scheme

For PM-KUSUM to
succeed, we need to
ensure farmers’
participation and ownership of
the solar-powered irrigation.

Image: Anas Rahman

 33

5. Conclusion

he PM-KUSUM scheme has been running since early 2019. However, the progress of the

T scheme, particularly on the two novel approaches that it introduced, components A and
C, has been marginal, at best. These components intend to support farmers with additional
incomes, improve power quality for irrigation, reduce agriculture power subsidies, and
further clean-energy transition in the agriculture sector. However, the planning and
implementation challenges at the state level are significant and need immediate attention MNRE must
to materially yield outcomes against these components of PM-KUSUM.
prepare a model
For Component-A, most of the discoms are enthusiastic. However, they are concerned about framework
the short-term disruption in their finances. The concern stems from the fact that many for tariff
discoms across the country already have surplus contracted capacity. With existing PPAs to
honour, the room for additional procurement under Component-A is limited, even though
determination
it makes economic sense in the medium- to long-term. Modifying the scheme timelines and and study
converging them with state-level power procurement planning would allow the discoms the impact
to leverage this model to meet future energy demand in a planned manner.
of recently
Further, the current ceiling tariffs finalised by many states are not finding traction among introduced basic
developers. Relatively higher capital and overhead costs for small-scale power plants, poorer customs duty on
grid availability at the distribution substation, and counterparty risks increase the cost of
power under Component-A as compared to utility-scale solar plants. The MNRE must prepare distributed solar
a model framework, in consultation with the Forum of Regulators, to guide the SERCs plants
in using a standardised approach in determining viable ceiling tariffs for projects under
Component-A. The impact of recently introduced basic customs duty on solar modules and
cells should also be assessed thoroughly as they disproportionately impact the capital
cost of plants under Component-A.

Beyond the economics of the component for the discoms and the developers, the
implementation challenges such as restrictions and delays in leasing or conversion of
agricultural land and lack of interdepartmental coordination must be addressed on
priority. A steering committee for PM-KUSUM consisting of representatives from all
concerned state departments could go a long way in enabling smoother coordination for
the scheme’s implementation.

Finally, farmers aiming to invest under Component-A are facing difficulties in accessing
institutional finance. Innovative models such as farmer and developer SPVs can help
unlock financing for farmers.

For Component-C, we focused on the grid-connected solar-pump model. Most discoms

anticipate significant challenges in getting farmers’ buy-in for the model. In states with
highly subsidised agricultural tariff, the discoms expect a lack of interest among farmers
34 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

in making a monetary contribution to solarise their connection. We found that the model
is economically viable for farmers, the discoms and the government only in very specific
contexts. Low FiTs means limited incentives for farmers to feed surplus power back to
the grid, while a high tariff would mean a net loss for the government/discoms. Current
experiences at the state level suggest a cautious way forward: careful design of the
scheme financing model, limited pilot roll-outs under different agroeconomic contexts, Unless measures
observation of farmers’ behaviour in the initial years, and finally scaling up the model are taken to
only in suitable contexts.
reform the
For farmers, there could be high opportunity costs associated with the export of power. In larger issues of
certain scenarios, farmers may prefer to sell water or grow more crops instead of agriculture power
exporting surplus power, which can put pressure on groundwater in water-stressed areas .
We propose that the SERCs be aware of these factors while determining the FiT for the
subsidy and its
scheme. Similar to our suggestion for Component-A, the MNRE should prepare a framework to administration,
guide SERCs in determining viable FiT for Component-C. the individual
Beyond economic viability, operational challenges related to metering and billing, the solarisation
non-participating farmers in a feeder, and the poor state of agriculture distribution of agricultural
infrastructure are worth noting. Employing technologies like smart devices in pumps may not
conjunction with community-engagement efforts can help the discoms bridge the trust
deficit with farmers. Alongside, comprehensive feeder-level assessments are imperative
fly with the
to address infrastructure gaps. discoms and
Having said that, unless measures are taken to reform the larger issues of agriculture
farmers at large
power subsidy and its administration, the individual solarisation of agricultural pumps
may not fly with the discoms and farmers at large. While the government should address
the challenges we outline to fast track implementation of PM-KUSUM, it must not lose sight
of the fact that a perfect solution in an imperfect environment may not succeed.
 35

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A and C of the PM KUSUM Scheme of GoI to the State Discoms. Jaipur: Rajasthan Electricity Regulatory
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 37

Annexures
Annexure I: Cost-benefit analysis of Component-A under VGRS
framework
Table A1 summarises the key assumptions used for the cost-benefit analysis for the state of Karnataka. Table A2
illustrates the formulae used to estimate various cost and benefit components under the VGRS framework.

