The Government of India introduced the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) scheme in 2019 to promote solar power in the agriculture sector. The scheme has three broad objectives: improving irrigation access through solar-powered irrigation, increasing farmers’ income by enabling them to become energy producers, and reducing the agricultural power subsidy burden on states.

The components cumulatively aim to add ~34,800 MW of solar capacity by March 2026 (originally slated to end in March 2024 but later extended), with a total Union Government financial support of INR 34,422 crores (MNRE, 2024). As India begins to consider the next steps in solarizing the agricultural sector, it is important to understand the successes and failures of PM-KUSUM. This report aims to provide a comprehensive assessment of the performance and outcomes of two specific components of the scheme—Component A and Component C-FLS. These two components are novel in their design, with many opportunities for innovation, and have generated a lot of interest among states, but their achievements have been relatively limited.

A consortium of the Council on Energy, Environment and Water (CEEW), the Centre for Study of Science, Technology and Policy and International Institute for Sustainable Development (IISD) has been supporting select states in implementing these two components through tailored technical assistance to tackle state-specific barriers while generating insights for DISCOMs and policy-makers. The project also aimed to generate broader, cross-cutting lessons to inform national-level policy. The consortium undertook extensive fieldwork and consultations with different stakeholder groups to assess the on-the-ground implementation of the scheme. These include solar plant visits to 11 sites, surveys with nearly 20 developers, and individual consultations with nearly 30 developers, 40 farmers, and 30 government officials across the key states of Madhya Pradesh, Rajasthan, Tamil Nadu, and Karnataka. The report brings together key observations and learnings from this project.

This report seeks to

• examine the progress and limitations in implementing PM-KUSUM Components A and C-FLS;

• highlight challenges faced by state agencies, developers, and farmers, drawing from evidence from field insights;

• provide actionable recommendations to strengthen governance, operational efficiency, financing, and improve infrastructure and awareness;

• inform the design of a post-2026 scheme architecture that is investment-ready and enables state-specific innovations, fostering a long-term, scalable impact. 

A Union Government scheme, especially a flagship one such as PM-KUSUM, ideally limits its scheme design to the overall objectives and leaves enough incentives and flexibility to the state administration. Too often, there is little ownership of the scheme at the state level, where implementation occurs. PM-KUSUM faced some challenges on these fronts, but there have also been success stories.

3.1 Scheme Awareness and Branding

Low levels of awareness about solar pumps and solarized feeders have been highlighted in multiple studies (Nathan et al., 2021). Some of these studies were conducted early in the scheme’s implementation and might have improved over time. But the consortium’s observations on the ground, including a survey covering 40 farmers across six districts of Karnataka, show continuing knowledge barrier challenges in at least some states (Appendix D). Only 3% of farmers were aware of all components, while 36% had knowledge confined to Component B (off-grid solar pumps). The challenge is higher for Component A and C-FLS, which are very new deployment models. Despite the opportunity for farmers to benefit from them either through direct income or through reliable daytime power, there is a widespread misconception that the scheme is primarily for solar developers. In the survey, when asked about their interest in setting up solar plants, 21% expressed willingness to adopt solar, 45% stated they were not interested, and 34% indicated conditional interest—stating they might consider participation if the scheme were made more farmer-centric. PM-KUSUM clearly has a branding problem.

Among the many factors that did not help the outreach, an important one is the current naming system of Components: “A,” “B,” “C-IPS,” and “C-FLS.” They are unintuitive and can be confusing for potential beneficiaries. Even state policy-makers and developers struggled with the names. Simple and clear names are very critical in scheme information, education, and communication (IEC) campaigns. It is notable that in many of the successful IEC examples of scheme implementation among states, the state administration adapted the name. For instance, in Maharashtra, Component B was publicized as “PM-KUSUM Magel Tyala Saur Krushi Pump Yojana,” a Marathi name that translates to “solar pump for those that ask for it,” and it is the most successful implementation across the country in terms of the number of deployments. Similarly, in Rajasthan, Component C-FLS was adapted to “PMKUSUM Surya Kisan Aay Yojana” (translation: “farmer’s income from solar”), emphasizing the farmers’ benefits in the component.

Encouraging states to adapt the component names serves two purposes: one, states can create simple and intuitive names in the local language, making IEC easier, and two, the state political leadership gets to partly claim the scheme’s achievements and put a sense of ownership in the state administration.

States’ lack of ownership is also evident from their IEC strategies. Very few states have used the conventional channels of outreach to farmers, like the agricultural and allied departments and their extension services, to publicize the components leading to limited farmer awareness. As noted in Section 5.5, the lease-based model under Component A (also possible under Component C-FLS) saw very limited uptake because potential landowner participants were not aware of it.

3.2 Scheme Design Constraints

Another important factor in incentivizing state governments to take ownership of the scheme is the flexibility it provides to adapt the scheme to states’ needs and challenges. In this regard, PM-KUSUM performs well overall, and some states have made good use of this flexibility, especially in Component A and C-FLS. States have experimented with tariff determination methodology (see Section 5.2), tried out different types of tender design, etc., as the scheme leaves ample decision-making space to the states.

However, there is still scope for improvement. Some technical and design requirements maybe rather obstructive for certain states. Two cases stood out during our consultations:

1. Capacity eligible for CFA under component C-FLS: Component C-FLS guidelines prescribe a stringent methodology for calculating the solar power plant capacity eligible for CFA, including a cap of 7.5 HP for pump capacity for any pump in the feeder (MNRE, 2024). It requires SIAs to collect data on previous year consumptions, pumpwise capacity, etc., putting unnecessary compliance costs on them and discouraging the DISCOM from optimizing the solar plant size for the grid condition. In several states, the average pump capacity is much higher in many feeders. Shifting supply in those feeders to daytime, while only receiving limited CFA, may prove uneconomical for many states. The logic of water conservation does not hold well because, solarized or not, the pumps will be running until the irrigation demand is fulfilled.

