Improving equity outcomes in the solar irrigation subsidy delivery mechanism in Nepal

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Summary

Nepal has made significant progress in promoting solar irrigation pumps (SIPs) with over 2000 installed by 2021, supported by a 60% subsidy from the Alternative Energy Promotion Centre (AEPC).

IWMI researchers analyzed AEPC’s data and conducted a desk assessment of Nepal’s renewable energy policies and subsidy delivery mechanism. The study was supported by additional qualitative data from Focused Group Discussions (FGDs) and Key Informant Interviews (KIIs). Based on those interviews and data from the AEPC, the following are the main insights about Nepal’s current subsidy delivery mechanism.

Data shows that between 2016 and 2021, 9100 farmers applied for solar pumps, while only 21% got it. The applicant pool tended to be relatively larger farmers, and male applicants. To increase the diversity of the applicant pool, it is suggested that local government institutions become more involved in soliciting applications from marginalized groups and that social mobilizers be used to reach out to underrepresented groups. It is also recommended that after-sales services be improved, and solar pump prices be periodically revised to increase demand from a wider range of farmers.

Introduction

Tarai – the narrow strip of plains in the Himalayas’ foothills – is Nepal’s breadbasket. Here, groundwater is abundant, but affordable means of irrigation are lacking. Farmers rely heavily on diesel-based irrigation pumps, but with the rising costs of diesel, irrigation is becoming unaffordable for most small farmers. Intensifying groundwater use through diesel pumps can also increase carbon emissions.

Solar irrigation pumps (SIPs) offer a low- carbon, climate-resilient technological option. Solar irrigation is also embedded in Nepal’s plan to generate more than 5000 megawatts (MW) of renewable energy by 2030, unconditionally, without external assistance, as per its Nationally Determined Contributions targets.

To address the high upfront capital costs for installing SIPs, the Government of Nepal (GoN) has rolled out programs for subsidized SIPs to promote these pumps equitably throughout the country. As of 2021, Nepal had installed over 2000 solar irrigation pumps with a 60% subsidy from the AEPC (80% of those pumps being installed in the Terai region).

SIP demand is increasing, but allocations are limited due to budgetary constraints

Data from AEPC shows that in the five years between 2016 and 2021, a total of 9100 farmers had applied for solar pumps, and 21% of those farmers, mainly from Nepal’s Tarai, got these pumps. The number of pumps given was limited by budget allocation but increased over time, from only 75 SIPs in 2017 to 1056 in 2019. The number of SIPs granted dropped in 2020 due to COVID-19-related restrictions.

Lack of periodic SIP price revisions leads to a higher-than-necessary subsidy burden

The relevant SIP policy manuals recommend regular review of the maximum retail price (MRP) for SIPs. Yet, the lack of periodic price revision meant that price of subsidized SIPs remained above the market rate. Downward price revision would allow the government to increase the number of beneficiaries without adding further to its subsidy burden.

Current demand collection procedures and other structural barriers discourage applications from a diverse pool of farmers

Given the structural barriers and a private sector-driven demand collection process, better-off and socially well- connected farmers were likelier to know and apply for the subsidized SIPs. Econometric analysis of SIP allocations showed that Madhesis, Dalits, and Muslims (all disadvantaged groups in the region) were about 9 % less likely than upper caste Brahmin/Chhetri applicants to get subsidized SIPs even after controlling for all other eligibility criteria.

AEPC selected a higher proportion of smallholder and women farmers from the skewed applicant pool

More than 80% of the applicants were males, and around 40% were upper-caste farmers. While no specific selection criteria for allocating subsidized solar pumps were stated in the relevant subsidy policies, AEPC officials tended to grant these subsidies to those with comparatively smaller landholdings (Figure. 3), and 22% of the beneficiaries were women. Any positive discrimination in favour of marginalized groups was based on the discretionary power of the AEPC officials and could vary from year to year.

There are at least three ways AEPC could improve its subsidy delivery performance:

• Through the increased involvement of the palikas (local government) in applicant selection based on the mandated criteria;
• By explicitly stating selection criteria that prioritize smallholder farmers, women farmers, and farmers from disadvantaged castes and ethnic groups;
• By providing better after-sales services, including training local technicians.

Formalizing the role of local government in the subsidy disbursement process

Even though not formally included in the subsidy disbursal policies, the palikas (local governments) are already playing a critical role in the process in many ways. The authors recommend formalizing the role of local governments in the disbursement of solar irrigation pump subsidies to minimize discretionary exclusion and to create awareness about the SIPs and improve their adoption through better targeting of beneficiaries. By training palika representatives on the SIP promotion and application screening process, the AEPC could enhance transparency and accountability in the subsidy delivery mechanism.

Explicit selection criteria that prioritize smallholders, women farmers, and farmers from disadvantaged castes

The AEPC is currently revising its subsidy delivery policies. Based on its experience with thousands of applications and the need to choose among them, AEPC can produce a list of criteria for selecting beneficiaries. These criteria can be gender, equity, and social inclusion compliant ensuring that applicants from marginalized backgrounds get preference at the selection stage. This will ensure that the limited subsidy available for this scheme goes to the section of farmers who may need it the most.

Improving post-installation monitoring and after- sales services

While private service providers are needed to provide 2-year complimentary after-sales service, AEPC does not monitor whether farmers receive these services regularly. As service providers are based in Kathmandu or some other regional city, many farmers report having had to wait months had to wait months to get their SIPs repaired (Shrestha and Uprety 2021). Such poor after-sales services can slow down the adoption of the systems. Capacity building of local technicians, better and prompt after-sales service with remote monitoring systems (RMUs), and third-party monitoring, are some of the policy measures that AEPC can take to ensure better operations and maintenance of the SIPs.

Suggested citation

Shrestha, S., Uprety, L., Mukherji, A. (2022). Improving equity outcomes in the solar irrigation subsidy delivery mechanism in Nepal. IWMI Issue Brief.