Table A 1 Key assumptions used for cost-benefit analysis of Component-A

Parameters Value Unit Remarks/Source

Plant capacity 1000 kW

Transmission loss 3.13% KERC tariff order FY 2020-21

Distribution loss down to 11 6.00% KERC tariff order FY 2020-21

kV substation
System coincidence factor 15.00% The AGCC depends on the contribution of solar power during
the discom’s peak demand. System coincidence factor quantifies
this contribution.
Fixed capacity cost 3,529.13 INR/kW KERC tariff order FY 2020-21

Fixed transmission charges 2,861.00 INR/kW KERC tariff order FY 2020-21

Variable cost of power 2.86 INR/kWh KERC tariff order FY 2020-21

Feed-in-tariff 3.08 INR/kWh KERC general tariff for small solar plants 2018

Capacity utilisation factor 16.00%

Degradation rate 0.50%

REC unit cost 1.00 INR/kWh https://www.iexindia.com/marketdata/recdata.aspx

PBI rate 0.4 INR/kWh PM-KUSUM guidelines

Discount rate 14% Weighted average cost of capital

KERC tariff order FY 2020-21
Source: Authors’ compilation

Table A 2 Formulae used for estimating cost and benefit component under VGRS framework

Parameter Formula

Avoided
(Power plant capacity × System Coincidence Factor × Fixed Capacity Charges × (1-Degradation rate) (Year-1)
generation
capacity cost (1-Transmission loss)
(AGCC)

Avoided
transmission (Power plant capacity × System Coincidence Factor × Fixed Transmission Charges × (1-Degradation rate) (Year-1)
capacity
cost (ATCC) (1-Transmission loss)

Avoided power (Power plant capacity × CUF ×24 × 365 × (1-Degradation rate) (Year-1) × Variable cost of power)
purchase cost
(APCC) (1-Transmission loss) (1-Distribution loss down to 11 kV)
38 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Parameter Formula

Avoided REC
purchase Power plant capacity × CUF × 24 × 365 × REC unit cost
cost (ARPC)
Performance-
based Power plant capacity × CUF × 24 × 365 × PBI rate
incentive (PBI)

Tariff
payments Power plant capacity × CUF × 24 × 365 × Tariff rate

Source: Kuldeep et al. 2019

Annexure II: Cost-benefit analysis of grid-connected solar pump

schemes of Andhra Pradesh and Gujarat
Table A3 summarises the assumptions used for the cost-benefit analysis of the grid-connected solar pump pilot projects
of Andhra Pradesh and Gujarat. Table A4 lists the formulae to calculate the different costs and benefit components.

Table A 3 Key assumptions for cost-benefit analysis of grid-connected pump schemes

Parameters Andhra Gujarat Gujarat (PM- Remarks

Pradesh (SKY) KUSUM)

Pump size (HP) 5 5 5

Panel size (kW) 5 6.25 6.56 Andhra Pradesh mandated

solar panel capacity (in kWp)
equivalent to the contracted
load in HP. Gujarat allowed 1.25
times oversizing

CUF 16% 16% 16%

Annual pump operational hours (hours) 1000 1000 1000

Self-consumption % 53% 43% 43% Calculated based on the

assumed CUF

Feed-in-Tariff (INR/kWh) 1.50 3.50 2.83

Government tariff support (INR/kWh) - 3.5

Farmer tariff rate (INR/kWh) 0 1.18 1.18 Tariff order FY 2020-21

Average cost of power supply (INR/kWh) 6.61 6.84 6.84 Tariff order FY 2020-21
Generation
Current cost of power purchase (INR/ 4.71 3.67 3.67 Tariff order FY 2020-21
related
kWh)

