Microgrids for Rural Electrification

By Dan Schnitzer, Juan Pablo Carvallo, Ranjit Deshmukh, Jay Apt, and Daniel Kammen

A study of over a dozen microgrid projects inaugurated by seven developers in three countries sought to determine why some such projects get trapped in vicious cycles of poor maintenance, disappointed customers, insufficient revenue and dysfunctional community support, while others prosper. Seven key factors are identified: tariff design, tariff collection mechanisms, maintenance and contractor performance, theft management, demand growth, load limits and local training and institutionalization.

Microgrids—distributed systems of local energy generation, transmission and use—are today technologically and operationally ready to provide communities with electricity services, particularly in rural and “peri-urban” (close-to urban) areas of less developed countries. Over 1.2 billion people do not have access to electricity, including over 550 million people in Africa and 300 million people in India. Often, the traditional approach to serve these communities has been to extend the central grid. This approach is technically and financially inefficient due to a combination of capital scarcity, insufficient energy service, reduced grid reliability, extended building times and construction challenges to connect remote areas.

In principle, adequately financed and operated microgrids based on renewable and appropriate resources can overcome many of the challenges faced by traditional lighting or electrification strategies. Yet in practice some microgrids are much more successful than others: Some enter into what we call virtuous cycles, while others fall prey to vicious cycles.

In an attempt to determine what distinguishes the ones from the others, we visited 17 microgrids in India, Malaysia and Haiti in January 2013 to capture a small sample. We surveyed the seven developers who owned the 17 microgrids, which range from government agencies that completely depend on subsidies to private developers that recover operating costs through tariff collection. Collectively, the developers we surveyed have installed 787 microgrids with an installed capacity of approximately 15 MW since the mid-1980s. Some developers’ microgrid portfolios serve as few as 250 customers, while others serve tens of thousands.

Our resulting report, Microgrids for Rural Electrification: A Critical Review of Best Practices Based on Seven Case Studies, was published by the United Nations Foundation this year.

The microgrid systems included in the report differ substantially from one another in their business, financial and organizational models, as they depend on size, technology, demand, resource availability, social context, and quality and quantity of the service they strive to provide. The developers of the microgrids represent a significant diversity in terms of their business models, location, the policies they interact with and the financing sources available to them.

Through the lens of these case studies, we critically reexamined the recommendations in the existing microgrid literature on best practices for microgrid operations. In doing this, we took into account developers’ varying objectives, which range from delivering societal benefits to delivering profits to shareholders. In the most general terms, we found that virtuous cycles are achieved through the production of (1) sufficient revenue to support the grid and (2) service and schedule reliability to keep consumers as loyal customers. In contrast, vicious cycles are characterized by a chain of poor maintenance, disappointed customers, insufficient revenue and dysfunctional community support.

We identified seven critical factors that should be thoughtfully planned for: tariff design, tariff collection mechanisms, maintenance and contractor performance, theft management, demand growth, load limits and local training and institutionalization. But we also found that not every practice is equally relevant, and that much depends on the type of business model set up by a specific developer: for-profit, partially subsidized and fully subsidized.

For-profit model. In terms of strategic planning, for-profit developers can secure virtuous cycles by carefully studying and selecting their customer base. This lesson is underscored by the care that successful developers take to provide energy services rather than mere electrons to their customers. Bans on incandescent light bulbs, load-limiters, and tiered tariff structures enable customers to get the energy services they want most, which provides operational certainty to the developer. In a similar vein, some developers purposefully design their operational model around commercial customers with whom they define respective requirements and expectations of price, service and reliability. The use of so-called “anchor tenants”—typically larger commercial loads—is becoming increasingly recommended as a best practice for microgrids.

Operationally, for-profit developers are mostly concerned with adequate tariff collection, as the sustainability of their enterprise depends on recovering both capital and operating costs via customer payment. There does not seem to be a silver bullet solution to the problems they face. Methods range from high-tech approaches, such as pre-paid meters, to basic ones, like frequent in-person post-pay tariff collection schedules. Bonuses to developer staff responsible for collection have been offered to increase rates of tariff collection, although experiences show these rarely induce improved performance from collectors.

Successful developers strive to provide prompt customer service through 24/7 hotlines and consequent on-site visits to solve technical problems, thus ensuring a loyal and paying customer base. Experience suggests that models that rely heavily on local staffing by the developer or involvement with local government in operations should be minimized. “Rural electrification is not grassroots,” said one for-profit developer.

Partially subsidized model. In terms of strategic planning, partially subsidized developers are similar to for-profit ones in that they aspire to obtain sufficient funds for operations and maintenance from tariff collection, which in turn depends on delivering reliable power to customers. As such, the strategic planning phase is geared towards forecasting load, planning for load growth and ensuring resource adequacy. But because of an emphasis on social outcomes, partially subsidized developers do not emphasize ability to pay in selecting customers; they tend to strike a compromise between serving some substantial, promising customers and serving all villagers, regardless of promise.

Operationally, partially subsidized developers prioritize grid reliability to maintain a steady flow of revenue that covers their ongoing expenses. Since these developers often serve relatively poorer villages and hamlets, to keep customers loyal they must strive to deliver energy reliably and on schedule. Otherwise the results are disastrous, as in the case of Haiti’s municipal microgrids, which fell into a classic vicious cycle of not being able to deliver power as scheduled because of fuel and maintenance costs that exceeded tariff collection—partly because of under-priced tariffs-despite collection rates that were at times relatively high.