2. Size constraints and point of injection: Component A mandates a minimum project size of 0.5 MW. Both Components A and C mandate the use of dedicated feeders and insist on 11 kV substations being the point of injection, even when existing infrastructure remains underutilized. Together, these two mandates deprive states of the option to explore newer deployment models. For instance, if a state wants to promote smaller-scale power plants (~100 kW) directly connected to an existing distribution feeder for whatever reason, it won’t be able to do so.

Such restrictions are not aligned with the overall objective of the scheme. Smaller power plants may help small holders to benefit from the scheme. In our Karnataka farmer survey (Appendix D), the top suggestions for scheme modifications included reducing the minimum capacity limit for projects, allowing connections to the nearest grid point instead of mandating substation connectivity, and providing additional CFA for Component A projects. Multiple smaller-scale power plants injected at various points of an existing grid may be a solution in states with land scarcity. It is also possible that these models may not work out due to technical challenges, as was the case in Maharashtra. But keeping the options lets states experiment and adopt what suits them best.

More broadly, the distinction between models Component C-IPS and C-FLS itself is rather restrictive. Effectively, states have to select between very small power plants under C-IPS and megawatt-scale power plants under C-FLS. Intermediate models are not possible. Instead, a broad component under a single flexible framework could provide states with the ability to choose deployment models that best suit them. Given that Component A is also used interchangeably with Component C-FLS, the ground-mounted solar power plants under Component A can also be subsumed under this broad component.

The scheme can align itself with the broader objective of solarizing agricultural power through distributed solar power and enabling farmers to become energy producers and maintain the core financial incentive structure. Guidelines can be limited to these most essential provisions, and the remaining can be released as periodic advisories. The advisory format helps MNRE to incorporate the latest insights from the state and also helps states in cross-learning. We assess that issues like grid integration will become a major challenge in the future as capacity scales up. Cross-learning would be the most effective way to address these concerns. Ultimately, decentralizing more decision-making authority to the states would empower them to innovate and accelerate deployment, allowing the scheme to evolve in response to diverse local realities.

3.3 Recommendations

Scheme Awareness and Branding

1. Adopt names that reflect the underlying objectives and business model. Naming is important in creating a brand and a favourable impression about the scheme among beneficiaries.

2. Incentivize states to take ownership of the scheme by allowing them to adapt the components’ names to local names. Having local-language names also eases IEC activities.

Scheme Design Constraints

1. Improve the scheme flexibility for the states by limiting guidelines to the most essential provisions. Do away with aspects such as the constraints on plant size and the point of injection. Such restrictions limit states’ scope for innovation.

2. Rationalize the grid components into a single broad and flexible component, allowing states ample room to experiment with models.

3. Encourage states to experiment and innovate with the deployment model. This will unlock newer deployment approaches, such as cluster-based tendering in the current phase.

4. Release periodic advisories to complement the guidelines. MNRE can work with states to incorporate their learning experience into these advisories with a quick turnaround.

At its scale, PM-KUSUM Components A and C-FLS create a new market segment for solar projects outside the utility-scale and rooftop segments. Although there are comparable open-access projects, they are few and mostly limited to certain states. Hence, achieving PMKUSUM’s scale also requires states to foster a robust ecosystem for private sector investment in this segment. This includes creating attractive investment opportunities, policy stability, and targeted awareness efforts to build investor confidence. This section explores the key elements needed to enable a nurturing market environment.

5.1 Tailoring the Scheme to States’ Developer Ecosystem

State-wise achievements under PM-KUSUM show a strong correlation to the maturity of local developer ecosystems. Maharashtra, Gujarat, Rajasthan, and Karnataka, the overall top achievers, are also among the states with a more established renewable energy industry, supportive land-use policies, and prior experience in large-scale deployment. However, our analysis of SERC orders, as shown in Figures 3a and 3b, reveals that in most states, including the most successful ones in terms of capacity commissioned, a significant share of sanctioned projects went to new entrants—self-proprietorships and companies from non-energy sectors, like building infrastructure. While having an established industry in the state helps, it does not appear to be necessary for PM-KUSUM implementation.

Our consultations with developers reveal that established developers from utility-scale and rooftop are not easily enticed by PM-KUSUM prospects. Large established developers find the logistical cost of land identification and lower economies of scale to be major barriers. Rooftop developers find the upfront capital requirement and loan financing to be the biggest challenges. The key challenge for each state is to identify the potential participants based on its developer ecosystem and tailor the scheme to make it more attractive to them. An analysis of PM-KUSUM tender documents (Appendix B) shows a clear pattern—states trying different approaches until they hit the right one, which varies from state to state.

State-Level Experiences

Maharashtra, after only modest achievements in its initial tenders, revamped the scheme with an intensive land-aggregation effort designed to attract large players. They also complemented their regular tender with a cluster-based approach in which all substations in a geographical area—typically a district or a DISCOM circle—are bundled into one project, and a land bank (See Section 6.4), potentially enabling bidders to get economies of scale. They had great success with these approaches, with about 14 GW in PPAs signed subsequently. About 70% went to large developers, and a majority of the remaining also went to established developers. Gujarat, Rajasthan, and Karnataka went the other way. After initial failures, they relaxed technical and financial criteria for bidders to attract small-scale developers and new entrants. As shown in Figure 4, these states have a good mix of new entrants, small developers, and established companies. Our consultations with some of these states reveal that in the absence of a land bank, the state-based small developers seem to perform much better in terms of identifying land and setting up plants within the stipulated time.

