Convergence Models for Microgrids and Grid for

M.Tech Project Report (TD 695) On

Convergence Models for Microgrids and Grid for Rural India

Submitted in Partial fulfilment of the Requirement for the Degree of M. Tech (Technology and Development) Submitted by Thangjam Aditya (173350020) Guide Prof.Anand B.Rao Co-Guide Prof.Suryanarayana Doolla

Centre for Technology Alternatives for Rural Areas Indian Institute of Technology Bombay, Powai 400076 November 2018

Certificate This is to certify that the M.Tech Project Report entitled “Future of Microgrids: Convergence Models for Microgrids and Grid for Rural India” prepared by Thangjam Aditya is approved for submission at Centre for Technology Alternatives for Rural Areas (CTARA), IIT Bombay, Powai. 19th November, 2018

(Signature of Guide)

(Signature of Co-Guide)

Prof. Anand B.Rao

Prof. Suryanarayana Doolla

Professor

Associate Professor

CTARA

DESE

IIT Bombay

IIT Bombay

Declaration I hereby declare that the report entitled “Future of Microgrids: Convergence Models for Microgrids and Grid for Rural India” submitted by me, for the partial fulfilment of the degree of Master of Technology to CTARA, IITB is a record of the M.Tech Project work carried out by me under the supervision of Professor Anand B. Rao, CTARA and Professor Suryanarayana Doolla, DESE. I further declare that this written submission represents my ideas in my own words and where other’s ideas or words have been included, I have adequately cited and referenced the original sources. I affirm that I have adhered to all principles of academic honesty and integrity and have not misrepresented or falsified any idea/data/fact/source to the best of my knowledge. I understand that any violation of the above will cause for disciplinary action by the Institute and can also evoke penal action from the sources which have not been cited properly.

Place: Mumbai Date: 19th November, 2018 (Student’s Signature)

Thangjam Aditya

Acknowledgement The study I have undertaken to write this report has been a rich learning experience for me. The challenge posed by the requirement to have a modest understanding of the technology options of microgrids and a deeper understanding of the differentials between on-paper economics and on-ground economics of rural microgrids of India has brought to light the essence of TD 695 course of Centre for Technology Alternatives for Rural Areas (CTARA) under the specialization of Technology and Development. I am thankful to Professor Anand B.Rao and Professor Suryanarayana Doolla for actively giving me supervision during the study. I am also grateful to Professor Priya Jadhav (CTARA) and Professor Pavan Hari (DESE) for giving constructive suggestions as examiners. I would like to express a special token of gratitude to Mr.Ajay (Ph.D. candidate under Prof. Doolla) for helping me, particularly during the technical literature review phase.

Abstract The report presents the findings of a systematic literature review done to understand the techno-economic and policy-regulatory framework requirements to resolve the future redundancy of rural microgrids in India due to the extensive grid extension happening under Deen Dayal Upadhyaya Gram Jyoti Yojana. The primary focus is given on PV and biomass gasifier based microgrids. The literature review covered the themes of the global state of the art in integrating microgrids with the grid, available policy-regulatory frameworks in India for dealing with microgrid interoperability and current organizational structures of microgrid projects in India. A key finding of the literature review is that majority of the microgrid projects in India use solar photovoltaic systems with battery storage supporting lighting services and minimal productive loads. These projects have installed capacity less than 10 kWp and they mostly thrive on CSR funds, grants and subsidies. Only a few biomass-gasifier based microgrids with installed capacity in the order of several tens of kWe under private developers exist that support commercial enterprises. The smaller microgrid projects are more vulnerable to losing their consumers as the returns just meet the operational expenses and there is no scope of scalability or retrofitting from these returns. Regardless of installed capacity of the projects, the acceptance of private developers in the electricity market where the monopoly of the utility exists is a multidimensional issue and not just about economic reconciliation. In present terms, there is a need for reforms in incentive design to enhance the participation of rural consumers and private players in microgrid project development. Participation of private players need not be throughout the lifespan of the project. Transfer of the project to the consumers with adequate compensation to the private players can lead to self-reliance of the consumers in terms of meeting their electricity demand. This, however, needs support from rural banks and local capacity. The success of microgrid projects lies in effective local partnerships to maintain healthy aggregate commercial efficiency values across the lifetime of the project. A parallel livelihood generation strategy needs to be invoked during the project development to spread the paying culture in the whole community. The stress on tariff rates due to loan repayment with conventional loan tenure and interest rate is demonstrated in the report through a modelling exercise. The report also builds on the idea of a dual connection scenario where a consumer has two service lines-one from the microgrid and the other from the grid. This scenario exists even in the present and microgrid developers need to work on balancing both energy flow and cash flows due to the fragmentation in the normal operational time due to the arrival of the grid.

Table of Contents Abbreviations .......................................................................................................................... iv List of Tables ........................................................................................................................... iv List of Figures ......................................................................................................................... iv Chapter 1: Introduction .......................................................................................................... 1 1.1 Background ...................................................................................................................... 1 1.1.1 Microgrid Projects-Linking the Context and the Location ...................................... 1 1.1.2 Delineation of microgrid areas vulnerable to Grid Extension ................................. 3 1.2 Objectives ........................................................................................................................ 5 1.3 Methodology .................................................................................................................... 6 1.4 Structure of the report ...................................................................................................... 6 Chapter 2: Qualitative Modelling of an Advanced Microgrid ........................................... 7 2.1 Developing a basic model of the advanced microgrid .................................................... 7 2.2 The Functionality Matrix ................................................................................................. 8 2.3 Specificity aspects of the Functionality Matrix ............................................................ 13 2.3.1 Specificity due to system type and size .................................................................. 13 2.3.2 Specificity due to Business Model ......................................................................... 14 2.4 Concerns on realizing the advanced microgrid model .................................................. 16 2.4.1 The Utility............................................................................................................... 16 2.4.2 The Microgrid Developer ....................................................................................... 18 2.4.3 The End User .......................................................................................................... 19 2.5 Policy Analysis using Functionality Matrix .................................................................. 19 2.5.1 CEA Technical Standards for Connectivity of Distributed Generation Resources .......................................................................................................................................... 19 2.5.2 UP Mini-Grid Policy & UPERC Mini-Grid Renewable Energy and Supply Framework Regulations ................................................................................................... 22 2.6 Market Analysis using Functionality Matrix ................................................................ 25

i

2.6.1 Energy Storage ....................................................................................................... 25 2.6.2 Inverters .................................................................................................................. 26 2.6.3 Simulation Software ............................................................................................... 26 Chapter 3: Conceptualizing Microgrid Economics ........................................................... 28 3.1 Working Definition ....................................................................................................... 28 3.2 Span of Microgrid Economics ....................................................................................... 28 3.2.1 The Process of Investment Appraisal ..................................................................... 30 3.2.2 Risk Analysis and Risk Mitigation in Microgrid Projects ..................................... 32 3.2.2 Current Organizational Structures in India ............................................................ 34 3.3 Achieving Grid Parity.................................................................................................... 40 3.3.1 Reforming Incentive Designs for Microgrids ........................................................ 40 3.3.2 The Relevance of REC and FiT to Rural Microgrids ............................................ 41 3.4 The Quasi-Cooperative Business Model ....................................................................... 42 Chapter 4: Alternatives to a Grid integrated Microgrid .................................................. 43 4.1 Dual Connection ............................................................................................................ 43 4.2 Opportunistic Parallel Operation ................................................................................... 43 4.3 Scheduled Parallel Operation ........................................................................................ 45 Chapter 5: Modelling Microgrid Economics on Analytica ............................................... 46 5.1 Objectives ...................................................................................................................... 46 5.2 Approach........................................................................................................................ 46 5.3 Description ..................................................................................................................... 47 5.3.1 Data Collection ....................................................................................................... 47 5.3.2 Model Specifications .............................................................................................. 47 5.4 Assumptions .................................................................................................................. 50 5.5 Results and their Relevance to On-Ground Economics ................................................ 51 5.5.1 Estimated Component Size Chart .......................................................................... 51 5.5.1 Estimated Capex per kWp trend ............................................................................. 52 ii

