NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Opportunities and Challenges 

for Solar Minigrid Development 

in Rural India 

N. Thirumurthy, L. Harrington, and D. Martin

National Renewable Energy Laboratory

L. Thomas

Global Business Inroads

J. Takpa and R. Gergan 

Ladakh Renewable Energy Development Agency

Technical Report

NREL/TP-7A40-55562

September 2012
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

National Renewable Energy Laboratory

15013 Denver West Parkway

Golden, Colorado 80401

303-275-3000 • www.nrel.gov

Opportunities and Challenges 

for Solar Minigrid Development 

in Rural India 

Nisha Thirumurthy, Laura Harrington, and 

Daniel Martin

National Renewable Energy Laboratory

Leena Thomas

Global Business Inroads

Jigmet Takpa and Reuben Gergan

Ladakh Renewable Energy Development Agency

Prepared under Task No(s). IGIN.1106

Technical Report

NREL/TP-7A40-55562

September 2012
NOTICE

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iii

Acknowledgments 

The U.S. Department of Energy’s (DOE’s) National Renewable Energy Laboratory (NREL)

would like to thank DOE’s Office of Energy Efficiency and Renewable Energy for its support 

and guidance in developing this report.

NREL would also like to thank the Indian Ministry of New and Renewable Energy, the Ladakh 

Renewable Energy Development Agency, and the Ladakh Autonomous Hill Development 

Council for providing the energy data necessary to perform a robust analysis. 

NREL would also like to acknowledge the contributions of renewable energy project developers, 

including Tata BP Solar, Orb Energy, Wipro Eco Energy, Eversun, Kotak Urja, Husk Power, 

Acumen, and Sgurr Energy for discussing their experience in developing solar minigrid projects.
iv

Acronyms

AC alternating current

CFL compact fluorescent light 

DC direct current

DOE Department of Energy

DPR detailed project reports

FI financial institution

FIMMDA Fixed Income Money Market and Derivatives Association

GW gigawatt

HLS home lighting system

HSD high speed diesel

IREDA Indian Renewable Energy Development Agency

INR Indian rupee

IRR internal rate of return

JKPDC Jammu and Kashmir Power Development Corporation

JKPDD Jammu and Kashmir Power Development Department

JNNSM Jawaharlal Nehru National Solar Mission

kVa kilovolt-ampere

kW kilowatt

kWh kilowatt-hour

kWp kilowatt-peak

KVA kilovolt-ampere

LAHDC Ladakh Autonomous Hill Development Council

LeDG Ladakh Ecological Development Group
v

LMLA low-maintenance lead acid

LREDA Ladakh Renewable Energy Development Agency

MAT Minimum Alternative Tax

MFI microfinance institution

MNRE Ministry of New and Renewable Energy

MOU memorandum of understanding

MoP Ministry of Power

MPNG Ministry of Petroleum and Natural Gas

mWh megawatt-hour

NABARD National Bank for Agricultural and Rural Development

NHB National Housing Bank

NREL National Renewable Energy Laboratory

O&M operations and maintenance

NOC no objection certificate

PAC project approval committee

PEEST political, economic, environmental, social, and technological

PV photovoltaic

REC Rural Electrification Corporation

RESCo renewable energy service company

RFP request for proposal

RGGVY Rajiv Gandhi Grameen Vikas Yojana

RReDC Renewable Resource Data Center

SIDBI Small Industries Development Bank of India

SNA state nodal agency
vi

SPV solar photovoltaic

T&D transmission and distribution

VEC Village Electrification Committee
vii

Executive Summary

The goal of this report is to inform investors about the potential of solar minigrid1 technologies 

to serve India’s rural market. India, a rapidly emerging economy with the world’s second largest 

population, is facing a surging energy demand. A large portion of India’s rural population, which 

represents 60% of the total population, does not have access to reliable electricity or has limited 

access and relies heavily on fuels such as wood, diesel, and kerosene to fulfill energy needs. 

Using the most recent available expenditure data, it is estimated that India’s rural consumers 

currently spend US$4.86 billion (INR 243 billion2

) per year on energy. Because of the linkages

between reliable electricity supply, gross domestic product growth, and living standards, the

Indian government is accelerating the deployment of electricity to India’s rural population.

In January 2010, India’s Ministry of New and Renewable Energy (MNRE) under the Jawaharlal 

Nehru National Solar Mission (JNNSM) announced the goal of deploying 20 gigawatts (GW) of 

grid-connected solar power and 2 GW of off-grid solar by 2022. Their objective is to invest in 

India’s vast solar resources by deploying solar energy on a broad scale and extending modern 

power services to millions. Specifically, the JNNSM in Phase I of the mission has set the goal of 

implementing 1 GW of grid-connected solar and 200 megawatts (MW) of off-grid solar power 

(rural village electrification) by March 2013. By providing many incentives for renewable 

energy projects, including capital subsidies of up to 90%, tax holidays, and low-interest loans, 

the government is hoping to spur clean energy development in key areas.

India’s electricity demand is expected to increase from 900 billion kilowatt-hours (kWh) to 1,400 

billion kWh by March 2017. To meet this demand, India’s power sector overall will need an 

investment of US$300 billion to US$400 billion during the five-year economic plan that started

April 2012 and ends March 2017 to meet its generation targets.

3 MNRE’s target of installing 

1,100 MW of solar minigrid capacity in the next five years4 will require public and private sector 

investments of roughly $US4.4 billion.

5

Minigrid Technical Solution

NREL worked with electricity capacity and demand data supplied by the Ladakh Renewable 

Energy Development Agency (LREDA) from the Leh District in Ladakh, India, to develop a 

technical approach for solar minigrid development. The current installed capacity in the Leh 

District is 23.14 MW, of which diesel makes up 15.2 MW and hydro and solar comprise 7.8 MW 

and 140 kilowatts (kW), respectively. According to LREDA, the power demand of the Leh 

District was 58.53 MW in 2005 and grew at an average rate of 7% a year to 87 MW in 2011. 

 

1 In this report, a minigrid is defined as a solar PV plant with a localized distribution network to a single village, or a 

cluster of villages, providing alternating current (AC). A microgrid is smaller than a minigrid and provides direct 

current (DC). This is consistent with how the Indian government and industry distinguish between the two. 2 Exchange rate assumed INR 50 to US$1. 3

 http://mnre.gov.in/file-manager/UserFiles/strategic_plan_mnre_2011_17.pdf 4 Ibid. 5 Estimated market potential of US$4.4 billion is based on calculations considering 1,100 MW government target by 

2017 and with a cost of INR 200 million/MW (US$4 million/MW). Baseline cost was taken from a SunEdison 

project where a 15-kW minigrid was implemented at INR 3 million (US$60,000/MW).
viii

Assuming the same growth rate for subsequent years, the current demand for energy is in the 

range of 93.6 MW and is expected to grow to 107 MW by 2014.

Solar minigrids will have the capability of providing much needed power throughout the year.

Based on the NREL-developed, simulated solar insolation data for the city of Leh, a 250-kW 

solar photovoltaic (PV) system can produce 427,737 kWh over a 12-month period. The main 

reason for selecting a 250-kW system for the technical configuration is because the JNNSM 

subsidy for minigrids is capped at that level. Based on solar energy output, a 60-kW energy 

storage system should be sized for 1.2 megawatt-hours (MWh) of storage and a 200-kW power 

rating. The battery will provide 1,200 kWh of energy at night, and the PV will produce in excess 

of 1,200 kWh of energy during the day to charge the battery.

In order to meet all the demand, the Leh District would need to build between 180 and 301

systems rated at 250-kW each.

Business Case and Project Economics

The objective of the business case analysis is to show at a general level the economics of 

building 250-kW solar minigrids in the Leh District and in other regions of India where subsidies 

may not be as high. There are two different analyses presented. The first, which contains four 

scenarios, is to determine the project economics or the cost to developers in implementing solar 

minigrids with an assumed internal rate of return of 20% based on different regional incentive 

schemes offered under JNNSM. The second analysis determines the cost to users of electricity 

from the minigrid and examines how that compares to the cost of diesel and hydro generation.

The costs presented are rough estimates and will require further analysis and verification to 

ensure accuracy.

According to our analysis, the cost of power ranges from Rs. 6.3/kWh (US$0.126) to Rs. 9/kWh

(US$0.18). At these rates, solar power is a cheaper alternative to diesel in all four scenarios and 

in some instances might be a cheaper alternative to hydro as well. The cost of diesel power 

ranges from Rs. 12/kWh to Rs. 67/kWh, and hydro is expected to be in the range of Rs. 3 to Rs. 

10/kWh, depending on the size of the hydro project.

Challenges and Recommendations

An assessment of the macro-environment elements—including political, economic, 

environmental, social, and technological—identified factors that may impact India’s energy 

development initiatives. One of the key challenges is aligning national road maps, policies, and 

programs seamlessly to achieve meaningful levels of solar minigrid deployment in rural areas. 

This is most effective when combined with coordination and consistency from the institutional 

level to the regional and local level, which will accelerate deployment of energy initiatives. 

While expanded reliance on renewable technologies helps mitigate climate change risks, the 

move to a power system–based model on local energy technologies requires the development of 

knowledge, skills, and operating procedures that may not be widespread in isolated rural 

communities. Assistance or training may be needed from regional entities or other experts to 

increase local capacity to develop the necessary regulatory framework and programs to enact and 

implement the policy initiatives.
ix

Addressing the following four strategies has the potential to catalyze minigrid development in 

India:

1. Identifying plots of land for project development, leading to creation of a “land bank” 

that can help remove the information gap on where to optimally locate projects

2. Streamlining the project development process to help ensure checks and balances within 

the system and to foster delivery of electricity in a reliable, cost-effective, and safe 

manner 

3. Ensuring project bankability through off-take agreements and bundling villages for 

energy services to increase customer base, along with offering training and incentives 

that empower village entrepreneurs to increase long-term revenue prospects for energy 

service providers and investors 

4. Implementing several minigrid pilot projects across India to assist in the development of 

a turnkey systems approach for a replicable technical model for minigrid deployment
x

Table of Contents

Acknowledgments .....................................................................................................................................iii

Acronyms....................................................................................................................................................iv

Executive Summary..................................................................................................................................vii

Minigrid Technical Solution..................................................................................................... vii

Business Case and Project Economics.....................................................................................viii

Challenges and Recommendations..........................................................................................viii

Table of Contents........................................................................................................................................x

List of Figures ...........................................................................................................................................xii

List of Tables .............................................................................................................................................xii

1 Introduction.........................................................................................................................................1

1.1 Overview of Indian Energy Context............................................................................... 1

1.2 Market Potential for Solar Minigrids.............................................................................. 1

1.3 The Solar Minigrid Solution ........................................................................................... 2

2 Government Goals, Policy, and Process .........................................................................................3

2.1 Government Solar Energy Goals.................................................................................... 3

2.2 Process for Financing Solar Minigrids ........................................................................... 3

2.3 Current Project Development Process............................................................................ 6

2.4 Current Activities of Private Companies........................................................................ 9

3 Technical Analysis ...........................................................................................................................10

3.1 Overview of Leh/Ladakh .............................................................................................. 10

3.2 Current Installed Capacity ............................................................................................ 11

3.2.1 Current Use of Diesel and Hydro.............................................................................. 12

3.2.2 Solar Generation ....................................................................................................... 15

3.3 Energy Needs................................................................................................................ 16

3.4 Leh District Solar PV Energy Production..................................................................... 17

3.5 Suggested Technical Configuration.............................................................................. 20

3.5.1 Sizing Energy Storage............................................................................................... 24

3.6 Solar Generation Required to Meet Demand in Leh District ....................................... 26

3.7 Technical Considerations Prior to Implementation ...................................................... 29

4 Business Case Analysis ..................................................................................................................31

4.1 Overview....................................................................................................................... 31

4.2 Project Economic Analysis........................................................................................... 31

4.2.1 Scenarios 1 and 2: State Nodal Agency as Developer in Normal Rural Area and in 

Remote Locations ................................................................................................................. 31

4.2.2 Scenarios 3 and 4: Private Developer Perspective in Rural India and Remote 

Locations............................................................................................................................... 33

4.3 Customer Rate Comparison .......................................................................................... 38

4.3.1 Diesel ........................................................................................................................ 38

4.3.2 Hydro ........................................................................................................................ 39

5 Challenges ........................................................................................................................................40

5.1 Overview....................................................................................................................... 40

5.2 Political ......................................................................................................................... 41

5.2.1 Coordination and Assistance..................................................................................... 42

5.2.2 RFP Process.............................................................................................................. 42

5.2.3 Subsidies and Incentives........................................................................................... 42
xi

5.3 Economic ...................................................................................................................... 44

5.3.1 Project Financing ...................................................................................................... 44

5.3.2 Spurring Economic Development............................................................................. 44

5.4 Environmental............................................................................................................... 45

5.4.1 Quality of Solar Resource Data ................................................................................ 45

5.4.2 Project Identification and Land Acquisition............................................................. 45

5.5 Social............................................................................................................................. 45

5.5.1 Rural Village Peer Working Groups......................................................................... 46

5.5.2 Social Acceptance of Renewable Energy Technologies........................................... 47

5.5.3 Training and Workforce Development ..................................................................... 47

5.5.4 Project Management ................................................................................................. 48

5.5.5 Prevalent Business Models....................................................................................... 48

5.6 Technological................................................................................................................ 50

6 Recommendations and Path Forward............................................................................................52

6.1 Resource Identification—Land Banks.......................................................................... 52

6.2 Streamlining and Standardizing the Project Development Process.............................. 52

6.3 Ensuring Project Bankability ........................................................................................ 53

6.4 Developing a Turnkey Systems Approach ................................................................... 54

Appendix: Current Business Models......................................................................................................55
xii

List of Figures

Figure 1. JNNSM financing process............................................................................................... 4

Figure 2. Project development process........................................................................................... 7

Figure 3. Source map of Leh, India .............................................................................................. 10

Figure 4. Leh District projected growth in energy demand .......................................................... 11

