KUSUM Scheme (Component A) – Over 3.4 GW of solar tenders issued till date

The Ministry of New and Renewable Energy (MNRE) launched the Pradhan Mantri Kisan Urja Suraksha Evam Utthan Mahabhiyan (PM-KUSUM) scheme for farmers to set up solar pumps and other renewable energy facilities across the country. The Scheme consists of three components:

  • Component A: Installation of 10,000 MW of decentralized ground-mounted grid-connected renewable power plants.
  • Component B: Installation of 17.50 lakh solar-powered agricultural pumps.
  • Component C: Solarisation of 10 lakh grid-connected agricultural pumps.

All three components of the scheme aim to add 25,750 MW of solar capacity by 2022 with the total central financial assistance of INR 34,422 crores.

As a part of component A of this scheme, till date seven states, namely Madhya Pradesh, Maharashtra, Odisha, Uttar Pradesh, Tamil Nadu, Rajasthan, and Jharkhand have issued solar tenders totalling 3.4 GW capacity. The commissioning timeline for these projects is from 9 to 12 months and, the minimum capacity utilization factor (CUF) requirement is in the range of 15% – 23%.

Figure 1: Capacity Tendered under KUSUM Scheme (Component A) till August 31, 2021

Source: JMK Research

Figure 2: Details of tenders issued under KUSUM Scheme (Component A)

Source: JMK Research

Despite clear benefits and ambitious targets under Component A of the Government of India’s PM-KUSUM scheme, the deployment of the scheme has been extremely slow. So far, none of the tenders have been concluded due to various reasons, namely,

  • Majority of tenders have set a ceiling tariff of less than INR 3.14/ kWh which is quite aggressive according to developers and are not commercially viable.
  • The majority of these tenders are also considered high-risk, with no payment security mechanism clause in place for developers. Developers are concerned about Discoms’ track record of adhering to PPAs and delayed payments. 
  • Under the scheme, there is a requirement to use DCR (Domestic Material Requirements) modules in the installations. However, at present, India has only 3 GW of operational solar cell production capacity which makes it difficult to cater to the rising demand of DCR modules for these tenders. Furthermore, prices for these DCR modules are higher than their non DCR counterparts because of higher input costs. Additionally, with increasing demand, DCR modules’ prices are also likely to see an upward trend. 
  • Developers have to sign a tripartite agreement with farmers and since the scheme is new, it is taking longer than usual for farmers to understand and sign the agreement.
  • Many farmers who were successful in their bids lacked the financial means to contribute 30% of the project’s equity. Even if farmers raise equity, getting a loan from a bank is difficult since banks want collateral in the absence of third-party assurances. Furthermore, due to discoms’ poor payment track record, banks are unwilling to take the risk without alternative collateral.
  • Some states already have state-level plans to promote the use of solar energy in this sector. These states were reluctant to merge their schemes with a central program and allow the Centre to claim credits to encourage farmers to use solar energy.

The introduction of KUSUM scheme is a well-intended, win-win situation for both farmers and DISCOMs. Farmers can profit from both farming and the sale of excess solar energy generated in their land. It will also ease the pressure on state-owned utilities, which have to supply subsidized electricity to the agricultural sector. However, with the aforementioned ongoing issues, certain well-planned measures need to be taken to make it a success case. Rather than a total revamp, ensuring additional initiatives, such as adding clauses for payment security mechanism in tenders, removal of ceiling tariffs can give confidence to the developers and could give the scheme the legs it needs to deliver on its promise.