By Vandana Gombar, BloombergNEF. This article first appeared on the Bloomberg Terminal.
India is rolling out a multi-billion dollar program to build hundreds of new solar plants to supply cheap power to its farms, in what appears to be the world’s largest program for the ‘solarization’ of agriculture.
The program involves solarization of 3.5 million water pumps on farms, as well as setting up of small solar plants of up to 2 megawatts at sub-stations feeding farms. New solar capacity to be set under the scheme, dubbed PM-Kusum, has now been expanded to 31 gigawatts by the year 2022-2023.
“We have a tremendous response from the states to the Kusum scheme, which is beneficial to the farmers – they can increase their income by selling solar power to the grid. They will also be able to save the recurring cost of diesel,” Amitesh Sinha, joint secretary at the Ministry of New and Renewable Energy, told BloombergNEF.
The federal government has approved a subsidy of $4.7 billion for the scheme.
Against the planned approval of 3,000 megawatts of small solar plants by the end of the current financial year in March, the government already has applications for almost triple that number, and more demand is coming in.
The idea is to use a subsidy to kill a subsidy. Over $15 billion is paid out annually by the state governments for supply of subsidized power to agriculture. This bill would shrink substantially as the Kusum scheme rolls out.
Continued supply of free or cheap power is also one of the demands of farmers who have been protesting for the last two months against new rules on selling agricultural produce.
“It will help the states in reducing the subsidy burden and distribution companies in reducing their losses, apart from environmental benefits,” Sinha said.
In the last financial year, about 25% of electricity generated by distribution companies went to agricultural consumers, though their contribution to revenue was less than 4%, according to the latest update by Power Finance Corporation. The sector is a major contributor to the financial stress being felt by India’s distribution companies, or discoms.
“This is a win-win scheme for everybody,” Raj Kumar Singh, India’s power and renewables minister said in a recent interview
The Kusum program has three components:
- 10 gigawatts of ground-mounted, gridconnected small solar plants of up to 2 megawatts each
- Installation of 2 million solar agricultural pumps – 10 gigawatts
- Solarization of 1.5 million grid-connected agricultural pumps – 11 gigawatts
Local solar power would reduce the cost of supply, as well as plug the losses resulting from centralized generation and its subsequent transmission and distribution.
India is also experimenting with building solar on stilts, so that the same land generates power, and also hosts farms. That activity is yet to move beyond the pilot stage. India’s version of solarization of agriculture seems to be a far better fit for now, given the local circumstances.
Solarizing all the sub-stations feeding farms would require 115 gigawatts of new plants. The current program of solar plants is limited to 10 gigawatts, and may be expanded in the future, as demand increases.
The southern state of Andhra Pradesh opted to follow another path for solarization of farms: it invited bids for setting up 6.4 gigawatts of solar plants across 10 locations for supplying power to farmers.
Multiple companies were reportedly interested in developing the plants, including NTPC, the country’s largest power generator. After an appeal by Tata Power Renewable Energy in the Andhra Pradesh High court however, the bid process has currently been stayed.
The state was also exploring how it could tap into the funds available under the Kusum scheme.
Another model is being rolled out by Energy Efficiency Services Ltd. (EESL), a joint venture of four leading government owned companies – NTPC, Power Finance Corporation, REC and Powergrid – best known for its bulk procurement of LED bulbs, and the bulk savings on those.
Under its “convergence” model, it is tying up with state governments to solarize farms and provide lighting on the farms as well as adjoining areas. The whole investment is made by EESL, and it is paid for its services by the savings generated.
“The appeal of our program is zero upfront investment requirement by the state utility,” Saurabh Kumar, EESL’s executive vice-chairman, told BNEF. “Building hundreds of small ground-mounted solar plants scattered across the state is not an easy task, however.”
In the state of Maharashtra, EESL has already commissioned 120 small solar plants, totaling 130 megawatts, and will be at the 800-megawatt mark by the end of this year.
“We supply power for 3 rupees a unit, which is less than half the cost of supply for agricultural power by the Maharashtra distribution company, leading to immediate savings,” said Kumar.
A similar model is being replicated in the state of Goa, where EESL will provide power, lighting and energy efficient pumps at a composite tariff of 3.60 rupees for 25 years, against the current cost of supply of 5.60 rupees.
This agriculture solarization plan could face several operational challenges, according to Rohit Gadre, BNEF’s India solar analyst: “The security and maintenance of thousands of small distributed systems for 25 years will come at a cost, and any deficiency may lead to sub-optimal generation.”
There is also a question mark on the last-mile distribution network, and its ability to handle large volumes of bi-directional power flows at multiple points.
Uptake has been somewhat slow in solarization of existing standalone diesel pumps (component B). Part of the reason for that is that the states also have contribute a subsidy matching that of the federal government.
On the other hand, the phenomenal demand seen for solarization of grid-connected pumps meant that the government had to issue another warning on “fraudulent Kusum websites” earlier this month.
‘Second green revolution’
The supply of uninterrupted power in rural India can provide a big boost to the food processing industry, and for the whole agricultural value chain.
“We have provided energy sovereignty through Kusum,” finance minister Nirmala Sitharaman said in her budget speech on February 1, 2020.
The jump in India’s farm produce resulting from introduction of modern farming techniques in the 1960s and 1970s is often referred to as the green revolution. Many expect the current wave of solarization of farms to trigger a second green revolution.