Figure 5. Projected installed capacity ........................................................................................... 12

Figure 6. Leh Ladaki map with generation labeled ...................................................................... 14

Figure 7. Typical 250-kW PV output ........................................................................................... 20

Figure 8. Possible Leh Ladakh technical configuration................................................................ 21

Figure 9. Leh-Ladakh 66-kV lines and hydro generation............................................................. 23

Figure 10. Typical battery operation for constant 60-kW output ................................................. 25

Figure 11. Typical battery operation for constant 75-kW output ................................................. 25

Figure 12. Typical battery operation for constant 250-kW output ............................................... 26

Figure 13. Winter installed capacity (in MW) deficit................................................................... 27

Figure 14. Summer installed capacity (in MW) surplus............................................................... 27

Figure 15. Option 1: scheduling summer/winter (in MW) generation ......................................... 28

Figure 16. Option 2: scheduling summer/winter generation (in MW) ......................................... 29

Figure 17. Five-year unlevered cash flow from project................................................................ 33

Figure 18. 25-year unlevered cash flow from project................................................................... 35

Figure 19. 25-year unlevered cash flow from project................................................................... 37

List of Tables 

Table 1. Annual Targets for Solar Minigrid for the Period 2011–2017 ......................................... 2

Table 2. MNRE PV Systems and Components Certifications >1 kWp [Off Grid] Capacity......... 8

Table 3. 2012 Leh Solar Projects.................................................................................................. 15

Table 4. Snapshot of Village Demand in Leh............................................................................... 16

Table 5. Site Details and PV System Specifications..................................................................... 18

Table 6. Solar PV Output.............................................................................................................. 19

Table 7. Cost of T&D Infrastructure............................................................................................. 22

Table 8. Scenarios 1 and 2: State Nodal Agency Develops PV Project ....................................... 32

Table 9. Scenario 3: Private Developer Develops PV Project in Special-Category States .......... 34

Table 10. Scenario 4: Private Developer Develops PV Project in Normal Rural Area................ 36

Table 11. 10-kVA Generator (8 kW)............................................................................................ 38

Table 12. 900-kVA Generator (720 kW)...................................................................................... 39

Table 13. PEEST Factors.............................................................................................................. 40

Table 14. Overview of Business Models...................................................................................... 49

Table 15. Community-Owned Hybrid Model............................................................................... 55

Table 16. Community-Administered Model................................................................................. 56

Table 17. Multi-Party-Owned Model ........................................................................................... 57

Table 18. Private Utility-Owned Model ....................................................................................... 58

Table 19. Multi-Party-Owned Hybrid........................................................................................... 60
1

1 Introduction

1.1 Overview of Indian Energy Context

Due to acute energy shortages, global climate issues, and scarce resources, India cannot pursue a 

traditional model of energy generation and distribution. Under the U.S.-India Energy Dialogue, 

the U.S. Department of Energy’s (DOE’s) National Renewable Energy Laboratory (NREL) is 

supporting the Indian Ministry of New and Renewable Energy’s (MNRE’s) Jawaharlal Nehru 

National Solar Mission (JNNSM) by conducting a review of the opportunities and challenges for 

solar minigrid development in rural villages.

In January 2010, the government under JNNSM announced the goal of deploying 20 gigawatts 

(GW) of grid-connected solar power and 2 GW of off-grid solar by 2022. Their objective is to 

invest in India’s vast solar resources by deploying solar energy on a broad scale and extending 

modern power services to millions. Specifically, the JNNSM in Phase I of the mission has set the 

goal of implementing 1 GW of grid-connected solar and 200 megawatts (MW) of off-grid (rural 

village electrification) by March 2013.

Development of solar technology is considered an attractive alternative that can provide a 

networked infrastructure of local-grid clusters with distributed electricity generation. That could 

alleviate the need for expensive, long-distance centralized power delivery systems and at the 

same time bring electricity to the masses.

1.2 Market Potential for Solar Minigrids

In this report, a minigrid is defined as a solar PV plant with a localized distribution network to a 

single village, or a cluster of villages, providing alternating current (AC). A microgrid is smaller 

than a minigrid and provides direct current (DC). This is consistent with how the Indian 

government and industry distinguish between the two. India’s projected economic expansion of 

(7%–8% per year) 6 and growing population are placing a growing strain on the country’s energy 

infrastructure, where up to 40% of the power generated is lost due to inefficiencies and theft.7

Electricity demand per person is expected to grow from 630 kilowatt-hours (kWh) to 1,000 kWh8

over the next five years. In addition, there currently exists a demand-supply gap of 12% on 

average, and progressive states see a gap in excess of 15%.9

As of 2004, there were about 80,000 unelectrified villages in the country. A target for 

electrifying 5,000 such villages was fixed for the Tenth National Five Year Plan (2002–2007). 

As of 2004, more than 2,700 villages and hamlets had been electrified mainly using solar 

photovoltaic (SPV) systems.10 However, this still leaves approximately 75,000 villages without 

access to power.

 

6 http://www.indianmirror.com/indian-industries/solar.html 7 Ibid.

8 Ibid.

9 Overview of Sustainable Renewable Energy Potential in India, Global Energy Network Institute, 2010. 10 http://indianpowersector.com/renewable-energy/solar-power/
2 

There is also a great need for energy services and solar minigrids in the island regions of India, 

such as Andaman and Nicobar and the Lakshadweep Islands, which are located on the Bay of 

Bengal. These islands do not have central grid connectivity and are mostly dependent on diesel 

generators. Renewable energy project developers have the opportunity to address this need 

through solar minigrids. At present, the total installed capacity is approximately 70 MW, with a 

peak demand of 40 MW in each island region. The government is also planning a 5-MW SPV 

power project at South Andaman to supplement diesel generation at an estimated cost of 

US$18.04 million (INR 81.23 crores).11

1.3 The Solar Minigrid Solution 

Solar minigrids are an ideal alternative to grid electricity in remote villages that do not have grid 

connectivity. And because minigrids are independent entities, they can also be controlled and 

managed without presenting threats to the conventional grid. Such distributed energy systems 

also provide more reliable electricity, as any outages or interruptions to electricity supply can be 

quickly identified and corrected. Additionally, having the site of power generation closer to the 

load also reduces T&D losses. 

India’s goal is to install a total of 1,100 MW of solar minigrids in the next five years.12 JNNSM 

is planning for an average system size of 250 kW covering approximately two to three acres of 

land in rural areas that currently have little or no connectivity to existing electrical grids. 

Estimated project costs for fulfilling this target total approximately US$4.4 billion.13 MNRE 

targets for annual solar minigrid development in megawatts are shown in Table 1 below. 

Table 1. Annual Targets for Solar Minigrid for the Period 2011–2017 

Renewable 

Energy 

Applications/years 

Cumulative 

(likely by 

31.3.11) 

2011–

2012 

2012–

2013 

2013–

2014 

2014–

2015 

2015–

2016 

2016–

2017 

Total 

Target 

for SixYear 

Period 

Cumulative

Total 

Target 

Decentralized 

Solar PV 

Systems - 

MWp 

132 68 100 150 200 200 250 968 1,100 

Source: Ministry of New and Renewable Energy, New Delhi 

 

11 http://www.mfa.go.th/internet/document/6674.pdf 12 http://mnre.gov.in/file-manager/UserFiles/strategic_plan_mnre_2011_17.pdf 13 Estimated potential of US$4.4 billion in market potential is based on calculations considering 1,100 MW 

government target by 2017 and with a cost of INR 200 million/MW (US$4 million/MW). Baseline cost was taken 

from a project where a 1-kW minigrid was implemented at INR 3 million (US$60,000/MW). 
3

2 Government Goals, Policy, and Process

2.1 Government Solar Energy Goals

The government of India expects to invest INR 900 billion (US$18 billion) over the next 30 

years for increasing access to power in remote and rural areas. MNRE is specifically focusing on 

India’s off-grid rural population, who are in urgent need for power. It is facilitating investment

through various microfinance schemes by partnering with rural banks, subsidizing PV systems,

and implementing rural electrification schemes such as Rajiv Gandhi Grameen Vikas Yojana 

(RGGVY) through the Ministry of Power’s (MoP) Rural Electrification Corporation (REC).

The objective of JNNSM is to implement 20,000 MW of grid-connected and 2,000 MW of offgrid solar power by 2022 in a three-phased approach. The current mission targets are:

• To create an enabling policy framework for the deployment of 20,000 MW of solar power by 2022.

• To ramp up capacity of grid-connected solar power generation to 1,000 MW by 2013, adding 3,000 MW by 

2017 through the mandatory use of the renewable purchase obligation by utilities backed with a preferential 

tariff. This capacity can be more than doubled—reaching 10,000 MW installed power by 2017 or more, 

based on enhanced international finance and technology transfer. The ambitious 2022 target of 20,000 MW 

or more will be dependent on the “learning” of the first two phases, which, if successful, could lead to 

conditions of grid-competitive solar power. The transition could be appropriately scaled up, based on 

availability of international finance and technology.

• To create favorable conditions for solar manufacturing capability, particularly solar thermal for indigenous 

production and market leadership.

• To promote programs for off-grid applications, reaching 1,000 MW by 2017 and 2000 MW by 2022.

• To achieve 15 million square meters of solar thermal collector area by 2017 and 20 million by 2022.

• To deploy 20 million solar lighting systems for rural areas by 2022.

14

2.2 Process for Financing Solar Minigrids

MNRE has released two documents—the “Guidelines for Off-Grid and Decentralized Solar 

Application” and the “Solar Off-Grid Refinance Scheme”—that provide the eligibility and 

implementation process and the funding schemes that institutions can take advantage of in 

financing solar projects.

The basics of the scheme are outlined in Figure 1 below.

 

14 Toward Building a Solar India, MNRE, Section 3
4

Figure 1. JNNSM financing process

As shown in the figure above, all available funding for the National Solar Mission is directed and 

administered through the Indian Renewable Energy Development Agency (IREDA) per MNRE 

guidelines to other Indian national banks and primary lending institutions. MNRE will release 

50% of the estimated annual funding required to IREDA at the beginning of the year, while the 

remaining will be released once 50% of the first installment has been spent. The recipients are 

ultimately the channel partners, who, prior to release of any funding, must provide MNRE’s 

Project Approval Committee (PAC) with a project design document that outlines the details of 

Channel 

Partners

RESCOsgFIs/MFIsh Financial

Integrators

System Integrators Program 

Administrators

Refinance Scheme/Interest 

Subvention/Capital Subsidy: 

NBFCsa

/Scheduled 

Commercial Banks

IREDA

MNRE

Bulk Funds/Interest 

Subvention: NABARDb/ 

NHBc

/SIDBId

Funds lent at 2% 

Funds lent at 5% 

RRBse/HFCsf/Other 

Relevant Primary Lending 

Institutions

Signed MOU

Funds lent at 2% 

Funds lent at 5% 

a. nonbanking financial companies; b. National Bank for Agriculture and Rural Development; c. National Housing Bank; d. Small 

Industries Development Bank of India; e. regional rural banks; f. housing financing companies; g. renewable energy service 

companies; h. financial institutions/microfinance institutions
5

the project, including specifics on the “client, technical, and financial details, O&M and 

monitoring arrangements.”

15 There are five types of channel partners eligible to receive funding:

• Renewable Energy Service Providing Companies (RESCOs): These are companies that would install, 

own, and operate renewable energy systems and provide energy services to consumers. These entities may 

link up with financial institutions (FIs) for accessing the financial support under the scheme.

• FIs, including microfinance institutions (MFIs) acting as aggregators: These would be institutions that 

are involved in consumer finance and have an established base of customers in rural/urban areas and 

outreach through self-help groups, etc. These would typically access interest subsidy through a refinance 

facility and also credit-linked capital subsidy on behalf of their borrowers from IREDA.

• Financial integrators: These are entities that would integrate different sources of finance, including 

carbon finance, government assistance, and other sources of funds, to design financial products/instruments 

and make these available to their clients at an affordable cost. These entities would link up with 

manufacturers and service providers.

• System integrators: These are companies/entities that would provide renewable energy systems and 

services to clients, including design; supply; integration and installation; O&M; and other services. These 

entities may link up with FIs for accessing the financial support under the scheme.

• Program administrators: These would include inter alia, central and state government ministries and 

departments and their organizations, state nodal agencies, utilities, local bodies, public sector 

undertakings16, and reputed nongovernmental organizations (NGOs). These entities would directly 

implement the scheme and access capital subsidy (noncredit linked) from MNRE.17

Upon approval of the project, channel partners are free to apply for the capital subsidy or soft 

loan through their lending institution. This in turn will set the process in motion to release 

funding to the channel partner.

Once the project approval document is received by IREDA, there are multiple ways in which 

channel partners can avail themselves of funding as detailed in Section 4 of MNRE’s Solar OffGrid Refinance Scheme—

• Capital subsidy: will be available at a level of 30% of the expected cost of the project 

for all regions in India, except special-category states18, which will receive the subsidy at 

a rate of 90%. The primary lending institution is ultimately accountable to ensure that 

projects are successfully implemented before the subsidies can be released to borrowers.

For program administrators (channel partners) the funding could be released up front with 

70% on approval by the MNRE PAC and 30% on completion. However to meet “unmet 

community demand for electricity or in unelectrified rural areas, standalone rural SPV 

power plants with battery storage in a MICRO grid model/local distribution network, 

would be provided Rs. 150/Wp (US$3/Wp) of capital subsidy and soft loan at 5%.”

19

 

15 Guidelines for Off-Grid and Decentralized Solar Application, Section 5.1. 16Companies owned by the Indian central or state government. 17 Guidelines for Off-Grid and Decentralized Solar Application, MNRE, Section 4.2. 18 Special-category states include North East, Sikkim, Jammu and Kashmir, Himachal Pradesh, and Uttarkhand. In 

addition, other remote areas like Lakshadweep, Andaman and Nicobar Islands, and districts on India’s international 

borders will also be eligible.

