Growing India’s Minigrid Sector: Why Developers are Wary

March 9, 2016
Minigrids, the term used in India for microgrids of 10 to 200 kW, are crucial to the nation’s electrification. But investors are wary…

Minigrids, the term used in India for microgrids of 10 to 200 kW, are crucial to the nation’s electrification. But investors are wary. Zadie Oleksiw, a Fulbright Scholar based in Delhi and a Renewable Energy World contributor, explains why.

There’s a popular Hindi and Punjabi word called jugaad, which can loosely be translated as a jury-rigged solution to a problem. It’s not the proper fix, but it’s a resourceful alternative.

In many ways, power access in rural India is jugaad. More than 300 million people — a quarter of India’s population — lack access to electricity, and that number doesn’t count the millions more who endure frequent outages in partially electrified villages. As a result, many people get power through dangerous, illegally connected wires.

This past summer, Prime Minister Narendra Modi pledged to power the 18,500 villages that currently lack electricity by 2019, renewing a wave of hope for the state of power in rural India.

Modi is mostly thinking big when he talks about power reform: utility-scale solar parks, increased coal production, and a multibillion-dollar overhaul to the central grid to deliver it all.

While the administration’s objective is commendable, it’s important to recognize that it doesn’t mean delivering power for the entire quarter of the population who currently lack access.

By government standards, a village is officially electrified if 10 percent of homes have power, and the plan doesn’t count hamlets with fewer than 100 households. Even then, those 10 percent have sporadic power for a couple of hours a day during blocks of hours that vary week by week.

Most stakeholders, including the administration, know that extending the grid to every corner of India is unrealistic over that timeframe. And despite Modi’s recent utility revival plan, the big picture is bleak: aging infrastructure, capital constraints (India’s utilities are around $70 billion in debt), transmission loss of up to 50 percent in some states, theft, insufficient supply, and the cost of subsidizing electricity for a population that expects free power or refuses to pay for unreliable service.

Connecting Minigrids, and Their Challenges

Modi’s promise illustrates the necessity for minigrids — among other forms of energy that are independent from the main grid — to help meet demand from both first-time power consumers and for existing utility customers who aspire to reliable access.

For minigrid developers, however, there is significant uncertainty about projects’ investment, viability, and customers once the central grid arrives. One major unknown is how the inevitable crossroads between centralized and decentralized power providers in India will intersect, since they have little in common besides the objective to provide power to rural populations.

This challenge is at the forefront of the debate, and minigrid stakeholders, recognizing the complexity of the situation, want to gain more experience on the ground before accepting hasty policy solutions.

In India, the distinction between minigrids, microgrids, and picogrids is a function of size. Minigrids are 10-200 kW projects and are usually powered by solar. Microgrids are generally under 10 kW, and picogrids are even smaller, connecting a handful of homes to a single solar panel. While all of them are an important component of the power access solution, larger minigrids are particularly vulnerable during central grid extension.

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How minigrids can coexist with the central grid is unclear and varies by state, although the Modi administration’s amendments to power tariffs announced recently could serve as a catalyst for improvements.

There is a mandate for the state run power distribution companies (known in India as discoms) to purchase excess power from minigrids already in villages. The problem lies in the lack of clarity about rates, interconnection standards, safety requirements, as well as the roles of the minigrid operators and the discoms.

The cost alone is challenging. Discoms, already operating at a huge loss, aren’t interested in buying power from minigrids. Even if they could, reconciling the voltage disparity between the power that discoms distribute and that minigrids produce is a cost that no side can reasonably incur. Anyone willing to take on that burden would still have to bear the significant transmission loss of transferring that power from remote areas where minigrids operate.

Customer management is also puzzling. People almost always abandon the minigrid for the free government-provided power once it reaches their village. Experience has shown, however, that following reliable access from the minigrid, rural customers quickly become dissatisfied with government power cuts and infrequent peak hour supply, and return within the first six months. Still, the scenario presents myriad problems, the most obvious being the absent client base during the exodus.

The more ambiguous issue that emerges is maintaining the purpose of the minigrid: guaranteed reliable power over the long-term — 10 to 15 years. When the central grid arrives, no one is sure how to meet that objective while also ensuring returns on the investment.

Discoms also don’t disclose grid extension plans, forcing minigrid developers to blindly select villages without knowing when to expect the central grid’s arrival. One industry stakeholder explained that it’s largely political. Local leaders prefer constituents who think that electrification is imminent, and they also avoid pressure from villagers who might learn that a rival village will receive power before their own.

Minigrid development in rural India is riddled with challenges, and the government’s growing encouragement of the sector is just one of many pieces to unlocking its growth. Still, it’s a critical one.

During a recent Ministry of New and Renewable Energy roundtable to gather input from sector stakeholders, participants voiced these concerns as some of the biggest impediments to scaling up their businesses.

While some policy solutions are clear — say, mandating that discoms provide transparency and better access to information — others are not.

As is the nature of emerging markets, there are still too many unknown variables to chart all routes for the best path forward, and stakeholders are learning what favorable policies could look like through experiences playing out right now.

If powering every village by 2019 is a serious goal, the government must recognize minigrid integration as one primary avenue to achieving it, and heed industry input as policies are formed.

Zadie Oleksiw is studying the off-grid solar sector in rural India with a focus on solar microgrid business models.  This article was originally published by Renewable Energy World and was republished with permission.

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