PM-KUSUM Scheme

(Ministry of New & Renewable Energy)

Prepared & Presented by :GROUP – 6

1) Madhur Makwana
2) Neeta Baranwal
3) Nishith Gupta
4) Rohit S Mukherjee
5) Sudhir Kumar Sahu

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Outline
Introduction of Policy

Salient features of the Policy

Key Achievements of the Policy

Policy Analysis

Conclusion

Way forward

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PM-KUSUM Scheme: Pradhan Mantri Kisan Urja Suraksha evam Utthaan
Mahaabhiyan

Launched : By Ministry of New and Renewable Energy (MNRE) in 2019 with an initial
Budget allocation of Rs.34,000 crore

PM-KUSUM scheme farmer-oriented scheme involving decentralized solar power

production aims to add a solar capacity of 30.8 GW by 2022

Objectives:

To promote decentralized solar power production

Energy sufficiency and sustainable irrigation access to farmers
To provide energy security and boost the rural economy in India

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Need of Policy

India’s Climate Commitments of 2070 Net-Zero Target and increase the share of electric
power from non-fossil fuel sources to 40% by 2030.

To lower the agrarian distress in India by providing a sustainable, universal and
equitable energy access and water for irrigation and provide additional income to farmers

Help states and Discoms to reduce power subsidies (approx 75% of power subsidies go
to agriculture) and meet the RPOs targets 

Reduce T&D losses and increase the system efficiency

De-dieselizing the sector, reduce the energy import bill and subsidy burden and at the
same time reduce the reduce GHG Emission and help to protect environment

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Salient features of the Policy
PM-KUSUM Yojana has a comprehensive monitoring framework encompassing consists of three
components:

(i) Component-A: 10,000 MW of decentralized ground mounted, grid-connected solar power plants (~0.5–
2.0 MW) by individual or group farmers/ cooperatives/panchayats within 5 km radius of Discoms
notified substations
Procurement Based Incentive (PBI) @ 40 paise/kWh or Rs. 6.60 lakhs/MW/year, whichever is less, will
be provided for the first five years by MNRE to DISCOMs, for buying the power from
farmers/developers;

(ii) Component-B: 2 Million stand-alone off-grid solar pumps of capacity up to 7.5HP to replace existing
diesel pumps in off grid areas
30% CFA,30% state subsidy and 40% farmers(10% initial payout + 30% loan) and in NE
states,UK,Lakshdweep & A&N island CFA is 50%;

(iii) Component-C(Pump/Feeder): 1.5 Million grid-connected pumps up to 7.5HP by outfitting them with

solar panels, and allowing owners to sell excess electricity back to DISCOMs
30% CFA,30% state subsidy and 40% farmers(10% initial payout + 30% loan)

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Component wise sanction report in 2019-2020 and 2020-2021

Component Approved capacity Capacity Sanction Quantity

targeted(GW) till
2022
Component A 10 GW 10 4909 MW

Component B 20 lakh Pumps 9.6 3.59 Lakh pump

Component C 15 lakh Pumps 11.2 10 Lakh Pump

Total 30.8 GW

Total sanctioned capacity in financial year 2019-2020 and 2020-2021 is approximately 14.99
GW out of 30.8 GW.

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Component A – Key Insights & Challenges
Stakeholders
State governments, Discoms, State nodal agency, Developers & system integrator.
Implementation challenges
Commercial Viability of the scheme – Discom’s perspective
 Avoided generation capacity cost(AGCC) – The solar generation from the scheme will reduce the
discom’s cost on contracting additional capacity.
 Avoided power purchase cost(APCC)- Variable part of the power purchase cost that the discom pays
for the actual quantum of electricity procured from generators. Variable cost is reduced.
 Avoided transmission capacity cost (ATCC) – Reduction in power procured leads to benefits of
reduction in transmission capacity requirements. The associated charges are saved in the process.
 Avoided REC Purchase cost(ARPO) – Scheme will reduce the discom’s cost to purchase Renewable
energy certificates.
 Performance based incentive(PIB)- GOI offers PBI of 0.4Rs/Kwh for energy generated for first five
years.
 System coincidence factor(SCF) – Measure of the contribution of solar power generated during peak
hours which decide the transmission & distribution cost for utilizing the scheme.

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Cost-Benefit Analysis – Discom’s perspective

 Cost and benefit for

setting up of 1 MW
solar plant under the
scheme in Karnataka.

 Total net benefit

derived 0.54Rs/KWh
from the scheme.

 However, benefit
differs on account of
several consideration
in short terms.

Source: CEEW (Report August 2021)

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 Component A – Implementation challenges
 Ceiling tariff of scheme is less than
average cost of power purchase
hence scheme has limited
incentive for states Kerela, Odisha.

 Amount of power benefit in short

term from scheme is limited to
present power scenario.

 Savings against RPO fulfillment not

criterion for discoms due to poor
implementation.