Annual degradation 1% 1% 1% Based on the standard panel

quality prescription for solar
pumps

Transmission loss 3.00% 3.00% 3.00% Tariff order FY 2020-21

Distribution loss (down to 11kV 5.97% 4.71% 4.71% Tariff order FY 2020-21
substation)

Distribution loss (below 11kV substation) 7.20% 4.71% 4.71% Tariff order FY 2020-21

System coincidence factor 15% 15% 15%

Generation capacity cost (INR/kW) 8056 6450 6450 Tariff order FY 2020-21

Transmission capacity cost (INR/kW) 1848 2900 2900 Tariff order FY 2020-21

Variable cost of power (INR/kWh) 3.54 2.68 2.68 Tariff order FY 2020-21

Years till current generation capacity is 1 1 1

sufficient
 Annexure 39

Parameters Andhra Gujarat Gujarat (PM- Remarks

Pradesh (SKY) KUSUM)

System cost (INR) 2,76,500 3,27,700 3,39,800 For Andhra Pradesh (pump
replacement included):
Benchmark price of 5 HP off-
grid system + 40,000 for grid-
tie inverter

For Gujarat SKY (no pump

replacement): Benchmark cost
of 6.25 HP off-grid system +
60,000 for grid-tie inverter –
30,000 for pump

For Gujarat PM-KUSUM (no

pump replacement): Benchmark
cost of 6.56 HP off-grid system
+ 60,000 for grid-tie inverter –
30,000 for pump

Farmer upfront contribution (INR) 16,875 33,979 For AP: 0%

For Gujarat (SKY): 5%
Finance-
For Gujarat (PM-KUSUM): 10%
related
Subsidy amount (INR) 2,76,500 98,310 2,03,877 For AP: 100%
For Gujarat: 30%

Loan (INR) 2,13,005 1,01,938 For AP: 0%

(by discom) (by farmer) For Gujarat: 65%

Interest rate 8.30% 8.30% SBI MCLR (3 years) + 1%

EMI (INR per year) 38,602 15,398

Loan period (Years) 7 10 Gujarat (PM-KUSUM) based on

Bank of Baroda notification

Weighted average cost of debt 9.29% 9.29% Tariff order FY 2020-21

EMI @ normal interest rate (INR per year) 37,481 15,398

Discount rate (govt) 7.50% 7.50% 7.50% Long-term bond rate

Discount rate (farmer) 8.3% 8.3% 8.3% Base rate of SBI + 100 basis
points

Discount rate (discom) 11.6% 10.7% 10.7% WACC of FY 2020 (average of

two discoms)
 40 Powering Agriculture in India: Strategies to Boost Component A and C Under PM-KUSUM Scheme

Table A 4 Formulae used for different cost and benefit components of grid-
connected pump schemes

Government

Upfront govt.
Govt. subsidy share × Cost of the system
subsidy
Generatio
Panel capacity × CUF × 24 × 365 × (1-Self consumption)
n
× Government tariff support
incentive
Power subsidy Panel capacity × CUF × 24 × 365 × Self consumption
savings × (Actual cost of service-Farmer tariff rate)

Interest subsidy Normal EMI-EMI for the scheme

Discom

Loan repayment EMI

Solar tariff Panel capacity × CUF × 24 × 365 × (1-Self consumption) × Feed-in tariff

Avoided
generation (Power plant capacity × System Coincidence Factor × Fixed Capacity Charges × (1-Degradation rate) (Year-1)
capacity
(1-Transmission loss)
cost (AGCC)
Avoided
transmission (Power plant capacity × System Coincidence Factor × Fixed Transmission Charges × (1-Degradation rate)(Year-1)

capacity cost (1-Transmission loss)

(ATCC)

Avoided
power Panel capacity × CUF × 24 × 365 × (1-Self consumption) × Variable cost of power
purchase cost
(APCC)
Power purchase
AGCC + APCC + ATCC
savings
Farmer

Upfront contribution
Farmer subsidy share × Cost of the system

Annual income Panel capacity × CUF × 24 × 365 × (1-Self consumption) × Feed-in tariff
Adapting different models of solar-
powered irrigation is the key for its
scale-up. One- size-fits-all approach
cannot sustain in the diverse agro-
economic context that we have in this
country.

Image: Anas Rahman

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