Solar Irrigation Cooperatives

DISCUSSION

Solar Irrigation Cooperatives Creating the Frankenstein’s Monster for India’s Groundwater Meera Sahasranaman, M Dinesh Kumar, Nitin Bassi, Mahendra Singh, Arijit Ganguly

This article challenges the analysis and arguments presented in Tushaar Shah et al (2017). It shows on the basis of empirical data that solar photovoltaic systems for well irrigation are economically unviable, and offering high capital subsidies for such systems and then guaranteeing a higher feed-in-tariff for the electricity produced than the market price would ruin the state electricity utilities and distort energy markets, while incentivising farmers to pump excess groundwater to raise water-inefficient crops and sell the excess water for a profit.

Meera Sahasranaman ([email protected]) works as Research Consultant, Institute for Resource Analysis and Policy, Hyderabad. M Dinesh Kumar ([email protected]) works as Executive Director, Institute for Resource Analysis and Policy, Hyderabad. Nitin Bassi ([email protected]) works as Senior Researcher, Institute for Resource Analysis and Policy, Hyderabad. Mahendra Singh ([email protected]) works as Adviser–Projects and Partnership, Institute for Resource Analysis and Policy, Hyderabad. Arijit Ganguly ([email protected]) works as Research Officer, Institute for Resource Analysis and Policy, Hyderabad. Economic & Political Weekly

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his is in response to the article “Promoting Solar Power as a Remunerative Crop” by Tushaar Shah et al (EPW, 11 November 2017). The article attempts to establish the economic viability of solar-pump irrigation, but presents little supporting evidence, while making too many faulty assumptions that fail to hold up from technical and economic perspectives. The article begins with: “Anand, the Gujarat town that gave India its dairy cooperative movement, has now spawned in Dhundi village the world’s first solar cooperative that produces Solar Power as a Remunerative Crop” (p 14). Dairy cooperatives were founded at a time when there was an acute shortage of milk in the country and dairy farmers were being exploited by middlemen. Today, there is little scarcity of electricity in states like Gujarat. The real issue is free or subsidised electricity being given to farmers, leading to the inefficient use of energy, depletion of groundwater, and increased financial burden on the exchequer. Hence, the two scenarios are drastically different, giving states like Gujarat few reasons to opt for setting up solar cooperatives. It is easy enough to lay power connections for agriculture from a well-established grid, except that the electricity produced is not “clean”. Yet, the authors provide no data about the environmental benefits of using solar power over the electricity generated from fossil fuels. The article makes the claim that solar pumps elsewhere “continue to run whether the farmers need the power to irrigate or not, since surplus solar energy goes waste anyway” (Shah et al 2017). Are the authors implying that in the absence of a system to sell power to the grid, farmers will continue to pump out

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water whenever solar power can be generated, even at the cost of damaging their crops and flooding fields? This is somewhat intriguing. Or perhaps the authors are assuming that the irrigation pump is connected to the solar photovoltaic system without a control device in place to adjust power generation and supply to the motor? This negligence indicates that their intention seems to be to justify the feed-in-tariff (FiT) system introduced in their pilot project. Yet, the authors have obfuscated the fact that even with a working FiT, the farmers of their cooperative decided to pump out water using the surplus electricity produced and sold it to their neighbours, instead of selling to the grid for the simple reason that selling water is more profitable (Nair 2016). Thus, this belies the authors’ claims that farmers simply pump out water if electricity is available. Misleading Numbers The authors have discussed the pros and cons of six models of solar irrigation considered by non-governmental organisations (NGOs) and state governments, including the Dhundi village model. They conclude that the Dhundi model was the only one without flaws and which has been implemented in a successful pilot intervention. While some data on the economics of solar power are provided on the basis of the 18-month experience in Dhundi, no such data was provided for the other models. The authors claim that since the member farmers had a stake in the project, the model was farmer-centric, and all that was needed for the project to become bankable and scalable is a “slightly higher capital cost subsidy of around `45/kWp to solar cooperatives and a guaranteed Feed in Tariff or FiT of `5/kWh.” The authors also say that solarising India’s 15 million grid connected electric tube wells through SPaRC model by itself can deliver 100 GW of solar target, and in the process, transform our groundwater economy and help double farmer incomes. (Shah et al 2017)