5.5.3Trends in components of Capex .............................................................................. 53 5.5.2 Estimated trends in LCOE components ................................................................. 54 5.5.3 Impact of loan repayment on realizable tariff rates ................................................... 58 Chapter 6: Conclusion .......................................................................................................... 59 Appendix A ............................................................................................................................. 64 Appendix B ............................................................................................................................. 65 Appendix C ............................................................................................................................. 67

iii

Abbreviations AC-Alternating Current ANSI-American National Standards Institute BIS-Bureau of Indian Standards BS-British Standards CERTS-Consortium of Energy Reliability Technology Solutions CERC-Central Electricity Regulatory Commission CSE-Centre for Science and Environment CSR-Corporate Social Responsibility DC-Direct Current DSM-Demand Side Management DDUGJY- Deen Dayal Upadhyaya Gram Jyoti Yojana DG-Distributed Generation/Generator DER-Distributed Energy Resources DSO-Distribution System Operator DT-Distribution Transformer DOE-Department of Energy (USA) DisCom-Distribution Company EDN-Electric Distribution Network EPCOM-Engineering, Procurement, Construction, Operation and Maintenance ESCO-Energy Service Company GHI-Global Horizontal Index HH-Household IEEE-Institute of Electrical and Electronics Engineers IEC-International Electrotechnical Commission IGBT-Insulated Gate Bipolar Transistor

iv

LCOE-Levelized Cost of electricity LT-Low Tension MGO-Microgrid Operator MNRE-Ministry of New and Renewable Energy NPV-Net Present Value O&M-Operation and Maintenance OH-Overhead PCC-Point of Common Coupling PLC-Power line communication PPA-Power Purchase Agreement PEG-Prayas Energy Group RRAS-Reserve Regulation Ancillary Services SCR-Silicon Controlled Rectifier SERC-State Electricity Regulatory Commission SLD-Single Line Diagram SNA-State Nodal Agency PV-(Solar) Photovoltaic SREDA-State Renewable Development Agency SRS-Site Responsibility Schedule T&D-Transmission and Distribution TSO-Transmission System Operator UPERC-Uttar Pradesh Regulatory Commission VA-Volt Ampere VAR-Volt Ampere Reactive VRLA-Valve Regulated Lead Acid WACC-Weighted Average Cost of Capital WLAN-Wireless Local Area Network

v

List of Tables Table 2.1 Common DG used in microgrids in India with their LCOE, capital cost and capacity factor .......................................................................................................................................... 8 Table 2.2 Functionality Matrix of advanced microgrid model ............................................... 10 Table 2.3Control capabilities of various DER units ............................................................... 15 Table 2.4 Standards for power quality parameters.................................................................. 21 Table 2.5 Effective tariff rates, connection costs and functional hours of privately owned microgrids in Uttar Pradesh. .................................................................................................... 23 Table 2.6 Technical capabilities of dominant inverters in the Indian Market ........................ 26 Table 3.1 Selected risks, mitigation measures and mode of accounting ................................ 33 Table 3.2 Performance Evaluation Benchmark for DESI ....................................................... 37 Table 5.1 Assumed household load profile ............................................................................. 48 Table 5.2 Component Size Chart for low consumption consumer category. ......................... 51 Table 5.3 Component Size Chart for high consumption consumer category. ........................ 51 Table 5.4 Impact of loan repayment on NPV, tariff and IRROE for the equity-debt-support model. ...................................................................................................................................... 58 Table 5.5 Impact of loan repayment on NPV, tariff and IRROE for the equity-debt model . 58

List of Figures Figure 1.1 Microgrid Projects Compiled by PEG ..................................................................... 3 Figure 1.2 State-wise Village Count under DDG Scheme........................................................ 4 Figure 1.3 Capacity wise distribution of microgrids in Uttar Pradesh ..................................... 5 Figure 2.1 Possible schematic of an advanced rural microgrid ................................................ 7 Figure 2.2 Unintended Island .................................................................................................. 16 Figure 2.3 Unresponsive recloser for a lateral fault ................................................................ 17 Figure 3.1 Span of microgrid economics over the stages of microgrid project development 29 Figure 3.2 Balance of Payments (BoP) Node Diagram .......................................................... 31 Figure 3.3 Flow Chart of Investment Appraisal Process ........................................................ 32 Figure 3.4 Relational Model of Microgrid Projects ................................................................ 34 Figure 3.5 Organizational Structure below Managing Director Level of DESI ..................... 36 Figure 3.6 CREDA Microgrid Model ..................................................................................... 39 Figure5.1 Dual Connection Scenario ...................................................................................... 43 Figure 5.2 Fragmented Operation of the microgrid when the grid arrives. ............................ 44 iv

Figure 5.1 Component Sizing Module .................................................................................... 47 Figure 5.2 Overall Economic Model ....................................................................................... 49 Figure 5.3 Costing Module ...................................................................................................... 49 Figure 5.4 Asset Mix Module .................................................................................................. 49 Figure 5.5 Estimated Capex per kWp curve. .......................................................................... 52 Figure 5.6 Component wise distribution of capex for HH consumption of 15 kWh/month. . 53 Figure 5.7 Component wise distribution of capex for HH consumption of 30 kWh/month. . 53 Figure 5.8 Levelized capex for a discount rate of 13 per cent and EDN length of 2 km ....... 55 Figure 5.9 Levelized capex for a discount rate of 13 per cent and EDN length of 5 km ....... 55 Figure 5.10 Levelized capex for a discount rate of 13 per cent and EDN length of 2 km with 80 per cent financial support ................................................................................................... 56 Figure 5.11 Levelized opex for O&M fraction of 10 per cent of capex ................................. 56 Figure 5.12 Levelized opex for O&M fraction of 15 per cent of capex ................................. 57

Chapter 1: Introduction 1.1 Background Numerous microgrid projects have emerged as a part of the collective response to climate change for the global transition to a green energy future. Governments are putting up ambitious targets for scaling up their installed generation capacity of renewable energy sources. As a result, the share of electricity generated from sources such as wind and solar plants in the total generation to meet the total demand is expected to rise. As of now, utilityscale solar and wind farms are already integrated into the power grid. Rooftop solar PV integration is also gaining pace. Significant developments towards increasing the hosting capacity of the grid to distributed generation systems are happening, with countries like Germany, Denmark, the UK and the USA occupying the frontiers (Jones, 2017). Microgrids can also be looked at from the angle of re-engineering the traditional grid to become a smart grid with distributed architecture. Traditional operating paradigm assumes controllable generation and variable demand. However, with the integration of renewable resources, the paradigm is reversed and the grid has to be re-engineered to maintain the balance between generation and demand. 1.1.1 Microgrid Projects-Linking the Context and the Location Various governmental energy agencies, research groups and industrial players such as DOE USA, CERTS, Sandia National Laboratories, ABB, etc. are working towards developing grid interactive microgrids (Microgrids Group Berkeley website & Bower et.al, 2014). However, most of the research is focused on campus and industrial microgrids with dispatchable energy sources (sources diesel generators) serving as back up to the primary renewable energy sources. Also, the primary motivations for developing these microgrids are: 

Achieving a net zero energy system i.e. renewable energy generated by the microgrid equalizes the energy consumption of the loads in the microgrid plus the net energy delivered to the grid;



Improving resiliency of the local power system-aptly called Islands in the Storm (Montoya, 2013 & Parhizi et.al 2015), microgrid developments in the US are aimed towards providing backup power supply in the event of grid outages on account of the severity and frequency of hurricanes. For example, when Hurricane Sandy hit the U.S East Coast in October 2012, many lost their homes and properties due to the flooding 1

and severe winds. However, a significant impact was the power outages to over 8 million customers across 21 states, for days and even weeks (DOE, 2013). Given the multitude of benefits a microgrid can offer to the grid, Advanced Microgrids may be defined as those with the following capabilities: 

Ability to act as a single self-controlled entity and



Ability to function both as connected to the grid as well as an isolated system without deterring the stability of itself or the grid.

