Impact assessment of KUSUM scheme on Solar water pumps market

In February 2019, Cabinet Committee on Economic Affairs (CCEA) approved the launch of Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme. Under this scheme, the government has set a target to install 25,750 MW of solar capacity by 2022, consisting of following three components:

Component A: 10,000 MW of decentralized ground mounted, grid connected renewable power plants (up to 2 MW each) will be set up by individual farmers, cooperatives, panchayats, or farmer producer organisations on their barren or cultivable lands. The power generated will be purchased by the DISCOMs at feed in tariffs determined by respective state electricity regulatory commissions (SERC). The scheme will open a stable and continuous source of income to the rural land owners. Performance-based incentives at ₹0.40 per unit for five years will be provided to DISCOMs.

Component B:  1.75 million solar powered agriculture pumps of individual pump capacity of 7.5 HP.

Component C:  Decentralized solar power plants to power 1 million existing diesel-powered agriculture pumps of individual pump capacity of 7.5 HP. Under this scheme, individual farmers will be supported to solarise their pumps of capacity up to 7.5 HP. Solar PV capacity up to two times of pump capacity in kW is allowed under the scheme. The farmer will be able to use the generated energy to meet the irrigation needs and the excess available energy will be sold to DISCOMs.

Component-A and Component-C will be implemented on pilot mode (till Dec 31, 2019) for 1,000 MW capacity and one lakh grid-connected agriculture pumps, respectively, and thereafter, will be scaled up on success of the pilot run. Component-B will be implemented in full-fledged manner.

For both Component-B and Component-C, central financial assistance (CFA) of 30% of the benchmark cost or the tender cost, whichever is lower, will be provided. The states will give a subsidy of 30%; and the remaining 40% will be borne by the farmer. Bank finance may be availed to meet 30% of the cost. The remaining 10% will be borne by the farmer.

For this scheme, total financial outlay planned by the government is to the tune of INR 344 billion (USD 4.8 billion).

Our view

The scheme is beneficial for farmers as electricity generated from solar pumps during off-crop days can be sold to DISCOMs. This will help farmers by creating an avenue for extra income, and help the states meet their renewable purchase obligation (RPO) targets. The DISCOMs will also get benefited as they will get additional incentives to implement these programs.

Domestic manufacturers will also be the key beneficiaries of this scheme as it is a mandatory requirement.

Of the three components discussed above, we feel that Component A of the scheme is a good initiative. This will bring power generation closer to consumption centers thereby mitigating land and transmission concerns. Targets set for Component B and C till 2022 looks unrealistic. To start with, a detailed plan to identify region wise potential can be the first step.