Enabling Microgrids

Policy and regulatory initiatives and challenges

With more than 200 million people and over 14,000 villages without access to electricity, India has the largest share of the unelectrified population in the world. Since the majority of unelectrified households are located in remote areas, microgrids are considered a viable solution to not only improve access to electricity, but also to address other pressing issues related to energy supply, including growing demand, climate change, energy security and reliability. Microgrids in India are already recognised as a viable solution to overcome some or all of these problems and have also been installed in various parts of the country. However, the deployment of microgrids has been limited with respect to the potential. One of the major hurdles in the widespread adoption of microgrids in India is the lack of supporting policies and regulations regarding construction, connectivity and operation of microgrids.

Existing policies

No specific policy existed in India for development of microgrids until recently when some amendments in the National Tariff Policy, 2006 were approved by the cabinet. The amendment aims to support power supply to remote unconnected villages through micro grids with provision for purchase of power into the grid as and when the grid reaches there. However, deployment increased significantly after the Electricity Act was passed in 2003. Section 4 of the Electricity Act, 2003 mandates the central government to formulate policies for setting up stand-alone systems for rural electrification and utilising renewable or non-conventional energy sources. Since then, various policies have been formulated that promote the use of renewable energy, energy access, rural electrification and off-grid generation. These include the National Electricity Policy (NEP), 2005; the National Tariff Policy, 2006; and the Rural Electrification Policy (REP), 2006.

The NEP, 2005 specifies that the government should provide the necessary capital subsidy and soft loans for investment in rural electrification projects to reduce the cost of supply to reasonable limits. It also emphasises the need to develop decentralised distributed generation facilities based on conventional or non-conventional sources, whichever is suitable and economical, for the electrification of rural areas where grid connectivity is not feasible.

The REP, 2006 also suggests using off-grid-based stand-alone systems for village electrification in areas where grid connectivity is not feasible or is not cost-effective. However, microgrid development remains limited due to various challenges that have not been addressed by these policies. The policy measures are directed at rural electrification and decentralised distributed generation, but the focus on microgrids is missing.

Need for regulations

While the Electricity Act, 2003 exempts developers from obtaining a licence to generate and distribute electricity in rural areas notified by the state government, there is no provision that deals with the situation when the grid is extended to that area. Tariffs of microgrid power are generally higher than those of grid supply, not only because of their high initial costs, which are subsidised in many cases, but also because of their low plant load factor and high operations and maintenance (O&M) expenses. So, if the grid reaches the area of supply of the microgrid, the microgrid could be jeopardised because of a tariff mismatch with the electricity provided by the discom. Past experience has shown that a number of microgrid plants had to be abandoned when the grid reached the area served by the off-grid plants since their O&M costs exceeded the cost of supply by the grid. This uncertainty over grid extension to microgrid areas deters developers from undertaking microgrid projects in the first place. Hence, a mechanism is required to determine the tariffs of microgrids, which are currently not regulated and are mostly determined by mutual agreement between the mini-grid developer and the consumers. With recent amendments in the Tariff Policy, tariff regulations for electricity supply from microgrids can now be expected to be formulated.

Another critical issue is the connection of the microgrids with the central grid. In this context, it is important to have infrastructure that is compatible for any such interconnection in the future. This would enable two-way power flow and avoid problems like voltage imbalance, technical faults and overloading. The Central Electricity Authority (Technical Standards for the Connectivity of the Distributed Generation Resources) Regulations, 2013 specify standards for equipment, meters, safety, harmonics, current, etc. Similar regulations are required for microgrids as well.

Moreover, the commercial viability of microgrids is a challenge, given the low paying capacity of people and almost nil commercial loads in remote areas. The high capital costs, along with limited financing options, are another major impediment in the development of microgrids. Financial institutions are reluctant to provide funds for microgrid projects due to the level of risk involved. Hence, there is a need for regulations and further government interventions to facilitate finances for microgrids. Developers also need to convince customers/ villagers to set up microgrids. This involves significant time and effort, and developers may even need to shelve their plans if a consensus cannot be reached.

