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The critical role of Anchor customer in microgrids

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 THE CRITICAL ROLE OF ANCHOR CUSTOMERS IN RURAL
MICROGRIDS
IMPACT OF LOAD FACTOR ON ENERGY COST

Fabien Chidanand Robert Gyanendra Singh Sisodia Sundararaman Gopalan

Amrita Center for Wireless College of Business Department of Electronics and
Networks & Applications Administration, Communication Engineering
(AmritaWNA) Ajman University, Fujairah Amrita School of Engineering,
Amrita School of Engineering, Campus, UAE Amritapuri
Amritapuri Singh_gis@yahoo.co.in, Amrita Vishwa Vidyapeetham
Amrita Vishwa Vidyapeetham g.sisodia@ajman.ac.ae Amrita University,
Amrita University, India
India sundar@am.amrita.edu
chidanand@am.amrita.edu

Abstract—The development of the society was supported by
an easy access to energy and in particular to electricity.
However, 1.2 billion people worldwide are yet to receive an
electrical connection. Most of them live in rural areas and
many are far from the grid or in hilly terrains. Renewable
energy microgrids are a good alternative to grid extension in
many cases. However, the rural communities often consist of
households only, with an energy demand concentrated in the
morning and at night, in the early hours. This increases the
need for costly storage as renewable energy is either
available during the day for solar, or distributed throughout
the day for wind. Anchor customers are users such as
schools, hospitals, small manufacturing units or GSM tower
that consume energy throughout the day. They contribute to
the local development and can be a source of steady income
for the microgrid owner. This paper illustrates that by
including such customers at the microgrid design stage, the
average cost of electricity can be reduced. Through
microgrid design simulations, it is shown that when anchor
customers represent around 30% of the load (load factor of
0.4), the cost of electricity can be reduced by 22% for a
microgrid powered by wind and solar energy and by 48%
for a solar microgrid, compared to a village with less than
10% of anchor users (load factor 0.2). It is thus critical to
include anchor customers at the microgrid design stage in
order to provide affordable energy in rural areas.
Keywords: microgrid; renewable energy; anchor
customers; load factor; rural electrification.
I. INTRODUCTION
Energy has been a crucial parameter in the evolution
of the society. It has enabled humanity to gain tremendous
time in its daily tasks, and allowed for the development of
more advanced technologies. 1.2 billion people
worldwide and 240 million in India are yet to be provided
with an electrical connection; 83% of those live in rural
areas [1]. Considering the extra costs involved in
extending the grids to remote areas, and the cost of
operation and maintenance, the International Energy
Agency (IEA) estimates that 70% of future rural
electrification will be done via mini-grids and off-grid
systems [2].
With the decrease in cost in the solar and wind energy
technologies and the improvements in control
techniques [3], renewable energy microgrids represent a
cost effective and clean solution for the electrification of
remote areas with limited energy demand [4]. Microgrids
powered through PV (Photo Voltaic) can generate power
during the daytime, whereas the wind energy can be
utilised to generate power when the wind blows
irrespective of day or night. During this time, the energy
produced can be directly used without being stored, thus
reducing the need for costly storage, and avoiding energy
losses (~20%) during the storage process. However, in
many newly electrified villages, the industrial,
commercial and public loads (schools and hospitals) are
very limited since they had no access to electricity. This
leads to an overall load pattern that is very unbalanced
with a small peak of consumption in the morning, a higher
peak at night (during early hours) and very little load at
other times [5-7]. In addition, as the grid and generation
units have to be designed to cater to the peak load, there is
a poor utilisation ratio of assets. For both of these reasons,
the average cost of energy can be higher than anticipated
in remote villages.
Many successful microgrid entrepreneurs have
reported that the support of anchor customers is a key
factor of success for microgrid ventures [8-10]. Anchor
customers are users such as public loads (schools or rural
hospitals), commercial loads or small manufacturing
units. They have a regular energy demand and ensure that
the energy generated by the microgrid is not wasted.
Indeed many households may not be able to afford to pay
for electricity on a regular basis which can lead to a
microgrid business failure if revenues do not cover for the
cost of maintenance and ensure the reliable operation of
the microgrid.
In this work, the economic impact of including anchor
customers during the design phase of the microgrid is
quantified. Two types of microgrids have been simulated
either powered by solar energy alone, or by wind and
solar energy (hybrid). In each scenario, the design of the
microgrid has been optimised for a total load of
225kWh/day for three different load patterns with load
factor of 0.2, 0.3 and 0.4. The results show that the load
factor influences the cost of the energy significantly. The
overall cost of energy can be reduced by 22% and 48%
