Unleashing the potential of solar irrigation in Bangladesh: key lessons from different implementation models

IDCOL's fee-for-service model is a unique public-private partnership in the solar irrigation sector. IDCOL is a government-owned non-banking financial institution (NBFI) that provides loans to private sector investors (called sponsors) for installing SIPs. Sponsors, either private limited companies or NGOs, invest in SIP equipment and then own and operate the system. IDCOL provides grants up to 50% of the total cost, with 35% financed through a loan and the remaining 15% as a down payment. The loan must be repaid at a 6% interest rate within ten years. Sponsors buy equipment from certified suppliers, lease land from local farmers, and set up the SIP system. Sponsors then employ a local community member to operate the pump and supply water to plots, using the revenues from water selling to repay loans and cover operation and maintenance costs. The price at which sponsors sell water is de facto regulated by local groundwater markets, including water prices charged by diesel pump owners or electricity-powered irrigation service providers. Upon repayment, the sponsor gains ownership of the SIP system.

The second SIP model in Bangladesh provides 100% grant financing on the capital expenditure for installation. Government institutions like BMDA and BADC follow this model, focusing on smaller SIPs (4–5 hp) installed on dug wells and larger solar LLPs that pump from rivers and canals. From their initial mandates, BADC is responsible for sustainable management of agricultural input supply and providing irrigation facilities to farmers across Bangladesh, while BMDA is specifically responsible for the development of the Barind Tract area in North-West Bangladesh.

To set up the SIP, the department (BMDA/BADC) contracts a farmer to use their land for a certain number of years. Once the pump is set up, the operation and maintenance of the SIP infrastructure are handed over to the community through a farmers' committee. The farmer whose land hosts the pump mostly serves as the operator, and the farmers' group determines irrigation fees to cover operation and maintenance expenses. Technical and financial support for maintenance remains covered by the supporting government department, and they collect participation fees from the farmers' group. For BADC, there is an initial participation fee for the farmers' group (240 USD ⁷ for 7.5 hp; 370 USD for >10 hp) and then a fixed yearly payment between 50–100 USD (depending on the pump size). For BMDA dug wells, there are currently no fees, but for solar LLPs, there is a pre-paid meter system where farmers are charged between 1.2−1.9 USD/h⁻¹.

BREB's individual ownership model allows individual farmers to apply for a SIP system to be installed on their land. BREB is responsible for rural electrification under the Ministry of Power, Energy, and Mineral Resources. Farmers receive a 65% grant for the total cost, with the remaining amount split between a 30% loan and a 5% upfront payment. The loan repayment time is ten years. The systems are typically smaller and operated by individual farmers, who operate and maintain them independently. BREB's individual ownership model connects SIPs to the grid, allowing owners to sell excess power at a designated tariff.

We find that diesel use within the SIP command area is minimal, with only 3% of the areas irrigated from diesel pumps during kharif 1 (boro season), 8% during kharif 2 (aman season), and 22% during the rabi season. The slightly higher use of diesel during the rabi season is associated with vegetable cultivation, which requires controlled water application that cannot always be delivered by high-discharge larger SIPs.

To estimate diesel use per unit of land, we collected data from the household survey on the average number of irrigation hours and the average hourly diesel consumption for typical diesel pumps. Using this information, we calculate the reduction in diesel use and CO₂ emissions from SIP use ⁸ . On average, irrigating an acre of land with diesel pumps for three seasons in a year requires 65 l of diesel, but within the SIP command area, this reduces to just seven litres of diesel per acre. Thus shifting to solar potentially saves 58 l/acres of diesel on average, which translates into avoiding 2.8 metric tonnes of CO₂ emissions per SIP (US EPA 2015) ⁹ . By considering the average command area of a typical diesel pump (5.9 acres) and IDCOL SIP (18 acres) respectively, we calculate that replacing all 1.24 million diesel pumps will require the installation of ∼400 000 IDCOL-type SIPs. This can potentially reduce 1.2 million metric tonnes of CO₂ emissions per year (Mitra et al 2022a). However such large-scale transition from diesel to solar entails substantial economic costs that are not discussed here. Also we have not done a life-cycle comparison of diesel vis-a-vis solar and there can be secondary environmental pollutions from the disposal of the replaced diesel pumps and e-waste resulting from the solar panels. All these need to be carefully considered before deciding on any large-scale transition.

