Micro-grids: The way forward for Indian energy sector!

A black-out lasting for 2 days in the heart of the Indian capital due to a transmission causality in a place about 150km away from it. Few state governments & UTs getting paid for only 65% of the energy they buy from generators, resulting in guaranteed losses of SEBs. The last mile connectivity hurdles of the power distribution networks rendering the valuable hours of our farfetched villages less productive. The industrial belt in Tamil Nadu reaping Rs.150 crore revenue loss every day, on account of just 85MW out of the 1100MW agreement reaching the borders of the state. A 20 year old project for building a nuclear plant being with-held from operating on accounts of the scare of potential environmental hazards. This is precisely the background against which the idea of giving importance to renewable & micro-grid is based on.

Now without much ado, if we have to articulate the advantages that a micro-grid could bestow, it would be to:

Reduce of the 27% loss in AT&C for India which is 8% globally

Reduce energy conversion loss of 5%: Light to light instead of light-electron-light

Reduce peak power consumption by 11%

Responsible usage of power for small groups & ensure productive usage of electricity

Integrate citizen services, governance

Last-mile connectivity & dependable source of energy for local community

Least time taken to setup a power source for a community

Despite offering so many advantages, the idea of micro-grid & solar still lurks in the dark owing to the combined effect of ignorance, funding hurdles and of course lack of will. The foulest vice of renewable is that of its variability in output & undependability. It’s the same variability that would reduce the utilization factor of transmission system to the choice of seasons and unavailability of benchmarks for financial institutes to evaluate projects. Eg. The same solar potential within the same district at 2 places with 35km of spatial separation & 2 different technologies might give glaring differences in yield of up to 30%! The transmission network which would carry the solar or wind power as and when it is bestowed by nature would otherwise be dead as a door-nail. Add to the inherent uncertainty of renewable, the direction & clarity of policies revolving around RECs, payment mechanisms, nose-diving solar energy prices and lack of benchmarking standards for financial institutions make the understanding of renewable & micro-grid market all the more murky.

To unwind the juggernaut, each characteristic of the renewable & micro-grid will have to be understood separately at first, and collectively next.

Variability in production: The grid code of handling 30% fluctuation for wind, and probably a similar code for solar in the future, simply shifts the brunt of nature from empty transmission lines onto project developers who are in to reap profits. India has about 37GW or roughly 20% of its power from hydro-power, and only the Tehri dam is planned for large scale storage. The untapped potential for more hydel projects could also be the best avenues for storing electricity at the grid level. Alongside hydro, the other centralized storage systems would account for absorbing the shocks of variable production from micro-grids and ensuring greater utilization of transmission lines.

Variability in prediction: Renewable energy installations in UMPP scale could be given a mandate to follow a particular load cycle. This would stabilize the flow of electricity into the grid, give time for grid managers to ensure power quality at the macro-level & stable revenue stream evaluation for the banks.

PV Fluctuation: GETCO

Incentives/policy to migrate to renewable: The key barriers to adopt wind or solar at the micro-level are likely the high initial capital investment, storage requirement to reign in variability, lack of knowledge on wind & solar, optimism of cheaper grid electricity being available at sometime in the future, lower cost of heavily subsidized main grid power and lack of will-power despite incentives from utilities. Most of the policies that serve as incentives for distributed generation are transitory in nature, i.e. the quantum of incentives is fixed only over a certain period of years. Eg. REC guidelines, FiTs for domestic rooftop PV installers, etc. Though the transitory incentives in actual reflect the spiraling price trend of solar & wind, they actually implicate some undesirable signals to the industry:

o Consumers opine that someday the main grid would be available, and then the incentives would disappear. Hence the consumer would not step in a situation where angels fear to tread.

o Unreliable revenue stream for banks to disburse financial assistance, if the need be.

High & unstable capex (initial costs): It’s well known fact across the table that the cost of running of a renewable plant is far lesser than the conventional power plants, and to compensate for this the cost of setting up a plant is pretty huge. The high capex places a huge impediment in the way of potential RE users, and evaluating an asset that yields unpredictable cash flows in untenable for the banks to finance it. The culture of last wrung of ‘mango’ people to take debt for powering themselves is also not a common happening in India. In such a scenario, setting up of a micro-grid or rural electrification can only be done by a bidding route conducted by one of the state nodal agencies, and the subsequent collection of bills from customers falling under the purview of the same nodal agency itself. In such a process, the role of private equity would be restricted to be contractors, but would encourage the setting up of power supply systems for the last leg of supply.

Potential of wind & solar in India, and compliment the presence of thermal plants in India

In the light of the above discussions, it’s evident of the following safe conclusions:

A central grid management aided by a large scale storage which acts as a back-up for micro-grids to ensure power quality & peak demand management

Micro-grids that ensure generation at a point closest to the point of consumption, and the excess generation is evacuated & stored by the central mechanism.

Open system of payment by customers on a per kWh basis from the micro-grid: This would negate the mental blockade towards higher capex, ensure responsible usage of electricity & shift the onus of payments to more credit-worthy client.