Another shortcoming of microgrids is intermittency due to renewable energy generation. To overcome this, developers may install storage systems, which come with a high cost, or hybrid systems in which two or more sources can complement each other at various points of time. While there are programmes for such large-scale hybrid systems, there is a lack of a framework for hybrid decentralised renewable energy (DRE) systems. In view of these challenges, interventions are needed for better implementation of existing policies as well as provisions regarding the post-grid scenario, interconnection with the grid, hybrid systems, etc.

Programmes and initiatives for microgrids

In order to develop microgrids, as part of the above-mentioned policies and in addition to them, various initiatives have been taken by the government and other players. Recognising the high capital costs involved in setting up microgrids and to encourage private developers, the government has been pursuing several programmes that provide funds for initial investments in mini-grid development.

In 2005, the Ministry of New and Renewable Energy (MNRE) announced the Village Energy Security Programme to support remote village communities to utilise biomass resources and offered capital subsidies for setting up biomass gasifier-based microgrids. The MNRE also supports microgrid projects under the Remote Village Electrification Programme (RVEP), which was initially set up to support solar home lighting systems and lanterns in remote villages. The Ministry of Power (MoP) initiated the Decentralised Distributed Generation Scheme under the Rajiv Gandhi Grameen Vidyutikaran Yojana to support the implementation of decentralised distributed generation projects in areas that are not connected to the central grid. This scheme has now been extended to grid-connected areas where electricity supply is less than six hours a day.

More recent initiatives include the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), the Power for All programme, and the India Smart Grid Roadmap, which also support electrification of rural households and the setting up of microgrids. All the states in India have unanimously decided to ensure electrification of all the unelectrified villages by 31st March 2017 in “mission mode” under DDUGJY, with over 2000 villages to be electrified using off-grid solutions. In June 2015, the Indian and the US governments established the PACEsetter Fund to support the Promoting Energy Access through Clean Energy initiative by providing early-stage grant funding to accelerate the commercialisation of innovative off-grid clean energy products, systems and business models. Also, Government of India has approved the National Smart Grid Mission (NSGM) which will be operational soon. NSGM will drive implementation of policies and programmes related to smart grid activities which includes microgrids as well. The composition, structure, functions, outlay, etc of the NSGM is approved. For the 12th Plan, expenditure on development of micro grids has been estimated to be Rs. 27 crores.

Another step to support the development of microgrids has been a study on the regulatory and policy framework needed for offgrid distributed generation and supply, undertaken by the Forum of Regulators (FoR). The study specifies the terms on which an entrepreneur can develop a mini-grid and supply electricity. In another initiative, the FoR has formulated the Model Smart Grid Regulations, 2015, and microgrid projects have been included in this as a component of smart grid projects.

The way forward

To enable microgrid development on a larger scale and leverage its potential in enhancing energy access in rural areas, a sound policy and regulatory framework is a prerequisite. A number of programmes have already been taken up by the government and private players; however, there is a need for more targeted programmes, financing mechanisms and regulations regarding operations, electricity supply and tariff-determination for microgrids, standards and procedures for microgrid connectivity, etc.

The MoP has constituted a committee to review the NEP. As per the existing policy, wherever grid extension is not feasible, decentralised distributed generation facilities, along with the local distribution network, would be provided so that every household gets access to electricity. Microgrids are proposed to be added to this scope not just in unelectrified areas, but also in areas where the grid already exists in order to support it in times of need. The inclusion of microgrids in the purview of the NEP, if approved, could be a major step forward for microgrid development in India. A Smart Grid Knowledge centre is also being setup by Powergrid Corporation of India Limited, which will help in dissemination of information and adaptation of technologies and thereby increase consumer awareness.

An interesting state-level initiative is Uttar Pradesh’s proposed solar mini-grid policy. The mini-grid policy is reportedly ready and is awaiting approval from the state cabinet. The policy is expected to provide clarity in terms of issues like tariff regulation, minimum supply commitment, compatibility with distribution companies and safeguarding of investment. The Uttar Pradesh Electricity Regulatory Commission has also initiated deliberations on remote village electrification through solar-powered mini-grids ranging from 10 kW to 500 kW. In addition, more innovative models are being developed for the promotion of microgrids. One such model is the Off-grid Distribution Generation-Based Distribution Franchisee model. In this, the developer not only generates electricity but also undertakes metering, billing and collection on behalf of the discom within the cluster. This model ensures certainty of revenue for the developer and can facilitate the integration of off-grid projects with the main grid.


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