Madhya Pradesh’s recent success is a good illustration of the importance of experimenting. The state, after failing to attract investments in the initial tenders, adopted a cluster-based tender with limited success.8 The availability of land in the state may have helped attract some large players. They pivoted back to the strategy of attracting small developers and made several reforms to improve the attractiveness of the scheme for developers. They also undertook intensive developer engagement, leading to the successful conclusion of the tender.

On the other hand, there have also been experiences, for instance in Punjab, where the lowering of entry barriers, like waiver of earnest money deposit (EMD)9 for start-ups and MSMEs led to aggressive bidding by non-serious players who do not have financial closure capacity, thus leading to tender scrapping. States should be mindful of risks and keep adequate safeguards in their incentive measures.

5.2 Improving Tariff Viability

The tariff-setting approach is different for Components A & C (FLS). Under Component A, the SERCs set a pre-fixed levelized tariff for the solar power plants, followed by competitive bidding if the applications received for a substation exceed the notified capacity. Under Component C (FLS), states have to adopt competitive bidding, and there is no mandate for a ceiling tariff. In many states, SERCs chose to set a ceiling tariff under this component as well in the initial years of the scheme.

Several of the tenders and expressions of interest in the initial years elicited very few bidders. Our interactions with solar developers and landowners revealed that the ceiling tariffs in most states were lower than their expectations. We analyzed 60 SERC orders across 13 states under the scheme, listed in Appendix B, and found critical concerns on tariff viability. These concerns stem from the mismatch between several SERC assumptions and market expectations, including the following:

Capital Costs

The price of solar modules, which typically accounts for 45%–60% of the capital cost of a solar power plant, has fluctuated greatly in the past few years. However, most of the SERCs do not have reliable sources of data for module prices for the estimation of project costs. Figure 5 shows the variation in module prices over the years.

However, our analysis shows that the project cost assumed by the SERCs remained frozen despite the varying module costs, resulting in the assumed capital costs being significantly lower than the actual costs in most parts of the scheme’s operational period. In Figure 6, we compared the SERC-determined tariff (dots) to our estimation of the tariff based on this historical data using the TACTS tool (International Institute for Sustainable Development, 2025). Our assumptions are given in Appendix E. It is only with the recent softening of module prices that we see the two converging. As one would expect, the period with a significant difference between the two also coincides with the lowest activity under PMKUSUM, including stalled and cancelled projects.

Annual O&M Costs

The O&M costs assumed by SERCs across states vary widely, from INR 4.5 lakhs/MW to INR 10.5 lakhs/MW. As calculated via the TACTS tool (International Institute for Sustainable Development, 2025), a change in O&M cost of INR 1 lakh/MW/year typically leads to a change of about INR 0.09/unit in LCOE tariff, which is significant. Based on our developer consultations, we infer that market-aligned O&M cost is between INR 5 and INR 6 lakh/MW/ year, which is higher than most states’ assumptions.

Annual Land Lease Rent

Except for a few states like Madhya Pradesh and Rajasthan, most have not factored land lease rent costs into their tariff calculations. Our analysis shows that with an annual increase of INR 10,000/acre in land lease rent, the tariffs could increase by INR 0.032/unit. Without land rent consideration, the LCOE gets underestimated.

Grid Availability Factor

As noted in Section 4, grid unavailability is a major challenge for many projects and impacts their financial viability due to lower-than-planned generation. Our analysis shows that a grid unavailability of 2% can result in a generation loss in the range of 1.4%–2.6% for the developers. The corresponding levelized tariff increase to compensate for this loss should be in the range of INR 0.06–0.10/unit. Given the fact that trippings are more frequent in the peak irrigation period (see Section 7.1), which in many states coincides with peak solar generation, the potential loss is likely to be on the higher side. States like Maharashtra and Punjab have included grid guarantee clauses in their tenders, which provide for compensation to developers in case of unavailability of grid below a set threshold (98% in the case of Maharashtra), but these clauses are rarely enforced due to procedural difficulty.

Measures to Improve Tariff Viability

Improving tariff viability is among the easiest measures states can take to accelerate the scheme. Solar tariffs are already very competitive compared to other sources and probably do not need to be capped anymore. States like Rajasthan and Gujarat, which have adopted competitive bidding without any ceiling tariff, discovered attractive tariffs and great developer enthusiasm, leading to LoAs and PPAs. The key is to ensure vibrant market participation. The tariffs discovered through competitive bidding in recent years are also well-aligned with our estimates of levelized cost based on the TACTS tool (Figure 7).

1. Good reference data for input cost parameters like module costs, annual O&M costs, etc., when SERCs set pre-fixed levelized tariffs or ceiling tariffs. Linking the tariffs to robust market data and insights from broader industry engagement could improve the tariff-setting process. The TACTS tool can help and is being updated monthly with the latest module prices to ensure market-reflective tariffs are calculated.

2. The tariff setting should be flexible to accommodate spatial variations in factors like land rent and responsive to policy changes, as mentioned in Section 4.2. The ceiling tariff should be adjusted regularly with changes in law and market variations.

3. Strengthening the grid guarantee clauses by prescribing the SOP for claiming the compensation can reduce risks for developers, as they will be assured of compensation for income loss due to the grid’s unavailability for power evacuation.