19 Appendix 1A, Boundary Conditions for Support to Off-Grid Solar PV Applications
6

o The scale of the capital subsidy is based on annual benchmarking.

o As of 2011, the benchmark price for PV systems with battery back-up is Rs. 

270/Wp (US$5.40/Wp).

• Refinance scheme: would allow for a low-interest loan on the balance of the funding 

needed for a project—after the developer contributes 20% equity to the project and after 

the capital subsidy. So up to 50% (based on the credit of the financial institution) of the 

project funding can be financed via the refinance mechanism. IREDA will lend funds to 

the primary lending institution at an interest rate of 2%, provided the channel partner is 

charged an interest rate of no more than 5%. 

• Bulk funds: will be made available to NABARD, NHB, and SIDBI under a

memorandum of understanding (MOU) that is signed between IREDA and the 

corresponding institution; 50% of the projected amount of funds needed for the year (as 

established by the institution) will be disbursed in the beginning of the year, and once 

those funds have been lent, the rest of the money will be disbursed. The MOU will set the 

terms of the bulk funds to five years, and these funds will have to be repaid to IREDA 

within five years, irrespective of whether the borrower has repaid the money to the 

institution. The refinancing institutions can then lend the money to regional rural bands, 

housing finance companies, and other primary lending institutions at a rate of 2%, 

provided that the rate provided to borrowers is no more than 5%.

• Interest subvention: can be used in place of bulk funds by an Indian government 

institution or in place of refinance by a private lending institution. The interest subvention 

rate applied toward Indian national banks, such as NABARD, will be based on the 

government security rates set by the Fixed Income Money Market and Derivatives 

Association (FIMMDA) of India, and the rates of primary lending institutions will be the 

FIMMDA rates plus 2 percentage points. IREDA will lend funds to the primary lending 

institution at an interest rate of 2%, provided the channel partner is charged an interest 

rate of no more than 5%.

2.3 Current Project Development Process 

Based on conversations with the Ladakh Renewable Energy Development Agency (LREDA), an 

MNRE nodal agency, there are currently multiple ways a solar minigrid project can be 

developed; this process is likely similar to how it works in other states as well. As shown in 

Figure 2 below, a village or town can work with different categories of MNRE preapproved 

channel partners for developing solar PV projects. These projects fit into two broad categories:

1. If a local village submits a request for electrification to a program administrator, such as 

MNRE’s state nodal agency (SNA) in their region, the SNA then conducts a feasibility study 

and sends it to MNRE’s PAC for approval. Once approved, the agency receives 30% or 90%

of the capital subsidy (depending on the region) and contributes 70% or 10%. The SNA then 

issues a request for proposal (RFP). The bidder must respond by proposing a rate that will 

enable the bidder to recover the investment and receive a return in the first five years, after 

which the project is turned over to the village and SNA. Each SNA might follow a slightly 

different approach, but in general, once a developer is selected from the tendering process, 
7

the developer receives 50% of the funds prior to construction to cover a portion of the capital 

costs. Once the plant has been built, the developer receives an additional 45% of the capital 

subsidy and then 1% each year, for five years, for operations and maintenance (O&M) costs.

The developer is expected to train two people from the local village to perform the O&M for 

the next 20 years, assuming a 25-year project life. A Village Electrification Committee 

(VEC) is formed at the beginning of the project to collect revenue from the village 

customers. As observed, Rs. 100 is collected from households that are below the poverty line,

and Rs. 200 is collected from those above the poverty line. Thereafter, a monthly fee of Rs. 

20 to Rs. 45 is collected for the creation of a fund used to pay for future maintenance costs, 

such as battery and inverter replacement. The VEC appoints a graduate of the Government 

Industrial Training Institute to perform regular and unscheduled O&M.

2. A solar project developer, including renewable energy service companies (RESCOs), 

FIs/MFIs, financial integrators, and system integrators, can work directly with a village to 

develop a solar project. These entities install the system and are expected to operate and 

maintain the plant for 25 years. In return, they receive all revenues from plant operation and 

capital subsidy from the government. The first 70% of the subsidy (30% or 90%, depending 

on the region) is paid out in advance of construction. The remaining 30% is paid out 

postconstruction. Depending on the region, the developer contributes 10% or 70% of the 

capital cost.

Figure 2. Project development process

As per MNRE norms, it is mandatory that Indian-made solar modules be used to claim the 

subsidy and other benefits. The peripheral parts of the system can be imported, but the 

government proposes that developers use as much domestic content as possible. However, thinfilm PV modules, which are not manufactured in India, can be imported. MNRE certifications 

for PV systems and components greater than 1 kilowatt-peak (kWp) capacity are shown in Table 

2 below.
8

Table 2. MNRE PV Systems and Components Certifications >1 kWp [Off Grid] Capacity

Components Certifications Description

1. Solar PV module IEC 61215, IEC 61646, 

IEC 62108 or IS 14286

Use of RFID is mandatory in all types of PV 

modules, regardless of their capacity, when 

used in such systems.

2. Solar inverter IEC 61683, IEC 60068 Inverter should also qualify damp heat 

cycling/study state and thermal cycling (as per 

the relevant standard). It should also qualify 

the hammer test and robustness of 

terminations and drop test. 

3. Batteries IEC 61427, IS 1651, IS 

13369 or IS 15549

If any of the given certificates is not available, 

the battery should qualify the tests 

corresponding to capacity (as per C/10 or C/20 

rate), efficiency of watt-hour and amp-hour, 

and charge retention shelf life irrespective of 

type/capacity of battery. 

4. Housing IP65 standard, IP21 

standard

The field and array junction boxes have to 

comply with IP65 standard. The electronics,

including inverters, CPU, charge controllers, 

MPPTs, and AC & DC distribution boxes,

should have IP 21 standards.

5. Cables, 

connectors, 

switches & circuit 

breakers -

Standards for cables, switches, circuit 

breakers, connectors, junction boxes, and 

enclosures will remain the same as in the 

administrative approval. All components of 

the system should conform to standard, and 

the composite system should also be certified 

with testing laboratories.

6. SPV system 

design & 

installation 

practices

IEC 62124 and IEC 

60364-7-712

A committee of PV experts/consultants will 

study the standards and identify the minimum 

requirements, and the same will be intimated.

7. Energy meters

-

All PV power plants above 1 kWp have to 

install energy meters for accounting and also 

have to provide energy delivery guarantee for 

the customers.

Source: MNRE
9

2.4 Current Activities of Private Companies

During the course of completing this project, NREL conducted interviews with a number of 

leading Indian solar technology companies to understand their current and future strategies for 

involvement in the solar minigrid space. We also hoped to uncover some of the challenges 

currently preventing large-scale deployment of solar projects, through the lens of a private solar 

developer. Specifically, we spoke with the following companies: Tata BP Solar, Orb Energy, 

Wipro Eco Energy, Eversun, and Kotak Urja. We also spoke with Husk Power, which has had a 

success in employing a rural business model generating electricity from biomass, and with its 

financing partner Acumen. 

Although several of the companies were providing solar solutions to rural India, none of the 

companies we spoke to were currently using smart grid technology/smart metering to provide 

electricity. Also, none of the companies have built a minigrid system greater than 50 kW. The 

companies believe that a modular approach to building solar resources, as in the case of a 

minigrid, offers a better solution than centralized generation and transmission. The costs and 

energy losses associated with transmission and distribution of power was also noted as a 

problem. 

Many felt that until solar plant costs come down further, solar-lighting of villages may have to be 

funded through subsidies. With a solar minigrid solution, the village user would have to bear the 

full cost of electricity. Even a 30% subsidy combined with a low-interest loan could offer a 

viable alternative to the user. This loan could come from a local bank that is subsidized by the 

government, which enables the bank to lend to the end user at a lower interest rate. In order to 

foster economic development and growth, individuals must have the ability to have access to 

energy to run home-based businesses, such as weaving textiles using power looms or running 

flour grinders.

In addition to the above, other companies currently working in the rural energy sector include 

Mera Gao Power, Azure Power, SunEdison, Solar Semiconductor and Solar Infra, and Minda 

Group.
10

3 Technical Analysis

To better understand the economics of minigrids, NREL worked with electricity capacity and 

demand data supplied by LREDA from the Leh District in Ladakh, India. This data was used to 

develop a high-level minigrid configuration to determine overall project economics for LehLadakh. The results of this analysis provide us with a reference point for how solar minigrid 

project economics might look in other regions of the country as well. The state of Jammu and 

Kashmir qualifies for a much higher subsidy under the JNNSM, since it is considered a specialcategory state due to its remote location.

3.1 Overview of Leh/Ladakh 

Leh District in the Ladakh region in the state of Jammu and Kashmir in northern India covers an 

area of approximately 45,000 square kilometers. A map of the region is shown in Figure 3 

below. The population of Leh is roughly 117,000, with 27,500 people living in the city of Leh, 

the largest in the region. Leh District is further broken down into blocks, each made up of several 

villages, which contain several hundred households and a few businesses.

Figure 3. Source map of Leh, India

Illustration by NREL
11

The Leh District government, the Ladakh Autonomous Hill Development Council (LAHDC),

has identified the power and energy sector as one that requires development. There are two 

programs within the government of India charged with the responsibility of rural 

electrification—the RGGVY of the MoP and the JNNSM under MNRE’s nodal agency LREDA.

The former is responsible for developing rural electricity infrastructure and household 

electrification, while the latter has the responsibility of all rural renewable energy projects in 

Ladakh. LREDA is therefore responsible for many of the hydro, solar PV, and solar thermal 

projects in the Ladakh Renewable Energy Initiative.

3.2 Current Installed Capacity

The current installed capacity in Leh District is 23.14 MW, of which diesel makes up 15.2 MW 

and hydro and solar comprise 7.8 MW and 140 kW, respectively. According to LREDA, the 

power demand of Leh District was 58.53 MW in 2005 and grew at an average rate of 7% a year 

to 87 MW in 2011. Assuming the same growth rate for subsequent years, the current demand for 

energy is in the range of 93.6 MW and is expected to grow to 107 MW by 2014, as shown in 

Figure 4 below.

Figure 4. Leh District projected growth in energy demand

Figure 5 shows the projected installed capacity by 2014. In order to help meet the growing 

energy demand, Leh District is implementing several large and small hydro and PV projects that 

will bring the installed capacity to nearly 80 MW by the end of 2014.
12

Figure 5. Projected installed capacity

Source: LREDA

3.2.1 Current Use of Diesel and Hydro

More than 65% of the current installed capacity is diesel generation, which is heavily subsidized 

at the state and local levels. Many of the villages in Leh District get a majority of their power 

from small local diesel engine generators rated less than 250 kilovolt-amps (kVA) each. The city 

of Leh, which has the largest load, also has the largest diesel generators with a combined 

capacity of more than 10 MW. The diesel fuel is procured by the Jammu and Kashmir Power 

Development Department (JKPDD), and the generators are jointly owned by JKPDD, Jammu 

and Kashmir Power Development Corporation (JKPDC), and LREDA. 

As discussed earlier, much of the growth in demand is being addressed through the 

commissioning of several large hydropower plants in Leh District. Hydro generation is expected 

to grow from a current capacity of 7.8 MW to 62.1 MW in just two years, from the construction 

of the 45-MW Nimoo Basgo Hydro Project in Alchi, a 4-MW project in the village of Stakna, a 

3-MW project in the Kharu Block of Leh District (all indicated in Figure 6 below), and 22 small 
13

micro-hydro projects in the Nubra Valley (situated between Panamik and Kharu). Under the 

current installed capacity of 23 MW, electricity is supplied for just five hours a day during the 

evening hours. These hydro projects are expected to provide an additional three to seven hours 

for seven months of the year, with very little in the winter due to freezing of the river. While 

many of the micro-hydro plants freeze during the winter months, the 45-MW Nimoo Basgo plant 

is expected to produce a third of the power during that period. Therefore, in the winter months, 

by the end of 2014 the installed capacity will be effectively just 31.85 MW (17 MW diesel and 

solar combined and 14.85 MW of hydro from Nimoo Basgo).
14

45 MW Hydro Alchi

4 MW Hydro 

Stakna

3 MW Hydro Kharu

140 km 66kV line 

from Khaltse to 

Himya

Figure 6. Leh Ladaki map with generation labeled

Source: Google Maps, illustration altered by Daniel Martin, NREL

The map above also shows in red the existing 66-kV subtransmission line from Khaltse to Hymia 

that will transmit the power from the 45-MW hydro project. At the state level, JKPDD is 

responsible for developing the electrical T&D infrastructure within the state. Along this 

subtransmission line, there are six substations that step down the voltage from 66 kV to 11 kV. 

There are approximately four to seven lines at the 11-kV distribution level outgoing from the 

substations to serve the local demand at the villages. Additionally, step-down transformers with 

capacity ratings of 25 kVA and 10 kVA exist at the village level in each block.
15

3.2.2 Solar Generation 

The current solar installed capacity in Leh District is 140 kW, comprising a 100-kW minigrid in 

Tangste and a 40-kW one in Nyoma. In 2001–2002, LREDA completed electrification of 39 

census villages (over 10,000 households) in Leh District through Solar Home Lighting Systems 

(HLS). However, many of these systems are not in use since the 12-volt (V) lead-acid batteries 

are no longer operational. Table 3 below shows 43 solar projects that are currently being 

implemented by LREDA, which will bring the total solar installed capacity to 1.7 MW. These 

projects are expected to be completed by 2012.