Social context is important for these developers: Virtuous cycles were found to prevail in microgrids with adequate community management. In the partially subsidized model, which simultaneously espouses private sector values for financial and operational sustainability and public sector values for inclusion, a balance must be struck between factors that improve cost recovery and factors that improve community cooperation.

Fully subsidized model. Those fully subsidized operators of microgrids found to be in virtuous cycles focused their strategic planning on building local capacity to manage, operate and maintain the grid prior to its deployment. In India, Village Electricity Committees are used as institutions responsible for nearly all aspects of microgrid operations.

Another critical consideration in the strategic planning of fully subsidized developers is scale, as they are often mandated to prioritize service coverage to large portions of their villages, even if many are unable to pay cost recovery tariffs. To meet these goals of scale and service coverage, these developers often deploy many low-capacity grids designed to serve a large number of customers with lighting services only. While this level of service is often sufficient in the near term, customers quickly demand power for larger loads.

Since cost recovery is not a relevant issue for these developers, the virtuous cycle in operations requires dedication to preventive and corrective maintenance, both by contractors and community labor. Competitive bid solicitation for service contracts with very specific tasks and short durations appears to be a useful strategy that produces better results than the long-term, ambiguous and difficult to monitor contracts that are often the norm for government agencies.

In terms of the social context of fully subsidized projects, virtuous cycles entail ongoing legitimization of the local committee or its equivalent within its role in microgrid development and operations, though that by itself is no guarantee of success. Involvement in microgrid commissioning and development prior to operations could help establish a virtuous cycle at the outset, even when community involvement in operations presented difficulties. Avoiding a vicious cycle during the operating phase may require an institutional structure that prevents community dynamics from interfering with reliable operations of the microgrid.

Some technical considerations. Though technology was not the main focus of our survey report, we did pay close attention to some technical considerations, notably aspects of demand-side management and operational maintenance, both preventive and corrective.

Except in the one case of the Haitian microgrid, where available power always well exceeds load, all the grids sampled used some form of demand management. In almost every case these included encouragement of efficient appliances, customer agreements, home wiring restrictions, over-use penalties, and load limiters. Though the details of experience varied widely, most developers provided alternatives to incandescent bulbs and some used load limiting devices such as miniature circuit breakers to prevent demand from exceeding supply—measures widely recommended in the general literature on microgrids.

Regarding overuse penalties, one developer found that in cases where it is hard to establish a credible threat of penalties, more technical solutions may be necessary: a “smarter” meter, for example, or one that takes an input of 440 volts and converts to 220 volts internally to prevent bypassing.

Preventive and corrective maintenance has both physical and institutional aspects, and especially with subsidized projects, social arrangements can be crucial. If ownership and maintenance activities are to be transferred to the community, time and funds must be allocated appropriately to ensure that the community is willing and prepared to manage the system on their own for 25-30 years. And even when a community takes full responsibility for maintenance and does its best, catastrophic events can happen that even a diligent community may be incapable of fixing. In our survey, the two biggest developers made their contractors fully responsible for maintenance, but in all the other cases developers shared the responsibility with operators or the community.

Our full report provides detailed case studies of each of the seven developers, including data on tariff structures, installed capacity and numbers of customers served. It is our hope that this report will provide increased visibility into the rural microgrid space, with reference points for aspiring microgrid developers who will surely encounter similar financial, technical, operational and policy challenges as the developers included in our study.




Dan Schnitzer is a Ph.D. candidate at Carnegie Mellon University in the Department of Engineering and Public Policy, where he holds a Link Foundation Energy Fellowship and a Bertucci Graduate Fellowship. He researches solutions for renewable energy on island grids and on best practices for remote microgrids in less developed countries.



Juan Pablo Carvallo researches how to help developing economies trace sustainable growth paths as part of his doctoral studies in the Energy and Resources Group at University of California, Berkeley. An interdisciplinary scholar, he examines microgrids, electricity market design, institutional barriers and socio-political aspects of technology adoption to inform sound policy and private decision making.



Ranjit Deshmukh is a researcher with the International Energy Studies Group at Lawrence Berkeley National Laboratory and a Ph.D. candidate at the University of California, Berkeley in the Energy and Resources Group, where he holds the Link Foundation Fellowship. His research efforts largely focus on addressing clean energy and energy access challenges in developing nations, both in terms of large-scale variable renewable energy integration and small-scale "minigrids."



Jay Apt is a professor at Carnegie Mellon University’s Tepper School of Business and in the Department of Engineering and Public Policy. He is the director of the Carnegie Mellon Electricity Industry Center. He received an A.B. in physics from Harvard College and a Ph.D. in physics from MIT.



Daniel Kammen is the Class of 1935 Distinguished Professor of Energy at the University of California, Berkeley, where he founded and directs the Renewable and Appropriate Energy Laboratory. He is the Lead Scholar of the Fulbright NEXUS Program for the U. S. State Department, and is a Coordinating Lead Author for the Intergovernmental Panel on Climate Change that shared the 2007 Nobel Peace Prize.