Clean Energy in India: The Challenges for Implementing Solar Microgrids

This is part three in a three part series on clean energy in India.

In my last post, I highlighted a number of advantages of solar microgrid implementation for clean energy access and rural development in India. But many of these opportunities are also met with challenges. While the challenges are notable, they are not insurmountable. This final post reviews these challenges and offers emerging solutions for the expansion of solar microgrids in India.

The Challenge of Circumventing Cost: Microgrids are more expensive than traditional grid energy due to their limited scale. They are costly to finance both for suppliers and consumers. Operating microgrids in remote areas involves high overhead costs for laying down a localized grid. Further, monthly payment schemes for solar energy incur a collection cost to suppliers. Banks are reluctant to finance solar installations because they are small-scale endeavors and the emerging technology lacks clout and reputation for investors. Many local entrepreneurs also lack adequate credit history and trained manpower to install and operate the microgrids.

An example of the cost imbalance between solar and traditional energy sources can be seen with Mera Gao Power, a solar company in Uttar Pradesh. Mera Gao charges about 100 rupees, equivalent to $1.62, to provide enough power for two LED lights and to charge one mobile phone per night, making solar microgrid technology up to five times more expensive for villagers than traditional grid electricity. However, traditional energy prices rely heavily on government subsidy, and this cost comparison is only applicable in villages where traditional grid electricity is accessible. Roughly a quarter of the population in India does not have access to traditional or government subsidized energy. A shift in central government budget allocations towards finance for renewable energy and the elimination of personal kerosene usage costs could mitigate some of the cost to households for solar energy.

There also are a number of business innovations that can make solar microgrids accessible for rural consumers and entrepreneurs. Group-payment schemes in tandem with Microfinance Institutions could make energy payments more feasible for rural households. Self-Help Groups (SHG) are group payment structures pervasive in India’s low-income communities; they are used to expand the financial power of individuals using a system of network accountability. The Energy and Resources Institute (TERI) of India has already implemented community-based solar energy projects with SHG payment models in Assam, Odisha, Uttar Pradesh and Madya Pradesh. Additionally, Microfinance Institutions (MFI) like Arc Finance provide loans to entrepreneurs for energy development.

Further, solar microgrids can capitalize on the immense success of the mobile-phone industry in India. Consumers can track solar power usage and make payments using mobile phone-enabled meters, a tool PowerGen Renewable Energy has already pioneered in Kenya and Zambia. In terms of production, Saviva research recently released a report detailing a plan to convert tower power (from cell phone towers which have a presence throughout rural India) into clean energy for community use. Renewable Energy Service Companies (RESCOs) can build excess renewable capacity into the tower power system for distribution to local communities using transportable batteries or solar microgrids. In 2012, the Telecom Regulatory Authority of India mandated that 50 percent of rural cell phone towers and 20 percent of urban towers be supplied with renewable hybrid generation sources by 2015.

The Challenge of Ratcheting up Government Support: In India, energy investment tends to be directed to expanding the traditional, fossil-fuel reliant grid. The Government of India (GOI) has remained disengaged on the issue of solar microgrids until very recently.

The 2013-14 budget demonstrated a national shift towards expenditures in new and renewable energy (allocation of 8B INR). However, the financial focus remains on expanding transmission through traditional sources, especially in the southern part of the country. In addition to annual allocations of 45B INR ($742 million USD) for rural electrification through the traditional grid, the government subsidizes use of kerosene at 61.25% of the market price, spending approximately over $3.9 Billion annually in USD on the subsidy. These expenditures fund polluting measures that are also ineffective for remote energy access.

A report from Artha, an online community for investment in India, aptly states:

We believe that the Ministry of Power (MoP) and Ministry of New and Renewable Energy (MNRE) are caught up in their continued focus on grid extension and on expanding grid connected capacities, despite the fact that renewable energy alone can pull the rural areas out of the vicious circle of no power-no development.

Meanwhile, an article in The Economist reveals that rather than deter the development of solar microgrid technology, the GOI’s lack of interest in solar power has increased interest at the local level. Given the strong implications of clean energy access in rural India for human development (income-generation, health, and education), GOI could do well to pivot investment towards financing capital expenditures for solar microgrids. By providing small grants to local entrepreneurs who meet the criteria for implementation, the national government could encourage grassroots electrification.

Despite these challenges, the outlook for solar microgrids in India is promising. India’s new leader, Prime Minister Narendra Modi, is relatively forward thinking on renewable energy. When Modi was Chief Minister of Gujarat, the state held over 70% of India’s solar power. Modi also preempted the national government in releasing the State of Gujarat’s solar policy in 2009, a year before GOI issued the Jawaharlal Nehru National Solar Mission to promote the generation and use of solar power across India. With the right amount of follow-through, Modi could mean great things for India’s national policy towards renewable energy.

Continued focus on solar microgrids will allow for the localized provision of clean energy in India’s communities, while having the power to impact the subcontinent’s immense population.

Image credit by Pablogo182 posted from Wikimedia Commons.


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