respectively in the hybrid case and in the solar case, when
anchor customers represent around 30% of the total load.
 II. BACKGROUND
The fixed cost related to the electrification such as
engineering, planning, transportation of equipment and
setting up for the distribution grid in the remote area can
be high, thus the project is worth executing when there is
a minimum load demand. When the requirement is very
minimal such as for lighting, for a radio or for charging
phones only, cheaper alternatives exist: solar home
systems, the gravity light, daylight or LEDs shining
through water bottles.
The cost of grid extension may be justified when
villages are close enough to a distribution grid but the
energy losses in transmission and distribution in India are
very high (30% overall) [11]. Power theft is also one of
the major concerns with work being done to detect it [12]
and improve real-time data collection on the distribution
grid [13].
There is thus a range of cases when microgrid
electrification is the appropriate solution. It is estimated in
[14] that it can be the case for a village of 100 households
situated beyond 20km from the grid in a hilly region. The
cost of the wind and solar energy has been reducing
consistently, is reaching grid parity in certain cases [15].
Therefore, microgrids have emerged as well suited
solution for rural electrification.
The cost of energy is an important factor for people
living in the rural areas with limited revenue. An average
household spends less than 10% of its revenue for energy
[16]. With 75% of the rural households of India having
their highest earner paid less than ₹5000 [16], most
households are expected to be able to spend in the order
of 500Rs per month on electricity. For a household with a
low consumption of 1.5 kWh/day the maximum price
affordable per kWh is thus in the range of 11 ₹/kWh.
The cost of electricity can be divided into fixed cost,
peak demand cost, and volumetric cost. Volumetric
charges represent the major portion of the electricity bill
for the small energy users. Thus, there is less incentive for
households to reduce peak demand. In addition, the
demand in the evening may be relatively non-elastic.
However, it may be possible to encourage users to
consume energy during low peak hours by offering
preferential tariffs.
Anchor customers such as schools, clinics, GSM
towers or other small enterprises consume energy
throughout the day [17-23] and contribute to improving
the overall load factor of the community. The load factor
is defined as the ratio between the average load and the
peak load (1).
A constant load has a load factor of 1 and a very high
power load that lasts for a very short period has a load
factor close to 0. Electrical infrastructure and in particular
the electrical grid is designed to cater to peak load
requirement. As a consequence, it is less expensive to
supply loads with higher load factor.
III. LITERATURE REVIEW
Several practical studies have been published in the
recent years on the optimisation of the microgrid design.
In [24], a comparative study presents the best
microgrid design solution to power a village of 600
households in South India. Four types of loads are
considered: domestic, commercial/industrial, agriculture
(irrigation) and a separate GSM tower load. The hybrid
system with wind, solar, hydro and batteries is the optimal
choice and is more cost effective than grid extension.
However, the load factor presented in the study is very
close to 1, for domestic and industrial loads, which is not
realistic, despite the fact that irrigation is considered as a
deferrable load. In addition, the project development and
installation costs do not seem to be included in this study
resulting in very optimistic results.
In [25], the economic feasibility of microgrid
electrification of a community that includes anchor
businesses is assessed. A broad study of microgrid cost
effectiveness is performed by varying several parameters
such as the level of incentive, the technology (wind, solar
hydro, and biogas) and the availability of resource. The
willingness to pay of villagers is studied depending for
different levels of service. Anchor customers are included
in the village, however their impact on the cost of energy
for the community has not been studied.
It is shown in [26] that shifting loads towards midday
improves the reliability of supply, decreases energy
wastage and increases the life time of batteries, for a
defined solar microgrid. Cost benefit and technical
analysis of rural electrification alternatives is also
performed. However, the significance of the impact of the
load factor at the design stage of a microgrid is not
studied.
Different designs of solar-wind-battery microgrid are
tested in [27], to power an island. Real load profile has
been used. Many scenarios with different contribution of
wind and solar energy as well as different number of
battery strings are tested to find the optimal design. A
hybrid system is superior to a solar system for wind speed
above 4 m/s and solar irradiation above 5 kWh/m2. It is
noted that storage accounts for a significant portion of the
total cost (30%) and that 100% reliability requirement is
costly to achieve, with energy wastage above 50% in all
cases.
Thus our work contributes to the literature by
determining the impact that the expected load factor (of a
village that has to be electrified), has on the design of a
microgrid, and further on the cost of energy. In the