However, in India, microgrids projects are Islands in the Maelstrom for the following reasons

Microgrids in India are isolated systems(islands) serving a rural customer baseimproved reliability is the USP of these projects in India rather than resiliency ;



They are grappling with financial challenges (low cost recovery as in the case of governmental microgrids) with future sustainability at stake;



Private microgrid developers who have set up microgrids in areas not enlisted in the DDG (Decentralised Distributed Generation, which comes under Deen Dayal Upadhyaya Gram Jyoti Yojna) Scheme are most likely to face grid extension. One can expect a political leader to feel uneasy with the microgrids serving his constituency when he can take the credits of energizing a remote village with due utilization of the central infrastructure (the grid).

Under DDG scheme, remote villages where grid connectivity is either not feasible or not cost effective are to be electrified using off-grid systems Identification of eligible villages shall be done by SREDAs in consultation with state utility and MNRE. Prayas Energy Group (PEG) has prepared a map of microgrid projects (Fig 1.1) in India. They have identified over 20 agencies running these projects.7 of them are State Nodal Agencies implying that majority of the agencies get support from non-governmental bodies. Interestingly the microgrid project in Champapadar is reported to have the Forest Department of the Government of Orissa as its developer. Over 40 microgrids are in Leh and Ladakh in Jammu and Kashmir. As of October 11, 2017 Kashmir (hilly terrain) has 177 thousand (12 %) unelectrified households out of about 1.5 million households while Uttar Pradesh (flat terrain with over 1600 microgrids) has 9167 thousand (27 %)

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unelectrified households out of about 34 million households. This is counterintuitive given the fact that electrification is usually more difficult in hilly areas.

Figure 1.1 Microgrid Projects Compiled by PEG (Source: PEG website) Legend 

Green: Biomass Gasifier



Yellow: Solar PV



Blue: Micro-Hydro

PEG’s mapping is not exhaustive and needs to be updated. 1.1.2 Delineation of microgrid areas vulnerable to Grid Extension If the cost of electrification per HH in a village is more than 1 lakh or population of the habitat or village is less than 15, stand-alone systems are proposed to be used under the DDG Scheme (DDG Amendment Guidelines, 2013). If we take the cost of grid extension (excluding the cost of buying the village’s demand power from the electricity market) to be Rs 200,000 /km (Tongia et.al, 2018), villages which are over 500 metres from the nearest 11 kV line are the potential targeted areas under the DDG Scheme. 3

An explicit village wise list of projects covered under DDG is not available as of now. As such it is difficult to delineate areas not covered under DDG and overlay them with existing microgrid locations. But it is certain that microgrids run by private developers will face infrastructure duplication with the grid coming in. Out of over 1600 micro-grids operating in Uttar Pradesh(Bhati & Singh, 2018), over 90 per cent are very small installations of 1 kW or less capacity In Uttar Pradesh there are 20 PV DDG projects already commissioned in 20 villages with UPNEDA as the implementing agency. About 15 of them are PV based microgrid projects with individual installed capacity starting from 35 kW Remaining 1585 microgrids fall into the question of future sustainability under the pressure of grid extension. The state-wise distribution of DDG projects in terms of villages taken up under DDG is shown in Fig 1.2. Uttar Pradesh, 35

Uttarakhand, 23

Manipur, 94

Telangana, 39

Meghalaya, 212

Odisha, 279

Andhra Pradesh, 491

Madhya Pradesh, 293 Arunachal Pradesh, 1176

Karnataka, 46 Chhattisgarh, 966

. Figure 1.2 State-wise Village Count under DDG Scheme (Source: DDUGJY State-wise Summary)

4

Greater than 100

14

Installed Capcity(kWp)

10

50-100 30-50

43

1-30

30

Less than 1

1627 0

200

400

600

800

1000

1200

1400

1600

1800

Number of microgrids

Figure 1.3 Capacity (Source: wise distribution of microgrids CSE Report, 2018) in Uttar Pradesh (Source: Bhati & Singh, 2018) If we consider the prospect of the microgrids (shown in Fig 1.4) engaging in economically viable energy transactions with the grid, we can see that less than 3 % of the total existing microgrids with capacity in the order of several tens of kilowatt in the seem to have a good prospect. Using the principle of economies of scale, a small microgrid project will have a higher per unit cost of electricity generation. And, since the tariff for energy trading is regulated by the state, it is most likely that the cost of generation is high above the per unit cost stated by the utility Also, cases of low capacity factor of operation coupled with generation just meeting the local demand curtails the energy transaction prospect of a small project owner . Hence system size and distributed generator characteristics seem to the very obvious challenges to a grid-interactive microgrid. Though there are distinctions in the nomenclature of microgrids based on installed capacity, the term “microgrid” would be used in this report to refer to any distributed generation system with a distribution network serving a community.

1.2 Objectives The objectives of this project are as follows: 1. To review the global state of the art in integrating microgrids with the grid. 2. To analyse India’s current policy perspective and level of technological maturity in dealing with the integration. 4. To evaluate the distinguishing characteristics of the current organizational structures of microgrid projects in India. 5

5. To assess the short-term possibility of realizing a grid-integrated microgrid in Rural India. 6. To identify the alternatives to a grid-integrated microgrid in Rural India.

1.3 Methodology The project is based entirely on a critical literature review of relevant papers, reports and policy documents. Information available in websites of microgrid developers and regulatory organizations was also analysed to correlate with the information available in case studies mentioning them. A modelling exercise is done to quantitatively understand the impact of loan repayment on private microgrid projects.

1.4 Structure of the report The structure of the report is as follows: In Chapter 1, differentials in the context of microgrids in India and the rest of the world are outlined. Also, an attempt to identify areas vulnerable to grid extension in India is made to narrow down the application scope of grid interactive microgrids. In Chapter 2, a qualitative model of a grid interactive is used to build a functionality matrix. A step by step analysis of the functional layers of the model is done. Analysis of relevant policy documents is given in thus chapter. In Chapter 3, a conceptual framework for understanding microgrid economics is developed in this chapter. This framework would be used in building an economic model of a microgrid in Chapter 5. In Chapter 4, an attempt is made to identify the key questions microgrid developers need to work on if their microgrids are to sustain in the presence of the grid without physical integration. In Chapter 5, a standalone PV microgrid is modelled in Analytica software using the conceptual framework provided in Chapter 4 to primarily study the impact of loan repayment on microgrid economics. In Chapter 6, the key findings from each chapter are summarized and the areas which need further analytical study are identified.

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Chapter 2: Qualitative Modelling of an Advanced Microgrid The advanced microgrid is a system of systems. There are machine-machine, machine-human and human-human interactions that enable the functionality of the microgrid. In the following sections, these interactions are explored by developing a simple model.

