Access to Energy

Microgrids offer a promising solution

Microgrids or local energy grids with distributed generation sources, typically renewables, with control capabilities can provide a promising solution to India’s energy access problem. Microgrids can operate either in grid-connected or isolated mode, but in India, they are mainly being installed in areas where the grid penetration is low or it is not accessible. The modular nature of microgrids enables fast installation, remote monitoring and continuous power supply. Conventionally, microgrids in India have been based on the hydroelectric sources of power, though biomass, wind, gas- and diesel-based, and hybrid systems have also been deployed. Of late, the focus is on solar power-based microgrid systems along with energy storage capabilities, mainly in the backdrop of the government’s ambitious targets for the segment. As per the Ministry of New and Renewable Energy (MNRE), 63 microgrids totalling 1,899 kWp have been installed in the country so far. The MNRE has provided financial support of up to 30 per cent of the cost of micro/mini-grids systems for installation in rural areas.

Applications

The electrification of the unelectrified remote and rural areas is one of the major application areas for microgrids. For instance, in states like Jharkhand, the majority of the tribal population lives in remote areas where extension of grid supply is difficult owing to rough topography. Similarly, in Ladakh, the hilly terrain limits the laying of transmission lines and towers. Although rapid strides are being made to extend electricity access to all, especially under the newly launched Saubhagya scheme, a large number of households are still unelectrified. There are over 30 million un-electrified households sanctioned under the scheme, of which 500,000 are in remote and inaccessible areas. These households will be provided solar photovoltaic power-based standalone systems at an investment of Rs 25 billion. In fact, a gross budgetary support of Rs 18.85 billion has been earmarked for the same.

Microgrids are ideal for supplying electricity to islands like Andaman & Nicobar and Lakshadweep, where it is often difficult and expensive to extend the grid. In addition, the susceptibility of such islands to different types of weather phenomenon like hurricanes and cyclones further strengthens the case for isolated microgrids. Microgrids can also be deployed to support coast guard installations and port development projects.

Microgrid solutions are also useful for industrial and commercial enterprises engaged in mining, oil and gas exploration, manufacturing, etc. that are expanding operations in emerging markets like Asia-Pacific, Africa and Latin America. Electricity access in certain native economies is poor and microgrids can provide uninterrupted power for seamless operations. Besides, many cities with well-developed electricity grids are looking at microgrids as an option for islanding to provide continuous power in case of interruptions due to faults or natural disasters. Microgrids have the ability to perform in extreme conditions to ensure seamless power supply. Therefore, in the event of any calamity, they can provide resilient power back-up.

Policy measures

The 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, 2005; the National Tariff Policy, 2006; and the Rural Electrification Policy, 2006.

Microgrids have received a policy push through the amendments to the Tariff Policy, 2006 notified in January 2016 as well as release of a draft national policy by the MNRE in June 2016. As per the amendments, power is to be provided to remote and unconnected villages through microgrids with a provision for sale of power to the grid as and when the grid reaches there.

The MNRE’s draft National Policy for Renewable Energy based Micro and Mini Grids aims to promote the deployment of mini- and microgrids based on solar, biomass, pico-hydro, wind, etc. in unserved/underserved areas of the country by promoting state level policies. The policy targets the installation of 10,000 mini and microgrids aggregating 500 MW (taking average size as 50 kW) of generation capacity in the next five years. The draft policy includes measures such as single window clearance, implementation of the energy service company (ESCO) model for microgrids, and grid connectivity and pricing guidelines. The policy suggests the deployment of large-sized mini grid projects above 10 kW. However, the final version of the policy has not been released yet.

Further, the union government’s smart grid pilot projects underway in some cities have microgrids and distributed generation as an important functionality. These include pilot projects by APDCL in Assam, CHESCOM (Mysore), the IIT Kanpur smart city platform and the Smart Grid Knowledge Centre in Manesar, Haryana.

Industry structure

According to the Climate Policy Group, there are over 40 decentralised renewable energy players in the sector (with more than 100 kW of mini or microgrid installations), which have adopted a wide range of technologies and business models, but most are struggling to achieve commercial viability. These include Azure Power, Gram Power, OMC Power, Husk Power, Saran Renewable Energy, Gram Oorja, Solkar, Desi Power, Biotech India, Mera Gao Power and Naturetech Infra. However, the majority are reliant on subsidies and/or grants. However, enterprises such as Azure Power, OMC Power and Husk Power have shown positive signs, and are likely to witness strong growth over the next five years. Recently, Husk Power received a major boost with an equity investment of almost $20 million from oil company Shell and European utility ENGIE to support the company’s expansion efforts in India and Tanzania.

A similar trend can be observed in the solar home system market, which comprises over 40 established players and new entrants trying to capitalise on the growth opportunities. While no single player has achieved meaningful scale to date, there are some large players linked to conglomerates that have won government tenders, but these enterprises have struggled to claim a sustained pipeline of direct customer sales.

The majority of the remaining players are small, selling less than 5,000 units a year, mostly through third-party distributors and dealers. There are a few players, however, who have been successful in reaching rural households by building their own rural distribution networks, focusing on branding and building relationships with consumers.

Challenges

Owing to high operations and maintenance costs, low capacity utilisation factors and high initial investment, the tariff of power from microgrids is usually higher than that of grid supply. This poses a challenge on the viability of microgrids if grid power reaches the area of microgrid installation.

Developers have expressed concerns regarding the central government’s rural electrification drive in off-grid areas. This has resulted in the closure of many microgrid capacities in the recent past. The developers are often not informed about state rural electrification plans in the areas where they are operating mincrogrids for power distribution.

In order to mitigate these risks and incentivise investments in microgrids, the amended tariff policy stipulates state electricity regulatory commissions (SERC) to put in place an appropriate regulatory framework for the compulsory sale of power to the grid. The tariff for the same should be determined by SERCs considering the depreciated cost of investments and industry benchmarks. Further, there is a need for a specific set of regulations that stipulates the technical standards for the interconnection of microgrids with the central grid.

In addition, developers find it difficult to secure investment for microgrid projects owing to higher risk perception. Even if they are able to secure loans for the project, the cost of debt is high. Besides, there are challenges pertaining to affordability and collection of regular payments from consumers with low paying ability. There are negligible industrial/commercial consumers that can be cross subsidised.

The way forward

To improve the viability of microgrids, some of the key suggestions made by industry experts include extending financial support for both tariffs and upfront costs. “Subsidies, cross-subsidies, and other support offered to regular grid providers should be made available to third-party rural providers including microgrid developers. Such support is not  just for tariffs but upfront costs as well (explicitly and implicitly). Further, power prices (tariffs) for the grid must be equal to the variable cost of supply at a fuel level (which might be Rs 1-Rs 2 per unit in most states lagging household electrification, which are mostly near coal fields),” states Rahul Tongia, Fellow, Energy and Sustainability, Brookings India in a recent report on “Microgrids in India”.

Net, net, as the price of renewable energy technologies and energy storage solutions is declining, microgrids are becoming more cost-effective and their deployment is picking up pace across the world. Social surveys also point to consumer satisfaction with regard to the electricity supplied from microgrids as compared to the central grid as the latter is often perceived to be distant and unaccountable. Going forward, microgrids are expected to improve  electricity access across the country.

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