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Council on Energy, Environment and Water Integrated | International | Independent
REPORT
Are Urban Microgrids Economically Feasible?
A study of Delhi’s Discom and Consumer Perspectives for BYPL
23 October, 2021 | Energy Transitions, Power Markets
Akanksha Tyagi, Neeraj Kuldeep, Aarushi Dave

Suggested citation: Tyagi, Akanksha, Neeraj Kuldeep, and Aarushi Dave. 2020. Are Urban Microgrids Economically Feasible? A Study of Delhi’s Discom and Consumer Perspectives for BYPL. New Delhi: Council on Energy, Environment and Water.

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Overview

Urban microgrids with rooftop solar (RTS) PV and battery energy storage systems (BESS) can help power distribution companies (discoms) meet the accelerating electricity demand in cities. These may be a more convenient alternative to usual methods of procuring additional generation capacity and building new grid infrastructure. Last year, BSES Yamuna Power Limited (BYPL), in association with Panasonic India, piloted four urban microgrids in their service area.

This study employs the VGRS framework to assess the impact of these systems on BYPL revenue. It also uses a discounted cash flow method to estimate the impact on consumer finances. The analysed microgrid consists of 7 kWp RTS PV system coupled with a 10 kWh/ 5 kW lithium-ion battery. For this purpose, four scenarios were developed for the discom and consumer.

Discom scenarios:

  • Sd1 assesses the impact of the grid-connected PV system on discom operations.
  • Sd2 examines the impact of the coherence of PV and BESS on discoms, where the battery is restricted from charging using the grid supply.
  • Sd3 represents the actual configuration of the pilot; the battery is allowed to charge on the grid when the PV system is unavailable.
  • Sd4 is a modelled version of Sd3, where the battery dispatch across seasons is optimised to maximise the availability of the microgrid during the discom’s peak hours.

Consumer scenarios:

  • Sc1 assesses the grid dependence of the consumer.
  • Sc2 examines the impact of the PV on the consumer’s grid dependence.
  • Sc3 represents the actual configuration of the pilot; the battery is allowed to charge on the grid when the PV system is unavailable.
  • Sc4 is a modelled version of Sc3, where the battery dispatch across seasons is optimised to maximise the availability of the microgrid during the discom’s peak hours. This scenario estimates the impact of prioritising the operations of a microgrid for discoms over consumer finances.

Key findings

  • BYPL gains the most in Sd4 where microgrid is scheduled to reduce the overall peak demand.
  • Greater export of solar electricity to the grid during the discom’s peak hours – 70 per cent in Sd1 and 65 per cent in Sd4 – results in a net benefit to the discom.
  • On the contrary, increased self-consumption of solar electricity by consumers – 87 per cent in Sd2 and 87 per cent in Sd3 – results in a net loss to the discom, as local peaks are different to and smaller than system peaks. Hence, using microgrids to reduce these local peaks does not significantly impact discom operations but does affect their revenues substantially.

  • Microgrids improve the utilisation of solar electricity by the consumer – almost 80 per cent of solar generation is self-consumed.

  • However, preferential scheduling of microgrids to improve availability for discom (Sc4) adds a financial burden on the consumer. The payback period in Sc4 increases to 10 years.

Key recommendation

  • Introduce regulatory provisions to support dispatch by the consumers from behind-the-meter storage to the grid. Such provisions would allow discoms to utilise the exported electricity to reduce power procurement, manage peak demand, and minimise transmission and distribution losses.
  • Optimise the permissible export of electricity to the grid. Besides prioritising consumers for greater favourable gain, excess export to the grid might be challenging for discoms to manage. Therefore, to sustain equitable benefits for consumers and discoms alike, regulations should focus on restricting the permissible export of electricity to the grid to promote self-consumption by consumers, while ensuring access to electricity for discoms within the manageable technical limits.
  • Introduce differential time-of-day tariffs for battery export for all consumer categories. Such tariffs can be designed to incentivise consumers to export electricity to the grid during peak hours or to charge battery from the grid during off-peak hours.
  • Discoms should implement new business models based on cost-sharing and leasing to ease the financial burden on consumers.

