Nanogrids: a solution for the forgotten rural segments
This blog is written by François Lepicard, Simon Brossard, and Adrien Darodes
Nanogrids typically consist of a single 80-250W panel with basic wiring to a cluster of 5-30 families, offering lighting, phone charging, and very basic appliances. With monthly fees starting at around US$2, they are affordable for poorer households. While there appear to be a number of uncertainties involved in the nanogrid market, particularly surrounding investment return and perceived similarity to solar home systems (SHS), it is important not to disregard them; they possess the unique ability to target the rural poor, a segment that is often forgotten in energy access.
Nanogrid players work on very low investment solutions below US$200 connection costs per household. This makes the payback period in best cases 2-3 years. Most players, however, due to delinquencies, suboptimal site size, or random events, bank on a 3-5 year payback period, which remains quicker than microgrids.
Nanogrids are often dismissed as a toned-down version of SHS and a futureless, transitory solution before PAYG SHS takes the market by storm. That may be a hasty view. Nanogrids could become a competitive solution for basic access in niche markets, where others lack credibility:
- The key factor is their ability to serve small-sized communities with sufficient housing density (100 meters, although increases in voltage enable a longer radius) at a very low cost. In these remote villages, broken down lanterns and SHS are gathering dust in the backyard as no help is available to correct ill use or to deliver on guarantees.
- The trust of the community is comforted by collective engagement (e.g. Devergy works with village leaders, Mera Gao Power builds joint liability groups inspired from MFIs) which means that a critical mass of customers warrants representation and the regular presence of staff for payment collection or maintenance.
- To achieve reasonable service cost, nanogrid operators developed their coverage through clusters sharing operations and management costs and customer care, and achieve reliability by keeping technology to its bare minimum. Overhead distribution lines using mostly existing roofs, no inverter and in many cases no meter – are characteristics for a robust, no frills grid. At these very low costs, Indian nanogrids have even been able to operate in grid-connected areas on the promise of power quality and reliability alone
It is still very early on for these nanogrid solutions and it remains to be seen how many of the 100-120 million rural poor customers can be reached. A number of questions remain pending:
- What is the sustainable price point that will not draw in PAYG, especially when or if SHS with power reselling options come to the market?
- Given the exposure of these populations to adverse economic conditions, how can operators maintain high usage rate and low churn?
- While lighting and charging is only a bonus for currently underserved populations, how should wealthier households or small businesses be served? How should customers be helped in “moving up the energy ladder” (e.g. Devergy is developing a full range of DC appliances and payment plans to encourage consumption increase)
- If the offering becomes more complex, how could operators limit OPEX (maintenance demanding more sophisticated technicians and more frequent interventions, money collection moving towards microcredit which has found it difficult to penetrate rural areas)?
- As penetration increases, how do they maintain lower overheads against a locally trained salesforce not finding enough opportunities and therefore churning. And against more sophisticated sites, both requiring more training and management?
Despite these uncertainties, nanogrids deserve more interest and support. The nanogrid market is one of the few models where the number of connections is the key driving factor. Donors and social investors should foster these connections by providing support to this nascent industry.
Want to know more? Check out the full report on energy here
This blog is a part of the July 2017 series on energy access in partnership with Hystra.
Read the full series for more lessons from practitioners, trends in business models, market penetration and understanding and measuring impact in the energy sector.