Nikhil Jaisinghani

National grid, mini grids, or micro grids?

South Asia
27. Jun 2017
Photo: Anna da Costa
Photo: Anna da Costa

I often face the following question:

“National grid, mini grid, or micro grid: which is best suited for serving off-grid communities in rural India?”

As much as I want to answer the question, the truth is the question cannot be answered; not in that form at least. The reason being, there is not one rural India. Demand for power, either through the grid or from private operators, varies by customer income which itself is linked to how remote the customer’s community is; that demand for power and remoteness then impact the viability of the different approaches. In South India, there are fewer off-grid communities, households have higher incomes, and communities are more sparsely populated. In North India which hosts the majority of the off-grid households, the households are quite poor and the communities, though small and far apart, are quite dense. No single solution will work best in both the North and the South.

As there are over a quarter of a billion people off-grid in North India, let us narrow this discussion on the North. And 200 million people are off-grid in the states of Uttar Pradesh and Bihar. But even here, rural off-grid communities are not homogenous. To better understand where the market for various levels of service lie, it is important to break rural North India down a bit further.

  1. Rural towns are commonly located at the intersection of paved roads. The increased traffic leads to more opportunities for commerce resulting in clusters of shops alongside the road in all four directions from the intersection. Behind the shops are normally a few rows of houses. Because of the greater commercial activity, incomes and payment capacity are higher. A town would typically have more than 1,000 households. Nearly all towns are connected to the national grid though service is poor.
  2. Rural villages are usually alongside or very close to a paved road. The proximity to the road usually allows residents to travel to towns for work or to start roadside commercial shops. Because of the more limited traffic, commerce is usually lower and village shops serve the residents of the village or residents of nearby hamlets. The balance of the labor force is typically engaged in agriculture and livestock. Villages are typically 250 households or larger. The government’s recent focus for grid expansion has been on villages with the goal of 100% village electrification. This has still not been completed. However, electricity service to villages is worse than to towns with power often delivered only after 11pm and before 5am and often not at all for weeks. To be considered electrified, only 10% of village residents need to be connected to the grid.
  3. Rural hamlets are much smaller, more remote, poorer, and generally deprived of public services. Most labor is engaged in agriculture and livestock, and families typically have smaller livestock and land holdings than in villages. The typical household income, as reported by customers to Mera Gao Power, is between $0.25 and $0.50 per person per day depending on the season. Hamlets can be as small as 20 households but in rare cases are as large as a few hundred, and a large portion of them remain off-grid.

With that in mind, let us take a closer look at the different types of grids and where they fit into an inclusive electrification strategy.

National Grid

The cost of extending the grid is the first hurdle. In 2014-2015, the estimated cost of extending an 11KV distribution line 1 kilometer in India was approximately $4,000 and 33KV lines $6,000 per kilometer. A transformer costs between $900 and $3,000 depending on quality and capacity. Each household costs $300 to connect even without a meter. To connect a community of 50 households 2 kilometers from the grid would cost a minimum of $10,000, yet evidence suggests that only 10 of the 50 households could afford the $4 a month grid connection, amounting to annual revenue of $450 (less than 1/20th of the distribution capital costs). Factoring in operating costs, transformer replacements, transmission costs, generation infrastructure costs, and fuel costs, each hamlet would likely never payback the upfront costs of connecting it to the national grid and may not even generate enough revenue to cover the operating costs. The Government of India has plenty of demands on its money, and the high upfront cost of electrifying hamlets coupled with the annual financial obligations to fund operations make hamlet electrification an unlikely priority. Towns and perhaps villages are more likely candidates for grid electrification.

Mini Grids

Mini-grids are another alternative, generally ranging from 10kw to 100kw and serving a larger commercial area. However, Smart Power India has released a report on this mini grid model which it has been supporting. It has found generally long payback periods even under the ideal model scenarios. In theory, full-scale electricity has the ability to achieve greater social impact than limited electricity service such as that which MGP provides. However, in practice this is not the case. To make mini-grids commercially viable, mini grid operators must target larger communities with anchor load customers (see Table 2 above) while MGP can target communities as small as 20 households (and focuses on communities with under 100 households). Smart Power India, which supports mini grid companies in India, recommends mini gird companies target sites that meet the following conditions:

  • 800 to 1,000 households along with a market and commercial enterprises
  • Include or be geographically nearby an anchor load such as a telecommunication tower

Communities meeting the above criteria are typically towns or very large villages, usually have access to paved road, have small but active market areas, and are therefore economically connected and better off.

Micro Grids

Solar powered micro grids provide priority energy services such as lighting and phone charging to remote hamlets. The capital costs can be as little as $30 a household (though likely closer to $50). That cost covers all capital costs associated with generation, storage, distribution, and even utilization (the lights and phone chargers are often included in the micro grid cost). Micro grid companies usually offer service for about $2 a month per household, 50% cheaper than a grid connection in Uttar Pradesh. This allows micro grid companies to attract a larger percentage of the off-grid households as customers.

As an example, visit this link to see an example of a potential mini grid community and this link to see three nearby potential micro grid communities

While both of the above communities are likely poor, the more isolated hamlets are on average poorer. The income differential between MGP’s target customer base and the typical mini grid customer base is demonstration that MGP’s more affordable, focused electricity services have tremendous social value.

Nikhil, Stop Waffling; National Grid, Mini Grids, or Micro Grids?

First, let us be clear what the conclusion is not. It is not the case that there is room for only one model of off-grid business. It is not the case that for every off-grid community, a single approach is appropriate. It is not the case that micro grid investments should replace mini grid investments or national grid investments. Instead, the conclusion is that there still exists a strong purpose for micro grid services and that such services can be commercially viable and commercially financeable. The national grid and mini grids can serve higher-income households in larger, economically connected communities which can take full advantage of larger quanta of power. Micro grid companies can target poorer households in remote communities that mini gird companies and the national grid cannot viably reach, offering them basic but life-changing service at a price-point they can afford. Given the unique reach micro grids can have, an impactful approach would be to champion and support micro grids as PART of a truly inclusive rural electrification strategy.

However, while the Government of India is financing the national grid roll-out and Rockefeller Foundation, through Smart Power India, is providing large sums of financing to mini grid companies, there is a notable absence of funds to micro grids. By ignoring what micro grids have to offer, those with the purse strings are consciously limiting infrastructure investments to larger, economically connected communities and ignoring the poorest and most remote. The recent “Scaling Access to Energy” report by Hystra sums it up well:

“[Micro] grids, because they cater to the forgotten segment of access to energy, would deserve more interest and support from investors and donors.”

To execute a truly inclusive electrification strategy that does not by intention disclude the poorest households and communities from life-changing electricity services, there needs to be a far greater allocation of funds to micro grids.

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.