If India acts now and acts right, the power sector can be turned around for good
India’s power sector is at an interesting crossroads. Perhaps for the first time in the history of any nation, the country is moving towards meeting the electricity aspirations of its population through an ambitious renewable energy expansion. Renewable energy prices at the point of purchase are among the lowest in any country and in most cases cheaper than electricity from new thermal power plants. This makes electricity from renewable energy the first choice when it comes to pure numbers. Critics often point out that renewable energy is intermittent, that it isn’t available when it could be needed the most, say at 6 PM in the evening. These power purchase agreements (PPAs) do not take into account costs imposed on traditional thermal generators due to this variability (knows as ‘externalities’). On the other hand, thermal power plants come with their own externalities such as costs of pollution, loss of forest, and impacts on health, etc. While externalities do matter and would perhaps have to be factored into PPAs at some point of time in the future, right now for most power distribution companies (discoms) what matters is access to the cheapest source of electricity.
Subsidised Power: The Achilles Heel
Power purchase costs account for the majority (~70 per cent) of all costs for most of India’s government-owned discoms. They are regulated with retail power tariffs determined by the electricity regulator. Power to the farm sector consumes nearly one third of all electricity sold by discoms and they simply cannot raise power prices without political will. The inability to raise prices for the farm sector is the Achilles Heel of India’s power sector. This means that discoms cannot recover their expenses and have to increase tariffs for their commercial customers. In Gujarat, commercial establishments pay retail tariffs of upwards of Rs 7.00 per unit while agricultural consumers pay just Rs 0.60 per unit. Many marginal farmers cannot afford to pay for electricity and rely on subsidised power to help them make ends meet, and raising tariffs for them would be neither just nor practical. The key question is whether it is sustainable for the discoms to bear this subsidy burden. Secondly, not all farmers are in need of the subsidy. Thirdly, cheap power means cheap water and this has led to a drastic overexploitation of India’s aquifers and a rush for water-intensive cash crops, even in areas ill-suited for them.
Even if the government was to directly credit this subsidy to the farmer and bypass the discoms, the quantum of subsidy would run into tens of thousands of crores. So how do we break this impasse?
The Solution: Net-metered solar pumps
This is where the concept of net-metered solar pumps comes in. The idea is simple: Get farmers off subsidised grid power and give them their own small decentralised solar power plant to generate electricity when they need to pump water. During periods when irrigation is not required, farmers can inject the excess power onto the grid and be remunerated for it. Farmers who were recipients of subsidised power would now be independent generators who sell inexpensive, clean solar energy to discoms. Our estimates show that if all of India’s farm power consumption were to be shifted to this model, India could install over 200 GW of solar power. This is in excess of the goal of 175 GW of renewable energy by 2022. Through this, discoms would finally be freed of the recurring farm subsidy on their books, and power prices are likely to come down across all tariff categories, boosting manufacturing and small-scale industry and even providing relief to the urban middle class. Electricity access in rural areas is also likely to improve as energy will be generated at the farm and village level.
Advantages of Decentralisation
Decentralised renewable energy has its advantages compared to large centralised solar parks. Solar parks need large tracts of land and acquisition is a significant challenge in India. These solar parks are often located in remote regions and there are losses and transmission costs associated with evacuating the power. Net-metered pumps, on the other hand, generate power where it is needed thereby eliminating transmission and distribution costs. This also aids in grid stability as this variable solar energy is now spread across a larger geography, limiting any weather-related risks.
India’s policymakers realise the transformational potential of rolling out net-metered solar pumps. The finance minister announced the ‘KUSUM’ scheme to financially support these installations. However, there has been little movement on ground since the announcement early this year. Some states have taken lead in implementing pilot projects. Andhra Pradesh, Gujarat, Maharashtra, Rajasthan and Karnataka have all experimented with pilot projects with some variations in the model. Other states are also looking to put up pilots and the idea seems to be catching on across India.
Net-metered solar pumps is a revolutionary idea. For the first time in the long history of the power sector, there appears to be an opportunity to finally solve the dilemma of subsidised power for the agricultural sector. If India acts now and acts right, the power sector can be turned around for good.
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About Akhilesh Magal
Akhilesh Magal is the Head Advisor – Solar Energy for the Gujarat Energy Research and Management Institute (GERMI), an institute dedicated to research in the fields of solar energy, energy efficiency, environment and petroleum research. He is an environment engineer from Carnegie Mellon University and is an expert on solar policies and grid integration of renewable energy.