India issues a credible draft of mini and micro grid policy

The Ministry of New and Renewable Energy (MNRE) has issued a draft national policy for mini and micro grids (refer). The policy aims to create up to 500 MW capacity in the private sector in the next five years.

  • India has a terrible record on providing reliable grid electricity to large parts of the country; several startups have enjoyed limited success in the mini and micro grid sector but a scalable, profitable model seems to be elusive
  • The policy provides some much needed policy certainty to the sector and includes measures such as single window clearance, grid connectivity and pricing visibility for evolution of bankable business models
  • Grid power is heavily subsidized for residential and agricultural consumers and the ability of these consumers to pay for more expensive mini/micro grid power continues to be a concern

The Modi government wants to provide ‘24×7 power for all’ in the country by 2019. This is a very lofty target as India has up to 250 million people without access to grid and many more still who have grid connection but face outages of up to 16 hours a day.

As a part of the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY), the government is in the process of electrifying 18,452 villages by May 2018. Out of this, 14,204 villages have been identified for extension of the grid and 3,449 villages are to be electrified through off-grid power projects (refer). As per the government data, grid extension work is progressing ahead of schedule and 49% of the target has been achieved in the past one year. However, only 16% of the off-grid target has been achieved so far (refer).

Several start-up enterprises have sprung up in the last few years offering multiple business models and product solutions in this space. Companies like Husk Power, Gram Power, Gram Oorja and OMC Power have enjoyed reasonable success but a scalable, profitable model seems to be largely elusive. Main challenges include customer inability to pay (poor affordability), poor policy framework and multiple implementation challenges.

The draft policy is technology agnostic and tries to address many of these challenges:

  1. determination of regulated prices for mini grid projects with some tariff determination flexibility provided to mini/micro grid operators;
  2. single window clearances for seeking regulatory approvals and right of way, availability of information on taxes and exemptions;
  3. notification of areas where grid extension is not planned;
  4. creation of local village committees to ensure customer adoption, payment collection and faster dispute resolution;
  5. provision of grid connection to enable sale of power to local utilities;
  6. RPO multiplier to make interconnection more attractive for distribution companies; and
  7. specification of quality and performance standards.

The policy is still in draft stage and is meant as a guideline for states, who can adapt or modify the policy based on their local needs. BRIDGE TO INDIA believes that it provides some much needed policy certainty to the sector and includes many of the measures needed for evolution of bankable business models for mini and micro grids. But somewhat surprisingly, it doesn’t offer any direct financial incentives or subsidies. Grid power is heavily subsidized for residential and agricultural consumers and the ability of these consumers to pay for more expensive mini/micro grid power continues to be a concern.

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