Table 3. 2012 Leh Solar Projects 

Block kW Block kW

Umlung 5 Nyiarags 25

Hangker 7.5 Markha 25

Rumbak 7.5 Bokshado 25

Doltokling 7.5 Yarath 25

Waris/Fastan 7.5 Nemgo 32.5

Khastath 7.5

Samad 

Rokchan 32.5

Relay 10 Satho 37.5

Lukung 12.5 Photoksar 37.5

Kaya 12.5 Merak 40

Maan 15 Largiab 40

Ankung 15 Yourgo 42.5

Chipra 15 Koyul 85

Parma 20

Hanley 

Khaldo 85

Shayok 20 Pungog 42.5

Dipling 20 Hanley TR 85

Hunder Dok 20 Deggar 50

Demjok 20 Chuchul 115

Lingshed 80 Kharnak 57.5

Niddar 20 Nyoma 115

Kherapulu 25 Mudth 65

Skumpata 25 Korzok 100

Yulchung 25 

Total 1,560

Source: LREDA
16

3.3 Energy Needs

The large majority of the villages in Leh District are situated along various rivulets of the Indus, 

Shayok, and Siachen Rivers. They are separated from one another over an average distance 10–

12 kilometers (km) between adjacent villages.

As mentioned earlier, the current installed capacity of 23.14 MW of mostly diesel generators,

between 100 kW and 250 kW per village meets basic power demand such as lighting for a period 

of five hours a day year round, mostly during the evening hours of 6–11 p.m. Upon completion, 

the new hydro plants will provide electricity during the summer months but will be minimally to 

nonoperational during the winter months due to freezing of the rivers. Heating in the winter is 

achieved by burning wood, kerosene, or liquid propane gas. Solar has the capability of providing 

much-needed energy year-round, and thus, increasing energy security for the region.

The JKPDD has started metering all households in Leh District and has removed restrictions on

types of load. The typical usage of electricity in the village households are for lighting (either 

incandescent light bulbs or compact fluorescent lamps [CFLs]), operation of televisions and 

music systems, and charging of cell phones. A few households also use washing machines, 

refrigerators, and computers, among other electrical appliances.

Table 4 below provides a snapshot of the energy deficiencies experienced in villages in different 

blocks within Leh District. According to discussions with LREDA, the JKPDD estimates 

household power demand at 500 watts (W) in several blocks; however, per studies conducted by 

the Ladakh Ecological Development Group (LEDeG) in 2004, the current average connected 

load per household is approximately 160 W. The reason behind this discrepancy is that many 

households choose to have minimal electrical appliances as a result of the intermittency of 

electricity supply and strict controls imposed by the government on use. In other words, if 

electricity were more reliable, people would use more of it.

Table 4. Snapshot of Village Demand in Leh

Table 1: BLOCKWISE 

DISTRIBUTION 

OF ENERGY 

REQUIREMENTS 

Serial No. 

Block Number of 

Households 

(source: 2001 

census) 

Average 

Connected Load 

Per Household 

(W) 

(source: survey 

conducted by 

LEDeG in 2004) 

Required 

Connected Load 

Per Household 

(W) 

Peak Energy 

Requirement for 

Domestic Use as 

Per Required 

Load (kW) 

1 Diskit 2,305 115 500 1,153 

2 Panamik 1,067 115 500 534 

3 Chuchot 2,671 186 500 1,336 

4 Durbuk 951 78 500 476 

5 Khaltsi 2,641 115 500 1,321 

6 Kharu 1,566 98 500 783 

7 Leh 3,350 140 500 1,675 

8 Nyoma 2,082 137 500 1,041 

9 Saspol 934 186 500 467 

10 Leh Town 6,580 432 1,000 6,580 

TOTAL 24,147 15,166 (15.16 MW) 

Source: LREDA
17

In addition to household demand, there is a high demand for commercial loads in several blocks, 

which is estimated at 2 kW per commercial customer. The commercial establishments are mostly 

situated in the town of Leh and the adjoining area of Choglamsar, in Leh Block. There are other 

commercial developments at Khaltse (Khaltsi Block), Diskit, Kharu (Kharu Block), Tangste 

(Durbuk Block), and Nyoma (Nyoma Block). They comprise between two and five small shops 

within each village, which sell consumer products. Loads in the Leh Block, Khaltse Block, 

Chuchot Block, and Kharu Block are expected to grow more than the 7% average. 

3.4 Leh District Solar PV Energy Production

To determine the total kilowatt-hour output of solar PV, a customized weather file was created 

from data developed by NREL’s Renewable Resource Data Center (RReDC).

This data was then processed using NREL’s SolOpt20 tool to determine total kilowatt-hour 

output from standard PV crystalline silicon panels. The site details and PV panel assumptions 

used for the simulation are shown in Table 5 below.

 

20 For more information, please see www.nrel.gov for more information 

http://www4.eere.energy.gov/solar/sunshot/resource_center/resources/solopt_optimization_tool
18

Table 5. Site Details and PV System Specifications

Results

Site location Leh, India

Latitude 34oN

Longitude 77oE

System size/capacity 250 kW

Number of panels 1,434 (14 ft2 each)

Mounting surface Ground

Rated panel power 174.24

Panel efficiency 13.4%

Panel tilt 34o

Derate factor 80%

Panel availability 100%

Before installing a PV system, panel and rack manufacturers should be consulted to confirm the 

rated wind load for mounting systems, and roof conditions should be examined if applicable.
19

Based on the input, SolOpt estimates total electricity production over a 12-month period at 

427,737 kWh. The breakdown by month is given in Table 6 below.

Table 6. Solar PV Output

Power Production (AC)

Jan 17,687

Feb 27,603

Mar 40,633

Apr 39,972

May 39,504

Jun 39,254

Jul 36,544

Aug 37,888

Sep 39,296

Oct 42,841

Nov 39,111

Dec 27,405

Total 427,737

The maximum electricity production is expected during October, and the minimum production 

occurs in January. PV production in the summer months occurs from 6 a.m. to 6 p.m. Currently 

the village is supplied electricity from 6 p.m. to 11 p.m. In the absence of interval data, it is a 

best guess to assume that peak demand likely occurs during the same time interval. From 

September to March, during the winter months, PV does not produce after 5 p.m. Energy storage 

is therefore needed to fill the gap in supply during the summer and winter months.

Figure 7 below shows the average simulated solar output of a 250-kW system in Leh during the 

first 15 days in June. The peak is usually between 200 kW and 250 kW for the region, since the 

irradiance is above the rated 1,000 W/m2

.
20

Figure 7. Typical 250-kW PV output

3.5 Suggested Technical Configuration

As illustrated in Figure 8 below, a stand-alone 250-kW system can be built to address the 

electrification needs of different types of villages, from the partially electrified to the completely 

unelectrified. 
21

Figure 8. Possible Leh Ladakh technical configuration

In a partially electrified village (like the one shown in the figure above), solar PV can replace 

existing diesel generators or augment the energy supply and can utilize existing T&D 

infrastructure to provide energy to households and businesses.

Distribution in electrified towns and villages in Leh District is implemented by JKPDD. As 

illustrated in the figure above, the local diesel generators produce power at 415 V, which are then 

stepped down via transformers to 240 V closer to clusters of homes. The village power grid 

generally uses steel tubular poles and locally grown deodar wood poles (SP 13, SP 15, and SP 

31) to carry the insulated lines to the customers. The solar PV project will need to be 

interconnected to the existing grid at 415 V.

Unelectrified villages would have the additional cost of T&D infrastructure. Table 7 below 

provides a breakdown of the costs in Leh District. Minigrid projects could greatly benefit from 

subsidies for building distribution networks. Currently, there are such subsidies provided under 

RGGVY for rural electrification.
22

Table 7. Cost of T&D Infrastructure

Item of Work Unit Unit Cost (millions Rs) 

Construction of 11/33-kV grid station Nos. 27.6 

Construction of three 33/11-kV receiving 

stations

Nos. 28.9 

Construction of 33-kV line km 2.7 

Cost of 11-kV OH line for connecting 11-

kV feeders from grid station to existing 

11-Kv line on weasel conductor 

km 0.5 

Source: LREDA

The main reason for selecting a 250-kW system for the technical configuration is because the 

JNNSM subsidy for minigrids is capped at that level. The actual system size or the number of 

250-kW systems required for a village would depend on a number of factors, including demand 

for power and number of households and commercial establishments. Capping each individual 

system at 250 kW will allow developers who are, for example building a total of 1 MW to take 

advantage of the JNNSM subsidy by building four separate 250-kW systems.

Additionally, several adjoining villages with their own individual minigrids could be connected 

through 66 kV lines (shown in Figure 9 below in yellow). LREDA has already sanctioned the 

construction of a 33-kV line along the longer yellow line on the map. It is possible that some of 

the adjoining villages located closer than five miles can be connected along a 33-kV line.

Contractors that build generators choose sites to build based on whether there are loads nearby to 

use the power. Since only a few of the villages are connected, villages that are close 

geographically and have flat terrain for installing distribution poles should have distribution 

installed to the large hydro generators. Interconnecting multiple villages will make it easier for

developers to interconnect renewable energy projects. A larger, interconnected power system 

increases reliability and geographic dispersion of solar resources, reduces their variability, and 

therefore increases reliability of the system as a whole.

Smart grids and net metering can be implemented for such systems, especially if there is 

variation in commercial and residential loads where peak energy use might differ. Backup power 

through energy storage and diesel generators can also be sized more efficiently.
23

Figure 9. Leh-Ladakh 66-kV lines and hydro generation

Source: Google Maps, illustration adapted by Daniel Martin, NREL

Smart grid technologies can also be used to improve the performance and help monitor the 

overall system for maintenance. The electrical line, along with diesel generators, can be 

monitored remotely to detect issues and give an alarm if maintenance is needed. The remote 

control of the diesel can ramp down its output when the PV is increasing its output. The PV and 

energy storage can also be monitored and controlled remotely to provide voltage and frequency 

control at the site. Overall, smart grid technologies enable self-awareness of what is happening 

on the power system, as well as more optimized management of resources through monitoring 

and control. 
24

3.5.1 Sizing Energy Storage

Many types of batteries exist for grid-connected applications. Lead-acid batteries are a mature 

technology and have a lower cost compared to other technologies. They do have some 

disadvantages due to their shorter life (1,000 charge/discharge cycles) and the toxic materials 

used in manufacturing. Lithium-ion batteries have a higher energy density and a longer life 

(1,200–3,000 charge/discharge cycles) but can be more expensive compared to lead-acid

batteries. Sodium sulfur batteries have also been used for grid-connected energy storage 

applications, but they require high temperatures (320oC). Good candidates for Leh District are 

lead-acid or lithium-ion batteries. There are currently no indigenous manufacturers of lithium-ion 

battery technologies in India. Unless imported, lead-acid batteries are the only option.21

For a system with just PV and energy storage, the most economical way to size energy storage 

would be to choose a PV size so that the energy stored in the battery during an average day will 

equal the energy required for use at night. A 250-kW PV array, for example, in Leh District can 

be used with energy storage to generate a constant 60-kW output. The energy storage should 

therefore be sized for 1.2 MWh of storage and 200 kW power rating. Figure 10 below shows the 

operation of the battery for a constant 60-kW output with PV generation. The battery will 

provide 1,200 kWh of energy at night, and the PV system will produce an excess of 1,200 kWh

of energy during the day to charge the battery. According to LREDA, battery sizing and capacity 

for current projects based on an analysis of the number of “sunny days” per year provides two 

days of autonomous power.

The energy provided to the battery during the day should equal the energy used at night for the 

energy storage to be economical. It would not be economical to provide energy storage for a year 

at a site without charging it.22

 

21 Currently, Gel, AGM, and Flood Type LMLA batteries are used at power plants. The topographical conditions in 

Ladakh and cold desert-like environment have an inverse effect on the life of the battery. Therefore, construction of 

battery storage rooms is necessary and could add to the cost of setting up SPV power plants.

22 Batteries for current projects in Ladakh have been sized to provide two days of autonomous power. Though cost is 

an important factor, consideration of the capacity of the power plant with respect to transportability of the system 

components, type of terrain, and availability of land near existing transmission and distribution infrastructure all 

play a large role in determining the most economical sizing for the power plant.
25

Figure 10. Typical battery operation for constant 60-kW output

To illustrate the issue of charging the battery during the day for output at night, 75 kW of 

constant power is chosen in Figure 11. The PV is still producing rated 250 kW output. The 

energy used at night is 1.1 MWh, and the excess energy produced during the day for charging is 

only 500 kWh. The battery will become completely discharged within a short time. When the 

battery is completely discharged, it cannot provide power to the site.

Figure 11. Typical battery operation for constant 75-kW output

The last case considered is increasing the PV output between multiple sites so a constant 250 kW 

can be provided for an average day, as shown in Figure 12 below. Based on the solar resource 

data available, 1.5 MW of PV would need to be installed over six sites of 250 kW rated output,
26

all connected with an electrical line. The energy storage should be sized to discharge the same 

amount of energy at night as is charged during the day. The energy storage will provide 3.5 

MWh of energy during the night, and the PV will provide in excess of 3.5 MWh of energy to 

charge the energy storage. The energy storage should be sized for 4 MWh of energy rating and 

1.25 MW of power. This case does not require additional diesel generation for a constant 250-

kW power output as long as the energy storage can provide the proper controls to maintain 

voltage and frequency to the system.

Figure 12. Typical battery operation for constant 250-kW output

Another important point to note is that an energy storage device will have a limit to the amount 

of energy that can be stored. After the energy storage is fully charged, the device cannot charge 

anymore and will be forced to turn off or start discharging. The same is true while discharging. 

Once the energy storage discharges its capacity, the device cannot discharge anymore and must 

turn off or start charging. On days with maximum irradiance, the energy storage will likely 

become fully charged and will be forced to turn off. Additionally, on days when there is 

minimum irradiance, the energy storage may become fully discharged and be forced to turn off. 

During these days, the control scheme between the PV and diesel need to be adjusted to maintain 

power quality (voltage and frequency thresholds, etc.) during transience due to the intermittency 

of solar. 

3.6 Solar Generation Required to Meet Demand in Leh District

The district of Leh is in a very unique situation. By the end of 2014, the total installed capacity is 

expected to be approximately 80 MW, and the demand is expected to be 107 MW. As discussed 

earlier, much of this demand will be met through building several hydro projects. And since 

hydro is only partially operational in the winter, this means that the effective installed capacity 

will be just 31.85 MW during winter.

