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Favorable Winds for Mini-grids in India | Energy Access Practitioner Network

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Favorable Winds for Mini-grids in India

By: Ankita Jena, Policy Coordinator & Hari Natarajan, CEO, Clean Energy Access Network, India

 

CLEAN

The environment for renewable energy based mini-grids in India is beginning to look promising due to several recent developments on the policy and regulations front.  The first was an explicit reference to mini-grids within the revised National Tariff Policy and the recognition of the need for electricity regulators to provide an appropriate exit option for private investment in mini-grids that have been established to address the energy needs of those without access to electricity.  The second was the constitution of a Committee by the Ministry of New and Renewable Energy for developing a framework for operationalizing mini-grids in India under the Rural Energy Service Provider (RESP) program.  The Committee is scheduled to provide its input by the end of March 2016.  Lastly, and most importantly, Uttar Pradesh, one of the states with the biggest problems around energy access in India (nearly 20 million households without access to the electricity grid as per Census 2011), recently announced its Mini-grid Policy.  As a follow up to the policy, the Uttar Pradesh Electricity Regulatory Commission (UPERC) promptly announced draft regulations for operationalizing the policy.

The mini-grid policy aims to attract private investment towards the establishment of mini-grids with capacities ranging from 10 to 500 kW that can provide electricity for both household consumption and productive end uses. The policy envisages two approaches: i) a government supported approach where mini-grid operators (MGO) will be invited to establish projects in areas identified by the government on a Build Own Operate and Maintain (BOOM) basis for a period of 10 years and will be eligible for a subsidy of up to 30%, which will be provided as viability gap funding; and ii) an open market approach where the MGOs are free to establish projects in any area, but are not eligible for government subsidy.  The policy also provides for a single window clearance of projects through the Uttar Pradesh New Energy Development Agency (UPNEDA).

Under the former approach, the MGO is required to provide at least eight hours of supply (three hours in the morning and five hours in the evening) to households and at least six hours of supply to productive end uses, whereas there is no such requirement in the latter approach.  Further, under the government-supported approach, the tariffs have been pre-defined at Rs. 60 (~$1) for a 50 W load and Rs. 120 (~$2) for a 100 W load. The tariff for loads higher than this will be set by mutual agreement between the MGO and end user, whereas in the open market approach, the MGO is free to set any tariff based on mutual agreement. During operations, the project developer is permitted to use fossil fuels or distributed generation (DG) sets, if necessary, in both cases.

Furthermore, under both approaches, MGOs are eligible for incentives under the state industrial policy & other infrastructure support and can avail themselves of exit options in case the grid arrives.  MGOs can opt to become a distribution franchisee of the power distribution companies (DISCOM) and feed the energy into the grid against a feed-in tariff established by UPERC, or can transfer the project to the DISCOM at a mutually determined cost.

The regulations notified by UPERC as a follow-up to the policy further specify a complete range of options for the MGO in case the grid arrives or already exists. These range from continuing operations in an isolated mode, grid-connected operations where the surplus energy is supplied to the grid at the regulator-specified feed-in tariff, or grid-connected operations with the entire energy supplied to the grid at the regulator specified feed-in tariff.  In the case of the MGO operating as a distribution franchisee, the regulator will issue a model distribution franchisee agreement that lays down the terms and conditions of such operations and the associated fees.  In case the MGO opts to transfer the project to the DISCOM, such transfer prices will be determined based on the book value of the assets on the date of transfer.

In addition to this, the regulations also specify technical standards for establishment of the distribution grid, interconnectivity with the grid, safety measures for mini-grids, metering arrangements, energy accounting and settlement procedures, and other considerations. Further, the quantity of energy generated from the mini-grid will be eligible for consideration under the Renewable Purchase Obligations (RPO) of the DISCOM as well as under the REC mechanism.  Lastly, the regulator has also taken into account the payment security issue for MGOs and has specified that the DISCOM shall prioritize these payments.

The policy and associated regulations are a significant positive step for the mini-grid sector development in Uttar Pradesh and in India in general and allow for experimentation of several mini-grid models under a stable policy and regulatory environment. In particular, the regulations provide for all possible options for exit in case the grid arrives, which was the key deterrent to the scale up of mini-grids in India. The policy as it stands currently, however, appears to be skewed in favor of the open market approach, primarily on account of the pre-determined tariff for a significant proportion of household consumption within a community under the government-supported approach.  Further, it is not clear if MGOs are eligible for the subsidy from the central government in addition to the state subsidy, which if unavailable would make the government-supported approach even more unattractive.

Despite these issues, the mini-grid policy and associated regulations are a welcome move from the Government of Uttar Pradesh and may well set the tone for the future of mini-grids in India.