Agriculture Demand Side Management (AgDSM) Challenges & Benefits By Bureau of Energy Efficiency (BEE)

Policy Alternatives for EE in Agriculture 2 1 Energy Scenario of Agriculture Sector 3 AgDSM Initiatives by BEE Contents Proactive Initiatives by States 4 Institutional barriers 6 5 AgDSM Pilot Projects 7 Way ahead

Agriculture Pumpset Scenario: India I.Total agricultural pump sets employed ~ million II.Agriculture sector consumes ~ 18% of total electricity supplied (160 BU). III.New connections per year million IV.CAGR is more than 6.5 % V.Electricity supply is free or applicable tariff is very low. VI.Less or no metering for energy consumption VII.Poor quality of power supply VIII. Theft and high T&D losses IX.Energy saving potential is more than 30% Source: Directorate of Economics and Statistics; CEA, Planning Commission.

Agriculture Pumpset Scenario: India Source: Directorate of Economics and Statistics; CEA, Planning Commission. Concerns: Market dominated by un-organised sector providing low cost, low efficiency pump- sets. Efficiency level of BEE star rated Energy Efficient pump-sets (EEPS) is about 30 to 40 % higher than that of these conventional pumps. However, cost of Energy Efficient pump-sets is higher by 20%. Inefficient conventional pumpsets lead to higher subsidy burden on the State Governments. Rs. 55,000 crores The average cost of power supply in India during was Rs. 5.01/ kWh and the realization from agricultural sector during the same period was Rs. 1.48/kWh No market incentive for purchase/replacement of BEE star rated EEPS because of subsidized tariff.

Policy Alternatives for EE in Agriculture Sector ①Alternative No. 1 – Right Pricing for electricity tariffs ②Alternative No. 2 – Prohibition for manufacturing of in- efficient pumpsets ③Alternative No.3 – Agriculture Demand Side Management Initiatives A.Efficiency up gradation of existing pumpsets B.State-wide regulation for mandatory use of star rated EEPS for new agriculture connections.

Demand Side Management (DSM) DSM is applied to all non paying or below delivery cost paying customers, or DSM activities strictly reduce peak load without cutting into revenues from well paying customers. DSM makes only sense for a power utility, if

AgDSM Programme Objective :- To create framework for market based transformation in agriculture pumping sector by launching few pilot projects and introducing policy based interventions. Achievements -  Launch star labeling program for agriculture pumps  11 DPRs prepared covering 20,750 pumpsets. Average 40% (96 MU/year) energy saving potential assessed in the energy consumption of these pumpsets.  Three business models viz. ESCO, Hybrid & DISCOM developed for project implementation in 8 States (Maharashtra, Rajasthan, Gujarat, Punjab, Haryana, Madhya Pradesh, Andhra Pradesh & Karnataka).  One pilot project in Solapur, Maharashtra implemented. Annual Savings of 6.1 MU achieved by replacing 2209 inefficient pumps with BEE Star rated pumps.  Capacity building and awareness workshops held in 7 States for DISCOM officials and 26 open house sessions for farmers organized.  Designed and implemented M & V protocol  Encouraged states for mandatory use of BEE star rated pumpsets for every new agricultural connection.

Summary of DPRs StateNo. of pumps covered Avg. operating efficiency of proposed EEPS Existing consumpti on (million kWh) Saving potential (million kWh) % of saving potential IRR (%) Status Haryana (UHBVNL) % % 41.4 RFP was floated by M/s UHBVN for hiring implementation agency, only one bid received from Kirloskar pumps but project could not be taken over by agency. Gujarat – PGVCL % % 28.7 DPR submitted Gujarat – MGVCL 53358% % 28.3 Consultation sessions were held with DISCOM officials to implement the project on DISCOM mode but eventually disagree to take it for implementation.

StateNo. of pumps covered Avg. operating efficiency of proposed EEPS Existing consumpti on (million kWh) Saving potential (million kWh) % of saving potential IRR (%) Status Punjab (PSPCL) % % 42.0 M/s PSPCL floated RFP twice for selection of implementing agency but no bids were received. Rajasthan (JVVNL) % % 30.0 Consultation is gong on between EESL & JVVNL for implementation of the project on ESCO mode. M.P(East) % % 17.5 DPR submitted MP (West) % % 33.1 DPR submitted AP (East) % % 15.7 DPR submitted AP (Central) % % 45.0 DPR submitted Karnataka % % 35.0 EESL is implementing the pilot project in Mysore. Summary of DPRs

Business Model: DISCOM Mode The DISCOM utilizes its own funds collected under a tariff regulation for replacement of old inefficient pumps with new higher energy efficiency pump sets and contract out repair and maintenance of pumps and certain aspects of project works to a project contractor.