5.3 Attention to Quality and Maintenance of Installations

Quality of installation and appropriate plant O&M are critical for achieving the intended CUF and remunerative returns for the developers or farmers. From our field visits and consultations with plant owners, we identified major issues with the quality of installations and O&M practices. Many of these challenges were seen in Component A projects developed by first-time entrepreneurs who were still learning the technical and procedural aspects of implementation. In several cases, the slow adoption of standard practices reflected a lack of awareness among farmers and new developers rather than deliberate poor workmanship and cost-cutting.

Suboptimal Installation Quality

Quality installation involves proper mounting, wiring, and robust plant design. In multiple installations, we found that developers used polycrystalline panels, which typically have 13%–17% efficiency, instead of the more efficient monocrystalline ones (15%–20% efficiency) (Ukpanah, 2024). Monocrystalline is also more heat-tolerant and therefore more suitable for India’s climate. Developers were also largely unaware of the standard practice of DC oversizing.

In the absence of a credible repository of Engineering, Procurement and Construction (EPC) contractors, first-time developers with limited technical know-how found it difficult to discriminate between providers. As a result, some EPC contractors installed substandard components, such as brittle glass panels, with developers unaware of their long-term implications on the plant performance. Establishing a centralized repository, possibly in the existing PM-KUSUM portal, where EPCs can register and share information about their track records, areas of operation and other relevant information could help mitigate this challenge. Such a repository would provide first-time developers with a ready list of credible EPC contractors, so that they would not have to rely on informal channels.

Improper Plant O&M

Some plants lacked essential cleaning infrastructure, leading to a higher rate of plant degradation. In one such instance, due to improper cleaning, water accumulation led to the emergence of dark spots on panels that impacted the plant’s energy yield. Developing an easy-to-understand manual for the operation and maintenance of solar plants, particularly highlighting the best practices on O&M and the new evolving technologies for plant maintenance, could support new entrants. This can also be in the form of short video tutorials hosted on the PM-KUSUM portal.

PM-KUSUM Component A guidelines place the responsibility for quality control and monitoring on SIAs and advise them to involve technical consultants if necessary. However, we found no such initiatives from most SIAs, whose support for first-time developers seemed inadequate.

5.4 Policy Stability and Communication of Policy Changes

The operational period of PM-KUSUM saw several solar policy changes, including a change in basic customs duty (BCD) for imported modules and cells, the ALMM-1 and ALMM2 lists coming into effect, operationalization of the domestic content requirement (DCR) mandate and multiple changes in Goods and Services Tax. This had a critical impact on the scheme implementation in many states.

Developers reported that they learned of some of these changes once tenders were already underway, leaving them unable to adjust tariff quotes appropriately. Discovered tariffs were based on pre-policy-change assumptions, whereas actual procurement costs increased sharply after LoA issuance. This mismatch rendered projects financially unviable, forcing several developers to go back on their bid. Many states had to cancel or revise tenders mid-course.

Two aspects of the communication of policy changes impacted PM-KUSUM:

1. Effective publicization: Although some of these policy changes were communicated in advance, many developers, especially first-time developers and new entrepreneurs, were unaware of them, leading to misaligned cost expectations. This was visible in the tenders around BCD and DCR changes. There were multiple instances of bid withdrawal and tender cancellations around these timelines. Tender documents also often failed to clearly articulate the policy change, adding to confusion at the bid preparation stage.

2. Clarity and lead time in communicating policy changes: Lack of clarity and sufficient lead time in policy changes negatively impact the scheme outlook. For instance, the operationalization of ALMM-2 happened without adequate consultation and prior notice, and there was considerable confusion regarding the original notification. Due to a lack of clarity around the date the list came into force, many states froze the implementation of Component A in the first half of 2025. Similarly, the conflicting communication regarding the sunset timeline and eligibility of projects for CFA prompted many states to delay their tenders under Component C-FLS in recent months. Developers also expressed their reservations about participating in some of the tenders that came out in 2025 due to this uncertainty.

Tender data suggests a marked slowdown around the timing of these policy changes. In the months after the BCD hike and DCR notification, tendering activity dropped, and the tenders that were issued faced lukewarm participation. Developers interviewed during consultations highlighted the uncertainties in such periods, discouraging competitive discovery of tariffs.

Policy changes usually serve a larger developmental objective. However, these changes should enable a smooth transition with provisions like phased implementation of the new scheme and communicating grandfathering clauses exempting projects before a certain deadline sufficiently in advance. Consultation, clear communication, and proactive measures by the Union and state governments can mitigate the negative impacts to some extent.

Shortage of DCR-Compliant Panels

The supply-side challenge of DCR-compliant modules also contributed to delays in PMKUSUM. Developers consistently reported that not only were DCR panels costlier, but they were also in short supply, especially with the demand coming from PM Surya Ghar, the other national scheme with a DCR mandate. This shortage led to an increase in procurement costs and effectively priced out smaller developers

5.5 Limited Uptake of Lease-Based Model in Component A: Communication gaps and farmer constraints

As detailed in Section 2.2, Component A provides two distinct models for deployment of solar power plants: the farmer-owned model and the lease-based model. The lease model is particularly relevant for farmers who possess sufficient land but lack the financial capacity or technical expertise to set up a solar plant themselves. Under this arrangement, the farmer leases their land to a developer, who owns and operates the solar plant in return for a fixed lease rent.

However, this model has had only limited uptake so far. Most installations under Component A in states such as Madhya Pradesh and Rajasthan have followed the farmer-owned model. For example, in Madhya Pradesh, all 32 projects commissioned under Component A (with a total capacity of ~ 52 MW) so far are farmer-owned.

