Electricity systems across the globe are undergoing a paradigm shift towards decentralization. This shift is being brought about by technological disruptions, coupled with innovations in business models.
As countries seek to meet their emission reduction targets, electricity is being increasingly decarbonized by the infusion of more renewables into the grid. In addition to the falling costs of wind and solar PV power, advancements in energy storage and information technology have made the prospects of grid decarbonization ever so promising. While energy storage addresses the intermittency of renewable energy, information technology facilitates grid balancing as digitally connected clean energy systems interact dynamically together with the grid network to harmonize power supply and demand.
At the same time, innovative business models that offer electricity as a service are burgeoning.
In moving away from the sale of electricity to the provision of end-use services – be it for lighting, comfort or entertainment – for a fixed monthly fee, these models not only localize ownership and management of concerned assets but also create financial incentives for energy efficiency. These include, among others, energy-as-a-service micro-grids and pay-as-you-go solar systems.
Globally, these developments are upending the traditional model of centralized power infrastructure and diffusing power generation across hundreds of thousands of local clean energy sources, in what we are witnessing as the emergent paradigm of a decentralized electricity system.
In India, Decentralized Renewable Energy (DRE) has already been energizing lives of millions of people in rural areas through solutions such as solar lanterns, solar lighting systems and micro-grids, while also making deep inroads into urban regions through utility renewable markets and solar rooftops. Illustratively, according to a report by GOGLA, India is one of the largest off-grid solar markets in the cash segment with 1.3 million products sold in the first half of 2018.
In rural settings, the first wave of DRE was fueled by a lack of access to electricity for basic lighting needs. Around 300 million people in rural India have been connected to the grid over the last four years. With laudable expansion of the utility infrastructure to rural households, the next frontier of electrification in India is to guarantee uninterrupted and quality power to all households, and to power rural enterprises and livelihoods.
In response, DRE is already innovating productive applications in rural and agriculture value chain, to include solar pumps, solar dryers, solar-powered micro cold storage, solar-powered sewing machines and such. Specifically, irrigation and cold storage are two key rural markets ripe for solarization as these are being re-energized by a top-down policy push to meet bottom-up needs. For instance, as part of the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme, 1.75 million off-grid solar pumps will be installed by 2022 to support farmers.
Innovations in business models are also catching up to livelihood-based product offerings. A case in point – Oorja is piloting community-based, pay-as-you-go solar irrigation service for small and marginal farmers, whereby it installs, operates and maintains solar pumps in exchange for cash payments by farmers.
Even as newer DRE segments emerge, more established ones, such as the mini-grids, are not reaching their full potential. In light of the expanded utility infrastructure, any growth projections for mini-grids are linked to limited geographies where it’s not feasible for the utility grid to reach. This is even as DISCOMs, encumbered by huge AT&C losses, struggle to manage expanded service areas. Since the answers to local problems generally lie in nurturing local solutions and capacities, decentralized electricity systems present a way forward.
In particular, Energy Service Companies (ESCOs) are deploying renewable energy-based models of mini-grids that spur rural economies. Apart from catering to the energy needs of rural consumers, these models generally encompass a larger anchor business consumer – for instance, a telecom tower or a rural bank. If conceived and implemented as local assets that can interoperate with the utility grid, mini-grids could function as a rural franchisee or licensee of DISCOMs; and, in doing so, drastically cut the burden of operating and maintaining rural power infrastructure.
Importantly, fostering these collaborations would enable DISCOMs to stay ahead of the game by offering energy-as-a-service and creating new revenue streams.
The anticipated proliferation of electric vehicles presents a similar near-term opportunity for decentralized energy services in urban settings. Solar rooftop is another key market segment that would predominate urban DRE growth, with only 4,375 MW out of a target of 40,000 MW installed thus far.
However, the slow uptake of solar rooftop also points to challenges that cut across DRE segments. While the Commercial and Industrial (C&I) segment has led the adoption curve for solar rooftop as there is a clear business case against the prevailing utility tariffs, small businesses – that account for over 90 per cent of industrial units in India and employ 40 per cent of the workforce – have not been able to adopt the technology due to inadequate credit ratings and consequently limited access to finance. Credit support pathways through de-risking mechanisms and the involvement of local RESCOs are being attempted to plug this gap.
The Climate Group – in partnership with cKinetics and Goldman Sachs – is similarly piloting de-risking instruments for DRE enterprises in the rural and agriculture value chain. Access to finance through mainstreamed engagement of domestic financiers will also be key in unleashing the potential of DRE to create jobs – a recent Powering Jobs Census 2019: The Energy Access Workforce report by Power For All puts the number of new jobs from selected DRE segments at 100,000 by 2022-23.
Further still, embedding digitalization into DRE assets to monitor performance, optimize resource utilization and manage demand will be a potential game changer.
Decentralization is sweeping the landscape of electricity systems globally. In India, DRE is catching on and evolving in both rural and urban settings. It’s time the entire gamut of stakeholders – policymakers, DISCOMs, financiers, entrepreneurs – made concerted efforts to integrate DRE into the country’s electricity architecture. In doing so, we will not only be keeping pace with the global shift to decentralization, but also powering growth that is clean and sustainable.
Originally published in the October 2019 edition of Energetica India