Changing Policy Scenario for Decentralized Renewable Energy Based Micro Grids in India


More than 40% of India’s population does not have access to energy. Thus providing access to affordable and reliable energy particularly in rural areas is an issue of high importance for the Government on India (GoI). The Prime Minister in his address to the nation on 15th August, 2012 in New Delhi reflected the aspirations of the country to achieve energy security and to provide electricity to all. GoI has focused on providing electricity access through extension of the centralized grid to all villages in the past. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme as on 15th December, 2012 more than 1,17,704 villages (90.2% of the target) have been electrified. The country has also been progressively increasing the use of renewable energy technologies over the past forty years particularly for rural areas.

With the advent of the 12th Plan the Ministry of New and Renewable Energy (MNRE) has shown a growing interest in use of decentralized renewable energy (DRE) in its Strategic Plan (period 2011-2017) for growth of Renewable Energy in India. Year wise targets for deployment of off-grid applications for 2011-17 (Table 1) indicate a reasonable growth being proposed year on year. In its current plans the MNRE is targeting 3200 MW of installed off-grid renewable energy projects in the next five years, which would be a large leap in reference to the existing installed power of 500 MW. Rural electrification, rural energy supply and rural solar lighting have received increased impetus in the strategic plan.

A growing interest in mini grids and the realization of the need for grid interaction of such models is becoming evident. The strategic plan also outlines the aspirations of MNRE is to electrify villages through use of renewable energy technologies; over 10,000 villages using biomass based systems and over 1,000 villages using solar power upto 2022. The MNRE also promotes the concepts of small power plants at tail end of grid for both solar and biomass and developing financial support structures. There is also emphasis within their strategy for development of entrepreneurship for rural electrification through biomass wastes, rice husk, solar etc and enabling banks/ grant funds.

The plan talks about a number of areas that need strategic intervention while prioritizing them i.e. renewable resource assessment, cost reduction through research and development, opening market channels for scaling up renewable, continuing improvements in regulatory and policy initiatives, developing and deploying financial instruments, human resource development and strengthening the ministry.

“The Government of India aims to provide 24x7 electricity to all households in the country and affordable access to electricity in the next 5 years.

Renewable energy technologies provide probably the most sustainable and economic options for energy access. We aim at accelerating the overall deployment of renewable energy in India to achieve around 55 Giga Watt of renewable power by the year 2017.”

PM’s inaugural address at the International Seminar on Energy Access on 9th October, 2012; Press Information Bureau, Government of India

Table 1: Year Wise targets for off grid applications for the period 2011- 17

The MNRE through its schemes like the Village Energy Security Programme (VESP) and the Remote Village Electrification Programme (RVEP) plays a significant role in remote rural electrification. The RVEP provides financial support for electrification of those remote unelectrified census villages and unelectrified hamlets of electrified census villages where grid-extension is either not feasible or cost effective and are not covered under RGGVY. Presently the policy is under review and some changes have been proposed to the scheme; Mainly a load of up to 58 W / HH will be allowed and even villages which are electrified but have supply less than 6 hrs/day would be eligible under this scheme. Another proposed change is the way in which the developers would be selected, which would be on the basis on competitive bidding.

With regard to VESP, the focus was to provide all energy needs through locally available biomass resources however the program had limited success. The MNRE annual report (2011-12) indicates that no new VESP projects will be taken up in the 12th Plan period.

Under the RGGVY, the Ministry of Power (MoP) also launched the Distributed Decentralized Generation (DDG) scheme in 2009. The focus initially was on remote villages and 90% subsidy was provided for setting up electricity generation (either from conventional or renewable resources) and a corpus of 540 cr was set aside. However not many DDG projects have come online due to a variety of reasons . The 12th plan document of MoP has gone ahead and recommended that “Establishment of DDG projects in Grid connected areas also where adequate power supply is not available. Setting up of Decentralized Distribution Generation (DDG) projects based on Viability Gap Funding (VGF) through competitive bidding process.” There were amendments to the original guidelines published on this scheme on 5th January, 2011 and 17th March, 2011. Some proposed changes to the DDG scheme include the possibility of grid integration of such projects with excess electricity being fed into the grid and electricity being withdrawn from the grid in time of shortages. With the original provision of a DDG scheme in villages where grid connectivity is either not feasible or not cost effective, it was amended that subsidies can be provided for the electrification of villages that get less than 6 hours of electricity a day.

To address most of the challenges in promotion of DRE based micro grid models, the Forum of Regulators (FoR) have proposed two new business models which could be implemented as new regulatory mechanisms. The first is called Off-grid Distributed Generation Based Distribution Franchise (ODGBDF) model and it keeps the off-grid consumer tariffs equitable with the grid-connected consumers and yet ensures sufficient returns on investments to developers. The second mechanism entails allowing off-grid projects to avail Renewable Energy Certificates under the CERC’s REC mechanism and seeks to fill in the viability gap through the sale of such certificates .

Policy plays an important role in the effectiveness and sustainability of DRE projects. Hence with the changing environment, the learning’s from field experiences are being incorporated in policy formulation to increase their efficacy. Given the dynamic DRE environment in which these policies are being framed, there has been a continuous learning and fine tuning process, which leads to an evolved policy framework.


ABPS Infrastructure Advisory Pvt Ltd. (Nov, 2011). Policy and Regulatory Interventions to Support Community Level Off-Grid Projects.

Ministry of New and Renewable Energy (MNRE), Government of India. (Febuary, 2011). Strategic Plan for New and Renewable Energy Sector for the period 2011- 2017. q



[1] Some of these reasons have been outlined in the 12th plan document, namely “Lack of clarity on ownership of project, Low operational revenue, villagers preference for grid-connectivity and consideration of DDG as a sub-optimal choice, lack of awareness among stake holders and present scheme being unable to provide adequate returns to entrepreneurs for a difficult task.”

[2] (ABPS Infrastructure Advisory Pvt Ltd, Nov, 2011)



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