Building just enough solar to meet demand in the summer would require the implementation of 

28 MW of solar, to augment the existing 15.2 MW of diesel, 62.1 MW of hydro, and 1.7 MW of 
27

solar. Under this scenario, Leh District would have a deficit of 47 MW in installed capacity 

during the winter. The gray area in Figure 13 below illustrates this deficit. 

Figure 13. Winter installed capacity (in MW) deficit

Building enough solar to meet demand in the winter would require the implementation of 75.3 

MW of solar to augment the existing 15.2 MW of diesel, 14.9 MW of hydro, and 1.7 MW of 

solar. Under this scenario, Leh District will have an excess 47.3 MW in solar capacity during the 

summer months when hydro is operational. The gray area illustrates surplus capacity in Figure 

14.

Figure 14. Summer installed capacity (in MW) surplus
28

Considering all the challenges, there are a couple of different options for how Leh District can 

schedule the summer/winter generation; however, each presents a specific set of challenges.

Further research and analysis will be required to determine their viability:

• Option 1: Scheduling diesel generation for just the winter months could present a more 

reasonable, but not optimal, solution for Leh District. For example, running just hydro 

during the summer months and meeting the rest of the demand with solar would require 

the construction of 44.9 MW of solar. Not using diesel in the summer will save on fuel 

costs. During the winter months, the existing diesel generation of 15.2 MW and 14.9 MW 

of hydro can augment the solar capacity for a total of 75 MW of generation, bringing the 

deficit in generation capacity to 32 MW. This solution is illustrated in Figure 15 below.

Building up to 44.9 MW of solar would require the construction of nearly 180 250-kW 

systems. For each of these, the energy storage will need to be sized for 1.2 MWh of 

energy and 200 kW of power in order to have a constant output of 60 kW.

Figure 15. Option 1: scheduling summer/winter (in MW) generation

• Option 2: Hydro plants can be upgraded for use as pumped storage, which can replace the 

use of hydro during the day. Under this scenario, Leh District could build 75.3 MW of 

solar capacity to meet the full winter demand. This proposed solution is illustrated in 

Figure 16, which shows a maximum required pumped storage capacity of 30.1 MW.

Upgrading hydro for pumped storage will require installation of new equipment, 

including pumps and generators and more technical analysis. During the day, while PV is 

producing electricity, water could be pumped upstream and stored for release at night

after the PV goes offline to provide 30.1 MW of capacity during the summer and 14.9 

MW during the winter. The existing diesel generators can provide the additional needed 

capacity of 15.2 MW in the winter months. The batteries for PV would still be sized 

appropriately to satisfy winter demand, but during the summer, the battery can provide 
29

frequency and voltage regulation for solar and hydropower. Building up to 75.3 MW of 

solar would require the construction of 301 250-kW systems. For each of these, the 

energy storage will need to be sized for 1.2 MWh of energy and 200 kW of power, in 

order to have a constant output of 60 kW.

Figure 16. Option 2: scheduling summer/winter generation (in MW)

3.7 Technical Considerations Prior to Implementation

Before installing new generation equipment, it is necessary to determine whether the lines and 

distribution equipment are sufficiently rated to handle new generation. An equipment rating and 

load flow study should be done to determine that. It is important to protect the investment of 

generation and new distribution equipment through a protection and coordination study, a short 

circuit analysis, and a voltage drop study.

Diesel generators operate in a master mode (or sochronous mode) in minigrids, where the 

generator will automatically adjust output to match the load. A stability study should be done to 

determine what problems may occur when paralleling two or more existing diesel generators, in 

the case of interconnecting minigrids. A single diesel generator or a group of diesel generators in 

a minigrid operate in isochronous mode or load sharing isochronous mode respectively, 

maintaining the frequency of the system at a desired value. If two or more single generators or a 

group of generators in isochronous mode between two or more minigrids are paralleled together,

they can each try to control frequency. 

Since frequency can vary over an electric system, the situation described can create an unstable 

condition where one generator or group of generators will ramp up and the rest will ramp down 

their output or even turn off. The control of diesel generators in isochronous mode should be 

changed if paralleled with other diesel generators in isochronous mode also. A possibility to 

interconnect minigrids with existing diesel generators is to have only the largest gen sets in one 

of the minigrids operating in isochronous load sharing mode and the rest of the diesels operating 

in base load mode. Another possibility is to have all of the generators operating in droop control. 

In any case, it is likely that generator controls will have to be changed when interconnecting 
30

minigrids, and such change may be from simply modifying the existing load control of the 

generator to adding expensive control equipment. Diesel generators may already be operating in 

parallel so the generators already have their controllers set to operate in parallel. In some cases, 

retrofitting an existing generator may not be cost effective, and retiring or using it for other 

applications such as backup power may be more cost effective. Diesel generators could also be 

used as a backup generator with a transfer switch for critical loads (hospitals, etc.). Acquiring 

one or more new large generators to interconnect minigrids may be required in some cases rather 

than retrofitting existing diesel generators with inadequate load controls.

A stability study should also be done to show that the variability in the solar photovoltaic output 

will not cause issues and show the limits on the amount of PV that can be added. As the diesel 

generation is replaced with solar and energy storage, the energy storage control method needs to 

be able to maintain voltage and frequency. As solar irradiance changes or as loads change, the 

energy storage needs to have fast voltage and frequency control to maintain system stability.

The improved infrastructure that will prepare villages to be interconnected is a transformer to 

step down the 11-kV, 33-kV, or 66-kV lines down to 415 V to be used by the village. There 

should be an interconnection point installed for an outgoing line to go to a village farther away 

from the hydro generators, and an incoming line from the hydro generators. A spare line may be 

installed also. Each line should be rated for the expected generation capacity, and protection 

equipment should be installed to protect and safely operate the electrical system. The protection 

equipment should be allowed to handle bidirectional flow of power. Increasing distribution 

capacity will allow for solar PV projects to be installed at locations where it may cost less to 

install PV or the regulations are easier to meet. 

An issue when adding single-phase PV generation is that the single-phase systems can create an 

imbalance in the village distribution system. This can cause a large neutral current, which can be 

dangerous. The voltage can go out of range on one of the phases, causing protection devices to 

trip. The PV generation can also cause the diesel generators to go out of their normal operating 

range. If a diesel generator goes out of its operating range, it can trip, run inefficiently, or 

damage the generator.

Finally, there are some institutional barriers that may limit the grid development. The equipment 

owners should ensure that the equipment is being maintained by trained personnel. Currently, the 

human resources for the projects are developed through a five-year operations and maintenance 

contract to the solar and hydro project contractors. At least two local villagers are trained for the 

O&M of the generation systems. LREDA is in the process of forming cooperative societies,

which will include village leaders, LREDA staff, block development officers, and members of 

the Ladakh Autonomous Development Council, to appoint operators for the LREDA generation 

projects. 
31

4 Business Case Analysis

4.1 Overview

The objective of this business case analysis is to show at a very high level the economics of 

building 250-kW solar minigrids in Leh District. There are two different analyses presented in 

this section. The first is to determine the project economics or the cost to developers in 

implementing solar minigrids with an assumed internal rate of return of 20%. The second 

analysis determines the cost to users of electricity from the minigrid and how that compares to 

the cost of diesel and hydro generation. The information presented in this section is based on 

rough estimates and will require further analysis and verification to ensure accuracy.

4.2 Project Economic Analysis

The first analysis contains four scenarios. The first two consider the development of PV 

minigrids by the state nodal agency in normal regions of India and in special-category states such 

as Jammu & Kashmir, where JNNSM subsidies are high. The next two consider the development 

of PV systems by private developers in normal areas and in special-category locations.

4.2.1 Scenarios 1 and 2: State Nodal Agency as Developer in Normal Rural Area 

and in Remote Locations

In the first two scenarios, the SNAs are the sponsors of the solar PV projects. For more 

information on the process for how SNAs develop projects, please refer to Section 2.3. In both 

cases, the SNA owns the projects, and solar developers will need to recover their investment by 

year five and train individuals within the village to operate and maintain the plant starting in year 

six until end of life. This will include replacing the battery roughly once in eight years. The main 

difference between the first and second scenario is the MNRE incentive levels available to SNAs 

that are located in normal rural areas of India versus those located in special-category regions.

However, in both cases the developer will be given 95% of the subsidy amount over the course 

of the first two years. Therefore, the rate charged to consumers in both scenarios will be the 

same.

According to our analysis, the solar developer’s unlevered internal rate of return (IRR) of 20% 

can be met with a solar rate of Rs. 7.7/kWh (US$0.154/kWh). The assumptions and results of our 

model are shown in Table 8 below. The developer’s return has been calculated over a period of 

five years, at which point full control of the project is turned over to the village cooperative 

community and the SNA.
32

Table 8. Scenarios 1 and 2: State Nodal Agency Develops PV Project

Revenue Production Data (kWh)

Base PPA price (INR/kWh) INR 7.70 January 17,687

February 27,603

March 40,633

April 39,972

Central government subsidy 30% in normal regions 

and 90% in specialcategory regions

May 39,504

State nodal agency 70% in normal regions 

and 10% in specialcategory regions

June 39,254

July 36,544

August 37,88

Preconstruction payment 50% September 39,296

Postconstruction payment 45% October 42,841

O&M payment 1% a year for five years November 39,111

December 27,405

Total 427,738

Tax

System size (kW) 250 Depreciation schedule No depreciation assumed due to 

full capital subsidy

System life 25 years Central gov’t minimum 

alt tax (MAT) for first 10 

years

20%

Developer investment recovery Year five Central government 

MAT for next 15 years

33.40%

Install cost/watt INR 264

System cost INR 59,000,000

Development costs (owner pre-/postconstruction costs)INR 7,000,000

Capital Cost Summary (INR) Annual Operating Cost

Total direct capital costs INR 56,000,000 O&M/billing /collection INR 900,000

Panels & equipment INR 15,000,000 Battery replacement Three times during project life at 

cost of INR 12,000,000

Panel costs per watt INR 60.00 Inverter replacement Once during project life at cost of 

INR 2,500,000

Foundation INR 4,000,000

Batteries INR 12,000,000 Financial

Balance of plant INR 3,500,000 Developer IRR 20%

Indirect capital costs INR 3,000,000

Installation & site work INR 3,000,000

Owner’s costs INR 7,000,000

Engineering, design & development INR 7,000,000

Other start-up costs INR 0

Financing costs INR 0

Total project costs INR 66,000,000

Scenario 1 and 2 – State Nodal Agency Develops PV Project

Total Central and State Government Incentive

Timeline of Subsidy Payment to Developer

Basic System Information
33

As seen above, the model assumed an installed cost per watt of Rs. 264 (US$5.28). According to 

the JNNSM guidelines, for 2011, the “benchmark price for photovoltaic systems with battery 

back-up is Rs. 270 per Watt.” As mentioned earlier, there is a 90% subsidy available in specialcategory states for the development of solar minigrids. Additionally, the state of Jammu & 

Kashmir provides a subsidy for the remaining 10%. The developer receives the subsidy from the 

nodal agency in a series of installments, as indicated in the table above. As shown in Figure 17 

below, since the developer only receives the first 50% of the subsidy prior to construction in year 

zero, the developer must therefore contribute about Rs. 33 million (US$660,000) up front to 

build the project. The developer receives 45% of the subsidy during year one and therefore has a 

positive cash flow that year. The rest of the 5% is received in installments of 1% every year for 

the first five years. There is no cost of debt assumed, since all of the capital costs are covered by 

the subsidy in the two years. The developer must recover the return on investment of 20% in the 

first five years. 

Figure 17. Five-year unlevered cash flow from project

The analysis above does not include any costs associated with building the T&D infrastructure 

for the project. Unless there are other subsidies available, the cost of the project will increase.

4.2.2 Scenarios 3 and 4: Private Developer Perspective in Rural India and 

Remote Locations

In Scenario 3, a private developer owns and operates the project in a special-category state in 

India. The developer therefore qualifies for the 90% MNRE subsidy and contributes 10% of the 

remaining equity into the project. The developer is also responsible for the O&M of the project 

over 25 years, including replacement of batteries once every eight years and replacement of the 

invertors around year 13. Under this scenario, the rate of power is Rs. 6.3/kWh (US$0.126).

Table 9 shows the results and assumptions used in the model. The main reason for the lower 
34

power rate in this scenario is that the developer has the full 25 years to recover the investment 

and meet the IRR, whereas in scenarios 1 and 2, the time period was much shorter.

Table 9. Scenario 3: Private Developer Develops PV Project in Special-Category States

Revenue Production Data (kWh)

Base PPA price (INR/kWh) INR 6.3 January 17,687

February 27,603

March 40,633

April 39,972

Central government subsidy 90% May 39,504

State nodal agency None June 39,254

July 36,544

August 37,88

Preconstruction payment 70% September 39,296

Postconstruction payment 30% October 42,841

O&M payment None November 39,111

December 27,405

Total 427,738

Tax

System size (kW) 250 Depreciation schedule 80% accelerated depreciation on 

the 10% equity contribution from 

investor

System life 25 years Central gov’t minimum 

alt tax (MAT) for first 10 

years

20%

Developer investment recovery Year 25 Central government 

MAT for next 15 years

33.40%

Install cost/watt INR 264

System cost INR 59,000,000

Development costs (owner pre-/postconstruction costs)

INR 7,000,000

Capital Cost Summary (INR) Annual Operating Cost

Total direct capital costs INR 56,000,000 O&M/billing /collection INR 900,000

Panels & equipment INR 15,000,000 Battery replacement Three times during project life at 

cost of INR 12,000,000

Panel costs per watt INR 60.00 Inverter replacement Once during project life at cost of 

INR 2,500,000

Foundation INR 4,000,000

Batteries INR 12,000,000 Financial

Balance of plant INR 3,500,000 Developer IRR 20%

Indirect capital costs INR 3,000,000

Installation & site work INR 3,000,000

Owner’s costs INR 7,000,000

Engineering, design & development INR 7,000,000

Other start-up costs INR 0

Financing costs INR 0

Total project costs INR 66,000,000

Scenario 3 – Private Developer Develops PV Project in Special-Category States

Total Central and State Government Incentive

Timeline of Subsidy Payment to Developer

Basic System Information
35

Figure 18 below depicts the anticipated 25-year unlevered cash flow from the project. The 

negative cash flow shown in years 8, 16, and 24 is for battery replacement. The cash flow in year 

13 is reduced due to inverter replacement. As in the previous two scenarios, the analysis above 

does not include any costs associated with building the T&D infrastructure for the project.

