Solar Mini Grids in India

Solar mini grids have been much talked about, as the answer to the electricity access problems of India’s more than 300 million rural poor. With all the talk about India’s high GDP growth rate, it is conveniently forgotten that India has one of the largest population of poor people in the planet with competition to its low living standards only being given by sub-Saharan Africa.

While there is a lot of talk about the Indian government electrifying all villages by 2019, the target definition is itself flawed. As rural electrification is rolled out throughout the country, it is expected that demand for electricity will grow very significantly. India and all the key stakeholders within the rural electrification program need to be better equipped in addressing the current issues within the sector and building capacity to meet the growing demand from the newly electrified villages. On the policy front, a more comprehensive policy towards rural electrification needs to be developed, along with provision of financing tools for the rural inhabitants to be able to afford energy.

Read how Micro and Mini Grids are set to power India.

As per the Indian government, electricity reaching just 10% of a village’s population implies that the village is electrified. With the vast majority of the village living in the dark and India’s notorious power availability issues, most people will still live in the dark unless innovative business models are brought to execution.

Challenges of Rural Electrification in India

 The biggest challenge faced by the rural electrification program is that while villages in India continue to reach 100% electrification on paper, its villages actually are falling behind.  Recent studies have shown that a large part of India’s electrification and energy access is on paper and that nearly 96% of villages in India are electrified, but only 69% of homes have electricity connections (based on studies done in six states in India).

Also Read A Power surplus in India.

The main cause of the disparity between these paper based electrification numbers and ground level numbers is that as per the government guidelines, a village is considered electrified if public places in the village and 10% of its households have access to electricity. People living in rural areas may find it difficult to pay bills or even pay for equipment for basic connectivity because of their limited and irregular income. Discoms operating in poorer, rural regions may face issues around collecting regular payments from customers and would have to prepare for potential high default rates.

Solar Mini Grids in Villages

Solar Mini Grids are an ideal solution given that solar prices have come down by 80% in the last 5 years and will keep declining at a 5% plus rate over the next 5-10 years. This coupled with the rapid decline in energy storage prices, which should go down by 50% in the next 5 years with the development of the lithium giga-factories, could get solar powered electricity from mini grids at INR 5-6/kWh by 2020. The Indian government has come out with a policy to encourage solar mini and micro grids. The Indian government wants to set up 10,000 solar mini grids with 500 MW capacity as the first step going all the way to 10 GW of capacity in the coming years.

While a few companies have started a business model of selling electricity in rural areas from RE micro grids, it has not really scaled up due to high cost and lack of clear government policy and regulations. The electricity markets are highly regulated in India like other places in the world. There are big areas of concern for private companies selling power in rural areas. What if the grid reaches a village and starts selling power at a subsidized rate. As the ESCO model is based on prepaid, they might find their assets getting stranded.

Challenges and Risks to installing a Solar Mini Grid

1) Lack of clear policy and regulations: There is no clear policy or regulation by the state and the centre. The new RE policy by the central government does not have a clear business model on how it will work except naming stakeholders and describing what a mini grid is.

2) Low awareness: The villages and the major stakeholders do not have the knowledge about the challenges, issues and opportunities in the sector. It is a difficult terrain to navigate and most companies have not applied their mind into getting into this niche.

3) Lack of financing: Given the huge risks facing solar mini grids, there is a big concern that it may not be profitable over the long run. It is but natural for banks and private funds balking from investing in a sector with such high risks. The government has to give assurance about the long term sustainability of this model before private capital will flow into the sector.

Conclusion

Despite the major challenges facing the solar mini grid sector, the massive demand and the improving economies means that this sector will see an exponential growth going forward. The companies which can build innovative business models, execute well can scale up sharply in the coming years. The government policy evolution will also have to be capitalized on to make this a success for the companies entering this sector. There are a number of startups that have entered this field, with no major company going there because of the size issues. I think this provides an interesting niche for new companies looking to enter the booming solar industry.