Microgrids in India: Myths, misunderstandings, and the need for proper accounting

India has a vibrant market for batteries and inverters and even diesel generators – but a cynic could call these responses to the failure of the grid in providing quality supply. Are microgrids similarly stepping in to fill gaps in grid-based supply? This Impact Series Paper revisits the fundamentals and drivers for microgrids, and suggests that a “gap-filling” or competitive model against the grid may not be the most scalable solution.

Key Points

1) Many Indian microgrids have been a response to “bad quality” or unavailable grid supply – this model faces an existential threat as the grid improves.

• For much of India, the challenge has been one of last-mile connectivity to the home, as most villages now have the grid reaching them. Last-mile connectivity problems remain with a microgrid. Even “poor supply” as a driver is diminishing as the grid is improving.
• The government’s Saubhagya household electrification scheme aims to address grid-based household connectivity within a few years, exacerbating pressure on microgrids.

2) While almost no microgrid today proclaims to be cheaper than the traditional grid (except in a few remote locations), reliability and quality have ostensibly been its drivers. This is hard to achieve, except at a higher cost.

• Supply of cheap renewable energy (RE) is a misnomer. Opportunistic RE (take it when it is available) may be cheap, but adding a battery or otherwise providing reliability makes this power very expensive.
• For any consumer of limited electricity, last-mile infrastructure fixed costs dominate energy costs. This applies to both microgrids and the traditional grid.
• “Right-sizing” a microgrid is very challenging, especially since almost all costs are fixed (especially if based on RE). Over-sizing a microgrid means costs are not covered, while undersizing it means the system does not have headroom for either growth or occasionally higher demand. The traditional grid enjoys far greater flexibility from both demand and supply diversity.

3) Microgrids may be best positioned to be hybrid (interactive) with the grid. This enables a long-term future where they do not become “redundant” and also allows for evolution of load and supply options.

• An interactive or interactive-capable microgrid can address a spectrum of objectives, ranging from primary supply, backup/secondary supply, islanding for stability reasons, to opportunistically cheaper supply (when available).
• Grid-interactive microgrids can play into evolving business models and competition based on smarter systems that dynamically engage with the grid (and change the direction of power flow) based on a combination of local load, local supply, and external grid conditions. These cannot work with simple DC microgrids.

4) Suggestions to improve microgrid viability as well as overall electrification include:

• Make subsidies, cross-subsidies, and other support offered to regular grid providers available to any third-party rural provider, including microgrids. Such support is not just for tariffs but up-front costs as well (explicitly and implicitly)
• Set power prices (tariffs) for the grid that are at least equal to the variable cost of supply at a fuel level (which might be Rs 1-2 per unit in most states lagging behind on household electrification, which are mostly near coal fields). More than creating a culture of paying, this overcomes utility resistance to serving such users, and also improves the benchmark for microgrids (but not enough for viability). For the truly poor, even at low consumption, one could provide a separate subsidy, perhaps a direct benefit transfer, for this electricity.

To download the accompanying microgrids model, please click here.

Download the paper.