The figures that the authors cite to make a convincing proposal are simply 65

DISCUSSION

mind-boggling. Interestingly, the subsidy paid to farmers to make the cooperative work was much higher! Using the data presented in the article, that is, a capital cost subsidy of `46 lakh for installing a system with a capacity of 56.4 kWp, it is possible to work out the subsidy per unit to be `82,000/kWp. Assuming that the figure of `45/kWp is a typological error, and that the actual figure stated was `45,000/kWp, the subsidies are too low for there to be any takers. The article suggests that India’s policy framework should promote solar pumps, which in turn would incentivise farmers to conserve energy and groundwater, thus limiting over-exploitation. However, though it raises several questions about the economics of solar power and its impact on groundwater and energy use, it clears none. For instance, if all farmers used energy efficiently and fed the excess solar electricity generated into the grid, what should be the unit charge offered by state power utilities for the electricity? But the authors do not provide any estimates for what the purchase price for the electricity being produced by the farmers should be. The Dhundi experiment shows that even a price of `7.1/kWh, which includes the `4.6 offered by the power utility and `2.5 paid by the International Water Management Institute (IWMI), is insufficient to incentivise farmers to limit their pumping. Further, what will be the cost to the exchequer by way of output subsidies? Can the grid take all the power the farmers produce? The grid needs electricity at night as well, while solar power is available only during the day. This means that batteries would have to be installed to store the electricity generated by solar photovoltaic systems. Does the subsidy include the cost of batteries? Will nonfarmers have to pay more than `7 per unit for this power? If not, the government will have to subsidise this expensive power while supplying it to other consumers. If farmers’ income from solar energy sales was 65% of their total income in 2016–17 as suggested in the article, what will happen to food security if farmers no longer need to produce food required by the country to survive? In that case, are the subsidies justified? Can the 66

government use the tax paid by citizens to increase the income of a few? Interestingly though, in Dhundi, solar pumps replaced diesel pumps, with the authors working out the economics involved. But they go on to suggest that electric pumpsets connected to the grid should be replaced with solar pumps. Even if the government goes by the authors’ prescription of promoting 15 million grid-connected solar pumps (under their SPaRC model), it would cost the exchequer `9 lakh crore ($140 billion) in the form of capital subsidies, offering benefits that are too low and uncertain. Over and above this, the adverse impact of such a step on our groundwater economy will be enormous. Millions of farmers who are currently buying water from well owners on an hourly basis will no longer be incentivised to use water prudently and adopt efficient cropping patterns. Rather, they are likely to switch over to water-intensive crops to maximise their returns per unit of land. This is what evidence suggests (Kumar et al 2010). ‘Lemon Socialism’ Talking about subsidies, the International Water Management Institute (IWMI) and CGIAR programme on Climate Change, Agriculture and Food Security (CCAFS), which piloted the Dhundi cooperative, offered separate bonuses of `1.25/kWh each for green energy generation and water conservation, to take the total

FiT to `7.13/kWh for the power sold. The total capital investment in installing the solar pumps, microgrid, cabling, switches, transformers, and meters in Dhundi was `50.65 lakh, with Solar Pump Irrigators’ Cooperative Enterprise (SPICE) members contributing `4.65 lakh and the CCAFS/ IWMI contributing `46 lakh. At one point in the article, the authors say that a contribution of `25,000/kWp by the farmer is nearly 40% of the total investment, which means that the total subsidy is `37,500/kWp. At another place it says, With a capital subsidy of `45/kWp, a generation factor of `4.5 kWh/kWp/day, and a WARR of `6/kWh (which a FiT of `5/kWh would easily generate), Dhundi-pattern SPICE would be bankable with the economic IRR exceeding 21% over a 20-year project cycle. The benefits to DISCOMs and water buyers would be extra. (Shah et al 2017: 16)

None of these figures are actually correct. For a total investment of `50.65 lakh, the cost per kWp works out to be `96,000. According to the authors, had the Dhundi SPICE members used grid power, even with farmers using only two-thirds of the free power entitled to them for irrigation, the Madhya Gujarat Vij Company Limited (MGVCL) would have had to bear a subsidy burden of over `4 lakh per year. Additionally, they would have had to invest `12 lakh to connect these tube wells to the grid, at an amortised annual cost of `1.2 lakh. Thus, the authors claim that the Dhundi SPICE