Unless there are other subsidies available, the cost of the project will increase.

Figure 18. 25-year unlevered cash flow from project

The final scenario considers a private developer implementing a project in a normal rural region 

within India, where the capital subsidy is 30%. The developer must then contribute minimum 

equity of 20%, and the remaining amount can be financing through a low-interest loan from 

MNRE. However, to keep things consistent with other scenarios, the model assumes no debt but 

a capital contribution of 70% by the developer.

Under this scenario, the rate is calculated at Rs. 9/kWh (US$0.18). Table 10 shows the results 

and assumptions used in the model.
36

Table 10. Scenario 4: Private Developer Develops PV Project in Normal Rural Area

Revenue Production Data (kWh)

Base PPA price (INR/kWh) INR 9 January 17,687

February 27,603

March 40,633

April 39,972

Central government subsidy 30% May 39,504

State nodal agency None June 39,254

July 36,544

August 37,88

Preconstruction payment 70% September 39,296

Postconstruction payment 30% October 42,841

O&M payment None November 39,111

December 27,405

Total 427,738

Tax

System size (kW) 250 Depreciation schedule 80% accelerated depreciation on 

the 70% equity contribution from 

investor

System life 25 years Central gov’t minimum 

alt tax (MAT) for first 10 

years

20%

Developer investment recovery Year 25 Central government 

MAT for next 15 years

33.40%

Install cost/watt INR 264

System cost INR 59,000,000

Development costs (owner pre-/postconstruction costs)INR 7,000,000

Capital Cost Summary (INR) Annual Operating Cost

Total direct capital costs INR 56,000,000 O&M/billing /collection INR 900,000

Panels & equipment INR 15,000,000 Battery replacement Three times during project life at 

cost of INR 12,000,000

Panel costs per watt INR 60.00 Inverter replacement Once during project life at cost of 

INR 2,500,000

Foundation INR 4,000,000

Batteries INR 12,000,000 Financial

Balance of plant INR 3,500,000 Developer IRR 20%

Indirect capital costs INR 3,000,000

Installation & site work INR 3,000,000

Owner’s costs INR 7,000,000

Engineering, design & development INR 7,000,000

Other start-up costs INR 0

Financing costs INR 0

Total project costs INR 66,000,000

Scenario 4 – Private Developer Develops PV Project in Normal Rural Area

Total Central and State Government Incentive

Timeline of Subsidy Payment to Developer

Basic System Information
37

Figure 19 below illustrates the anticipated 25-year unlevered cash flow from the project. The 

negative cash flows again occur in years 8, 16, and 24 from battery replacement. As in the 

previous three scenarios, the analysis above does not include any costs associated with building 

the T&D infrastructure for the project. Unless there are other subsidies available, the cost of the 

project will increase.

Figure 19. 25-year unlevered cash flow from project

There are several uncertainties and risks involved in the development of solar minigrid projects 

that can affect project performance. They include the following:

• Efficiency and quality of the solar panels impact how much electricity is actually 

produced.

• Differences in modeled estimates of solar resources versus solar insolation on the ground 

also impact amount of electricity produced.

• Battery replacement occurs on a faster timeline than what is projected, leading to higher 

project costs.

• Though cost is an important factor, the capacity of the power plant with respect to 

transportability of the system components, type of terrain, availability of land near 

existing transmission and distribution infrastructure, and type of battery also plays a large 

role in determining the most economical sizing for the power plant and battery storage.

Currently, Gel, AGM, and flood type low-maintenance lead acid (LMLA) batteries are 

used at the power plants. The cold desert environment of Ladakh has an inverse effect on 

battery storage life; therefore, construction of passive solar buildings as battery storage 

rooms, especially in the case of LMLA batteries, is an added cost in setting up SPV 

power plants and can impact the cost of power in specific areas.
38

4.3 Customer Rate Comparison

When the cost of solar power is compared to that of diesel and hydro, solar is a cheaper 

alternative to diesel in all four scenarios, and in some instances it might be a cheaper alternative 

to hydro. The cost of diesel power ranges from Rs. 12/kWh to Rs. 67/kWh, and hydro is 

expected to be in the range of Rs. 3 kWh–10/kWh. The individual calculations are provided in 

the sections below.

4.3.1 Diesel

For diesel, the cost of installation is dependent largely on the kW or kVA rating of the diesel 

generator and will differ between villages as the power demand varies. According to LREDA, 

installation and commissioning of diesel generators in Ladakh cost approximately Rs. 16,000 per 

kW. Tables 11 and 12 below serve as reference point for the all-inclusive running costs of 10 

kVA and 900 kVA diesel generators.

Table 11. 10-kVA Generator (8 kW)23

Particular Consumption per 

Hour

Consumption per 

Year

Cost per Unit 

(Rs.)

Amount Per Year 

(Rs.)

Diesel (HSD) 2 liters 8,640 liters 46.34 per liter24 4,003,778

Mobil-Oil 150 liters 145.00 per liter 21,750

O&M 86,000

TOTAL 4,111,528

Source: LREDA

The total kWh output of an 8-kW system is approximated at 63,072, assuming a 90%25 capacity 

factor. This can be further reduced to about 82% due to the elevation of 11,800 ft above sea 

level. Due to lower oxygen levels, combustion is reduced. The total cost of power is therefore 

Rs. 65/kWh (US$1.30/kWh). When the cost of installation and commissioning is added, the cost 

is approximately Rs. 67/kWh (US$1.34/kWh).

 

23 Cost of 10-kVA diesel generator: installation and commissioning – approximately Rs. 128,000

24 Diesel fuel for the operation of diesel generator sets in Ladakh is procured by JKPDD in Ladakh at a cost of Rs. 

46.34 per liter from the Indian Oil Corporation Depot in the town of Leh.

25 The capacity factor can be reduced further to 82% due to elevation of 11,800 ft, where combustion is reduced due 

to lower oxygen levels.
39

Table 12. 900-kVA Generator (720 kW)26

Particular Consumption per 

Hour

Consumption per 

Year

Cost per Unit 

(Rs.)

Amount Per Year 

(Rs.)

Diesel (HSD) 135 liters 1,166,400 liters 46.34 per liter 54,050,976

Mobil-Oil 2,700 liters 145.00 per liter 391,500

O&M 4,100,000

TOTAL 58,542,476

Source: LREDA

The total kWh output of a 720-kW system is 5,676,480, assuming a 90% capacity factor. The 

total cost of power is therefore approximately Rs. 10.3/kWh (US$0.20/kWh at an exchange rate 

of Rs. 50 for one USD). When the cost of installation and commissioning is added, the cost is 

approximately Rs. 12/kWh.

Given the challenging topography of Leh District, the government must also spend large sums of 

money on diesel transportation. Tankers capable of transporting diesel in 10,000-, 8,000-, and 

5,000-liter capacities do so at an average cost of Rs. 5.28 per liter. When these costs are factored 

in, the kWh cost of power is even higher.

Leh District does not receive a special subsidy on the purchase of diesel. The Ministry of 

Petroleum and Natural Gas (MPNG) does provide a subsidy on diesel, but none on the cost of 

power produced from diesel generators. However, there is a small subsidy given for the bulk 

purchase of diesel for operating generators, at a cost of Rs. 1 per liter, inclusive of the excise 

duties in the state of Jammu and Kashmir. This does not have a significant impact on the cost of 

power to the user. 

4.3.2 Hydro

The cost of hydropower is dependent on the capacity of the project in question. The cost of the 

45-MW Nimoo-Basgo hydro project is estimated at Rs. 8.1 billion (US$162 million).27 The 

hydro plant will likely produce 284.15 million kWh of electricity per year, assuming it is 

operational at full capacity seven months of the year and at one-third capacity for five months 

during the winter. The generation tariff (bus-bar at site) is estimated at Rs. 5.80/kWh, however, 

the cost to users is expected to be around Rs. 3 to Rs. 4 per unit (kWh) after subsidies from the 

government for the consumer. The cost of mini hydro is more than large hydro.

 

26 Cost 900-kVA diesel generator: installation and commissioning—approximately Rs. 11,520,000 27 http://ladak.free.fr/news/html/2006/06hydro5.htm
40

5 Challenges 

5.1 Overview 

There are many challenges involved in the implementation of solar minigrids in India, at each 

phase of the project deployment process. An assessment of the macro-environment elements, 

including political, economic, environmental, social, and technological (PEEST) factors, can 

yield factors that may impact India’s energy development initiatives. A quick overview of these 

challenges by phase is presented in the PEEST analysis in Table 13 below. A path forward to 

remove barriers and enable solar minigrid development is also described on the following pages.

Table 13. PEEST Factors

PEEST 

FACTORS

Phase 1: Project Planning Phase 2: Implementation Phase 3: Operations & 

Maintenance

Political •Clarity on gov’t politics

•Land acquisition process 

and ownership

•Procurement process 

(transparent)

•Cooperative societies role

•Nodal agency role

•Institutional readiness

•Reliable power

•Safety inspection

•Uniformity of design

•Who maintains after 15 

years

•Project evaluation

•Penalties

Economic •Funding process

•Financially viable - DPRs

•Off-take agreement

•Consumer subsidies

•Cost to user over time

•Local employment impacts

•Theft of power

Environmental •Project locations -

identification process (land 

banks)

•Permitting process

•Water allocation effects

•Accurate solar data

•Varying resource profiles 

(solar, biomass, and hydro)

•Disturbed habitat •Monitoring of effects to 

environment

•Water churpon system 

monitoring
41

Social •Consumer buy-in process

•Consumer education

•Role of and trust in 

cooperative societies and 

nodal organizations

•Level of social acceptance 

of RE

•Incentives for household use

•Economic impact on families

•Household energy use patterns 

and behaviors

•Reliability/predictability of 

energy impact on behavior

•Consumer recourse

•Trust in institutions and 

private sector

•Human capacity to adopt

•Workforce readiness 

local employment and 

training capacity

Technological •Metering

•Which solar technologies 

are prequalified?

•What about consumers 

who are further than 3 mi

radius?

•System must be modular 

and flexible

•Role of hydro, geo, biomass

•Unbalanced distribution systems

•Load sharing with adding 

generator, hydro, solar, etc

•Integration with the grid

•Hybrid technologies

•Training

•What happens as 

demand increases?

Here, we present a high-level discussion on some of the most pressing challenges that merit 

further consideration. Some of the items below might already be addressed by MNRE under 

JNNSM; the information presented below is not meant to be policy recommendations for 

MNRE, but rather ideas that might require further analysis in the Indian context. More 

information will be needed to perform a more in-depth analysis for each of the challenges 

presented in the table above.

5.2 Political

It is important that national road maps, policies, and programs are seamlessly aligned to achieve 

meaningful levels of solar minigrid deployment in rural areas. An energy road map is most 

effective when combined with coordination and consistency from the institutional level to the 

regional and local levels. This will accelerate deployment of energy initiatives. Assistance or 

training may be needed from regional entities or other experts to increase local capacity to 

develop the necessary regulatory framework and programs to enact and implement the policy 

initiatives. 

Uncertainties in the policy environment will slow down private sector investment at this nascent 

stage. It is the role of government to provide clarity on the different policies to which businesses 

must adhere and, in addition, to foster confidence among businesses that the policies will remain 

unchanged.
42

Detailed below are some of the policy and regulatory areas that are known to enhance and 

provide more clarity and seamlessness to the process, along with incentives to stimulate the use 

of clean energy technologies in rural villages.

5.2.1 Coordination and Assistance

Coordination and assistance in the project development process is not always consistent across 

regions or among the national and local agencies. MNRE is currently using a centralized process 

to approve and facilitate projects. The role of the nodal agencies that facilitate renewable energy 

projects on a regional basis is unclear. Currently, local coordination with the block and villages 

is often required. In order to develop a project for a typical Indian village, the burden is currently 

on the private sector to get clearance for a project at various levels—from the gram panchayat, 

the block development officer for the district, to the local village head, or Sarpanch—for 

minigrid development.

As a result, many companies face problems obtaining clearances from local government bodies 

to acquire land or get transmission lines installed. Currently an NOC (No Objection Certificate) 

is needed for a private developer to start a project. To avoid such clearances, many companies 

have been installing small home lighting systems rather than common distribution systems. This 

may hamper the development of solar minigrids.

With the approval of MNRE, the nodal agencies in respective states could take responsibility for 

providing private developers with a streamlined process and local assistance throughout the 

implementation and operation phases. During the planning stages, the nodal agency would work 

with the villagers to help them understand the benefits of the system, facilitate local approval of 

land ownership, and secure the necessary approvals for minigrid implementation. Once the 

minigrid is operational, the nodal agency, in tandem with the local governing body, could 

monitor power theft and damaging of systems and provide appropriate deterrents. Having the 

nodal agency work with local officials could reduce the bureaucracy and fast-track the approval 

processes.

5.2.2 RFP Process 

The current Request for Proposal (RFP) process is that the state nodal agency issues an RFP to 

solicit bids for projects. However, many of these RFPs might be created with limited stakeholder 

input. As a result, many companies that could respond to the RFP might be left out of the 

process, or may not respond to the RFP because the requirements are defined too narrowly. This 

may also affect how many bidders respond to RFPs. Involving stakeholders like developers, 

local authorities, and banks when framing the RFP, prior to rolling it out, could increase the 

number of responses. Another idea to consider is that RFPs can be led by financial institutions 

rather than the state agency. Banks would outline the system requirements and the financial 

conditions of the loan. This better ensures the bankability of the project and facilitates access to 

the financing resources that the banks can provide. 