The first adaptation co-benefit of SIPs is the reduced costs of irrigation for users. Buying water from SIPs is significantly cheaper by 20%–30% than buying from diesel pumps for irrigating boro, aman, and potatoes. For maize and wheat the difference is not significant (figure 4(a)) (Buisson et al 2022). Reduced irrigation costs also enable more farmers to provide supplementary irrigation in case of delayed monsoon during kharif 2 season, instead of waiting for rainfall and thus protecting their yield (Buisson et al 2022).

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The second co-benefit is savings in time and labor costs. The cost of using a diesel pump for irrigating plots in Bangladesh is high, as it involves purchasing diesel, transporting and installing the pump, monitoring irrigation delivery, and turning off the pump when enough water is delivered. This can result in expenses such as wages paid to hired labor or the opportunity cost of lost wages. In contrast, the fee-for-service model involves a paid pump-operator operating the pump and ensuring adequate water supply. Water buyers from IDCOL SIPs save on average 23.4 h in the dry season compared to those who use their own diesel pumps and 9 h when compared with those buying water from diesel pumps (figure 4(b)). In monetary terms, this translates into a saving between 5–12 USD in terms of lost wages ¹⁰ (Buisson et al 2022).

Cheaper irrigation in off-grid areas should benefit marginalized farmers, but the high capital costs of SIPs create a risk that influential farmers may receive more benefits. Even with subsidy, without pro-active targeting of marginalized farmers, there is risk of elite capture. This is often the case for government-subsidized community-managed models of BMDA and BADC without an explicit policy of targeting marginalized groups. Under this model, local elites on whose land the pumps are mostly set up become the de-facto water-sellers and retain substantial control over the irrigation service and tariffs. Many community-managed SIPs lack a functional managing committee.

In the fee-for-service model, the CAPEX subsidy is given to sponsors, not directly to farmers. This commercial model aims to maximize profit by prioritizing command area expansion, servicing more farmers, and reducing the arbitrary power of operators or individual pump owners. In the individual model of BREB, there is still a considerable upfront cost, which may be beyond the reach of poorer farmers.

Equity is access also implies that the irrigation rates charged from water buyers are not exorbitantly high and hence it is important for the implementing agencies, to monitor the irrigation rates charged from water buyers. This is particularly important due to the tubewell permit system established under the new 'Groundwater Management in Agricultural Activities Act,' which can restrict new electric connections within the command area of existing SIPs. If irrigation rates charged by sponsors are not monitored after loan repayment, it could lead to local monopolies of for-profit sponsors charging higher rates compared to electric pumps while denying access to new connections within the command area. This risk of local monopolies is lower in fully subsidized community-managed systems, as ownership and monitoring of the pumps remain with BADC and BMDA throughout the duration.

Community-managed systems have a freer hand in targeting marginalized farmers, and the benefits can go directly to farmers; but they are also prone to the risk of elite capture and non-functioning management committees. Given these trade-offs, we rate community-managed systems as medium on equity. Individual ownership model excludes poorer farmers without proper targeting through a preferential mechanism. While fee-for-service model runs the risk of creating local monopolies by private companies in longer run without proper monitoring (which is costly). Also market-based model with lower subsidy implies monetary benefits to farmers being lower. Accordingly we categorize individual ownership and fee-for-service models as having low equity in access.