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Akanksha Tyagi
Programme Associate
[email protected]
Successful implementation of innovative demand-side management solutions like behind-the-meter storage by discoms needs a two-pronged approach involving appropriate system sizing based on demand patterns and system requirements, coupled with new business models to share the ensuing costs and benefits equitably with consumers.
Executive summary

Urban microgrids with rooftop photovoltaic (PV) and battery energy storage systems can help power distribution companies (discoms) meet the accelerating electricity demand in cities. These may be a more convenient, less time-consuming alternative to procuring additional generation capacity, augmenting transmission and distribution networks, and building new infrastructure. For consumers, these systems offer multiple value propositions – more reliable power supply, reduced electricity bills, and earnings from the export of stored electricity.

Solar storage microgrids could curb urban electricity woes; given the potential benefits, they offer for discoms and consumers. However, the high costs of energy storage may prove to be a deterrent. So, before installing and scaling these systems, it is necessary to understand better the impact of these systems on both the discom and consumer.

This report employs a cost–benefit analysis framework, value of grid-connected rooftop solar (VGRS) (Kuldeep, Kumaresh Ramesh, et al. 2019), to assess the economic viability of solar storage microgrids from the perspective of discoms. It also uses a discounted cash-flow analysis to estimate the financial impact on customers. These two approaches are applied to a case study of a pilot system installed by BSES Yamuna Power Limited (BYPL), a Delhi-based discom, in one of their offices. The unit consists of a 7 kWp (kilowatt peak) rooftop solar (RTS) PV system coupled with a 10 kWh (kilowatt-hour) behind-the-meter lithium ion BESS (battery energy storage system). These two components work in congruence with the grid to meet consumer demands.

While applying the VGRS framework, we analysed the load profile of the discom and consumer. We found that the discom’s load varies significantly throughout the year. Besides variations during peak hours, the baseload also changes dramatically across seasons. The current practice of discoms dividing the year into two broad peak and off-peak periods to strategise their operations and use the microgrids is inefficient. Instead, using distinctive microgrid schedule and a battery dispatch for each season is more effective. Furthermore, there is a significant difference in the load profile of the discom and consumer. For BYPL, monsoon (July to September) is a peak period while winter (December to March) is the offpeak season. For the consumer, on the contrary, summer (April to June) is the peak season and demand tends to be softer during the monsoons. These differences make it challenging to schedule the dispatch of stored electricity from the battery such that it assists both stakeholders equitably.

To estimate the impact of these different demand curves, and the roles of PV and BESS, we developed four scenarios for the feasibility analysis. For the discom, these are PV only (Scenario 1/Sd1), PV-BESS (Scenario 2/Sd2), PV-BESS-Grid (Scenario 3/Sd3), and optimised PVBESS-Grid (Scenario 4/Sd4).

  • Sd1 assesses the impact of the grid-connected PV system on discom operations.
  • Sd2 examines the impact of the coherence of PV and BESS on discoms, where the battery is restricted from charging using the grid supply.
  • Sd3 represents the actual configuration of the pilot; the battery is allowed to charge on the grid when the PV system is unavailable.
  • Sd4 is a modelled version of Sd3, where the battery dispatch across seasons is optimised to maximise the availability of the microgrid during the discom’s peak hours.

In these four scenarios, we calculated the impact PV and BESS have on discom revenues by considering different costs and benefits. Among the costs, we discussed revenue loss (RL) to discoms due to changes in the consumer’s reliance on the grid. As for the benefits, we looked at the savings from reduced procurement of generation and transmission capacity (avoided generation capacity cost/AGCC and avoided transmission charges/ATRC, respectively), power (avoided power purchase cost/APPC), and renewable energy certificates (avoided renewable energy certificate cost/ARECC), along with deferred upgradation of the distribution network (avoided distribution capacity cost/ADCC). Lastly, we looked at the net impact of these expenses and earnings on discoms, as reflected in their working capital requirement (avoided working capital requirement/AWCC). Table ES1 summarises the results from the four scenarios in the form of generation-normalised net present value for 25 years (INR/kWh).