One critical reason for this skewed uptake is the communication and outreach strategy. Statelevel implementation agencies largely publicized Component A as a means for farmers to set up solar plants on their own land and generate income through electricity sales. Expressions of Interest and application formats released by states typically invited farmers directly to come forward as developers, with little emphasis on the alternative lease-based approach. The option of leasing land to a developer was neither highlighted nor explained adequately to farmers. Many developers interested in the scheme were unaware of the opportunities in Component A, limiting the possibility of a developer-led uptake of the scheme.

This communication gap has significant implications. Expecting small and marginal farmers who often lack financial resources, networks, and knowledge of regulatory processes to identify and partner with private developers is unrealistic. Our farmer survey in agriculturally intensive regions of Karnataka under Chamundeshwari Electricity Supply Corporation Limited (CESC) DISCOM (Appendix D) revealed that 61% of farmers were not aware of the PMKUSUM scheme. Without targeted facilitation and handholding, these farmers are effectively excluded from participating in Component A. As a result, the scheme’s potential to benefit landowners with limited capital remains largely untapped.

Without addressing these bottlenecks, Component A risks remaining restricted to larger, better-off landowners who can afford the upfront investment.

5.6 Improving Payment Security

Timely payments are critical for the sustainable scaling up of PM-KUSUM. It helps developers maintain project financial viability through timely debt servicing and having adequate working capital, improves lenders’ and investors’ confidence in project bankability, and maintains developer interest in the scheme. Payment delays from DISCOMs have been a persistent problem for renewable energy generators in the past (Ranjan, 2021). The problem is particularly challenging for small developers and farmers under PM-KUSUM who have limited financial buffers to service their debt obligations on time.

PM-KUSUM guidelines mandate DISCOMs to maintain an escrow account for timely payments to solar developers. Additionally, the model PPA mentions about 12 months of letter of credit for developers as a payment security mechanism. Despite these provisions in the guidelines, payment security remains an important concern for developers participating in PM-KUSUM, either because states have not adopted these measures or due to their lack of enforcement.

Some developers with commissioned projects expressed concerns over timely payments from the cash-strapped DISCOMs. They also highlighted delays in JMR, which is necessary for releasing payments. JMR involves taking meter readings from the meter at the solar plant and the bi-directional meter at the point of common coupling in the substation, in the presence of the DISCOM and developer representative. The readings record the energy exported to the grid and imported energy, if any, and are used for the bill settlement. Additionally, the practice of issuing separate bills for solar generation and plant consumption, where the generation bill is issued only after the consumption bill is paid, creates administrative hassles and delays payments.

These legacy systems, which may have been effective for large-scale utility projects, are proving to be inadequate for the PM-KUSUM plants with multiple layers of complexity.

To address the billing and payment-related concerns, states can adopt some of the following best practices from other regions:

Under MSKVY 2.0, Maharashtra has utilized its Green Energy Cess, a state government cess instituted in 2004 on commercial and industrial consumers for funding renewable energy generation to establish an INR 100 crores revolving fund (Mandal & Rangarajan, 2015; MSEDCL, 2023). The fund compensates the developers in case of 3 or more months of delays in payments from the DISCOM. If the fund is utilized any time for compensation, it is replenished by diverting an equivalent amount from the state’s subsidy transfers to the discom. This mechanism reduces the risk perception of these projects and enhances investor confidence.

Further, a revolving fund can reduce the financing costs for developers and thereby lead to a reduction in the discovered tariff. Our discussions with stakeholders reveal that the financiers factor in risks like payment delays while deciding the interest rate for projects. Payment guarantees can mitigate those risks and reduce the interest rate. For instance, if a state establishes a revolving fund for 100 MW solar capacity to cover payment security equivalent to 3 months, we estimate that the corpus required will be INR 13.6 crores. In this context, if banks are able to reduce the lending rate by even 0.15%, there is a potential tariff reduction of INR 0.014 per unit. This will benefit the DISCOM through annual savings of INR 1.24 crores in power purchase cost.

The billing process can be further streamlined using remote billing mechanisms to reduce hassle for both the DISCOM and developers. For example, State Energy Accounting reports, which record meter readings captured remotely from solar plants connected to State Load Dispatch Centres for scheduling and forecasting and are available to all developers. They can be considered for billing by default. However, the minimum threshold of the power plant size for taking part in forecasting and scheduling is 5 MW, which leaves out most of the PM-KUSUM power plants. Hence, the DISCOMs will have to implement other remote monitoring systems and incorporate those mandates into the tender and enable automated remote billing.

5.7 Improving Financing Access

Access to affordable financing remains one of the toughest challenges for developers, especially new entrepreneurs or farmers-turned-developers. Financiers see at least three kinds of risks with the scheme:

• borrower risks: Many of the developers lack established credit histories or collateral.

• project risks: Banks often view distributed solar projects as high risk. Most banks have not diversified their loan portfolio to decentralized solar projects. Our consultations with developers reveal that only a handful of banks are focusing on this sector. Other project risks include the process-related difficulties elaborated in Section 4.3, including approval delays.

• counterparty risk: This relates to the risk arising from DISCOM’s payment as detailed in Section 5.6.

As a result, many developers have faced high interest rates or outright loan rejections, significantly slowing down the scheme’s scale up. Several initiatives have emerged to address these issues.

