Budgetary allocations for energy access witnessing a plateau; focus shifting towards solar pumps

The interim budget 2019-20 did not see any major announcements pertaining to distributed renewable energy. The budget has allocated INR 5.25 billion for solar projects under off-grid and decentralized renewable power for the next financial year, a decline of 35% as compared to the revised estimate of INR 8.12 billion for 2018-19[1]. The spike in budget expenditure during 2017-18 and 2018-19 was on account on 70 lakh solar study lamp scheme. Meanwhile, the decline in budget expenditure during 2016-17 can be attributed to the closure of NABARD credit-linked subsidy scheme for solar pumps and solar light packs.

The projects under interim budget, for both 2018-19 and 2019-20 are targeted towards north-eastern/hilly states and UTs such as Sikkim, Jammu and Kashmir, Lakshadweep and A&N Islands and include a deployment of 300,000 solar street lights, distribution of 2.5 million solar study lamps and installation of solar power plants (of individual size up to 25 kWp) by March 31, 2020.  These solar power plants are mainly aimed at providing electricity to schools, hostels, panchayats, police stations and other public service institutions. Further, the budget provision also entails installation of Concentrated solar thermal (CST) projects with an aggregate capacity of 20 MW.  Members of industry associations such as CLEAN expect the schemes pertaining to energy access to continue beyond March 31, 2020 as well. Further, the members of CLEAN hope that the main budget will focus on reducing the import duties, which are currently impacting the margins of suppliers of pico products.

Year-wise budget expenditure for off-grid and decentralised solar power

*Revised budget estimate

Source: www.indiabudget.gov.in

Post the announcement of interim budget, the government has also approved the launch of KUSUM (Kisan Urja Suraksha evam Utthaan Mahabhiyan) scheme, which entails a total central financial support of INR 344 billion covering three main components i.e. setting up of 10,000 MW of grid-connected solar or other renewable energy-based power plants, installation of 1.75 million off-grid solar agricultural pumps and solarization of one million grid connected agricultural pumps in the country. With regard to approval of the KUSUM scheme, industry associations such as CLEAN and GOGLA expressed enthusiasm and expect the scheme to accord a great push to the solar pump uptake across India. Moreover, the scheme allows the farmers to sell surplus power back to the grid. However, these sector associations also caution on potential challenges if the implementation of the scheme is not well managed.

Echoing the sentiment, Sarah Alexander, Senior adviser at SELCO shared that KUSUM scheme is a welcome initiative towards integrating renewable energy with agriculture development, however, there is a need to take cognizance of root causes of distress faced by farmers, in order to address them appropriately through such schemes. “Technology is a piece of the puzzle and is not a panacea by itself to address deep rooted issues”, she notes. “Therefore, while implementing such a large-scale scheme, the learning from past irrigation programs and from recent studies related to social and environmental impact need to be heeded”. One of the key concerns pertains to potential indiscriminate groundwater consumption due to overuse of solar pumps. However, that may not necessarily be the case. In case of agricultural connection, farmers tend to keep the power on all through-out the night since the availability of power is erratic. Given that solar pumps will solve the day-time power availability issue, overuse of groundwater is unlikely to be a cause of concern. The other concern is with respect to implication on small and marginal farmers. As per typical government norms, land ranging between 2-3 acres[2] can be supported for irrigation by a 3 to 5 HP pump. However, as per agriculture census 2015-16, 48% of the agricultural land-holding belongs to marginal farmers who have a land-holding of less than 0.5 hectare (~1.2 acres).[3]

Furthermore, while KUSUM does offer significant capital support for subsidies, it does invite skepticism from the private players. Sarah believes that capital subsidies for solar pumps have been riddled with issues as they are market distorting. “This is not to say subsidies are bad, however these subsidies need to be designed in such a way so as to incentive long term financing and maintenance”, she says Thus, while state may add to the 30% subsidy component under KUSUM, there needs to be a sustainable business model and financial instrument to provide end-user financing component of 40% under the scheme, in a way that encourages adoption of the pumps. Moreover, the routing of funds from central and state government is unclear, which can affect the cash flow of the suppliers of these pumps. Reiterating similar concerns, Viraj Gada from GOGLA feels that the sustained uptake of KUSUM scheme would depend on ability of financial institutions to provide funds in case of delay in disbursal of government subsidy. Thus, there would be a need of bridge finance to manage working capital requirements for the suppliers. For this, the government can help set up a payment security mechanism to protect lenders offering financing for subsidy component. Lastly, from a policy perspective, it would be crucial that the government has consistency in policy guidelines at a central and state level, to streamline subsidy support for solar pumps.