Table ES1 BYPL makes the highest profit in scenario 4 (Sd4)

Source: Authors’ analysis

Among the different benefits, the savings from APPC represent 54 per cent of the cumulative benefits to the discom. This is driven by the increased export of solar electricity to the grid, which helps discom minimise their power procurement costs both from short-term purchases and scheduled procurements under long-term PPAs (power purchase agreements). Overall, in Sd1 (PV), BYPL makes a profit of INR 0.27 for each unit of solar electricity generated in its service area from the analysed 7 kW capacity. In contrast, in Sd2 (PV-BESS) and Sd3 (PV-BESSGrid), BYPL loses INR 0.06, for each unit of solar electricity generated based on the analysed capacity. Finally, Sd4 (Opt. PV-BESS-Grid) yields the maximum profit of INR 1.08, indicating that optimising battery usage (charge–discharge intervals) according to the seasonal load experienced by the discom can enhance the benefits these systems offer discoms.

A similar procedure was adopted for the consumer. Here, the base scenario of the grid (Sc1) is compared to PV only (Sc2), PV-BESS-Grid (Sc3), and optimised PV-BESS-Grid (Sc4). The motivation was to estimate the impact of prioritising the operations of a microgrid for discoms over consumer finances. The economic viability of installing RTS and BESS for consumers was determined by the payback period and net present value (NPV). These parameters are essential to understand if the system will be economically lucrative or incur losses. Table ES2 shows various financial metrics over the lifetimes of microgrids. For the PV system alone (Sc 2), the consumer can recover the installation cost within three years, and the NPV is INR 4,47,417. Here, the consumer saves an average of 69 per cent on their monthly electricity bills. In the case of PV-BESS-Grid (Sc3), the payback period increases to seven years. This is driven by reduced savings on the electricity bill (59 per cent) and the capital and replacement cost of the battery. As expected, the NPV is reduced to INR 1,30,782. The modelled optimised Opt. PV-BESS-Grid scenario (Sc4) has the longest payback period of ten years and an NPV of INR -8,859. The average electricity bill savings are reduced to 37 per cent. These results indicate that the preferential utilisation of supply from microgrids for discoms leads to an increased financial burden for consumers.

Table ES2 Payback period for the consumer is shortest in scenario 2 (Sc2)

Source: Authors’ analysis

This case study highlights some vital recommendations for future system design and deployment. First, we need regulatory provisions to support dispatch by the consumers from behind-the-meter storage to the grid. Such provisions would allow discoms to utilise the exported electricity to reduce power procurement, manage peak demand, and minimise transmission and distribution losses. At the same time, it is necessary to optimise the permissible export of electricity to the grid. Besides prioritising consumers for greater favourable gain, excess export to the grid might be challenging for discoms to manage. Therefore, to sustain equitable benefits for consumers and discoms alike, regulations should focus on restricting the permissible export of electricity to the grid to promote selfconsumption by consumers, while ensuring access to electricity for discoms within the manageable technical limits. Next, to encourage uptake by consumers, we need differential time-of-day tariffs for battery export for all consumer categories. Such tariffs can be designed to incentivise consumers to export electricity to the grid during peak hours or to charge battery from the grid during off-peak hours. Lastly, to ease the financial burden imposed by high system costs on consumers, discoms should implement new business models based on cost-sharing and leasing. Such support policies and innovative market frameworks are a prerequisite for the proliferation of urban microgrids on a large scale.

Conclusion

Urban microgrids have applications in managing intermittent solar generation and in reducing solar export to the grid with increased self-consumption. These applications lead to many indirect benefits to discoms, including reduced peak demand, lower transmission and distribution losses, distribution network upgrade deferral, etc. Greater transparency regarding these benefits, from discom and consumer perspectives, is essential to devise innovative policy, regulatory, and market interventions to support the higher uptake of microgrids. The following section outlines some of the key findings from the BYPL case study. A detailed assessment of the economic viability of installed microgrids provided the following insights:

  • The benefit to BYPL increases by almost four times with battery storage: The benefits that urban microgrids offer to discoms vary depending on the utilisation of the storage capacity. Solar generation alone offers a net benefit of 0.27 INR/kWh (Sd 1); this improves to 1.08 INR/kWh in Sd 4, in which battery storage is optimised for grid application. This is achieved by scheduling electricity export during peak hours and battery charging during off-peak hours simultaneously through the grid and solar.
  • The increased financial burden on consumers: With energy storage, prioritising the export of solar electricity during the discom’s peak hours over self-consumption by consumers decreases the latter’s savings by 37 per cent. Under these circumstances, the payback period for microgrids increases to a little over nine years.
  • Urban microgrids can reduce discom peak demand: Urban microgrids with energy storage can reduce the peak demand by 21 per cent of the rated solar PV capacity, as compared to an 18 per cent reduction without energy storage. This is achieved by prioritising the export of solar electricity to the grid during peak hours and altering the consumption patterns of consumers.
  • Peak demand reduction offers the maximum benefit: The export of solar electricity to the grid helps discom minimise their power procurement costs, both from short-term purchases and variable components of scheduled procurements under long-term PPAs. Savings from APPC represent 55 per cent of the cumulative benefits to the discom.
  • Battery storage may yield a net loss to BYPL if not optimised for grid application: Energy storage brings additional benefit to discoms by increasing solar export during discom peaks. However, in the case of an afternoon discom peak, using the energy storage lowers the overall benefit due to a loss in battery efficiency.
  • Enhanced self-sufficiency of consumers: Urban microgrids with battery storage significantly improve the self-sufficiency of consumers and reduce their grid dependence. Consumers can satisfy 59 per cent of their total demand with energy storage, as compared to 66 per cent with solar generation alone. The battery provides consumers the flexibility to store and later utilise solar electricity.
Recommendations

The discom peak demand in urban centres, with the increased penetration of air conditioners and electric vehicles, is likely to rise sharply in the coming years. This would also shift demand patterns from having uniform peak and off-peak periods to featuring intermittent peak and off-peak hours. As discussed, urban microgrids with dispatchable storage would provide greater benefits to discoms and contribute to smoothing the demand curve. The proliferation of urban microgrids, however, is contingent on various support policies and innovative market frameworks:

  • Regulatory provisions to support dispatch from behind-the-meter storage: The energy storage system of the microgrid would be placed behind the meter in the consumer’s premises. Such storage installations actively interact with the grid in order to charge and export electricity to it. Although many state regulations recognise such gridinteractive systems, none explicitly mentions export from the battery to the grid. Hence, regulations supporting dispatch from behind-the-meter storage would support urban microgrid deployment.
  • Grid tariff for battery charging and export to the grid: Differential or time-of-use/-day tariffs for all consumer categories can be designed to incentivise consumers to export electricity to the grid during peak hours or charge batteries on the grid during off-peak hours.
  • Redesigning the restrictions on the sanctioned PV capacity of urban microgrids: At present, most states have put restrictions on permissible installed PV capacity based on the sanctioned load. Often, solar generation from rooftop systems is not enough to meet consumer demand and restricts the utilisation of solar energy for the discom’s benefit. The restrictions on sanctioned load could be revised in the case of urban microgrids, and they could be imposed on the overall export of solar power. Further, the time-of-day concept, based on the overall discom load profile and seasonality, can also be used to restrict export of electricity.
  • New business models: The high upfront cost of batteries drastically increases the payback period for consumers, as compared to investing in a solar PV system alone. Discoms could develop new business models to ease the financial burden of microgrids on consumers. Such business models could include cost-sharing and leasing.
  • Value-stacking the benefits: Urban microgrids offer numerous applications to discoms. Battery discharge can be scheduled to support load levelling (peak shaving), minimise power procurements from expensive sources (short-term purchases), or defer network upgradation. For each of these factors, systems have to be configured and sized depending on the local or overall load profile. Discoms should undertake studies like ours to ensure the deployment of urban microgrids with optimal benefits.
  • Strategic dispatch from the battery: In the present case study, there is a conflict of interest between discoms and consumers in terms of the benefits derived from urban microgrids. Prioritising self-consumption of solar electricity benefits consumers more than discoms, which benefit from the maximisation of solar export. Hence, a cautious choice needs to be made to optimally schedule dispatches from the battery, based on time-of-use/-day tariffs, in order to benefit both stakeholders equitably.

HAVE A QUERY?

author image
Akanksha Tyagi
Programme Associate
[email protected]
Executive summary
Conclusion
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