Direct Delivery Of Free Power To Agriculture In India

In my earlier post https://www.linkedin.com/pulse/who-makes-hay-while-sun-shines-venkataraman-nagarajan, I had brought out,  how,  despite lower cost of solar power, none of the stakeholders are benefitting.   I had also detailed out a roadmap of how solar projects if set up in a decentralized approach and 15% of the generated power is provided free as royalty power, can greatly benefit the discoms & the state governments by reducing the agricultural power subsidy burden.

Recently, I came across an interesting Study report of ESMAP & the World Bank team entitled  “Direct Delivery of Power Subsidy to Agriculture in India”  http://www.esmap.org/sites/esmap.org/files/DocumentLibrary/SE4All-%20Direct%20Delivery%20of%20Power%20Subsidy%20to%20Agriculture%20in%20India_Optimized.pdf

The salient findings of the report are :

1.      The dynamics of electoral politics made it difficult to increase agricultural tariffs; instead, the political parties adopted competitive populist policies to increase subsidies and many states shifted to free and unmetered supply. As a result, farmers today have come to expect free or highly subsidized power as a given; and there is a perception that undertaking the highly unpopular measures of reducing or withdrawing the power subsidies would be equivalent to political suicide for state-level policymakers. As a result, the groundwater-electricity nexus has trapped farmers, power utilities, consumers and governments in an inefficient low-level equilibrium.

2.       While the farmers are ostensibly the beneficiaries of subsidized electricity, they suffer from a de facto ‘de-electrification’ – rationing and poor quality of electricity delivery –such as voltage fluctuations, frequency, low voltage, frequent interruptions, and phase imbalances that have hit rural areas with substantial economic costs. Poor quality of power supply imposes significant coping costs on farmers, lowers the quality of life in rural areas, and hampers the growth of local industries and commercial enterprises. Therefore, the current system of delivering subsidized electricity to farmers actually imposes substantial economic costs on the farm-sector as well.

3.      The Study has proposed an Alternative scheme of  Direct Delivery of Power Subsidies. The proposed scheme primarily envisages “Minimum energy support (MES)”: The MES would provide an annual electricity allocation to each farmer for agricultural use. The MES could be defined either in number of hours of supply or in quantity of electricity (kWhs), and amount of subsidy can be estimated either on the basis of connected load or the size of landholding.

The World Bank findings are comprehensive and the proposed alternative scheme of direct delivery of power subsidies to farmers thru Minimum Energy Support has lot of merits.

However, one of the major problem in the above scheme is that the cost of power to be supplied for the Minimum Energy Support would have been at the average power purchase cost of the discom + T&D losses which would amount to about Rs 4 – 4.5 / KWhr.

As brought out in my earlier post, if GOI were to adopt the policy of setting up the balance of 80 GW of the targeted 100 GW solar in a decentralized manner with 1 MW – 2 MW capacity in each village,  instead of the solar park route,  and also impose 15% of the power generated from such solar plants as free power to the respective villages where the solar power plant is installed the cost of this 15% free power to be supplied to the village is likely to cost  only 50 paise- 60 paise / KWhr. The 50 paise / KWhr is the likely difference in the tariff of solar project of 1 MW – 2 MW capacity vs 100 MW capacity which takes into account the volume discount for a 100 MW project and 15% free power to be provided to the village.

Large number of  Rural Electric Cooperatives ( REC ) similar to the US model of RECs can be set up which can be the beneficiary of the 15% free power from the solar projects. Each electricity consumer in the village will be a member of the REC and will carry one vote and will be entitled to the Minimum Energy Support ( MES ) as envisaged in the World Bank report in proportion to their landholding and the agro-climatic groundwater zones.

The savings to the state governments on account of the agricultural power subsidy is likely to be about Rs 3 / KWhr. Power consumed by the agricultural sector varies from 10 Billion units – 20 Billion Units depending on the state and can result in an annual savings of Rs 3000 Cr – Rs 6000 Cr per state.

Combining the concept of Rural Electric Cooperatives and the concept of  15% free royalty power from the decentralized solar power plant  to the REC in the beneficiary village and distributing the free power to the members of the REC as per the norms for the Minimum Energy Support would result in empowering the villages and will transform the entire rural landscape of India.