 The scheme does not take into

account power procurement
planning according to scheme
solar capacity addition.
Source: CEEW (Report August 2021)

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 Component A – Implementation challenges
Developers Challenges
Rise in custom duty of basic solar modules may increase the prices cause an increase in tariff.
Tariff's set for the scheme by states are not commercially viable.
High capital & overhead cost required for small scale distributed solar power plants. Lower DC-AC ratio &
higher cost of feeder infrastructure on per watt basis.
Lost generation potential of solar plants due to poor grid infrastructure at distribution substation end.
 Frequent outages of 11kV feeders increase cost of electricity in component A.
Counter party risk – with exception of few states concern remains with timely payment to developers by discom’s.
Financing farmer owned project
High upfront cost paid by farmer of up to 30% project value.
Challenge in availing loan for project set up from banks due to absence of any collateral & third party guarantee.
The farmland cannot be kept as collateral due to prohibiting land diversion laws hence financial institution are not
interested in granting loans for the scheme.
Special purpose vehicle were floated between farmers and developers to share the investment & returns based on
mutual agreement to overcome above limitation in state of Karnataka. Banks were ready to sanction of loan based
on financial track record of the developer.

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Component A – Implementation challenges
Challenges related to land regulations
 State regulations concerning land leasing and land conversion from agricultural to non-
agricultural uses have been a critical barrier in the scheme’s implementation.
 Some states prohibit the leasing of agricultural lands for non-agricultural purposes.
 Land leasing is either not permitted or strictly regulated in many states, while land conversion
can be expensive and time consuming.
 In Madhya Pradesh, the discom, in its petition for Component-A, stated that the state land-
leasing laws do not allow agricultural lands to be leased for more than six years (MPERC 2020).
Under such provisions, only the farmer-owned model would be workable.
 In contrast, Karnataka allows ‘deemed diversion’ of agricultural land for solar projects, simply
based on the application. But, in the Solar Farmer scheme, despite the ‘deemed diversion’
laws, delays in notification of procedures and lack of clarity led to delays in project
implementation.
 In Rajasthan, solar power projects do not require land conversion of agricultural lands (Kumar
and Thapar 2017).
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Component A – Implementation challenges

Gaps in inter-departmental coordination

 Many developers had to face delays in obtaining all the requisite approvals in the absence of
institutional coordination.
 For example in Karnataka, SNA(state nodal agency) was the implementing agency for the
scheme, the revenue department was responsible for approving the conversion of land for
non-agricultural use. The transmission company was tasked with approving the evacuation
infrastructure and interconnections. The discoms’ role extended to approving interconnection
and construction of an evacuation bay in the substation.
 In many states where Component-A is yet to be implemented, respondents from SIAs were
unaware of possible coordination challenges like those which cropped up in the Solar Farmer
scheme

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 Suggestions for improvements

 Modify the scheme timelines to enable the inclusion of Component-A in discoms’ power-
purchase planning
 Reduce risks and improve the competitiveness of decentralised power plants
 Undertake broader policy reforms to address the bias against distributed solar power plants
 Streamline land regulations to ensure smooth implementation
 Adopt innovative models to overcome financing challenges with farmer-owned power plants
 Ensure inter-departmental coordination to mitigate any issues in the planning and
implementation phases

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Component C
Two Parts of Component C
1. Solarization of individual existing grid-connected pumps
2. Feeder-level solarization

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Cost-Benefit Analysis
 Assumptions in the analysis:
5HP capacity pump, 25-year
life cycle, 1000 hours of
annual pump operation

 Net State govt. savings =

approx. INR 31,500

 Net Discoms savings = approx.

INR 70,000

 Farmer would earn = approx.

INR 73,000

 Theoretically all 3
stakeholders will benefit
Source: CEEW (Report August 2021)

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 Cost-Benefit Analysis
 Farmer’s income from
energy sale in the first 10
yrs.is almost zero

 FIT earnings barely

sufficient to cover for loan
repayment

 Higher self-consumption
may result in contribution
by farmers from own
pocket to repay the EMI

 No or –ive income for first

10 yrs. – unattractive
proposition for farmers

Source: CEEW (Report August 2021)

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 Cost-Benefit Analysis
 It may appear that the
model is feasible for farmers
with low self-consumption
(even in initial years)

 If farmers with low self-

consumption are targeted,
combined net savings of
govt. and Discom becomes
negative

 Because the avoided subsidy

is much less

 Strong trade-off between

state’s economic benefit and
a finance structure
acceptable to farmers
Source: CEEW (Report August 2021)

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Challenges in Financing Component
 The farmers upfront contribution is a major hurdle for Discoms in Component C
 Farmers are reluctant to pay upfront contribution owing to the availability of free
power for agricultural connections
 Example: Karnataka’s Surya Raitha Scheme, Gujrat’s SKY scheme
 Alternative financing models ?????

