Sustainable financial solutions for the adoption of solar powered irrigation pumps in Nepal’s Terai

Sustainable financial solutions for the adoption of solar powered irrigation pumps in Nepal’s Terai

Solar powered irrigation pumps (SPIPs) are a proven technology, and can potentially be a game changer in Nepal’s irrigation sector by providing clean irrigation to millions of farmers. However, the relatively high capital cost of SPIPs is the main impediment that prevents large scale adoption of SPIPs. Given this, can we design appropriate financial solutions that will help in the large scale adoption of this clean and efficient technology? We ran a randomized experiment in order to estimate demand for SPIPs under three financial models – ‘grant’; ‘grant-loan’ and ‘grant-pay as you go’ in Saptari district of Nepal. We provided an additional 10% discount to women applicants, provided they owned the land on which SPIPs were to be installed. These models were based on policies of the Alternative Energy Promotion Centre (AEPC), and similar schemes available in India and Bangladesh. Village Development Committees (VDCs) were randomly divided into three groups and one financial option was provided to each group of VDCs. This randomized control trial (RCT) helped estimate absolute demand for each of the models. We ran 45-days promotional campaigns to solicit demand from farmers. The main findings from our experiment were:

• Promotion campaigns need to be carefully crafted to reach out to a maximum number of potential customers.

• There is a high demand for SPIPs in the Terai region of Nepal. We received 65 applications from Saptari district. This is a significant number given that there are no more than 15-20 SPIPs in Nepal right now, and all of these are pilot demonstrations by NGOs.

• Giving additional discounts to women farmers can lead to a lessening of structural inequities in land ownership. 77% of our applicants were women. For them to avail of the special women’s discount, land on which the SPIPs were to be installed had to be transferred to women – either solely, or jointly with any other male family member. We found, in 82% of the cases, land has already been transferred to the woman applicant.

• Giving a one-time grant is not enough for a high cost farm equipment like SPIP. Loans and pay as you go options are also needed. We found that 20% of demand was for the grant model, 46% for the grant-loan model, and 34% for the grant-pay as you go model.

• There is a viable business opportunity for solar entrepreneurs in rural Nepal to rent out SPIPs to farmers against rental fees as a part of the grant-pay as you go model. But this can happen only if private companies can directly avail of SPIP grants from the government of Nepal.

• Group ownership of irrigation assets is not a preferred market model, and only one out of 65 applications was from a group. This makes it important to re-think usual government grant policies that target groups instead of individuals, often under misplaced equity concerns. Group models, intermediated by reputable NGOs, however, may be tried out for reaching out to smallholder and marginal farmers who do not yet practice intensive irrigated agriculture.

• Farmers who have applied for SPIPs have more land, better access to irrigation and own more pumps on average. This shows farmers who are already practising irrigated agriculture are more likely to demand SPIPs under the market models that we offered. For reaching out to smallholder and marginal farmers, non-market models like NGO ownership should be explored – something we did not do in our study.

The report was co-funded by the Royal Norwegian Embassy in Nepal.

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