2.1 Developing a basic model of the advanced microgrid

Figure 2.1 Possible schematic of an advanced rural microgrid A simple model of the physical layer of an advanced microgrid is shown in Fig 2.1.The microgrid. It is adapted from the CERTS Microgrid Concept (Nichols et.al, 2006) and Mount Holly Microgrid system (Vukojevic et.al, 2018) into the context of the Indian distribution system. The model microgrid is on the LV side of the distribution transformer and the point of common coupling (PCC) is where the microgrid interfaces with the grid. As such the microgrid can be viewed as a single controlled entity fed by a lateral distribution line. The primary feeder, which is an outgoing feeder from a distribution substation, feeds many such laterals. The model microgrid has two distributed generators (DG) namely the Solar Photovoltaic panel(s) and the Biomass Gasifier alternator. The PV has a battery module behind an inverter. An energy storage system (ESS, a stack of batteries for instance) with a coupling converter is connected to the microgrid feeder. The Biomass Gasifier is added to incorporate the peak loading capability of the microgrid. Other than basic lighting services, electrical machines employing heavy duty motors such as a flour mill needs this peak loading capability. 7

The merit order scheme which exists in the traditional power system may be replicated in the advanced microgrid as well-DG with lower marginal costs supplies the base demand (lighting loads) and the DG with fuel constraints and higher marginal cost caters to the peak load (flour mills).In short, the microgrid model has DER (Distributed Energy Resource) mix and load mix. Protection equipment such as the ground transformer to deal with earthing faults is also included in the model. Marginal cost is the cost incurred in increasing the loading of a DG from, say 1kW to 5 kW. Only the incremental 4 kW is taken into consideration to calculate the marginal cost.

Table 2.1 Common DG used in microgrids in India with their LCOE, capital cost and capacity factor (Source: Gambhir et.al, 2012) DG type

LCOE(Rs per

Capital Cost (Rs per

Capacity Factor (%)

kWh)

kW)

Biomass Gasifier

6.06-8

50,000

80

Micro-Hydro

3.51—5.21

100,000

30

PV

15.25-20.35

150,000

20

Wind-Solar Hybrid

23.47-35.35

NA

30

As LCOE calculations are subject to various assumptions and the context (subsidy and other incentives), Table 2.1 is not a generalizable one. The detailed implementation and operation of this physical layer will be dealt with later.

2.2 The Functionality Matrix A system dynamic perspective to the model brings out the following interdependent functional layers: 

Physical Layer



Application Layer



Communication/Intelligence Layer



Business Layer

Again each layer is characterised by: 8



Resources



Stakeholders



Operations



Policy-regulatory framework

Mapping the above two sets (hereafter called Functionality Matrix) would help us in identifying key issues in the implementation and operationalization of the advanced microgrid model. The Functionality Matrix (FM) is shown in Table 2.2.

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Table 2.2 Functionality Matrix of advanced microgrid model L

Physical Layer

Application Layer

Communication Layer Business Layer

C Resources

  

DG: PV, Biomass



MPPT of PV

Gasifier



Droop functionality in

Line

inverters for power

Diagram(SLD),

Battery

sharing of inverters

Operational

Power

proportional to their

Protocol,

Conditioning

capacities

Flow,

Power

Flow,

Control

Energy

Storage:

device: Inverter 

Distribution lines



Protection



transformer, Surge

co-

 

Volt-VAR,Frequency

Data:

Single



Tariff Structures



Subsidy/Financial

grants/CSR

funds 

Cash

Renewable

Purchase

Obligations/Certificates 

Consumer Base

Software

ordination schemes.

Equipment: Grounding

Protection





Advanced

Control functionality

Metering

Energy efficiency

Infrastructure 

Communication

protection,

Protocols

Isolation

IEEE 802.11

like

transformer, Isolator switches 10





Loads and Meters

Communication network

like

WLAN, PLC Stakeholder

Operations



Field-level staff



Consumers





Technical Managers/Supervisors

Nominal O&M activities

Microgrid



Microgrid developer

technical staff



Employees



Consumers



TSO, DSO



Consumers



Utility engineers



CERC, SERC



Funding agencies



SERC,CERC,SNA



DisCom

Database



PPA

management



Energy transaction schedule

Data



Ancillary



Periodic checks on



such as ensuring clean solar

current,

panels,

battery

active

maintenance,

proper

power meters

access/security

Manual

control

lubrication of machines, etc



voltage, and reactive

/Supervised

switching

of



transfer,

service

transaction

schedule 

Cost-Benefit Analysis



Energy Audit

equipment/Islanding functionality 

DSM activities



Modelling/Simulation studies

11



Compliance Verification

Policy-

CEA technical

CEA technical

regulatory

standards/regulations

standards/regulations

NA

CERC, UPERC regulations

Framework

*The FM may not be exhaustive. In the context of Indian microgrids, the diversity of the communication layer is not yet fully captured. Apart from data logging, data transfer along wireless networks has lesser relevance given the relatively small size of projects when compared to MW size microgrids in European and American countries

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2.3 Specificity aspects of the Functionality Matrix The functionality-matrix is a generalized matrix. Based on the system type and size and the business model, specific changes in the characteristics may occur. These changes are dealt with in the following sub-sections. 2.3.1 Specificity due to system type and size The installed capacity of the microgrid would affect the viability of operations in the business layer. By the principle of economies of scale, the size of the DG system would impact the Power Purchase Agreement (PPA). The type and the size of the DG system would affect the resources in the application layer. Suppose we have a PV inverter that operates nominally at unity power factor. Let the peak output of the PV be 10 kW.Now, during system design, the inverter kVA rating would be calculated asS= 10 /pf=10/1=10 kVA If we had designed for power factor band of +/- 0.9, the VA rating would be S’=10/0.9=11.11 kVA Hence, the inverter needs to be oversized to give reactive power support to the grid. However, if we have a 10 kVA inverter operating at +/0.9 power factor, the active power would be trimmed toP=10x pf=10 x 0.9 =9 kW This curtails the active power loading capability of the inverter. But a possible solution could be that reactive power support and normal energy supply are done in different time frames. Also even with the reduced active loading capability, we can explore possibilities of utilizing it for frequency control provided the microgrid has enough reserve for that function. The control capabilities of various DER units are outlined in Table 2.3, from which we can infer that the size of the microgrid is a major constraint, in the Indian context, to provide ancillary services.

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2.3.2 Specificity due to Business Model Microgrids in India fall into the three broad categories of business models: 

For-Profit Model includes developers that need to fully cover ongoing costs from tariff collection, in addition to a return on the non-subsidized portion of the capital cost, if any. For example, DESI (Decentralised Energy Systems of India) and HPS (Husk Power Systems) microgrids in Bihar and Madhya Pradesh.



Partially Subsidized Model is based on large subsidies (sourced from social venture capital and non-profit organizations) for capital costs but relies on tariff-based cost recovery to cover operations and maintenance. For example, Gram Oorja microgrids in Maharashtra.



Fully Subsidized Model is a model in which the costs are fully subsidized by the government, and below cost recovery tariffs nominally cover part of maintenance, operation, and administration expenses. The revenue often does not end up being collected over the stipulated time to cover the aforementioned expenses. For example, State Nodal Agencies such as CREDA (Chhattisgarh Renewable Energy Development Agency) and OREDA (Orissa Renewable Energy Development Agency) have set up microgrids based on this model in their respective states

Based on the business model, we can expect differences in Cost-Benefit Analysis framework. For example, a private developer would maintain a profit margin over the actual costs of regulating active or reactive power. Also, the outlook to the utility when sharing data of the microgrid would differ across the business models.