Business Model: ESCO Mode An ESCO which has a contract with DISCOM finances and implements the project; the ESCO would borrow the project debt and repay it from project energy saving revenues. The pump manufacturers can also participate as ESCOs in this mode of implementation.

Business Model: HYBRID Mode ESCO provides part of project funds through debt & equity and sign a contract with DISCOM, whereas as the investment made by ESCO would be paid by DISCOM through LMC fund and from sharing of energy saving revenue.

Initiatives by States StatesInitiatives HaryanaMandatory use of EE pumpsets vide notification issued in October Financial assistance of Rs. 400/HP for adoption of EE pumpsets by HAREDA. PunjabMandatory use of EE pumpsets vide notification issued in October Notification by PSERC for implementation of AgDSM initiatives. RajasthanIncentive of Rs. 750/HP for adoption of EE pumpsets. ChhattisgarhRebate in electricity bills for adoption of EE pumpsets. KarnatakaMandatory use of EE pumpsets vide notification issued in November GujaratDISCOMs of Gujarat are preparing plan for implementation of AgDSM projects under DSM regulations

Pilot AgDSM Project

AgDSM Pilot Projects Status StateInitiatives MaharashtraPilot Project in Solapur district covering 2209 pumpsets is being implemented, reflecting annual savings of 6.1 MU. KarnatakaPilot project in Hubli (HESCOM) covering 590 pumpsets is implemented, reflecting annual savings of 2.92 MU. Implementation of DPR in Mysore (CESC) is completed. RajasthanImplementation of DPR in Jaipur district is under consideration. Andhra PradeshImplementation in East Godavari (APEPDCL) is initiated.

Pilot project on PPP mode is in progress in Maharashtra (Sholapur Circle). Initial capital investment by ESCO  ESCO would get 20% of the capital in 5 yearly installments plus 30% of the energy savings. M&V methodology is in place. Savings of 25% achieved - Annual Energy Saving of 6.1 MU for 2209 pumpsets. Energy savings of 9.1 MU is assessed considering the normalization factors. First AgDSM Pilot Project in Solapur, Maharashtra

Operating Expenses for 5 years Initial Capital Cost (Rs. 706 lakh) DSM fund Initial Capital Cost (Rs. 706 lakh) DSM fund Avg. annual Interest Payment (Rs. 28 lakh) Avg Annual R&M (Rs lakh) Annual benefit from saving of 6.1 MU/annum (Rs lakh) Annual benefit from saving of 6.1 MU/annum (Rs lakh) Annual support of lakh Special DSM fund approved by MERC (Rs.706 lakh) ESCO/Pump Manufacturer Payment from saving (30% lakh) MSEDCL Annual Saving retained (70% - Rs 114 lakh) All figures in Rs. lakhs Payback – 4 years Solapur pilot project by MSEDCL  Initial capital investment by ESCO  ESCO would get 20% of the capital in 5 yearly installments plus 30% of the energy saving  2209 pumps have been replaced  Annual energy Saving of 6.1 MU Solapur pilot project by MSEDCL  Initial capital investment by ESCO  ESCO would get 20% of the capital in 5 yearly installments plus 30% of the energy saving  2209 pumps have been replaced  Annual energy Saving of 6.1 MU State Govt. Annual subsidy reduction of Rs. 37 lakh

M&V result for Energy Savings FeedersBhoseBoraleBrhamapuriNandeshwarKharatwadiTotal No. of Pumps Old Pumps Average kW Average Flow, m³/hr Avg Efficiency, % Baseline Consumption kWh New Pumps Avg Voltage, V Average kW Average Flow, m³/hr Average Efficiency, % Consumption with EEPS, kWh Energy Savings kWh % Savings 25.76%25.00%24.23%26.87%25.52%25.58% Table 1 : Summary of actual energy savings achieved Table 2 : Expected energy savings considering normalization factors ParticularsTotal (in MU)% Savings Baseline Energy Consumption of old pump sets24.0 Actual measured Energy Savings by installation of EEPS % Energy Savings considering Voltage improvement (415V) % Energy Savings considering excess water flow (reduced operating hours) % Total Estimated Savings considering Voltage improvement and excess flow %

Barriers / Challenges in the pilot project Ownership verification process and change in ownership name took considerable time. Farmer’s reluctance to enter into an agreement for pump. Pump ownership with 2 – 3 families is one of the biggest hurdles. Farmers fear that metering of the pumps power consumption will be later billed to them. Farmers bypasses the energy meter post installation of the new pump and energy meter. Farmer’s are reluctant to have their pump HP reduced. Frequent shift in location of pumpsets at the river bed. Low voltage issues, voltage and water level variations at several installations. Difficult terrain at few locations. Very old and rusted GI pipes used and lower diameter pipe used in Bore wells. At several locations, it is imperative to replace at free of cost all pump set accessories with new ones in order to achieve desired results of replacement with efficient pump. 25% pump sets are less than 5 years old and farmer’s report good performance with low maintenance, hence reluctant to install new EEPS pumps. Few farmer’s are reluctant to give back the old pumps as replacement. Significant rise in project cost as compared to initial estimates.