present scope of the study, only generation costs are
considered and grid costs are excluded, this is justified as
they do not contribute significantly to the cost of energy
(less than 10%) in microgrids [28]. This work aims at
promoting the inclusion of small industrial, commercial or
public loads at the planning stage, when designing a
microgrid for the rural electrification. It is demonstrated
that such an approach is positive for the development of
the concerned village and should be promoted by
governments, NGOs and microgrid investors.
 IV. METHODOLOGY AND SIMULATION DESIGN
This study has used HOMER tool which is a
microgrid simulation software designed by the National
Renewable Energy Laboratory (NREL) especially to
compare different microgrid generation designs. The
software simulates different combinations of generation
units (wind or solar in this case) and storage, and designs
a microgrid that satisfies the energy demand at the least
cost. Since lead acid batteries are used predominantly in
India, storage using the same has been considered for the
design.
The Levelised Cost of Energy (LCOE) corresponds to
the total cost spent for the total duration of the project
divided by the total energy consumed by the users. As
there is no fuel cost involved, it is mostly affected by the
capital investment, the interest rate at which it has to be
reimbursed (cost of capital) and the inflation rate. It is the
minimal price at which utility should sell the energy in
order to break even. In this study, government incentives
are taken into consideration by choosing a cost of capital
equal to the inflation rate (5%).
The software simulates all cases possible. Among the
feasible cases that respect the constraints of reliability of
supply for the microgrid, the first rank is attributed to the
design that has the least total cost for the project.
Providing electricity at high reliability level in isolated
microgrids powered by renewable energy is cost
intensive. A percentage of electricity shortage of 4% is
allowed in this study which is acceptable for rural areas.
A community load of 225 kWh/day is taken as a
reference for this simulation. The same average energy
demand is achieved through three different load patterns
corresponding to different levels of public, commercial
and industrial loads in the village (see Fig.1).
Figure 1 Three possible load profiles for the same average load
The first case corresponds to a village of 130
households with an average consumption of 1.5 kWh/day
and 10% (~25 kWh/day) of commercial, industrial or
public loads, the load factor is 0.2. The second case
corresponds to a village of 110 households with an
average consumption of 1.6 kWh/day (The average
consumption of households can increase as there is more
development in the village.) and 20% of commercial,
industrial or public loads; the load factor is 0.3. The third
case corresponds to a village of 90 households with an
average consumption of 1.7 kWh/day and 30% of
commercial, industrial or public load; the load factor is
0.4.
A newly electrified village is likely to have a load
factor between 0.2 and 0.4. Indeed a load factor less than
0.2 would signify that there is very limited usage for
electricity beyond lighting, which means that microgrid
electrification might not be the best solution. A load
factor beyond 0.4 implies a significant commercial
activity or a high level of public loads in the village which
is also unlikely for a village which has just been
electrified.
The solar irradiance of Chennai is taken for reference
in this study. The average wind speed is 5m/s at 20 meter
height, with the wind pattern from Madurai.
The installation cost for solar is ₹1 70 000/kW, which
corresponds to the cost indicated in [29] for small solar
projects in India with a reduction to consider decrease in
cost since 2014 (The current cost for famous MW projects
in India seem to be much lower than the average cost for
MW projects indicated in this reference.). The cost for
wind energy is taken from the same reference and is
₹99 000/kW. Lead acid battery has an installed cost of
₹7 700/kWh and a replacement cost of ₹6 700/kWh and a
throughput of 800 kWh, which corresponds to the cost of
a battery from Luminous with 48 months guarantee.
Two sets of simulations are run for each load pattern,
one using only solar energy and one using wind and solar
energy (hybrid). In each case the software calculates the
optimal design for powering the load. Only the load factor
is modified and the scaled average remains at
225 kWh/day in all simulations. It is thus possible to
isolate the impact that the load factor has on the cost of
energy through these simulations.
V. RESULTS AND ANALYSIS
The simulation results show that the optimal design is
influenced by the load factor. As illustrated in Fig. 2 and
Table 1, the number of generation units and especially the
number of batteries required is higher as the load factor
decreases. The variation is most pronounced for the solar
microgrid. It takes 80% more battery capacity and 15%
more generation capacity to power the 225 kWh load if
the load factor is 0.2 compared to 0.4. In the hybrid case,
it takes 50% more battery capacity and 10% more
generation capacity. In either case, as the load factor
decreases, the expense is significantly more.
Figure 2 Impact of load factor on storage requirement
TABLE 1 OPTIMISED DESIGN FOR DIFFERENT LOAD FACTORS IN HYBRID AND SOLAR CASES