14

Table 2.3 Control capabilities of various DER units (Source: Braun, 2009)

15

2.4 Concerns on realizing the advanced microgrid model 2.4.1 The Utility Extensive literature on the impacts of DG integration on the distribution network of the utility is available. A summary of the impacts abstracted from Walling et.al, 2008 &Barker et.al 2000 is provided below. A. Safety

Figure 2.2 Unintended Island If the isolating switch of the lateral line in Fig 2.2 opens due to some nearby fault on the LT line, an unintended island is formed on the secondary of the distribution transformer to which the microgrid is connected. Line crewmen operating on lateral branches connected to the DT might be unaware of this unintended island and operate on a live LT line. To prevent this, inverters need to have an anti-islanding function that makes them trip once an unintended island is detected. However, this causes a power outage in the microgrid area. If we have the microgrid system disconnected at the PCC and the DGs still supply the loads in the microgrid area, an intended island is formed without causing the local power outage. B.Power Quality The inverter is used to convert DC power from PV panels to AC power that is fed to the distribution network of the advanced microgrid. It also enables compatibility of system type with the traditional grid as it is also an AC system. However, it is a non-linear equipment that employs static switches. Utility engineers are concerned about the power quality when the 16

inverter feeds the grid. Harmonics, flicker and DC injection are three areas of concern in this regard. All these three have negative impacts on system equipment such as overheating, lifespan reduction, saturation of transformers, etc. Old inverters were line-commutated inverters based on SCR switches. Inverters in the current Indian market are self-commutated and based on IGBT switches. They comply with the IEEE 519 specification on harmonic distortion limit. An isolation transformer at the PCC may be provided to block transmission of DC offset currents to the LT lines. C. Protection and Protection co-ordination Conventional overcurrent protection is designed for radial distribution systems with unidirectional fault current. With DERs, it becomes a complicated network with multiple sources. Fault currents can thus flow bi-directionally. The following impacts arise: 

False tripping /no tripping of protection devices;



Recloser fails to respond to faults earlier than downstream fuses.

Figure 2.3 Unresponsive recloser for a lateral fault If the utility uses a fuse saving scheme (where the feeder breaker is set to trip for faults beyond a downstream branch fuse before the fuse will blow) presence of the microgrid can hamper the scheme. For instance, in Fig 2.3, the fault current seen by the recloser falls below its set point (due to change in the network impedance by the addition of the microgrid’s net output

17

impedance) for tripping due to the presence of DG in a nearby lateral line. The recloser does not respond. However, the fuse sees a greater current and blows out. The fact that PV -inverter systems can produce about twice the rated output current during a fault while the grid can supply fault current in very high proportion to the nominal current has an impact on the interrupting ratings of the protection devices. The microgrid may still contribute to a fault even when the feeder recloser parts. This is because the recloser cannot sense the microgrid’s fault contribution. Damage to equipment due to faults external and internal to a microgrid area raises the question of fault compensation as well. For example, if a microgrid equipment gets damaged due to the inability of upstream protection devices to clear a fault, who will compensate for the damage? D. Voltage and frequency regulation The basic question of who/what dictates the voltage and the frequency at the PCC is another concern. However, voltage is a more localised parameter than frequency. The Distribution Substation uses various voltage control equipment such as automatic load tap changers, switched capacitors, etc. The interconnection to a microgrid with control settings different from the substation’s control settings might affect the system voltage. Frequency is universal to a control area within a region of the grid. Frequency control reserves are maintained at large power stations to be used for stabilising frequency deviations from the nominal value of 50 Hz. Imbalances between the generation and the connected load on the power system cause these frequency deviations. 2.4.2 The Microgrid Developer For microgrid developers, the concerns are more financially biased. Their concerns are 

Retrofitting requirements;



System data confidentiality;



Tedious compliance verification;



Communication requirements with the utility and



Regulation of tariff rates.

18

2.4.3 The End User For a rural residential consumer, reliability is the prioritized attribute of electricity supply. Also, their willingness to pay and affordability need not necessarily converge. If an isolated microgrid gets upgraded to an advanced microgrid, the upgrade would reflect in the tariff rates. Hence, the end user’s concern would hinge on the change in tariff rates which in turn depends on the cost optimization of the upgrade.

2.5 Policy Analysis using Functionality Matrix The themes of microgrid redundancy and ways to resolve it in the event of grid arrival have not been properly dealt with in the policy arena as of now. The .UPERC Mini-Grid Renewable Energy and Supply Framework Regulations, 2016 contain possible exit options for microgrid developers when the grid arrives. A thorough analysis of these regulations and crossreferenced policy documents is given below. 2.5.1 CEA Technical Standards for Connectivity of Distributed Generation Resources Based on the functionality matrix, these regulations relate (and not necessarily cater) to the physical, application and communication layers. A critique of these relations are as follows: 

System Size and PCC The regulations apply to any generating station feeding electricity into the grid at a voltage level below 33 kV. The CSE report on Mini-Grids in Uttar Pradesh (Bhati & Singh, 2018) states that the regulations are not relevant to the Indian context as they are modelled on international norms and they stipulate the PCC voltage to below 33 kV. However, if we look at MNRE norms for interconnection of solar DG systems, 415 V is stipulated for 10-100 kW capacity while 11kV/33kV is prescribed for 100-500 kW capacity. Most of the microgrids in India fall into the former category of capacity. The applicability of these norms to the context of microgrids connected to the secondary of a distribution transformer needs to be studied. The PCC in the advanced rural microgrid is a black box as of now. An isolation transformer seems to be an essential component of the PCC given the fact that the insulation level of the microgrid might not coordinate with the grid. The regulations suggest the presence of a paralleling device/isolating switch with withstanding capacity of 220 % of the nominal PCC voltage. It should be a visibly verifiable, 19

manually operated switch beyond a “particular capacity” of the microgrid. It need not have load breaking capacity or overcurrent protection. Load break switches are used to de-energize or energize a circuit that possesses some limited amount of magnetic or capacitive current, such as transformer exciting current or line charging currents. Since our circuit is a small LV distribution network, line charging is of no relevance. However, the presence of grounding and isolation transformers might necessitate the use of load break switches. Circuit breakers, which are an alternative to load break switches, have both making and breaking capacity but with added cost. 

Metering

The regulations specify the presence of an energy meter at the PCC. Meters shall be provided as specified in CEA Installation and Operation of meters. From costing and implementation perspective we can have two metering configurations:  Single 3 phase bi-directional net meter  Two standard 3 phase unidirectional meters The question of who will take up the cost of the metering arrangement with the business model of the microgrid at the backdrop will impact the choice. 

Protection

The regulation states that the interrupting capacity of protection equipment such as circuit breakers will be on the basis on the maximum available fault current available at the location. Determination of the short circuit MVA in the protection zone of the distribution network containing the microgrid is a challenge for the following reasons:  In the traditional distribution network, there are circuit breakers except at the substation. Modelling the distribution network downstream of the substation with a microgrid present is going to be a new exercise for utility engineers.  Short circuit capabilities of distributed generators and the grid differ significantly. The DG inverters need to have  Anti-islanding function  Abnormal voltage(1.1 p.u to 0.8 p.u on nominal voltage base) and frequency(1.01 p.u to 0.95 p.u on 50 Hz base) trip functions

20

 Time delay function to re-establish grid connection after stability attainment for 60 seconds  Inbuilt grid synchronisation functionality Opportunities of Fault Ride Through (FRT) (Magal et.al, 2014) using inverters to support the grid in the event of low voltage or frequency excursions of very short durations can be studied. This can reduce the number of outages to the microgrid area due to momentary disturbances in the grid. 

Data

As per the regulations, data storage and communication networks would be provided by the microgrid developer as stipulated by the DisCom. The regulation requires complete transparency of data from the microgrid developer’s side. Cost and confidentiality issues can be expected to arise from this. A study of the costs of communication infrastructure, data valuation, data privacy and communication protocols that would invite a mutual consensus between the utility and microgrid developer needs to be done. 

