PM-KUSUM Scheme Tender Issuance Fast-tracks in H1 2022; However, Capacity Allocation Remains A Laggard

In 2019, the Indian government launched a national scheme for farmers with the intention of improving their energy security and de-dieselise the agriculture sector. The scheme is called Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan (PM-KUSUM). The KUSUM has a target of setting up 30.8 GW of solar power for agriculture by 2022, which is being undertaken through three scheme components –

  • Component A: For setting up of 10 GW of solar capacity through installation of small solar power plants of capacity up to 2 MW
  • Component B: For installation of 20 lakh standalone solar powered agricultural pumps
  • Component C: For solarisation of 15 lakh existing grid-connected agriculture pumps

The performance of KUSUM scheme has been underwhelming so far, across the three components. Progress under component B however, has been relatively better than components A and C. Approximately 3.6 lakhs standalone solar powered pumps have been sanctioned under component B by the central government as of April 2022.[1]

Under components A and C, a total of 25 tenders (Component A – 19, Component C – 6) have been issued as of June 2022 (i.e., in the past 32 months since November 2019).  In capacity (GW) terms, 7.7 GW worth of tenders across KUSUM components A and C were issued from November 2019 to June 2022. And 39% of this was tendered in H1 2022 alone. However, only 0.77 MW (representing just 10% of the overall tendered capacity) has been allocated till June 2022.

Table 1: Status of KUSUM Components A & C Tenders (as of June 2022)

Source: JMK Research

Under KUSUM component A, among all the states, Maharashtra has tendered maximum capacity at ~2.3 GW. It is followed by Rajasthan (0.7 GW) and Madhya Pradesh (0.6 GW). With regard to component C, Madhya Pradesh has tendered maximum capacity (~1.3 GW), which is followed by Maharashtra (1 GW).

Figure 1: State-wise Share of Tendered Capacity Under KUSUM Scheme Components A & C

Source: JMK Research

Back in December 2021, the International Energy Agency (IEA) predicted that India would fall short of its KUSUM target and just about one-third of the 30.8 GW target would be achieved over 2021-26. The IEA attributes the shortfall to “financing and implementation challenges” of the scheme.

Reluctance of banks to fund KUSUM projects is one of the major dampeners. This stems from the lack of availability of loan collateral (apart from land) and the involvement of distribution companies (DISCOMs) in the market dynamics of KUSUM, who have, in general, a poor track record of payments against purchase of excess solar power. Also, many of the KUSUM tenders are considered high-risk, with no payment security mechanism clause in place for developers.

Considering that the central government set, in February 2022, the target of 100% de-dieselisation of the agriculture sector by 2024, it is all the more important to overcome such pertinent challenges and revitalise the KUSUM scheme.

[1] Business Line, Centre does away with bank guarantee clause for solar power generators under PM-KUSUM, May 2022