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Democratising power for all: The decentralised renewable energy way

Integration of mini grids with central electrical grid is critical & calls for a focused approach

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Sambit NayakNidhi Bali
Last Updated : Jun 09 2017 | 9:58 AM IST
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A dramatic change in India’s power situation with a massive renewable energy capacity addition of almost 140 percent in a span of last five years has been making headlines in recent times. However, limited access to the power generated and lack of efficiency in delivering to the last mile make this achievement only half the battle won. Misleading definitions of electrification continue to cover up the grassroots situation of lack of enough power reaching households. 

The missing link in achieving 100 percent access to quality power has been the lack of a bigger vision that adequately balances the multifarious and at times conflicting objectives of India’s power sector. From a ‘power for all’ paradigm using the centralised grid infrastructure to achieving financial stability of distribution companies, from meeting commitments of Paris agreement on climate change to addressing the ever increasing energy needs of an aspirational rural populace, the contradictions are many. 

The key lies in creating solutions that balance these demands and do so in a way that complements existing institutions and newly built infrastructures some of which are yet to see  investor exits. An important step forward is also to consider the entire spectrum of options (Figure 1) available while planning energy delivery and account for the lost opportunities due to the delay in access to reliable quality power in rural underdeveloped regions. 

Decentralised renewable energy (DRE) solutions like mini and micro grids, standalone systems and pico lighting solutions are credible answers to much of the dilemma faced. Mini grids especially have a larger potential as they offer end to end services for the rural consumers including generation, distribution, metered connection, revenue collection and other consumer services and serve well the densely populated nature of Indian geographies. 

Based on Intellecap’s experience and those of some recent programs in nurturing mini-grid enterprises, they face a host of challenges in scaling up and replicating their successes, apart from tariff subsidy. Some of these are: 
  • Lack of clarity on grid extension efforts, integration and exit related issues impacting the investment decisions
  • Market distorting subsidies impacting investors and customer trust
  • Enterprise operations in a complex market landscape with geographical challenges, different socio-economic segment needs and payment abilities, thereby increasing the risks and cost associated with the project 
  • Limited internal capacities of emerging early stage enterprises to manage operations, locate and hire talent in remote locations and comply with evolving regulations
  • Limited access to finance due to the perception of high risk associated with rural markets and unclear policies. Risk mitigants like storage technologies and grid grade distribution infrastructure increase the requirement of finance.   
  • Absence of end user financing for access to energy products in-house financing by enterprises, results in absorption of credit-risk thereby further increasing their risk profile

Addressing above challenges requires appropriate policy interventions besides investor and donor support to build capacities of DRE enterprises. Integration of mini grids with the central electrical grid is also critical and calls for a focused approach. 

From a cost effectiveness perspective, it is important to note that solar hybrid mini grids are already cheaper as compared to the incumbent energy services that rural consumers currently use. However market distortions in the form of subsidies play a spoilsport and need immediate resolution. Enablers like rapid technology cost reductions, increasing economies of scale and more competitive supply chains are expected to make such energy options more competitive. 

Pertinent to note is also the emerging convergence of DRE and central power grids in the developed world considered far ahead of the curve in realising 100-percent access to power. DRE in these markets is evolving as a grid modernisation tool to fill gaps created by central grid’s inadequacy related to local demand management, stability in the face of increasing renewable penetration and transmission losses necessitating change of generation profile to tail end. 

Markets from US to Japan, Latin America to Europe are witnessing winds of change and launching revolutionary power market reforms to fully embrace the potential of micro generation. It remains to be seen how countries like India that have a golden opportunity to avoid the pitfalls in the conventional path well-trodden by the west use this to their advantage. 
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Sambit Nayak, associate vice president, and Nidhi Bali, associate vice president, work at Intellecap, which is part of the Aavishkaar-Intellecap group (a pioneer impact investing group)

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