Gujarat farmers who invested in solar power plants caught in debt trap after govt suddenly withdraws subsidy

About 4,000 investors, mostly farmers, who had invested in small-scale solar power projects, have landed in a debt trap following the Gujarat government’s sudden decision to withdraw the subsidy.

Allured by Prime Minister Narendra Modi’s promise of promoting solar energy in his home state of Gujarat, thousands of small investors had opted for setting up solar power projects in their fallow land.

The farmers, who had spent a substantial amount of money on procuring solar panels and related equipment, levelling their uneven land, converting their agriculture land into non-agriculture land, erecting fences and electric poles for transmission of power to the main grid, suddenly woke up to the fact that their investment in the solar power projects has become unviable.

Farmers had made investments in small solar power projects following the state government’s announcement of providing up to Rs 35 lakh as subsidy on capital expenditure on projects varying from half a mega watt to 4 mega watt in size.

While announcing the subsidy to investors, the state government had disclosed its ambitious plan of producing as much as 30 giga watt of solar power.

With the decision to withdraw the subsidy, as many as 4,000 solar power projects with an aggregate capacity of 2.500 MW are feared to have turned economically unviable.

As it is, the purchase price of power produced by investors in solar projects was fixed at Rs 2.83 per unit, which was already far lower than other states like Rajasthan and Maharashtra, where the rate is higher than Rs 3.15.

The state government had announced its solar power development policy in March 2019 with the avowed objective of encouraging solar energy to support Prime Minister Narendra Modi's ambitious renewable energy goals.

The policy was aimed at reducing transmission losses while farmers would get electricity during the day and the Center and the State governments would benefit from GST revenue.

According to the policy, any eligible entity could set up a solar power plant with capacity ranging from 0.5 MW to 4.0 MW, and supply the solar power produced to the nearest state electricity transmission substation.

An estimated Rs 100 crores have been invested by MSME investors towards advance charges for transmission line supervision and connectivity. Developers have also invested a total of Rs 1,000 crore and had proposed to invest Rs 10,000 crore more.

However, the Gujarat government’s decision to withdraw subsidies has dampened the sentiments of investor who are now looking to switch to states that assure higher returns, especially to Rajasthan which recently announced several incentives.

Already, Rajasthan has received a proposal of setting up new solar power projects to produce 49,000 MW of power.

The Rajasthan government is offering a very large land parcel of the desert to investors in solar power projects. Solar power producers are also being given a 10-year holiday on electricity duty and exemption on stamp duty on land purchased for setting up solar power plants. The Rajasthan government has also announced 90 per cent subsidy on GST for solar component manufacturing units.

The agricultural land which would be used for setting up solar power plants or wind energy production will not have to pay any land conversion fees in Rajasthan which the investing farmers of Gujarat have had to pay.