Scaling up by EESL Sl. No. Name of Electricity Distribution Company Nos. of pump sets Estimated Investment (Rs. Crore) 1 Hubli Electricity Supply Company Limited (HESCOM), Hubli, Karnataka Chamundeshwari Electricity Supply Company (CESC), Mysore, Karnataka Bangalore Electricity Supply Company (BESCOM), Bangalore, Karnataka 100, APEDCL3, APEDCL, APSPDCL30, MSEDCL500000

Institutional Barriers National Level Limited policy dialogues at national and state level on power and water sector reforms to develop an integrated energy and water “demand side management” (DSM) framework for agricultural sector. Limited synergy between departments and ministries related to agriculture, irrigation, water and power. Unsuitable energy pricing policy and no water pricing policy for agricultural sector Lack of fiscal incentives for DISCOMs to initiate DSM investments Weak institutional set-up for encouragement to R&D institutes for developing super efficient technologies Limited to no tax structure promoting manufacturing and sales of energy efficient appliances

Institutional Barriers State Level Limited involvement of state designated agencies (SDA) in promoting Ag-DSM program Often the state electricity tariff policies for agricultural sectors do not reflect the marginal cost of electricity No notification by SERCs/ DISCOMs mandating purchase of energy efficient pump-sets for availing new electricity connection under agricultural tariff No policy to encourage energy efficient purchase behavior. End users/ farmers Limited to no knowledge of energy efficient pump-sets/ technologies Fear of loss of control, productivity and comfort Perceived risk in adopting new technology Limited financial resources High first cost and limited returns due to subsidized electricity tariff Unavailability of local technology/ service provider for energy efficient products No financial commitment by end users under ESCO mode means limited ownership Ignorance and disbelieve regarding DSM.

Institutional Barriers ESCOs/ Private organizations Apprehension about recovery of investment Limited usage of ESCROW account in India Availability of capital to invest in Ag-DSM projects Delayed recovery of capital Low Voltage Distribution System (LVDS) results in frequent burnout of the EEPS thereby increasing the O&M cost for the ESCO/DISCOMs investing in the project Diminishing water table due to inefficient usage of water increases the head required for pumping. Higher head means bigger pumps reducing energy saving. DISCOMs Inability to maintain power quality in agricultural feeders Limited resource available especially at local level to execute Ag-DSM projects. Lack of appropriate DSM culture and know - how Limited coordination with other departments like irrigation, agriculture etc Apprehension of a negative rate of return

Way ahead… Goals to accelerate saving potential in Agriculture sector Establishment of a robust enforcement mechanism at the state levels to ensure use of Star Rated pumps sets for every agricultural connection. Reduction in intensity of energy use in existing agricultural pump-sets through upgradation programs under Public Private Partnerships projects.

Way ahead… Key interventions to achieve goals State government to play a key role in implementation and enforcement of Ag-DSM programmes. This includes establishment of specific cells within the DISCOMs for ensuring enforcement of various DSM activities under agriculture sector. Differential taxation structure for energy efficient pump-sets in order to encourage farmers for adopting them. Link Ag-DSM programme to Deen Dayal Upadhaya Gram Jyoti Yojana. Provision of resources for incentives for manufacturing of energy efficient pump- sets through National Clean Energy Fund. Infrastructure status and priority sector lending for Ag-DSM projects. EESL to enter into contracts with state electricity distribution companies for changeover to energy-efficient pump-sets on a performance-contract model; also to encourage other ESCOs to enter the market. Regulations and separate DSM funds to enable and require electricity distribution companies to implement pump-sets demand-side management programmes.

Way ahead… Key interventions to achieve goals Business model for large scale upgradation program like DELP Robust M & V, which will be acceptable to all stakeholders Use of star labeled EE pumpsets in all center and state schemes Capacity building of DISCOMs, LSPs and other stakeholders Metering of agriculture feeders/pumps & release of subsidy through DBT Dedicated & HVDS feeders Outreach campaign to sensitize consumers about opportunities for energy savings.

Comments/suggestions to address the barriers