A decentralized energy system is characterised by the location of energy production facilities closer to the site of energy consumption. It refers to the wide range of technologies that do not rely on the high-voltage electricity transmission network or the gas grid. This may include:

1. Small-scale plants that supply electricity to a building, industrial site or community.
2. "Microgeneration? from non-gas heat sources, i.e. small installations of solar panels, wind turbines or biomass/waste burners.
3. Micro-combined Heat and Power (CHP) plants that effectively replace domestic boilers, generating both electricity and heat for the home etc.

Opportunities

• It can be used as a supplementary measure to the existing centralized energy system.
• It can be used for deploying renewable energy sources locally available as well as expanding access to clean energy services to remote communities.
• It can aid distributed generation for rural electrification – either through off-grid or mini-grid systems.

Benefits

1.>Environmental

• Optimal use of renewable energy
• Promotion of carbon neutral and low carbon fuels

2.>Economic

• Increased conversion efficiency (capture and use of heat generated, reduced transmission losses) increases eco-efficiency.
• Increased competition leading to reduction in prices as seen in solar energy.
• Off-grid distributed generation can reduce the need for expensive transmission and distribution network expansion.
• Creation of new jobs in energy sector

3.>Social

• It provides more flexibility for generation to match local demand patterns for electricity and heat.
• Greater awareness of energy issues through community-based energy systems, driving a change in social attitudes and more efficient use of energy resources.
• Security of supply is increased nationally as customers don?t have to share a supply or rely on relatively few, large and remote power stations.
• Providing energy to off-grid locations promotes inclusive development.

Challenges

1.>Institutional

• Since decentralised energy systems encourage myriad actors to become power producers, it may hamper the state-controlled electricity markets.
• Instituting ownership schemes and pricing systems for off-grid and mini-grid services remains a challenge.

2.>Technical

• Large-scale deployment in distributed generation may result in the instability of the voltage profile.
• Emerging technologies, such as smart grid, renewable energy and energy storage, will require the operation criteria of the whole power system to be redesigned and modified.
• Lack of experienced workforce in installing, managing and synchronizing these systems with main grid.

3.>Financial
Distributed generation sources often have higher capital cost per kW, compared to large central plants.

Given that around 300 million people in India still lack electricity, decentralised-generation technologies can play an important role in ensuring uninterrupted energy supply. Recognizing this fact, draft policy on Renewable Energy-based Microgrids has been formulated, which aims to establish at least 10,000 renewable-based micro- and mini-grid projects across the country.