Solar Microgrids and Remote Energy Access: How Weak Incentives Can Undermine Smart Technology

Abstract

This paper documents the challenges faced by one company, Gram Power, installing and operating solar microgrids in rural India. We begin by summarizing the existing literature on best practices for microgrid deployment. Although Gram Power followed nearly all of these recommendations, the company nevertheless faced significant challenges. First, demand for solar microgrids was very limited, largely due to the perception that grid power was imminent and preferred. The company installed only 10 microgrids after visiting 176 villages, so customer acquisition costs were high and economies of scale were lower than expected. In villages where microgrids were eventually deployed, Gram Power faced challenges collecting revenues, mainly due to theft. Even though Gram Power installed sophisticated meters that could detect theft remotely, principal-agent problems hampered the companys ability to deter theft. We conclude with a discussion of policy changes that could better support the integration of solar technologies into a coordinated rural electrification strategy.