Power Quality, Voltage and Frequency Control

CEA standards for power quality mandate the standards for harmonic current, direct current and flicker as shown in Table 2.4. Table 2.4 Standards for power quality parameters Power Quality parameter

Standard

Harmonic Current

IEEE 519

Direct Current

IEEE 1547

Flicker

IEC 61000

The regulations state that during grid forming mode, the microgrid shall not cause fluctuations greater than +/- 5 % at the PCC. The regulations do not state whether a microgrid will be allowed to actively participate in voltage and frequency regulation. This, however, needs communication between the MGO, the DSO and the TSO because the reference settings for the control units across these three operators for voltage and frequency need to coordinate. The DSO traditionally controls the 21

distribution voltage while the TSO maintains system frequency of the control area using Frequency Control Reserves (FCR). In India, the market for FCR exists under RRAS (Reserves Regulation Ancillary Services) regulated by the CERC(CERC Final Detailed Procedure for Ancillary Services Operations,2016 ) that have thermal power plants in the order of several 100 MW as dominant players. Downscaling the control reserve market to have the participation of microgrids at the distribution tail opens up possibilities for revenue generation outside the normal 7-8 hrs scheduled operation of microgrids when connected to the grid. 

Equipment Operational Schedule

A Site Responsibility Schedule (SRS) will be prepared by the DisCom, which states the inventory of roles, responsibilities, equipment and safety procedures. A collective effort towards understanding operational limitations (manpower availability for example) and preparing the SRS with the microgrid employees would eliminate confusion and make the SRS more effective. 

Compliance Verification

The regulation entrusts compliance verification with DisCom. Two pertinent issues come up  Availability of standard protocols for compliance verification  Costing of the verification 

Precedence of standards

The regulations adopt precedence of standards in case regional standards are not available. The order of precedence would be BIS-IEC-BS-ANSI. 2.5.2 UP Mini-Grid Policy & UPERC Mini-Grid Renewable Energy and Supply Framework Regulations The regulations relate to the business layer with occasional references to CEA standards/regulations. From a consumer’s perspective, the points discussed in Section 2.4.3 would still hold over these regulations. A critique from the microgrid developer’s perspective is given as follows: 

Financial Support/Subsidy

22

The business layer of the FM essentially transforms from a private model to a PPP (Public Private Partnership) model when a private developer’s microgrid interacts with the grid. Under the PPP model, as per the UP Mini-Grid Policy, state regulations apply to the functionality of the business layer. Microgrid developers get additional 30 % state subsidy over the already existing 30 % central subsidy given by MNRE. The catch is in the slash of tariff rates for residential consumers (to about Rs 7 per unit) which impacts the profit margin and cost recovery for private developers. The existing tariff rates for private developers in Uttar Pradesh are shown in Fig 2.5 It can be seen that regulated rate is 2-5 times the existing rates. The potential negative impacts on financial viability due to changes in discount rates or time lag in subsidy procurement even when there is subsidy support needs to be looked at. Table 2.5 Effective tariff rates, connection costs and functional hours of privately owned microgrids in Uttar Pradesh. (Source: Bhati & Singh2018) Company

Fixed

Effective tariff rate

Duration of effective usage

Charge(Rs per

(Rs per unit)

(hours)

OMC Power 15 Watt –Rs 110

40.7

6

Husk Power 34 Watt –Rs 230

37.6

6

50 Watt –Rs 300

33.3

–Rs

35.0

month)

100

Watt

630 Boond Engineering Mera Gao

20 Watt –Rs 60

16.7

60 Watt –Rs 350

32.4

20 Watt –Rs 120

28.6

6

7

Power

Another aspect is the retrofitting cost. Convergence of Saubhagya and Microgrid policies could be beneficial. Saubhagya is aimed at 24 x7 household connectively to 100 % households

23

in the country. On average, the cost of grid extension is 2 lakhs per km excluding the cost of delivering energy. The net present cost of grid extension, however, has two components.  Net present cost of buying power from the grid over the project lifetime. The annual cost of buying power is the power price times the total annual electrical demand, and you divide that annual cost by the capital recovery factor to find the net present cost.  Net present cost of extending the grid, which is just equal to the net present cost per km times the distance in km. The net present cost per km is the sum of the capital and O&M cost, but you have to divide the O&M cost by the capital recovery factor. The slope of the line is equal to the net present cost per km. As of now, 14.9 million rural households (Saubhagya Dashboard) in India are yet to be electrified. Per household, the allocation is estimated to be over Rs 5000 from Saubhagya’s outlay of Rs 16,320 crores (Tongia et.al, 2018). Now, a significant portion of these might have already been electrified through microgrids. But apart from DDG projects, the government would not count them as electrified unless LT lines are laid by the DisCom. Duplication of infrastructure due to this outlook is seen in many microgrid areas. If however the grid extension cost is spent as the retrofitting cost of an advanced microgrid, the cost can manifest as the cost of supplying reliable power to the remote rural consumers. This could possibly stop wasted investments due to infrastructure duplication. Here, the microgrid is the enabler and the support is Saubhagya. 

Transaction Schedule

The transaction schedule can be broken down into  Type of the transaction i.e. Energy/Ancillary Services: UPERC regulations mention that a PPA agreement would enable feeding surplus active power (energy) to the grid.  Scheduled quantity: The regulations just mention that the surplus power from the microgrid will be fed to the grid.  Contractual exchange rates: The tariff rates are as per UPERC (Captive and Renewable Energy Generating Plants) Regulations2014.This document gives a differentiated tariff structure based on the date of commissioning and the technology type of the DG used in the microgrid. With economies of scale operating and the 24

DisComs already facing financial losses, it is certain that these rates would not be accepted by the microgrid developers.  Time schedule: If we have ancillary services as a viable option, time scheduling would play a critical role in operating the inverters in grid feeding and grid supporting modes. Another possibility would be to provide heterogeneous service levels to residential consumers and micro-enterprises. With ancillary support and power from the grid, micro enterprises utilizing electric drives can benefit from a grid-tied microgrid. Residential consumers would, on the other hand, get their regular 6-7-hrs daily supply from the microgrid in isolated mode. 

Cost-Benefit Analysis Framework

A standard cost-benefit analysis framework for grid interactive microgrids needs to be developed. In the UPERC Mini-Grid Renewable Energy and Supply Framework Regulations, the DisCom would procure the distribution network at its book value. However, the valuation of the project from the microgrid developer’s perspective and the DisCom’s willingness pay would be on different planes.

2.6 Market Analysis using Functionality Matrix An analysis of the market maturity in energy storage, inverters and software in dealing with the demands of microgrid development is provided below. 2.6.1 Energy Storage For microgrids to participate in the electricity market, storage plays an important role. For an advanced microgrid, a battery would have the following functions  Storage of surplus energy  Acting as reserves for active power/reactive power control IESA estimates the market for energy storage would grow to over 300 GWh during 2018-25. India is expected to attract investment in 2-4 Giga factories for advanced Li-ion batteries, attracting over $3Billion in investments in the next 3 years. Already, over 1 GWh of annual assembling capacity is being set up for converting imported Li-ion cells into battery modules by various Indian companies.