5.2.3 Subsidies and Incentives

Among the key areas that MNRE might consider are the subsidies and incentives provided to 

both the developer and the village end user for household lighting. With respect to the developer, 

the government currently provides a 90% capital equipment subsidy on large plants—this 
43

subsidy also applies to minigrid plants. However, minigrid plants require the capability to store 

energy in the form of batteries, which in the operational phase have a significant maintenance 

cost. A feed-in tariff (also known as a generation subsidy) ensures a level cost of energy over 

time and is used to decrease the cost to the end user while assisting the developers’ recovery of 

investment and maintenance costs.

A feed-in tariff is a long-term price (tariff) that is set by the government for anyone who wants to 

feed renewable energy into the supply. It is the most common policy for encouraging renewable 

energy systems, in part because a feed-in tariff can achieve broader deployment at lower costs 

than other policy mechanisms, such as capital subsidies or direct incentives.

With feed-in tariffs, utilities are required to allow grid access and pay the set government price to 

anyone who can produce renewable power. The price, or tariff, is set so that a modest profit is 

ensured, thereby unleashing the collective capital resources of the entire province, state, or 

country to be part of the transition to renewable energy.

Feed-in tariffs reward actual production, unlike capital subsidies, which encourage installation 

but not necessarily operation. Because no bidding process is required, risk to developers is 

minimized and deployment of systems is accelerated as a result. Also, because these tariffs 

provide long-term contracts with utilities, they facilitate access to financing and encourage small 

and medium developers to participate alongside larger developers. Feed-in tariffs may also 

encourage community and local ownership and engagement, while also providing a potential 

source of revenue for these communities.

More than 20 countries in the world currently use a feed-in tariff model. Germany is considered 

to be one of the most successful in using feed-in tariffs to rapidly transition toward 

renewable energy systems. Using feed-in tariffs, Germany currently generates 12.5% of 

its electricity from renewable sources, while employing more than 215,000 people in the 

renewable energy sector, according to the German Federal Ministry of Economics and 

Technology.

Tariff rates encourage renewable power producers to use the most efficient technology, driving 

down costs by fostering industrial competition. Although overall electricity prices may rise 

slightly in the short term, in the longer term they stabilize as prices become increasingly 

independent of conventional fuel costs.

In like economies, it has been shown that having both capital and generation subsidies is very 

effective. Using both types of subsidies not only provides incentives for initial launch of a 

project, but also a better guarantee of success over time.

With respect to consumers, current government programs provide subsidies for kerosene and 

also distribute solar products for free, which can make users less inclined to purchase these 

products at cost. Broadening the current subsidy for kerosene to provide a subsidy based on 

lighting would enable consumers to choose their own lighting source (minigrid, bulbs, hydro, or 

standalone solar systems) while stimulating innovations related to solar microgrid and other 
44

clean technologies and business models. Subsidies can also be shifted from traditional fuels for 

electricity to renewable fuels to encourage a behavior change in the end user.

Deployment of solar minigrids might also benefit greatly from transmission and distribution 

subsidies that are currently covered under RGGVY for rural electrification.

Additionally, providing subsidies for the best technologies available and encouraging joint 

ventures to enable technology transfer might have a positive impact on the growth of minigrids 

in India.

5.3 Economic 

Financing measures and renewable energy deployment in remote villages is a particular 

challenge for developers. Isolation from urban economies, relatively small populations and 

economies, and the expense of implementing clean energy systems without economies of scale 

make return on investment difficult.

5.3.1 Project Financing

Currently, debt financing for renewable projects in rural areas is not easily available, which 

means projects cannot obtain long-term funding. One of the main reasons for lack of funding is 

the uncertainty surrounding the return on investment or “bankability” of the project. Currently, 

under JNNSM, there are no off-take agreements that guarantee that the power produced will be 

purchased by end users. Villagers may continue to turn to alternate fuels, such as kerosene, if 

there are no incentives to purchase from a minigrid. As mentioned previously, there are no 

generation subsidies to ensure a levelized cost of energy over time and a return on investment.

Clean technologies such as batteries and storage may not receive subsidies, which drives up the 

cost for both the developer and the end user. As a result, banks are unwilling to provide debt 

financing if future returns look uncertain or costs are not recoverable under a certain timeframe.

5.3.2 Spurring Economic Development 

Access to energy spurs economic development, specifically by increasing agricultural 

productivity and educational opportunities and accelerating development of village enterprises.

While many understand these benefits in theory, providing qualitative and quantitative evidence 

of such benefits can inform the policy-making process and allow energy service providers to 

develop short-term and long-term plans for how to grow capacity and address infrastructure 

concerns so they keep up with demand growth.

Understanding how to grow energy demand can also increase the rate of return for both 

developers and financial lenders. As one might hypothesize, energy growth in regions where 

there is currently none might be rapid and grow at an exponential pace and then plateau after a 

period of 10 years. Analyzing the following in recently electrified villages can help address this 

gap:

• Determine whether there are energy shortages and how the energy service provider has 

addressed growth in energy demand.

• Map out different stages of growth over the years and factors within each stage that have 

a direct impact on energy demand. More specifically, seek to determine factors/behaviors 
45

that can increase the usage of energy (and by how much) in rural villages and thereby 

more quickly spur economic growth.

• Determine which incentives work best for human behavior changes. For example, 

implementing policies that foster assistance for home-grown entrepreneurs in villages can 

help grow the customer base and provide a steady income stream for solar project 

developers and investors.

• Establish types of implementation practices that could better facilitate mingrid usage and 

ultimately the long-term success of village electrification.

5.4 Environmental

While some data for regions in India may exist, there does not appear to be readily accessible 

and bankable renewable energy resource data available, either for specific villages or on a 

regional level. Having resource data facilitates the identification of potential projects and attracts 

participation from interested developers and financers.

5.4.1 Quality of Solar Resource Data

Currently, there is satellite data available on all the regions in India, but there is a lack of ground 

data that validates actual resource data—a discrepancy that could lead to project 

underperformance. MNRE has installed 50 ground stations in India, and NREL is currently 

tasked with verifying the satellite data with the ground data, so some of these issues are already 

being addressed. To build minigrids throughout rural India, additional ground stations may be 

needed. A detailed regional resource assessment would provide the data needed to better 

understand the level of various resource availability and locations and the amount of renewable 

power generation potential for those locations. The quality of renewable resource assessment 

data can dramatically impact the participation of renewable energy project developers and banks.

5.4.2 Project Identification and Land Acquisition

Facilitating project identification with information on electrification needs within a state is 

important. This will help developers understand where they should locate projects. MNRE might 

consider developing land banks that identify lands for renewable energy development. In this 

way, MNRE can develop a pipeline of projects that developers can pursue. This can be 

communicated broadly by MNRE and nodal agencies to developers, and interested villages can 

then solicit interest from private developers.

In rural villages, the process for obtaining the land needed for project development is unclear. In 

some instances, the villages provide the land needed for development at no cost to the developer.

Greater uniformity in the land acquisition process will reduce uncertainties for the developer.

Addressing each of these areas will help reduce the risk of project underperformance and costs 

associated with renewable energy deployment. We discuss this idea further in Section 6, 

Recommendations and Path Forward.

5.5 Social

Deployment of renewable energy is not solely a technical matter. Institutional, cultural, 

economic, and policy issues all play a significant role in the success of any project. DOE and 
46

NREL have accumulated significant experience in these “human” dimensions of energy 

deployment. Lessons learned from these experiences are vital and can support a coherent 

approach to supporting communities in a transition to higher levels of renewable energy.

Transformational change in anything, including the energy system and energy use, requires close 

collaboration of local stakeholders. Stakeholders in this effort might include the local 

government, schools and educational institutions, local businesses, fuel suppliers, finance 

partners, and residents of the rural communities. Developing a common vision is critical to 

determining a path forward and creating actionable goals. Collaboration ensures that all 

stakeholders have an opportunity to share their motivations, concerns, and ideas for changing a 

community’s approach to energy generation and consumption. For example, the Hawaii Clean 

Energy Initiative (HCEI) has established topical working groups to provide broad representation 

as well as long-term vision and continuity to planning efforts. Implementing significant changes 

in energy systems and energy use and realizing the benefits of those changes takes time. This 

requires a collective vision with measurable goals and a stepped timeline for implementation, as 

well as coordinated government policy, planning, and budgetary support.

5.5.1 Rural Village Peer Working Groups

In parallel with efforts to produce high-quality, bankable resource assessments for regions, rural 

village working groups could be initiated to organize and aggregate grid data across the villages.

Such research could be the development characteristics that facilitate the “bundling” of multiple 

villages, in close proximity to each other, into attractive project financing efforts.

Human capital development is essential for long-term success of petroleum reduction efforts. 

Village working groups could be implemented to share knowledge and deepen collaboration 

between rural village leaders. These peer groups would serve several important purposes, 

including:

• Developing a common understanding of grid, resource, load, and institutional 

characteristics 

• Generating appropriate training and educational resources for village peers that share grid 

characteristics 

• Coordinating and harmonizing energy road map efforts at the local level in support of 

economies of scale 

• Presenting a unified body that can serve as the official point of contact for project 

developers and financiers. 

For example, a group of villages that share certain characteristics, or are in close proximity to 

each other, will represent a potential opportunity to “bundle” development and project finance 

for renewable energy, transmission and distribution, or even generator upgrades. Various gridrelated factors that differ among rural villages are of particular importance, as they may frustrate 

efforts to reduce cost. If certain minigrid system specifications were widely shared across rural 

Indian villages—for example, system frequency, transmission line voltage, and distribution 

system phase and voltage—renewable energy interconnection standards might be harmonized, 

and bulk purchasing of equipment, training, and insurance might be feasible. 
47

Combining villages could facilitate brokerage of project development and may elevate project 

sizes sufficiently such that sophisticated project development and finance mechanisms could be 

deployed to reduce costs and improve project terms for village communities.

5.5.2 Social Acceptance of Renewable Energy Technologies

Impressions about renewable energy systems and their performance will play a role in local 

acceptance of development plans. Involving community stakeholders throughout the planning 

process will help the understanding of the full process development scope and timeline. In many 

cases, renewable energy projects have failed due to improper selection of technology for a 

particular application, faulty installation of the system or components, or inadequate

maintenance. In the case of rural India, substandard material has been provided for home lighting 

systems, resulting in system issues, and this can create negative publicity and leave the 

impression that a particular technology does not work for rural Indian villages,

Social acceptance can also be an issue in the case of PV farms or wind turbines being located in 

previously undisturbed areas, or near culturally significant sites. Community outreach and 

involvement early in clean energy planning is essential for communicating potential impacts and 

benefits as well as understanding and mitigating concerns and obtaining local buy-in. This is 

where involving the diverse stakeholders in the planning of energy system road maps and in the 

RFP development process will be helpful and serve to mitigate concerns early in the planning 

process rather than later when they could impede the development and implementation of the 

plant.

5.5.3 Training and Workforce Development

Many renewable energy systems have performed poorly or failed due to lack of local experience 

and inadequate maintenance. Proper installation and maintenance is critical to keeping plants 

operational in remote village locations, since villagers will become more reliant on power for 

daily tasks as they adopt the new system. While maintenance concerns present a challenge when 

introducing new technologies to remote locations, they also present an opportunity for technical 

innovation and workforce training and development. 

Although in many cases, expertise in implementing and maintaining renewable energy systems 

must come from outside rural villages, this presents an opportunity to develop training programs 

to create jobs for local installers and maintenance technicians. Where conditions allow, 

workforce development training is a significant boost to the local economy. These training 

programs are often partnerships involving the trades (e.g., electricians, plumbers, and HVAC 

installers), local colleges or trade schools, regional training organizations, and project 

developers.

Workforce training requirements for wind and solar PV energy can be significant but are not out 

of reach for most Indians. Increasingly, training programs from Europe, the United States, 

Australia, and other countries are available through online distance learning or can be offered 

through local community, vocational, or university systems. With the right incentives, such 

organizations may take advantage of local commercial and human resources to the extent 

possible.
48

5.5.4 Project Management

The development of renewable energy projects is challenged by the relatively low level of 

understanding within the power sector and policy-making communities, both of which add risk 

to project development. For both power sector professionals and policy makers, an in-depth 

understanding of the project development process will be required if Indian regions hope to 

attract qualified project developers and financiers. The relatively small nature of most rural 

villages also means that supporting organizations may need to go further in the development of 

projects than what would be typical for projects in countries with more developed and larger 

markets. These challenges may combine to make it difficult for developers to execute successful 

clean energy projects at the most advantageous price. Support before and during the 

predevelopment and development process will greatly assist the execution of many energy 

projects and will serve to lower the risk (and cost) of subsequent projects.

Through work with many international communities, NREL has developed a number of models 

for managing project design and implementation. These models are useful in helping 

communities new to change management understand the change process. For example, in the 

U.S. Virgin Islands working groups were set up to address the various aspects of achieving the

territory’s goal of a 60% reduction in fossil fuel usage by 2025. These working groups are 

contributing to the community energy planning process. And this model is helping other island 

communities meet their energy goals. 

5.5.5 Prevalent Business Models 

There are a number of business models that can work well in a community setting and can 

provide a good comparison to what is being employed under JNNSM across India. The Alliance 

for Rural Electrification recently released a white paper entitled Hybrid Mini-grids for Rural 

Electrification: Lessons Learned. The study compares several successful cases, including the 

following models:

1. Community-based model where the renewable energy system is owned and operated by 

the local community

2. Private sector-based model where the system or many of the components of the system 

are owned by a private entity

3. Utility-based model where the utility owns and operates the system

4. Hybrid model in which there is a combination of community, private, and utility 

ownership 

The private sector-based model or the multi-party model may be better suited for rural Indian 

villages. Because the community model requires funds for the capital costs and knowledge to 

implement and operate the minigrid system, it would be difficult for a village community to 

attempt on its own. 

However, in the private sector and multi-party models, the capital cost may be covered entirely 

by the private entity or shared among several parties.