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DISCUSSION

experiment saved MGVCL all these costs. The authors go on to say that Dhundi SPICE will leave MGVCL better off by `8 lakh/year for 25 years, as the purchase agreement of the farmers with MGVCL is for 25 years. As we will see in the subsequent paragraphs, the calculations are based on false assumptions. A simple calculation shows that the capital cost for solar power (`50 lakh at a discounted rate of 8%) alone works out to be `4.4 lakh per year, for an anticipated lifespan of 25 years. However, considering that solar panels have a lifespan of only 12 years, especially in India, where the market is flooded with poor-quality solar panels, the actual capital cost subsidy would probably be closer to `6.2 lakh per year. In contrast, the estimates of cost savings due to farmers substituting grid power with solar energy are based on the assumption that farmers will be entitled to subsidised electricity from the grid. In order to show a big reduction in the subsidy burden (`4 lakh per year) for the MGVCL due to the adoption of solar power by farmers, the authors assume that the farmers are entitled to 1,62,000 units of subsidised electricity annually from the grid. But there is no such thing as entitlement to electricity from the grid. The amount of electricity used by the farmers depends on their actual energy demands and, ideally, that should form the basis for estimating the cost savings from subsidy reduction. Farmers use only 45,350 kWh for irrigation for a period of 18 months, as per the figures provided by the authors, which works out to about 30,000 kWh annually. Here, again, this 30,000 kWh includes not just the electricity farmers have used for irrigating their fields, but also to pump water for sale to other farmers. An estimated profit of about `5 lakh in 18 months or an average of `3 lakh per year was made through this. In any case, the actual cost savings, therefore, are `1.2 lakh only (for 30,000 kWh of electricity, with the average cost of power generation and supply estimated at `4.5 per unit, and the current price of `0.5 per unit for the farm sector). The direct benefit of power generation using a solar photovoltaic system is `2.7 lakh Economic & Political Weekly

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per annum (60,000 kWh × `4.5). The additional benefit of producing nearly 60,000 kWh of clean energy is `29,000 per annum. The figure of `12 lakh, or `1.2 lakh per annum, quoted as the capital investment needed to connect tube wells to the grid, is also highly unrealistic and inflated. The entire exercise seems to overestimate the benefits of having solar power. The actual cost of a connection in Gujarat (where there is a very dense network of tube wells and bore wells already connected to the power grid) is only `10,000 for a farmer for a 7.5 HP pump. Hence, the cost savings due to this are `60,000 (for all the six farmers put together), or approximately, `5,000 per year. The average cost incurred by distribution companies (DISCOMs) to provide a new electric tube well connection with the transformer, switchgear, cables, and other fittings is about `1.75 lakh. Presently, if a farmer who is using a diesel pump installs a solar pump, this cost can be avoided, but only so long as the electricity is put to personal use. However, the moment they decide to connect to the grid to make use of the FiT system, these systems will have to be installed. So, there will be no savings for the DISCOMs in this scenario. Again, there will be no savings for DISCOMs in case an existing grid-connected electric pump is converted to solar, as the transformer, switchgear, etc, have already been installed at the above-mentioned costs. The green energy bonus of `1.25/kWh and the water conservation bonus of another `1.25/kWh works out to a subsidy of `2.5 per unit of power produced. This is the minimum amount which the utility will have to spend to replicate this model in other areas. The power company will have to buy electricity from farmers at `7.13 per unit, whereas the average cost of producing electricity through conventional sources is only `4.5/KWh. This means that every unit of electricity purchased from farmers costs the utility an extra `2.16, even after considering the clean energy benefit of `0.47/kWh (that is, 7.13–[4.5 + 0.47]). Thus, the net loss to the power utility per year due to the purchase of solar power from the solar cooperative is `64,800

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(`30,000 × 2.16). Hence, the net income is `3,59,200 per annum (`1,20,000 + `2,70,000+ `5,000 + `29,000 – `64,800). Even assuming the solar photovoltaic system works efficiently for 25 years, an annual benefit of `3.59 lakh against an annualised cost of `4.4 lakh is simply unviable. This calculation does not include the one-time investment required for creating the micro-grid to transfer the power generated by the solar cooperative farmers (who were not connected to the grid earlier) to the grid. This cost runs into a couple of million rupees (`20 lakh). Thus, the subsidy for the equipment used to generate power for selling water to other farmers and for feeding the grid is to be taken from taxpayers and gifted to “solar farmers.” Unreal Saving Regarding groundwater, the article arg ues that Although solar pumps became operational in January 2016, the power purchase agreement came into force only in May. Hence before May 2016, they used all the energy generated for pumping groundwater. (Shah et al 2017)