25

The impact of the battery technology on the aforementioned two services needs to be studied. The 9.3 kWp PV microgrid of Gram Oorja in Darewadi uses a 28.8 VRLA battery unit (Gram Oorja website). 2.6.2 Inverters There are two types of inverters in the market, namely  String Inverters –up to 30 kW  Central Inverters-higher than 50 kW The inverters need to have in-built functions such anti-islanding as stated by the CEA regulations. The following Table 2.6 shows the technical features of dominant inverter makes in the Indian market. Table 2.6 Technical capabilities of dominant inverters in the Indian Market (Source: Magal et.al, 2014)

The Darewadi Microgrid of Gram Oorja uses a 10 kW SMA central inverter. From the table, it can be seen that it has diverse functionality. 2.6.3 Simulation Software Apart from MATLAB and HOMER, the following software packages for simulation of microgrid interoperability are mentioned in literature(Bower et.al, 2014 & CSTEM website): 

GridLAB-D 26

A power-system simulation tool that provides valuable information to users who design and operate electric power T&D systems and to utilities that wish to take advantage of the latest smart-grid technology. GridLAB-D was developed by Pacific Northwest National Laboratory and is in the public domain. 

Distributed Energy Resources Customer Adoption Model (DER-CAM)

DER-CAM was developed by Lawrence Berkeley National Laboratory and its functionalities and scope include:  Available routines to minimize annual energy costs, CO2 emissions, or multiple objectives of providing services at building microgrid level (typically buildings with 250–2000 kW peak) but can be applied elsewhere.  Results with technology-neutral and pure-optimal results with highly variable runtime.  Designation by Berkeley Lab and collaborations in the U.S.A., Germany, Spain, Belgium, Japan, and Australia over 10 years. Commercialization by Software-as-aService is currently under license. 

CSTEM Roof Top Photovoltaics (CSTEM RTPV)

It is modelled specifically to perform pre-feasibility assessments suitable to Indian scenarios. The tool considers the following factors:  Solar geometry components, which models the sun’s path, as seen by the location of interest;  Effect of temperature and wind speeds on module power output;  Module degradation effects;  Inverter start-up voltage requirements and  Effective sizing of the plant considering location specific configuration assessment. The tool estimates the payback period and savings for a given setup as per state-specific policies. The current version of the model solely caters to pre-feasibility/potential assessment purposes. Some assumptions and considerations used in the model development are:  The model is suitable for rooftop setup less than 1MW.  The model has been designed only for fixed panel configuration at a constant tilt angle.  The model developed considers a design for no shading conditions. The user has to provide a percentage of roof area which is shadow free.  Degradation/reliability aspects of PV module. 27

Chapter 3: Conceptualizing Microgrid Economics A conceptual framework for understanding microgrid economics is developed in this chapter. This framework would be used in building an economic model of a microgrid in Chapter 5.

3.1 Working Definition In the context of Rural India, Microgrid Economics may be defined as the study of the associated costs of energy generation and energy transaction between an Energy Service Company (ESCO)/State Nodal Agency (SNA) and the consumers. It may also include the valuation of social welfare, such as environmental benefits arising out of the use of renewable energy resources that are hard to express as a cost. An ESCO may be a commercial or a nonprofit organization. The purpose of microgrid economics is the proper allocation of resources such as manpower, energy and capital to achieve the following three objectives

Economic Viability, which refers to the first pass of project viability for sanctioning of the project.



Sustainability, which refers to long-term economic and beneficial operation of the microgrid throughout the lifespan.



Scalability, which refers to the capacity expansion of the project.

The typicality of microgrid economics in Rural India lies in low demand and low paying capacity of the consumer. The success of a Microgrid Project in India hinges on local institutional leadership which ultimately drives the sustainability and scalability of the project.

3.2 Span of Microgrid Economics As microgrid project development is a multi-stage process, its economics also spans over the whole process. The stages are illustrated in Fig 3.1, which is self-explanatory. The economic aspects of each stage are highlighted alongside the stages. Microgrid Project development is an iterative and learning process since no standardized microgrid project frameworks are available in India. The diversity in the socio-cultural environment and the variability in the availability of renewable resources across India makes such standardization difficult. The following points are noteworthy1. The purpose of investment appraisal is minimizing the cost of power supply.

28

2. The construction stage is mainly driven by the exposure of the project developers to equipment suppliers. In this regard, the utility, on account of its maturity in the electricity market, has advantages in resources and technology of construction. But for a new entrant in the microgrid sector, challenges of high overhead costs in procuring equipment due to the remoteness of villages and the availability of manpower and land arise. Land availability becomes an acute issue when the system capacity is in the order of several tens of kilowatts in case of PV systems. 3. Organizational structure is the most prominent distinguishing characteristic of a microgrid project. It determines ownership, management, local involvement and conflict with the prevailing regulatory environment. (Cust et.al,2007) 4. Monitoring, financial analysis, contingency analysis play vital roles in achieving sustainability and scalability of the project.

Figure 3.1 Span of microgrid economics over the stages of microgrid project development

29

3.2.1 The Process of Investment Appraisal Investment appraisal is the process of assessing the economic viability of available investment options. A discounted cash flow analysis over the lifespan is required for investment appraisal of microgrid projects since they typically have lifespans of over 20 years. Lifespan is of two types

Physical Lifespan



Economic Lifespan

The distinction between the two is explained using the degradation in the performance of PV panels over time. By design, a PV panel must give its rated output under STC. Manufacturers give warranties of 20 years that guarantee that at the 20 th year after installation, its output capability will be at least 80 per cent of the rated value. This translates to a degradation rate of 1 % per year. At the 20th year, the developer can check if it is worthwhile to purchase a new panel or continue with the panel if the panel managed to give over 90 % of the rated output. Hence the economic lifespan can be shorter than the technical lifespan. Economic Lifespan is also linked to depreciation. Depreciation in simple terms means a reduction in the value of an asset over its lifespan. Normally, a yearly depreciation percentage is estimated based on the salvage value. The following discounting tools are used in developing the economic models in Chapter 4

Net Present Value



Internal Rate of Return



Annuity/Capital Recovery Factor

A flow chart describing the investment appraisal process is shown in Fig 3.1. The choice of an asset mix ultimately gets reflected in the pricing of electricity. The general expression of effective capital expenditure under an asset mix is𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝑪𝒂𝒑𝒆𝒙 = 𝑪𝒂𝒍𝒄𝒖𝒍𝒂𝒕𝒆𝒅 𝑪𝒂𝒑𝒆𝒙 − (𝑺𝒖𝒃𝒔𝒊𝒅𝒚 + 𝑫𝒆𝒃𝒕) The Balance of Payments is illustrated in Fig 3.2.

30

Capex Annuity Consumer Payment

-

+

BoP

+

Loan Repayment

-

FiT/Cost recovered from REC

Opex

Figure 3.2 Balance of Payments (BoP) Node Diagram Hence for the year under consideration, a positive BoP means a profit while a negative value means a loss. The following equations can be derived from the node diagram 𝑩𝒐𝑷 = (𝑪𝒐𝒏𝒔𝒖𝒎𝒆𝒓 𝑷𝒂𝒚𝒎𝒆𝒏𝒕 + 𝑭𝒊𝑻 𝒐𝒓 𝑪𝒐𝒔𝒕 𝒓𝒆𝒄𝒐𝒗𝒆𝒓𝒆𝒅 𝒇𝒓𝒐𝒎 𝑹𝑬𝑪) − (𝑪𝒂𝒑𝒆𝒙 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 + 𝑳𝒐𝒂𝒏 𝑹𝒆𝒑𝒂𝒚𝒎𝒆𝒏𝒕 + 𝑶𝒑𝒆𝒙) The recovery of cost from Renewable Energy Certificate (REC) or Feed-in Tariff is not yet realized in microgrids in India. A detailed analysis of this subjects given in Section 3.3.2 Two perspectives can be applied at the decision node

Business Centric-maximizing Profit with modest charges to consumers.



Consumer Centric-minimizing charges to consumers at the expense of lesser profit.