Dedicated Credit Products by Public Financial Institutions

The Indian Renewable Energy Development Agency, National Bank for Agriculture and Rural Development, and Small Industries Development Bank of India announced dedicated credit lines, and major commercial banks (State Bank of India, Bank of Baroda, Canara Bank, Union Bank, Axis Bank, etc.) rolled out loan products tailored to PM-KUSUM projects. In practice, however, uptake of these facilities has been limited.

State Facilitation in Financing

One promising example is Madhya Pradesh’s memorandum of understanding with the State Bank of India to streamline financing for PM-KUSUM Components A and C projects, essentially creating a channel for developers to access credit with some state-level facilitation. This model can reduce the perceived risk for the bank through state endorsement and by aggregating demand.

First-loss Guarantee Mechanisms

Some financiers have suggested a First-Loss Guarantee Fund wherein an entity (e.g., the state or a multilateral agency) assures a certain portion of the defaults, thereby shielding banks from worst-case losses. This significantly lowers risk perception—if multiple projects default, the guarantee fund would cover, say, the first 10%–20% of the projects, making banks far more willing to lend. The guarantee facility’s design can draw on successful models in MSME financing and would ideally be coupled with capacity building for local bank branches on appraising such projects.

Interest Subvention Schemes

The Agriculture Infrastructure Fund (AIF) already provides a 3% interest subvention on loans for PM-KUSUM projects, effectively cheapening the cost of capital. However, awareness and processing of AIF support have been slow; many eligible developers either didn’t know about it or found the application bureaucratic. Our consultations with experts in the sector reveal that many bankers lack clarity on the procedure for obtaining AIF benefits for PM-KUSUM loans. As of March 2025, only 26 projects under Component A had been sanctioned loans via the central AIF, and ~371 projects across Components B and C, which is modest relative to the scheme’s targets. A push by MNRE and state nodal agencies to educate beneficiaries on AIF (through workshops or help desks) could increase adoption. If possible, the application process for AIF loans should be integrated into the KUSUM portal or singlewindow system, creating a seamless one-stop application for both scheme participation and subsidized financing. Some states, like Rajasthan, have also explored accessing MSME interest subvention schemes for Component A.

Another key factor concerning financing is bankers’ awareness and confidence in the scheme. GIZ India, which undertook a series of capacity-building workshops on PM-KUSUM for officials from a few nationalized banks in five states, has reported bankers’ lack of clarity about the PM-KUSUM scheme as a key barrier in financing. Some of these banks have announced PM-KUSUM loan products. But the scheme implementation design varies between the states, and bank officials at the frontline do not have sufficient information about the design. Specifically, the bankers needed clarifications on the workflow of the scheme, including timelines for each step of project development, the roles and responsibilities of different agencies (Ghose, 2025).

SIAs can help improve financing by communicating key aspects of the scheme with the state bankers working with the state-level banking committees. In addition, the measures proposed to improve the scheme administration (see Section 4.3) and strengthen the payment security (see Section 5.6) become important to increase financiers’ confidence in the scheme.

5.8 Recommendations 

Tailoring the Scheme to States’ Developer Ecosystem

States should assess their market to identify the potential participants in the scheme and design tenders accordingly. New entrants can be incentivized by reducing entry barriers, streamlining approvals (see Section 4.3) and ensuring payment security (see Section 5.6). At the same time, large players can be attracted through cluster-based tenders and landaggregation measures. States could try a combination approach to make the best use of both. Sequencing a cluster-based tender before an individual-substation-based tender would avoid overlaps and help one tender complement the other. States could also consider relaxing the clauses related to subcontracting or forming joint ventures to enable strategic partnerships.

Give equal importance to process reforms and outreach. Streamlining approvals is as critical as tender design in attracting small developers. States also need to intensify their pretender outreach with developers to understand the market.

Explore other state-specific incentives. For states with a not-yet-mature solar industry, consider interventions like partnerships with banks for financing.

Improving Tariff Viability

Adopt competitive bidding wherever possible. Solar is very cost-competitive, and states can expect to find prices low enough if other bottlenecks are reasonably addressed.

Link tariffs to robust market data if the states prefer prefixed tariffs. Allow for locational and temporal variations by indexing the tariff to a reputable data set. For example, linking the land rent component to the district-level committee rate or capital cost to a module cost data set. This could also help overcome delays caused by policy changes.

Attention to Quality and Maintenance of Installations

Create a central repository of EPC contractors interested in the scheme, along with data on their track records, to provide first-time developers a ready list of credible EPC contractors.

Develop training materials on standard O&M practices for first-time developers.

Incentivize SIAs to engage consultants for ensuring the quality of installation, regular maintenance, and publicizing the training manuals.

Policy Stability and Communication of Policy Changes

Announce major policy changes sufficiently in advance, accompanied by transition guidelines to allow developers and states to align procurement and bidding strategies.

States must explicitly incorporate important policy changes like the DCR mandate and sunset date in their tenders. MNRE can help states by releasing scheme-specific advisories on the policy changes. States also need to be proactive in their pre-bidding communications to highlight the policy changes.

MNRE should initiate a clear communication strategy for scheme extension or phaseout to prevent last-minute uncertainty and allow states to plan tenders and developers to secure financing with confidence.

MNRE could publish quarterly DCR panel availability reports in partnership with manufacturers, helping developers plan procurement pipelines and overcome the current panel shortages.

Improving Payment Security

Operationalize payment security instruments like letters of credit or payment guarantee corpus funds to ensure timely payment to developers, thereby reducing counterparty risks for them.

Simplify bill payment procedures by automating meter readings based on Supervisory Control and Data Acquisition systems and limiting manual interventions, such as joint meter readings.