Introducing SIPs instead of diesel pumps translates into a near-zero marginal cost of irrigation, which in increasing irrigation intensity and promoting water-intensive crops may sharpen the risk of over-extraction of groundwater. However, in Bangladesh, the institutional and financial models minimize the risk of groundwater over-utilization. For the fee-for-service model, the sponsor's objective is to maximize profit, and he is thus incentivized to expand the command area and providing more water than required would reduce the potential command area that can be served. Still, in this model, there might be an incentive to shift farmers towards boro cultivation, to earn higher revenue. But sponsors also need to target areas that were already growing boro pre-SIP installation for financial sustainability. Hence the scope for further crop change, and an impact on groundwater use is limited.

For BMDA and BADC, SIPs are either low-lift pumps irrigating from surface water sources or dug wells targeted for vegetable cultivation with relatively low water requirements. So, by design, the possibility of groundwater over-extraction is ruled out.

Finally, individual BREB pumps are all grid-connected. As a result, there is an opportunity cost of using solar energy for pumping rather than selling it back to the grid. Also, all the SIP systems in Bangladesh have underground pipe systems for delivery, ensuring increased water use efficiency as compared to diesel-operated systems, which usually use open furrow or flexible plastic pipes.

Community-managed models in Bangladesh are exclusively surface-water system, earning a high groundwater sustainability rating, while the other two models receive a medium rating because although they use groundwater, but they have inherent incentives to reduce wastage in use (selling excess energy to the grid for the individual model and expanding the command area for the fee-for-service model).

Solar pumps are characterized by higher initial investments, but lower operational costs as compared to diesel pumps. The cost of an IDCOL SIP is around 2500 USD per hp, while BREB-installed pumps have project costs ranging from 2500–3500 USD per hp. These costs are substantially higher than those observed in India ¹¹ but relatively similar to other countries in the region such as Nepal ¹² . One of the reasons for high prices in Bangladesh is due to over-sizing, with panel-pump capacity ratio ranging between 1.8–1.9 times (figure 6). Oversizing is due to foggy weather conditions in late January/early February, which coincides with peak irrigation demand for boro paddy. Also, all SIPs in Bangladesh are equipped with underground pipes for water conveyance, which can cost up to 27% of the system's cost.

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Given these high costs, scaling up of SIPs faces challenges due to liquidity constraints and risk aversion from farmers and investors. High grant financing is necessary to overcome these barriers. BMDA and BADC community-managed models offer 100% CAPEX subsidies. The subsidy for BREB model ranges from 62%–66%, along with ∼4% as upfront equity by the farmer and the rest as 0% interest loan. Despite the subsidy, the upfront equity still acts as a barrier and the demand for SIPs under BREB remains low, with only 150 pumps installed out of a target of 2000 by June 2022.

IDCOL's fee-for-service model enables smallholder farmers to access solar irrigation services with comparatively lower subsidies (50% subsidy). An intermediator, like a private company or NGO, takes on the risk of setting up the irrigation service business thus transferring the investment risk from farmers.

Because of this less reliance on subsidies and shift in investment risks to private companies, we rate the fee-for-service model as high in terms of ease of investment. The community-managed model in Bangladesh receives a medium rating since it avoids farmers' liquidity constraints and risk aversion but depends fully on subsidies. The individual ownership model is rated low for ease of investment as it requires high subsidies and does not fully alleviate farmers' liquidity constraints and risk aversion issues.

Generating demand for SIPs involves substantial transaction costs, such as providing information and knowledge to farmers and convincing them of the benefits of SIPs. Additionally, since 2018, farmers have to obtain tubewell permits from the local Upazilla irrigation committee, which adds transactional costs for smallholder farmers with thinner social capital and networks (Mukherji et al 2012).

Government officials generate demand for SIPs for projects under BMDA, BADC, and BREB, which limits the model's scalability, as evidenced by the relatively slower progress of their SIP programs. Under fee-for-service model, sponsors identify potential locations for setting up SIPs based on local agro-environmental conditions, including groundwater availability, cropping patterns, and existing irrigation infrastructures. Sponsors are responsible for convincing farmers within the SIP command area to shift from diesel, with sponsors having an incentive to incur these costs to generate demand for SIPs. The public-private partnership under the fee-for-service model enables private organizations to internalize these transaction costs in their net return calculations and reduce transaction costs by operating at scale.