2 options

Increase the Subsidy Increase the Loan

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 Full Subsidy Model – Andhra Pradesh
 Discoms bore the entire cost of
the pilot project

 Zero beneficiary contribution

 Kept FIT low at INR 1.5/kWh to

compensate for high subsidy

 For scaling up – capital investment

from state govt. is required

 Govt. gain only by targeting

farmers with high self-
consumption (while providing 100
% subsidy)

 Very low financial incentive for

farmers
Source: CEEW (Report August 2021)

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 Loan-based Model – Gujarat
 Beneficiary contribution = 5 %, Loan taken by Discom on behalf of farmer = 65 %, State govt. subsidy = 30 %

Source: CEEW (Report August 2021)

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COMPONENT-C :KEY INSIGHTS AND CHALLENGES

Regulatory Challenges
 No standard methodology for tariff determination
 Tariff determination methodology varies from state to state
 Little or no consideration of Farmer’s opportunity cost of exporting

Source: CEEW (Report August 2021) 21

COMPONENT-C :KEY INSIGHTS AND CHALLENGES

Technical Considerations
 Metering modalities
- Unidirectional configuration
- Bi-directional Configuration
- Intentional Islanding
 Pump Replacement
- Replacement with Efficient Pump with same capacity
- Replacement with Efficient Pump with lower capacity

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COMPONENT-C :KEY INSIGHTS AND CHALLENGES
Challenges to groundwater regulation
Farmers with solarized Grid connected pumps can utilize surplus power in three ways:
- Export energy
- Sell water
- Intensify cultivation
Takeaways:
-Farmers tend to consume more electricity to extract more water for increased production.
-Current cropping pattern and farmer’s attitude towards adopting new cropping systems are
critical determinants.

Source: CEEW (Report August 2021) 23

COMPONENT-C :KEY INSIGHTS AND CHALLENGES

Operational Challenges
• Metering and billing
- Community – supported meter reading
- Smart metering

Source: CEEW (Report August 2021)

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COMPONENT-C :KEY INSIGHTS AND CHALLENGES

Operational Challenges
• Free-rider problem
- Non-participating farmer free-riding and exploiting increased availability of cheap power

Possible strategies
- Ensure 100% participation in a feeder
- Community-based monitoring
- Technology based Solution

Source: CEEW (Report August 2021) 25

CONCLUSION – THE WAY FORWARD

 The pumps employed for groundwater irrigation represent over 20% of total electricity demand in some
Indian states and are significant subsidy burden

 For farmers with no access to the grid, off-grid solar energy provides clean, reliable source of
irrigation compared to diesel-powered pumps

 For farmers with grid connectivity, solarisation of existing pumps creates a new revenue stream for
farmers through sale of surplus solar generation and saves on subsidy expenditure for DISCOMs.

 With the diverse agro-economic milieu , one size fits all approach wont work and the key is to adopt
different solar powered irrigation models for scale-up

 Simplifying the process for clearances, reducing delays in various stages of approvals, correctly attributing
loss in generation and a partnership between distribution companies and developers is critical for the
successful implementation of the scheme.

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CONCLUSION – THE WAY FORWARD
 Low FiTs means limited incentives for farmers to feed surplus power back to the grid, while a high tariff
would mean a net loss for the government/discoms -MNRE should prepare a framework to guide SERCs in
determining viable FiT

 Addressing Infrastructure gaps and employing technologies like smart devices in conjunction with
community-engagement efforts can help the discoms bridge the trust deficit with farmers.

 Innovative PPP models like Co-operative, Entrepreneurship and “Irrigation water as a Service” – reduce
risk of loan non-repayment, better asset utilization through demand aggregation, removes the burden of
upfront investments by farmers.

 Unless measures are taken to reform the larger issues of agriculture power subsidy and its
administration, the individual solarisation of agricultural pumps may not fly with the discoms and
farmers at large.

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REFERENCES
 Anas Rahman et.al, August 2021, Powering Agriculture in India, 42, CEEW India
https://www.ceew.in/sites/default/files/ceew-study-on-pm-kusum-scheme-for-solar-based-power-p
lants-and-grid-pumps-india.pdf

• National Portal of India, PM-KUSUM scheme

• https://www.india.gov.in/spotlight/pm-kusum-pradhan-mantri-kisan-urja-suraksha-evam-utthaan-
mahabhiyan-scheme

• Guidelines on PM KUSUM scheme, MNRE, Govt of India

https://mnre.gov.in/img/documents/uploads/8065c8f7b9614c5ab2e8a7e30dfc29d5.pdf

• First farm-based solar power plant comes up in Rajasthan, The Hindu

https://www.thehindu.com/news/national/other-states/first-farm-based-solar-power-plant-comes-u
p-in-rajasthan/article34226558.ece

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CONCLUSION – A WAY FORWARD

Progress of the Scheme , especially Component A and C, is marginal at best.

 Modifying scheme timelines as per power procurement planning

 Standardized approach for determining viable ceiling tariffs for Component-A

 Setting up a Steering committee of representatives for smoother co-ordination

 Innovative models under Component-A to aid access to institutional finance.

 A framework to guide SERCs in determining viable FiT for Component-C

 Comprehensive feeder level assessments to address operational challenges

 Reforms to address the larger issue of power subsidy and its administration

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CALCULATION OF COST BENEFIT IN COMPONENT A

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CALCULATION OF COST BENEFIT IN COMPONENT A

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CALCULATION OF COST BENEFIT IN COMPONENT C

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CALCULATION OF COST BENEFIT IN COMPONENT C

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CALCULATION OF COST BENEFIT IN COMPONENT C

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