Gujarat aims for the sky

15 November 2018 |

In June 2018, the state government of Gujarat launched a new scheme – Suryashakti Kisan Yojna (SKY) – for developing distributed solar plants in rural areas. Under the scheme, farmers can set up solar PV plants up to a capacity of 1.25 kW per horsepower of contracted load. The pilot phase envisions a total capacity of 175 MW with a total capital cost of INR 9 billion (USD 0.13 billion). Participating farmers are required to contribute only 5% of the capital cost. 60% of the cost would be funded by central/ state government and balance by loans secured by state government from NABARD or other financial institutions on behalf of the farmers.

Power generated from the solar plants is proposed to be used for captive consumption. Any excess power can be sold to DISCOM at a fixed tariff of INR 3.50/ kWh under a 25-year PPA. The state government would further offer a top-up tariff of INR 3.50/ kWh for the first 7 years. The scheme is structured such that these top-up payments can be used to pay back the loan. In effect, if the scheme works as expected, the farmer is expected to bear only 5% of the capital cost and get PPA revenues to the extent of surplus power generation.

The scheme is intended to provide financial benefit to DISCOMs by cutting loss-making agricultural power consumption from the grid. At present, power supply to agriculture connections for irrigation is heavily subsidized – it is sold at only INR 0.60/ kWh against actual cost of supply of INR 6.00/ kWh. Farmers participating in the scheme would be required to forego future tariff subsidies. 12% of total electricity consumption in Gujarat is estimated to be utilized in irrigation – equivalent to 1,449 million units. That works out to a hefty annual subsidy bill of approximately INR 7 billion for irrigation alone.

The scheme offers other advantages on paper – it proposes to generate solar power without requirement of any additional transmission and evacuation infrastructure. It is also meant to curb overdrawing of underground water as the farmers are incentivised to sell surplus power to the grid for additional income.

Similar previous subsidy-based farm schemes have been blighted by delay in subsidy disbursements, poor physical execution on-the-ground and lack of interest from farmers. It seems they prefer the surety of tariff subsidies over the hassle of installing solar equipment. We also feel that the scheme arithmetic is not all that favourable for the government once all the operational costs and inefficiencies are factored in.

It remains to be seen if the SKY scheme would be any more successful than past initiatives.

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