Improving Financing Access

State governments may facilitate better bank financing by developing appropriate instruments for reducing risk perception, such as partnerships with public and private banks to create dedicated funding windows for PM-KUSUM, creation of a First-Loss Guarantee Fund, in collaboration with multilateral development banks or green finance institutions. Leverage interest subvention schemes like the AIF and other state-level incentives for MSMEs.

Encourage broadening of the pool of financing beyond conventional bank financing to sources such as infrastructure debt funds.

Successful implementation of PM-KUSUM depends not only on the deployment of solar capacities but also on the readiness of the grid infrastructure. Integration of renewable energy into grids can pose challenges in maintaining voltage stability and avoiding frequent trippings (Saleem et al., 2024). This issue is likely to be exacerbated in the case of DRE integrated into a weak distribution grid, a concern that is increasingly becoming evident across states (Lecoque et al., 2024). In addition to affecting overall system stability, grid challenges can also impact plant output and efficiency. Addressing these limitations is crucial to maximizing the benefits of solarization of agricultural power demand. Below, we discuss the major issues identified during our field visits and engagements.

7.1 Voltage Fluctuations and Tripping

Rural substations are prone to frequent supply interruptions, largely due to network overloading, inadequate system strengthening, and gaps in O&M practices. Agricultural feeders are particularly vulnerable during peak pumping season, with demand often exceeding the available loading capacity. The overloading leads to substantial voltage drop and, therefore, feeder tripping.

Under PM-KUSUM, distributed solar plants are expected to be connected at the 33 or 11kV busbar of the substation. Persistent low- or high-voltage issues on a feeder with DRE connected can potentially lead to plant tripping when its protection system is triggered. These trippings impact the overall plant CUF and, thereby, the revenue generated for the developers.

Our field visit to a few commissioned plants highlighted the same concern. During the peak agricultural season, one of the plants experienced 10 to 12 trippings daily, and voltage levels dropped to ≤650 V, preventing power from being fed into the grid and resulting in generation losses. The overall daily generation of the solar plant dropped by half, affecting the developer’s returns. While fault management protocols are in place, inadequate protection system upgrades and a lack of protection system coordination lead to wider outages.

7.2 Reactive Power Management

Agricultural loads, primarily pump sets, are inherently reactive in nature and require reactive power to operate. For the effective utilization of decentralized solar plants, agricultural supply is increasingly being shifted to daytime hours. Under current regulatory settings, solar inverters are configured to operate at unity power factor, supplying only active power to the grid. This means that the reactive power requirement continues to be met from the grid.

Reactive power requirement in the distribution grid is generally fulfilled by large generators injecting reactive power into the transmission network. However, in the case of rural feeders, the challenge is more severe due to poor feeder maintenance, long feeder lengths catering to high agricultural demand, and limited reactive power support infrastructure. Field visits to solar plants in Madhya Pradesh and interactions with plant owners and substation operators revealed voltage deterioration issues due to limited reactive power support. Voltage levels often drop well beyond the permissible range recommended under the Indian Electricity Grid Code, especially during the peak agricultural season when pumps consume power for irrigation. Low-voltage conditions lead to inverter trips, which prevent solar plants from injecting active power into the grid. This results in economic losses for developers and adversely affects the plant’s CUF.

A study conducted by the Maulana Azad National Institute of Technology Bhopal (Siddiqui & Paliwal, 2025), on a feeder having a solar plant connected under Component A in Madhya Pradesh, illustrated the impact of enabling inverters to provide reactive power. The study and our further consultations with the team revealed the following:

1. Voltage levels on the feeder were observed to fall by more than 15% from nominal during peak agricultural demand seasons.

2. The problem was linked to long feeder length (~82 km) and high agricultural loading.

3. When inverters were configured to inject reactive power along with active power,

a. voltage profile improved by ~3%

b. system losses reduced by ~6%

c. improved voltage conditions and reduced losses translated into nearly 16% increase in developer revenues, as generation and CUF improved significantly.

Recognizing these challenges, Madhya Pradesh introduced a compensation framework for developers operating inverters in reactive power control mode:

• during low-voltage conditions: If developers inject reactive power, they are compensated; if they absorb reactive power, they are penalized.

• during high-voltage conditions: If inverters inject reactive power, they are penalized; if they absorb reactive power, they are compensated.

This approach incentivizes developers to configure their inverters for dynamic voltage control, aligning plant operations with grid stability requirements.

Operating solar inverters in reactive power mode has strong potential to improve feeder voltage conditions, reduce losses, and enhance the performance of decentralized solar plants. With suitable compensation mechanisms, states can ensure better utilization of distribution infrastructure while enabling developers to safeguard revenues and improve solar plant operations.

7.3 Gaps in the Assessment of Grid-Hosting Capacity and Reverse Flow

The hosting capacity of a distribution network refers to the amount of distributed energy resources (DERs) that can be added before a system upgrade is required for the safe and reliable integration of additional DERs. System upgrade enhances the network capacity to absorb more DERs. The hosting capacity also varies depending on the nature and location of DERs and the distribution planning practices of the DISCOMs (Ghosh, 2020). Therefore, having a snapshot of the hosting capacity across the distribution network is critical to identify the operational limits of the network and help DISCOMs to make more efficient and costeffective choices regarding DER deployment (Interstate Renewable Energy Council, 2021).

In this context, assessing and considering grid-hosting capacity becomes a necessity for DISCOMs when planning PM-KUSUM deployments. Deploying PM-KUSUM plants without adequate consideration to hosting capacity can lead to the following challenges:

• technical issues: Excess generation during the low agricultural demand season can lead to upstream flow of electricity, referred to as reverse power flow. Traditionally, grids are designed for unidirectional flow, including the protection system, transformers, and conductors, and upstream flow can overload the system and cause equipment stress and grid congestion (Majeed & Nwulu, 2022).

