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Minigrids: The Next Energy Beacon

Sarraju Narasinga Rao, January 18, 2016

India is betting heavily on renewable energy to produce a significant chunk of the electricity necessary to power 8 percent GDP growth, with a much smaller carbon footprint that will be compatible with the country's carbon reduction targets. The government has set an ambitious target of nearly 200 gigawatts (GW) from renewables by 2022—of which 100 GW will be from solar energy. Industry has risen to the challenge, making commitments to build solar capacity of 175 GW, exceeding the target by a fair bit.

At present, however, approximately 22 percent of India, or 275 million people, lack access to electricity. The deficit is more acute in rural India, where 33 percent of the population has no power. If the twin and interconnected aims—of growth, manufacturing and commerce, along with access to electricity for all—are to be met, the most promising option to generate and distribute energy is village-scale solar-powered minigrids.

Minigrids can produce and distribute clean, affordable power right where it is consumed. Just one 50 kilowatt peak (kWp) solar photovoltaic (PV) plant with battery storage, and an aggregate minigrid length of five kilometers, can power a host of small businesses, micro-enterprises, banks, petrol pumps, educational institutions, health centers, two telecom towers and more than 500 homes.

This signals a paradigm shift in energy delivery. It is a simple and elegant model that can be the future of power.

Involving the private sector

The role of private enterprise in power supply has long been recognized by the Indian government. While there are business models for minigrids that can attract private investment, treating minigrids as an industry class is a recent phenomenon, with all the policy uncertainties that accompany a fledgling sector.

Considering the magnitude of energy poverty in India, a large number of private players with sufficient scale and number of minigrids will be needed to provide efficient, sustainable and rapid access to energy. One way to do this would be through private-sector-run Renewable Energy Services Companies (RESCOs), wherever required, to serve the community as the local power utility.

Policy changes

A predictably uniform and equitably conducive policy environment is necessary for India to spawn a host of minigrid players who will provide energy access to millions of people.

The Ministry of New and Renewable Energy (MNRE) recognizes minigrids as a separate segment under the Off-grid and Decentralised Applications Programme of the National Solar Mission. In January 2015, the ministry invited companies to empanel themselves as Rural Energy Service Providers (RESP), and notified a programme under which it proposes to provide for central financial assistance to RESPs implementing minigrids in rural areas.

For expanding minigrids, state governments will be key players. In India, state government agencies like the New and Renewable Energy Development Authorities design and implement state-level schemes, much like the MNRE, in addition to providing nodal agency services to monitor projects implemented under MNRE schemes.

For example, the government of Uttar Pradesh is considering the idea of putting in place "an ambitious 'mini-grid policy' to boost the New Energy sector," to electrify 20 million households that lack energy access. The Uttar Pradesh New and Renewable Energy Development Agency is preparing a minigrid policy for the large-scale operation of this energy-access program, and has started to engage all stakeholders, including government, industry and RESCOs, in a consultative process.

The new policy reportedly aims to "not only facilitate the private players to set up solar power plants and power a set of rural households but also recover tariff from the users." This is a momentous step, especially considering that the UP Solar Policy in 2013 mentioned "off-grid" only once in the introduction.

A fundamental difference between such a policy objective vis-à-vis those of previous policies of the state and of the MNRE is the explicit treatment of minigrids as a solution for energy access to unelectrified households in rural areas.

A crucial feature of a national minigrid policy should be a nationwide template for state minigrid policies, regulations and mechanisms to ensure uniformity and predictability. This is essential for RESCOs to be able to quickly deploy a fleet of minigrids across states.

Contrasted to earlier MNRE programmes, which limited project developers by prescribing inflexible technical specifications and beneficiary outcome measurement for subsidy purposes, new minigrid policies should focus on facilitating RESCOs. This can be done by simplifying the bureaucracy involved in setting up and providing minigrid services, and allowing them to collect tariffs from the consumers.

However, the biggest requirement of a state minigrid policy would be a framework for minigrids to integrate with the state distribution companies' grid at the village level. This can be achieved in several ways, including through equitable power purchase agreements (PPAs), asset purchase or even allowing the RESCO infrastructure to be the last mile infrastructure as a franchisee or licensee. The protection that such a framework will give to RESCO investors is critical to funding a minigrid business.

Financing

Access to capital is a thorny issue in India for renewable energy, more so in the off-grid space. It is extremely difficult to get domestic no-recourse debt, and getting foreign debt into the country is a time-consuming and complex process, whatever the route. Simplifying this is essential for investment.

Banks and FIs can help bridge the gap with priority lending, but lack a clear mandate, and the packet sizes of the priority-lending sector are far too small. To address these gaps, what is required are financing guidelines for the priority sector that take into account the scaling needs of the minigrid business.

A national minigrid policy that addresses these issues and eases financing mechanisms will go a long way towards creating a robust rural minigrids network. If done correctly, national and state minigrid policies will become the beacons of energy access to India's rural communities in the next 36 months.

This article was written for Gateway House: Indian Council on Global Relations. Sarraju Narasinga Rao is the chief technology officer at OMC Power, where he helps bring renewable, reliable and affordable power to rural Indians who are still off the grid. The views expressed here are his own and do not necessarily represent the views of OMC Power.

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