The fee-for-service model's feature of working at scale and internalizing transaction costs gives it a high rating for generating SIP demand, while both community managed and individual ownership models are rated low due to high transaction costs associated with involving smallholder farmers in SIP ownership and management, which are not internalized in the current model and hinder their progress.

SIPs can be a financially sustainable alternative to diesel-based irrigation if the total private and social benefits from replacing diesel are greater than the cost (Closas and Rap 2017). The average project cost of IDCOL SIPs is around 48 000 USD, and assuming a 20 yr lifespan at a 6% interest rate, this implies at least 3900 USD worth of social and personal benefits per year should accrue for 20 yr to break even the investment cost of 48 000 USD ¹³ . On average, 2.8 metric tonnes of CO₂ per SIP are mitigated, which translates into a social benefit of 518 USD/year ¹⁴ . Assuming other social externalities to be minimal (for example, any environmental impact in terms of changes in groundwater use or cropping pattern change), the private yearly benefit from using solar should be around 3400 USD/year to break even. The average command area for IDCOL SIPs is 18 acres, which implies that the yearly benefit per acre should be at least ∼190 USD ¹⁵ .

Hence, SIPs are justified only when farmers cultivate water-intensive crops like boro, which currently accounts for 65%–70% of the total revenue of IDCOL SIPs (Mitra et al 2021), but even then, the net benefit from reducing the energy cost of irrigating boro is unlikely to yield sufficiently high benefits. This is because, in Bangladesh, similar to eastern IGP, there is a relatively shallow groundwater level and abundant monsoon season that implies demand for irrigation is limited to only 4–5 months per year during the dry season (Buisson et al 2022). Hence, even with boro cultivation, the capacity utilization of solar panels remains limited. So, for financial sustainability, the cost of these systems needs to be reduced over time (through a reduction in import duties amongst others), and till then, support from subsidies is crucial.

But also, the capacity utilization of these systems needs to be increased through alternative uses of energy. For that, grid integration of SIPs needs to be promoted wherever feasible (other options, like using excess solar energy for running agri-machinery for threshing or husking, have limited scope ¹⁶ ). Grid connection can make SIPs financially viable by increasing capacity utilization and contributing to the country's goal of a 10% renewable energy mix by connecting solar infrastructure to the national grid with limited investments.

However, institutional interventions are also needed to improve the economics of grid-integrated systems. Recovering the additional investment of grid integration can take up to 10–12 yr (Mitra and Mukherji 2022) at current buyback rate of 4.6 cents/unit rate. This rate is the subsidized rate BREB pays to the Bangladesh Power Development Board (BPDB) for electricity. However, the average generation cost for BPDB is higher at 7 cents/unit (in 2020–21) and can be as high as 8.5 cents/unit when bought from private companies (in 2020–21). The subsidy given to fossil fuel energy sources can be similarly provided to BREB for purchasing clean energy from grid-integrated SIPs, allowing for a substantially higher tariff to be paid to SIP owners. Another option is to allow net metering since having electricity as a supplementary energy source during periods of high irrigation demand or low power generation can help bring a larger command area per SIP. However, to prevent SIP owners from relying solely on the grid and abandoning their solar systems, policy experiments such as capping energy evacuation or allowing only net exporters to remain grid-connected may need to be piloted.

The fee-for-service model rates low in financial sustainability for the investors due to low capacity utilization, high costs, and low subsidy dependency. In individual ownership model, being grid integrated with higher subsidy and zero-percent interest, recovering investment costs are higher making its rating as medium. For community managed models, full subsidy means no risk for farmers to recover costs, but low-capacity utilization both due to being off-grid and targeted in regions with less irrigation use, leads us to rate this model as medium on this parameter.