• economic and operational impact: Unplanned and inefficient PM-KUSUM integration can increase the DISCOMs’ distribution losses rather than decreasing them. Additionally, equipment stress or failure due to reverse power flow can increase DISCOMs’ O&M costs. DISCOMs may also have to resort to solar plant curtailment in over-voltage scenarios that may hurt developers’ returns (Bat-Orgil et al., 2025).

• long-term impact: Inadequate attention to the grid and its capacity can potentially delay national- and state-level DRE targets, create grid instability, and deter future investment (Aggarwal & Chawla, 2019).

While the scale of implementation under PM-KUSUM has so far been limited, and these issues are yet to emerge widely, field visits and interactions with officials across states highlight the following concerns:

• In Madhya Pradesh, during non-agricultural seasons, solar generation at one of the plants occasionally exceeded feeder demand, leading to potential reverse power flow. Substation staff were not aware of managing such a situation.

• Rajasthan also reported overvoltage and reverse power flow issues arising from decentralized solar plants.

• With Maharashtra aiming to commission 16 GW of distributed solar capacity by 2026, officials of MSEDCL and the State Load Dispatch Centre have raised concerns over the integration of these plants into the grid. It is in this context that MSEDCL is targeting distributed solar as a way forward to enhance system hosting capacity and address reverse power flow concerns.

7.4 Reassessing Feeder Segregation Strategies

Segregating agricultural loads from mixed feeders, where commercial and domestic consumers are also connected, enables better management of agricultural supply. With FLS being rolled out under the PM-KUSUM scheme, such segregation is critical to provide reliable daytime power to agriculture without disrupting supply for other categories of consumers.

Traditionally, feeder segregation has been achieved by physically laying separate distribution infrastructure for agricultural loads. While effective, building a separate network is capitalintensive and takes years to complete. New feeders also get delayed due to land and RoW constraints. In rural areas, loads are highly scattered and mixed. Setting up new distribution lines requires land aggregation and clearances, both of which pose significant hurdles.

To address these challenges, Internet of Things (IoT)-based virtual feeder segregation offers a promising alternative. This approach uses IoT devices installed at the distribution transformer to remotely regulate and segregate agricultural supply. By eliminating the need for extensive physical infrastructure, it reduces the time, cost, and complexity of traditional segregation methods.

A pilot project implemented by Jaipur Vidyut Vitaran Nigam Limited (JVVNL) in Rajasthan demonstrated the viability of this model (Jethani et al., 2022). The pilot reported the following:

• ~90% savings in both time and cost compared to physical segregation

• improved loss reduction through better accounting of supply

• enhanced quality of supply for both agricultural and non-agricultural consumers.

Insights from a field visit to this virtual segregation pilot further underscore its operational value. The pilot spans seven feeders equipped with nearly 800 IoT devices, covering around 2,500 distribution transformers. The system provides real-time visibility into supply status, helping DISCOM staff quickly identify whether a fault originates at the feeder or consumer end. Officials also noted that transformer burnouts during peak summer months have fallen by 10%–15% earlier to about 5%, as granular load data now helps identify overload hotspots and enables timely transformer replacement.

However, as this technology is still new, a comprehensive life-cycle assessment of its longterm impact on transformers, connected distribution transformer infrastructure, and overall distribution network performance is yet to be undertaken. Such analysis will be essential to fully understand asset wear, reliability implications, maintenance requirements, and replacement cycles as virtual segregation scales.

The MoP has put in place a provision for segregating around 1,000 feeders under the RDSS (REC Limited, 2023). If virtual segregation approaches are mainstreamed within this framework, they could deliver significant savings in cost and time while also improving operational efficiency.

Overall, experience from Rajasthan shows that virtual segregation through IoT-based solutions is a scalable, cost-effective, and technically robust alternative to physical segregation. Adopting this approach could accelerate FLS under PM-KUSUM while enabling DISCOMs to optimize resources and improve service quality.

7.5 Recommendations

Voltage Fluctuations and Tripping

1. DISCOMs should conduct substation-wise assessments of relay and protection systems to identify and address coordination issues causing frequent trippings and voltage fluctuations.

2. States should adopt a structured, data-driven framework for prioritizing 33/11 kV substations for solarization under PM-KUSUM.

3. Undertake detailed pre-feasibility studies with support from state-based technical institutions, to determine optimal injection voltage for PM-KUSUM projects, considering local grid conditions and economic trade-offs.

Reactive Power Management

1. Develop and standardize protocols for solar inverter configuration and operations. Introduce supportive policy and tariff mechanisms incentivizing the use of solar inverters for reactive power compensation.

Gaps in the Assessment of Grid-Hosting Capacity and Reverse Flow

1. States should conduct comprehensive grid planning to accommodate decentralized solar plants and assess their impact on the grid. Through hosting capacity and load flow studies, phased corrective measures may be enforced depending on the design of the distribution system

2. States should explore incentivizing the distributed battery storage potential to support the integration of DRE to the grid and avoid the curtailment of solar generation.

Reassessing Feeder Segregation Strategy

1. Optimize feeder segregation approaches for economic payback by exploring alternatives to physical feeder segregation, like IoT-based virtual feeder segregation. IoT-based segregation can also enable operational benefits such as targeted supply schedules and fault detection, while providing significant economic benefits to the DISCOMs.

2. MoP should include alternative strategies of feeder segregation in the RDSS framework.