Solarisation in agriculture in Tamil Nadu

by Susan Das, Renuka Sane, Ajay Shah.

Highly subsidised electricity for farmers is an important problem faced in the working of the electricity sector. With falling prices of solar panels, there is the possibility of government subsidising solar panels established by farmers.

This could potentially induce welfare gains in several directions.

1. The fiscal burden imposed by the subsidy could decline.
2. The pricing distortion in electricity (where commercial / industrial / domestic buyers are overcharged) could decline.
3. Farmers could earn a revenue selling their surplus electricity to the grid.
4. Farmers could become more thoughtful in their extraction of ground water when they face an opportunity cost, in the sense that the electricity that is not used to pump water is a revenue generator for them. This would yield welfare gains by diminishing the `tragedy of the commons’ in ground water.

These possibilities turn on careful calculations. Whether some or all of these gains are obtained depends on insolation, the magnitude of water required, the energy cost of extracting the water, the cost of solar panels and the price paid by the grid. There will not be one answer within a state, and therefore there will not be one optimal policy within a state. (Similarly, the economic possibilities from such pathways will vary greatly across the breadth of the country).

In a recent paper, Solarisation in agriculture in Tamil Nadu: A first principles evaluation, we try to engage in this careful calculation for one district (Erode) in Tamil Nadu. We analyse a corner solution: one where the government pays for the full cost of the solar panel. 

The results turn on the price at which the surplus energy, that comes from the farmer to the discom, is sold. If the discom is able to sell this energy at the (high) prices that are charged to the commercial and industrial (“C&I”) customers, then the corner solution is financially efficient for the grid. At lower prices, the proposition is less attractive.

 One important parameter that influences the results — the price of solar panels — is likely to decline in the future. Hence, we simulate the scenario with lower costs. We find this expands the class of situations where solarisation in agriculture is useful.

This paper is about one district (Erode) in Tamil Nadu. The methods adopted are general and could be applied to other locations in India. The answers are likely to vary considerably depending on the precise setting. There is value in discovering how this varies across India.

This is a field with many intricacies in implementation. These include the mechanism of selling surplus electricity, the choice of the tariff paid to the farmer, the problems of (the lack of) metering of electricity connections to farmers, the trustworthiness of the government on timely payments to farmers, the financing mechanism for the capital cost the puzzles of operations and maintenance at the level of one farmer, and the path to a sound monitoring and evaluation of such programs. These are much studied areas where considerable research has taken place. These discussions will improve through using the carefully constructed numerical estimates, on a per-district basis, all across the country.