The adoption of either of the two depends on the business model followed by the project developer. The bankability of microgrid projects is an issue particularly when the project size the returns on equity are small. For example, projects set up under SNAs give the electricity at virtually free of cost: Rs 1-2 kWh. Thus, the choice of a consumer-centric or businesscentric perspective impacts the bankability.

31

START

Equity:Debt:Subsidy Options for Asset Mix

Determination of WACC,Discount Rate,PV reference time

Balances of Payments

Profitability? Reasonable Pricing of electricity? APPROPRIATE START WITH CURRENT OPTION

Figure 3.3 Flow Chart of Investment Appraisal Process The discount rate is essentially an index of the total project risks and the desired returns on equity. Hence the investment appraisal can be represented as a flowchart–Fig 3.3. 3.2.2 Risk Analysis and Risk Mitigation in Microgrid Projects There are two types of risks in microgrid projects, namely

Internal Risks, which are those that can be controlled by the project developer.



External Risks, which are those that are outside the developer’s purview.

Since these risks and their mitigation measures have cost implications, their analysis is of great importance. Based on their nature, they can either be accounted implicitly in the series of payments used in calculating BoP or included as a component of the discount rate (Konstantin & Konstantin, 2018). Internal risks are found in the construction and operationalization stages of the microgrid project. Selected risks pertinent in the context of rural PV and biomass gasifier based microgrids in India along with their mitigation measures are shown in Table 3.1.

32

Table 3.1 Selected risks, mitigation measures and mode of accounting Risk Type

Risk

Mitigation Measure(s)

Mode of Accounting

Internal

Construction Supervised EPC(Engineering, Procurement and Capex Delays

Internal

Construction)/Turnkey Contracts

Insecurity of 1.Energy plantations utilising village wasteland Capex biomass

2.Avoiding close proximity with neighbouring

supply

biomass projects 3.Crop diversification

Internal

High

1.Preventive maintenance

equipment

Opex

2.Adequate monetary reserves for maintenance.

failure rates. 3.Hierarchical structure O&M workforce with villagers deployed at the ground level and technical supervisors at the cluster level 4. Decoupling O&M and tariff collection.

Internal

High

/External

number

1.Smart metering and prepaid connections of

Capex

2.Local Vigilance Committee

defaulting consumers and theft External

Grid

Convergence/Parallel connection models

Extension External

Failure

Risk Premium

to Local

participation

garner social development

in

microgrid

project Internalized in Design

acceptance

33

3.2.2 Current Organizational Structures in India

Utility

(R5)

(R3) (R1)

(R4)

(R2)

Figure 3.4 Relational Model of Microgrid Projects A general relational structure of the parties involved in microgrid projects is illustrated in Fig 3.4. R (i) represents a relation between two parties .R (i) can be any one of the following: 

Exclusion



Partnership



Regulatory



Contractual

Exclusion of local people in microgrid projects has proven to curtail the sustainability of projects even if they were economically viable in the initial operational years. Contractor based O &M services also has led to delayed maintenance and increased O &M costs. Training of local people to do basic O&M has proven to be cost-effective in case of Gram Hence, partnerships with locals are emerging in both profit and non-profit organizational structures. Surprisingly, the utility relation with a private ESCO can shape its mode of transaction (and hence R1) with the local people, even if the grid does not exist in the microgrid area. The legality of a private ESCO to freely operate in the area depends on whether it is notified as “rural” (Section 14, Electricity Act 2003). This designation is under the discretion of the MNRE and its SNAs.As an example, DESI Power was forced to adopt 34

a single buyer model wherein a village cooperative procures power from DESI and the distribution is conducted by the cooperative(Cust et.al,2007). Local needs can be segmented into the following categories

Residential



Community



Microenterprises/High power needs

Current organizational structures are shaped by the nature of these R (i)’s and the market segment to which they cater to. A large number of case studies on these are available in existing literature. Hence only typicality/prominent barriers in each structure are highlighted as follows: 

For-Profit Organization, characterized by the choice of the local economy (businesscentric perspective) in which it operates. Such organizations typically rely on equity, loan and grants from private bodies and do not prefer the use of subsidy. The share of loan can be very high relative to the equity (DESI’s 32 kWe Biomass Gasifier based Bara microgrid attracted a private investment of 80 % with DESI filling up the 20%). With an experience of almost two decades, DESI Power is a pioneer in the private microgrid arena. They have a typically diverse consumer base ranging from rice mills, carpentry workshops, cinema halls and banks to residential consumers. For example, DESI entered into a partnership with a village cooperative BOVS to diversify the consumer base and increase paying capacity of the consumers through provision of machinery required for hulling, milling, etc (given on loan) (Schnitzer et.al, 2014).DESI tries to maintain a profit margin of 9 per cent after total loan repayment (interest and principal) over an investment of 5 lakh in a microgrid project. Profitability of microgrid projects is maintained by running parallel livelihood generation ventures, as shown in Table 3.2. Because of their ability to bundle many small projects-DESI EmPower 100 projects totalling 5.15 MW (Cust et.al, 2007), DESI is taking advantage of the UNFCC Clean Development Mechanism. The CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2(UNFCC CDM website). These CERs can be traded and sold, and used by industrialized countries to meet a part of their emission reduction targets under the Kyoto Protocol. Because of their preferences for higher system capacities, sometimes governmental programmes 35

become non-attractive for them. MNRE launched the Village Energy Security Programme (VESP) in 2004 (but discontinued it during the 12th Five Year Plan, starting in 2012) structured so that a village energy committee (VEC) ran a decentralized village program involving biomass gasifiers, straight vegetable oil (SVO) systems, biogas plants, and improved cookstoves. When MNRE took bids for biomass gasification projects, the stipulated capacity ceiling of 75 kW made DESI ineligible for applying as DESI found the size low for sustainable operation. Interestingly the failure of the VESP was on account of its institutional inability to achieve what DESI carried out in partnership with BOVS. The difficulty of detecting theft persists even when the connections are metered on account of the large residential consumer base. The organizational structure of DESI is shown in Fig 3.5.

Figure 3.5 Organizational Structure below Managing Director Level of DESI (Source: DESI Power Website) DESI, on account of its diverse workforce, has in-house capacity for EPCOM and management DESI has a segmented organizational structure with two operational entities

DESI Power catering to residential loads.



DESI Power Kosi catering to customers with large peak loads.

DESI uses two metrics for performance assessment (Table 3.2) 

Financial returns and



Job creation.

36

Their organization ensures 2 employees per microgrid. If the investment reported here pertains to salary, it translates to about Rs 20,833 per head per month. Table 3.2 Performance Evaluation Benchmark for DESI (Source: DESI Power website) Performance parameter Economic Performance Social Performance Investment. lac Rs

Profit after interest and repayment of loan. ( % of Investment)

Total Direct Jobs

Investment per job. lac Rs/Job

Jobs for Women

Other Impacts (e.g. Health)

Briquetting Machine Irrigation pumps with cabling - 6 numbers

6

12%

2.5

2.4

50%

Yes

6

12%

1.5

4

25%

Not direct

Rice huller

0.75

19%

3.5

0.21

50%

Yes

Chura mill Flour Mill Fishery Ice Factory

0.8 0.75 2 7

16% 12% 30% 45%

2.5 2 1 5

0.32 0.38 2 1.4

75% 50% --30%

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Battery charging Total Business Enterprises

0.2

29%

1

0.2

75%

---

26.5

20%

19

1.39

45%

Yes

Power Plant

28

10-15%

5

5.6

30%

Yes

Mini Grid

5

9%

2

2.5

30%

Yes



Non-Profit Organization, characterized by a smaller customer base and system capacity (