Table 14 is an overview of each model and their respective strengths and weaknesses.
49

Table 14. Overview of Business Models 

Business Model Advantages Disadvantages Case Study

Community-based: 

community owns and 

operates system

• Good alternative 

for communities 

in rural areas that 

don’t attract 

private-sector or 

utility interest

• Strong local 

interest and 

participation 

from the 

community

• Lacks the 

bureaucracy of 

utilities

• Increases selfsufficiency and 

self-governance

• Generates O&M 

jobs in 

community

• Lack of local 

expertise to 

design, install, 

and maintain 

systems and 

develop tariff 

plans

• Lack financing 

resources

• Potential for 

social conflicts 

such as 

corruption

Akkan, Morocco

Padre Coche, Peru

Private sector-based: 

some or all system 

components owned by a 

private entity

• Usually the most 

efficient model 

for providing 

electricity

• Companies are 

able to ensure 

long-term O&M 

and have 

technical ability 

to address 

problems

• Often better than 

public entities at 

navigating 

political 

interference

• Public financial 

support often 

required

• Lack of interest 

from private 

companies to bid 

on rural 

electrification 

concessions

• Projects most 

likely to be 

carried out by 

small local 

companies, 

which have 

limited technical 

and financial 

resources

Philippines NPC SPUG
50

Utility-based: utility owns 

and operates system

• Strong 

experience, 

financial, and 

technical 

capabilities to 

manage and 

implement 

project

• Good access to 

financing 

mechanisms

• Ability to offer 

extensive O&M 

services

• Low-revenue 

minigrids not a 

priority for many 

utilities

• High O&M costs

• Potentially 

unresponsive to

community 

needs, resulting 

in unwillingness 

to pay

• Driven by 

political agendas

Joshua Tree NP

Hybrid Varies based on model Varies based on model Sunlabob; San Juanico, 

Mexico; Isla Tac, Chile

Source: Adapted from the Alliance for Rural Electrification’s Hybrid Mini-Grids for Rural 

Electrification: Lessons Learned

Tables 15 to 19 in the Appendix present case studies from various countries that have 

implemented rural electrification models. Cases from Morocco, Peru, and Laos most closely 

resemble the rural Indian village environment and may be considered a best practice example to 

follow. These case studies are small rural villages with a mix of solar, hydro, diesel, and battery 

technologies. Financing and ownership arrangements are diverse, but in the case of Peru, the 

cautionary note is that the tariff structure did not adequately cover the cost of operating the plant.

5.6 Technological

Technology assessment and analysis provide a baseline for which technologies have been tested 

sufficiently and are considered commercially viable. Investing in a supplier prequalification 

process can provide more clarity on which technologies should be used for solar development, 

which MNRE has implemented through qualifying “channel partners.” Also, once a project has 

been implemented, there needs to be a consumer recourse process if the project is not 

operational, not reliable, or malfunctioning. The nodal agency could potentially be the 

coordinating agency for monitoring performance and for any disputes arising with either the 

developer or end users. MNRE has addressed parts of this, but further investigation is required 

on best practices.

Smart-metering is another area that needs attention in small rural villages. There is currently an 

initiative in India to roll out smart meters to millions of households. This is driven by the need to 

optimize electrical usage, manage loads, mitigate operating inefficiencies, and help consumers 
51

and businesses understand their own electrical usage. In tandem with the rollout of solar 

minigrids, a coordinated effort could be made to meter all homes and enterprises attached to the 

minigrid. This not only allows monitoring of current usages, but also better enables the developer 

to predict energy patterns and trends, so power can be added to existing systems as village needs 

grow.

Currently, minigrids could face issues if there is a lack of adequate energy storage facilities.

When renewable power sources get connected to the grid, the fluctuations in power generation 

may become a problem for grid stability. A solar array’s output fluctuates not just between day 

and night, but between sunny and cloudy. So, having a reliable back-up to balance power loads 

during lag times is crucial for growing renewable energy in the grid.

Load profiles, which vary widely between villages, also strongly influence the feasibility of 

various balancing options to accommodate high penetrations of variable renewable energy. There 

are several issues with interconnecting hydro generation and solar generation to the electric grid 

that need to be addressed. These are discussed in more detail in Section 3.

Taking a power systems approach by integrating new sources of renewable energy along with 

end-user efficiency measures and grid modernization could help in the development of efficient 

minigrid infrastructures. Furthermore, given the sheer number of villages that need 

electrification, it is important to develop a more standardized turnkey approach in order to 

quickly build generation across all the villages. Developing a few pilot projects in a few 

geographically distinct regions within India can help achieve this outcome.
52

6 Recommendations and Path Forward

Renewable technologies such as solar minigrids have the potential to greatly support the 

development of rural communities across India and around the world. The technical analysis 

shows that a solar minigrid solution, after considering government incentives, can yield solid 

returns for the investor and provide villages with inexpensive, reliable electricity. 

There are several key recommendations from this report that will catalyze private sector 

involvement and warrant further research and consideration.

6.1 Resource Identification—Land Banks

To address the full potential of developing renewable energy projects, it is important to create 

land banks so developers know the location of the land available for development of renewable 

energy projects. The financial and transaction costs for individual companies to embark on this 

identification process can be significant. Land banks will further mobilize the private sector and 

assist in the development of a pipeline of projects, which can then be grouped and competed with 

greater ease.

Specific aspects of this exercise might include:

• Working with MNRE and nodal agencies to identify villages and regions that would be 

suitable for minigrid development

• Gathering data on the energy demand and load variances in each region 

• Developing a land bank for identifying land that is available for renewable energy 

development

Creating a database of project locations would add significantly to the current information gap 

and provide another crucial piece of data to jump-start the market. 

6.2 Streamlining and Standardizing the Project Development Process

The policy and institutional environment in which the private sector operates to develop and 

implement projects is as important as understanding where to locate projects. Ensuring proper 

checks and balances within any system will help create an environment that facilitates delivery 

of electricity in a reliable, cost-effective, and safe manner. Specifically, the following should be 

investigated further: 

• Defining the process for engagement with private sector (i.e., via formal prequalification 

process)

• Streamlining solar minigrid processes so they are followed by everyone, with closer 

nodal agency involvement with all villages
53

• Developing detailed project reports (DPRs) and RFPs: DPRs need be created in a manner 

that speaks to the bankability or commercial viability of the project, which is important 

for support from financial institutions 

o Project identification and planning and coordination between and among 

regional/nodal agencies and villages

o Land identification, acquisition, and procurement 

• Undertaking a more regional approach, so villages are clustered and can take advantage 

of economies of scale

o Project development and implementation 

o Postconstruction O&M

o Environmental permitting and socioeconomic impact assessment

Developing the above guidelines will help answer key questions, such as: 

• What are the requirements for system design vis-à-vis enabling future integration with the 

primary grid, where applicable?

• What is the customer recourse if electricity is not provided or the solar project is not 

operational?

• Who is responsible for postconstruction O&M, and what are the penalties for not 

maintaining the system?

• How are metering and billing conducted, and who monitors these?

• What is the mechanism for contracting for demand for power in rural areas, especially as 

power use increases over time?

• What are the environmental permitting requirements and socioeconomic impact of 

minigrids on the local population?

6.3 Ensuring Project Bankability

As mentioned previously, financing for minigrid projects may be difficult to obtain for a number 

of reasons.

Currently, under JNNSM, there are no off-take agreements that guarantee that the power 

produced will be purchased by end users. Villagers may continue to turn to alternate fuels, such 

as kerosene, if there are no incentives to purchase from a minigrid. Furthermore, there are no 

generation subsidies to ensure a levelized cost of energy over time and a return on investment. A 

feed-in tariff (also known as a generation subsidy) ensures a level cost of energy over time and is 

used to decrease the cost to the end user while assisting the developers’ recovery of investment 

and maintenance costs. Banks are generally unwilling to provide debt financing if future returns 

look uncertain. Additionally, policies that foster assistance for home-grown entrepreneurs in 

villages can help grow the customer base and provide a steady income stream for solar project 

developers and investors.
54

Policies that promote the energy solution provider as a priority lending sector for Indian banks 

would facilitate debt financing for renewable energy projects and reduce some of the uncertainty.

If targeted finance vehicles could be developed for technology deployment and financing, a 

regional economy of scale may be created that could potentially reduce implementation costs, 

improve deployment strategies and penetration, and methodically reduce petroleum and kerosene 

use on a regional basis. This could be done in accordance with the lending guidelines of the 

Reserve Bank of India. 

Depending on renewable resource similarities for various locations, a bundled technology 

deployment approach could be developed along with the financing vehicle that might 

encapsulate multiple villages into a single minigrid project and guarantee off-take customers for 

the electricity. A bundled approach would also decrease project implementation and operation 

costs, as they would be spread out over several villages. These activities could be coordinated 

with regional data collection and streamlined project development processes to increase 

effectiveness.

6.4 Developing a Turnkey Systems Approach

To accelerate the development of minigrids across Indian villages, it is important to develop a 

turnkey systems approach to implementing projects. Developing various projects in 

geographically distinct regions of India can help develop the standardized approach that can 

catalyze minigrid development.

As India works toward reduction in fossil-fuel dependency, closing the gap in these priority areas 

will support overall success. Through regional collaborations to build human capacity and 

technical expertise, many of the issues that make it difficult to expand the use of renewable 

technologies can be addressed, bringing concrete, long-term benefits to Indian citizens. 
55

Appendix: Current Business Models

Table 15. Community-Owned Hybrid Model 

Akkan, Morocco: Community-Owned Hybrid – Solar with Battery and Diesel

Load

31 households; 4 community facilities; street 

lighting

System Characteristics

-5.76-kW PV array

-1,500-Ah battery pack

-8.2 kVa-diesel generator

-7.2-kW inverter

Financing

• Community-based model: community owns 

power plant and local grid

• 80% capital costs from grants; 20% from 

village

• O&M managed by a local entity responsible 

for fee collection, O&M, and replacement.

O&M financed through monthly flat tariffs at 

two levels (US$5.8 and US$11.6 for 275 and 

550 Wh/day, respectively)

• Binding contract and connection fee between 

customers and community association helps 

developers gauge willingness to pay

• Project developer (Trama TecnoAmbiental) 

created business plan, undertook 

implementation, and provided trainings to end 

users and local technicians
56

Table 16. Community-Administered Model 

Padre Cocha, Peru: Community-Administered Hybrid – Solar with Batteries and 

Diesel Generator

Load

331 households; public street lighting System Characteristics 

-28-kW PV array

-240 batteries of 375 Ah

-128-kW diesel generator

-40-kW inverter and charger

-Distribution grid

Financing

• Capital costs financed through donations from 

International Lead and Zinc Research 

Organization, the Common Fund for 

Commodities, Sandia National Laboratories, 

and Loreta Regional Gov’t.

• Local organization administers the system, 

performs O&M

• Two tariff structures have been applied; 

neither successful in recouping O&M costs

• Lessons learned: tariffs need to recover O&M 

costs to be viable but should also be within 

the range customers are willing to pay

Capital Cost

$577,000 ($2M with administration, promotion, 

and studies)

Rate Structures

Flat monthly charge: $6.38

Fixed monthly charge: $1.47

Usage charge: $0.20/kWh
57

Table 17. Multi-Party-Owned Model 

Isla Tac, Chile: Multi-Party-Owned with PPA Hybrid Wind, Battery, Diesel 

Generator

Load

1 health station, 1 school, 82 households System Characteristics 

Before After

Candles 2x7.5-kW wind 

turbines

Batteries 100-kWh battery

Benzene generators 12-kW diesel generator

Paraffin 13.5-kVA inverter

18-km distribution 

system

Financing

• Capital cost supplied by National Fund for 

Regional Development (48%), U.S. DOE 

(12%), power distributor (34%), and rural 

community (6%) as a pilot demonstration 

project

• O&M: provided by power distributor 

under a 10-yr power supply agreement

Capital Cost

$204,500

Rate Structure

Fixed monthly charge: $57

Usage charge: $0.24/kWh
58

Table 18. Private Utility-Owned Model 

San Juanico, Baja California Sur: Private Utility-Owned Hybrid – PV, Wind, 

Battery Diesel Generator

Load

120 households, local businesses (grocery shops, 

mechanics, restaurants, etc.), three schools, clinic, 

streetlighting

System Characteristics 

Before After

205-kW diesel 

generator (supplied 

power 3–4 hrs/day)

17-kW PV array

23 homes equipped 

with small gasolinepowered generators

Ten, 7.5-kW wind 

turbine

420 kWh 240-VDC 

battery (nominal 

2,450 amp-hours)

120-kW diesel 

generator

90-kW inverter

Financing

• $530,600 from two private U.S. utility 

companies designed the plant

• $509,400 from public entities:

o Government of BCS state

o Comision Federal de Eletricidad

o U.S. Aid

o U.S. DOE

• Local community formed an electrification 

committee and designed tariff structure to 

cover O&M

Capital Cost

$1,040,000

Rate Structure

Residential use: $5 fixed charge, plus

• First 50 kWh – $0.155/kWh
59

• Next 100 kWh – $0.185/kWh

• Over 150 kWh – $0.260/kWh

Commercial use: $8 fixed charge, plus

• All use – $0.270/kWh
60

Table 19. Multi-Party-Owned Hybrid

Laos: Multi-Party-Owned Hybrid – Solar, Hydro, Diesel Generator

Load

105 households System Characteristics

-12-kW small hydro generator

-2-kW PV array

-15-kVa diesel generator

Financing

• Public partners fund fixed assets (public 

infrastructure and grid); Sunlabob finances 

movable assets

• Sunlabob owns power generation system 

and provides power and O&M under a 25-

year PPA

• Charges a fee to each household based on 

consumption

• Sunlabob internal rate of return: 15%

• Village owns grid and infrastructure; two 

villagers employed by Sunlabob to operate 

system and collect fees

• Local NGO liaises between village and 

Sunlabob to maximize benefits for local 

community