Were they producing more food/cash crops before May? If not, were they pumping out more water than required? According to the authors, “At `250/ bigha, solar farmers earn `10/kWh by selling water to other famers, 40% more than the FiT of `7.13/kWh that they earn by selling power to MGVCL” (Shah et al 2017). Without the power buy-back system, the authors say, the adverse consequences would be much greater, resulting in as much groundwater depletion as the use of free grid power has caused throughout Western India. If so, why would they sell power to the grid, if selling water is more lucrative? They will get paid immediately too. In fact, the farmers in Dhundi were selling water even after the power purchase agreement came into force (Nair 2016). If the whole purpose of FiT is to create an incentive for saving electricity (and therefore groundwater), why do the authors shy away from suggesting the introduction of energy-metering and pro rata tariffs for agricultural power in western India, which is far more 67

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straightforward? Surely, the authors’ understanding of how incentive structures work, leaves much to be desired. Even in a power purchasing agreement with an attractive tariff, farmers will have minimal incentive to save groundwater, as the amount they can earn per unit by irrigating water-intensive crops would be far greater. For example, for low water-efficient wheat, the net return per kWh of electricity used for irrigation works out to be around `50. For cash crops like cotton, the net return per kWh of electricity will be far higher. This means that farmers are more likely to use up considerable electricity and groundwater to irrigate their own and their neighbours’ fields before they find selling power to the grid profitable. Shah et al have not provided any empirical data that solar cooperatives will lead to the conservation of groundwater and energy. The article should have included an analysis of water-use efficiency and water productivity in crop production of farmers who use solar pumps and those who run tube wells energised by the grid. Instead of solving or mitigating the problem of groundwater exploitation, the authors have come up with a suggestion that would aggravate the current problem by offering solar photovoltaic systems almost for free, and then relies on persuading the government to solve the problem by offering an unviable price, which would only cause distortion in the energy market. The practice of providing subsidies to home owners for installing solar panels and the system of “net metering” are already under fire in the UK and the US. Due to the upfront costs involved in installating solar photovoltaic systems, most of these systems are actually installed only by wealthy home owners. Under the “net metering” system, the cost of setting up rooftop solar systems are passed onto the consumers of electricity who do not own solar systems. In addition to huge subsidies, these home owners receive credit for the excess power they produce and transfer this to the grid, paying only for their “net” electricity consumption. They also benefit from the reliability provided by the grid when they consume conventional power 68

at night and when it is rainy or cloudy, thus getting a free ride on the cost of the generation equipment and other capital that yields this reliability. This is also paid for by the poorer consumers who do not have solar power (Zycher 2016). Concluding Remarks To sum up, our initial assessment suggests that the Dhundi pilot for water and energy conservation is an experiment that has gone terribly wrong. Most of the figures that are shown as the benefits of using solar power are nothing but financial support from the agency that promoted the experiment and the government, both of which are not based on any scientific rationale. Such models are simply unsustainable. A system that is economically unviable at present, even after considering the positive externalities on the environment (in the form of clean energy) (Bassi 2015, 2017), cannot be made viable or bankable through subsidies and cash doles. If the government is willing to pump in billions of dollars as input and output subsidy annually, any crop that receives such subsidy support will be remunerative for the farmers, but it will ruin the economy. The problem lies in the societal benefits that are produced

from such actions. Instead of committing such economic blunders, we need to wait till solar photovoltaic systems become cheap through technological breakthroughs, and market conditions become favourable. As it stands now, large amounts of money will be required to keep such experiments afloat. Replicating such experiments will only perpetuate pervasive subsidies, which, once rolled out on a large scale, will be difficult to revoke. References Bassi, N (2015): “Irrigation and Energy Nexus,” Economic & Political Weekly, Vol 50, No 10, p 63. — (2017): “Solarizing Groundwater Irrigation in India: A Growing Debate,” International Journal of Water Resources Development, Vol 34, No 1, pp 1–14. Kumar, M D, O P Singh and M V K Sivamohan (2010): “Have Diesel Price Hikes Actually Led to Farmer Distress in India?” Water International, Vol 35, No 3, pp 270–84. Nair, A (2016): “Gujarat: Solar Cooperative at Dhundi Sells Water Instead of Electricity,” Indian Express, 14 August, http://indianexpress.com/article/india/india-news-india/gujarat-solar-co-operative-at-dhundi-villagesells-water-instead-of-electricity-2974172/. Shah, T, N Durga, G P Rai, S Verma and R Rathod (2017): “Promoting Solar Power as a Remunerative Crop,” Economic & Political Weekly, Vol 52, No 45, pp 14–19. Zycher, B (2016): “Subsidizing the Rich through California’s Solar Scheme,” Forbes, https:// www.forbes.com/sites/realspin/2016/01/15/ california-solar-subsidy-net-metering/# 3b61b05a722f.

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