Wind LCOE Total cost Elec. Elec.

Load PV Battery
turbine Produced Consumed
factor (kW) (kWh)
(kW) (₹/kWh) (€/kWh) (Lakh ₹ ) (k€) (MWh/yr) (MWh/yr)
Hybrid 0.2 49 40 420 15.66 0.22 307 435 148
microgrids
0.3 51 30 331 13.59 0.19 267 379 134 78.8
0.4 51 30 278 12.63 0.18 248 352 134
Solar 0.2 98 797 23.74 0.34 466 661 157
microgrids
0.3 91 N.A. 433 17.52 0.25 344 488 145 78.8
0.4 84 445 16.26 0.23 319 452 134

The total cost of the project is calculated for a lifetime The combined effect of capital cost and total costs are
of 25 years. As seen in Fig. 3, the total cost is more summarised in the Levelised Cost Of Energy (LCOE).
affected than the capital cost. Indeed, the main difference The results show that the LCOE is affected significantly
in design comes from battery storage that is replaced by a change of load factor in both hybrid and solar
every 7 years. Thus impact on capital cost is less microgrids (see Fig. 5). In the solar microgrid, the LCOE
compared to when solar panels or wind turbines are is 48% higher when the load factor is at 0.2 compared to
added. 0.4. In the hybrid case, the LCOE is 22% higher.
The cost is shared between the PV system, the wind
turbine and the batteries. Due to the additional storage
requirement, for low load factors the cost of storage
represents close to 50% of the total cost when the load
factor is 0.2, compared to less than 40% when the load
factor is 0.4 (see Fig. 4).

Figure 5 Levelised Cost Of Energy for different load factor

Surplus energy occurs when renewable energy is available

Figure 3 Impact of load factor on total cost and capital cost
in excess and the storage is full. It is necessary to accept a
certain percentage of energy wastage in order to maintain
a good reliability of the microgrid when renewable energy
is available in smaller amount. Energy is also wasted
during the storage process (~20%). This wasted energy is
a loss of revenue for the microgrid owner and should be
minimised. However, there are 25% more losses in the
hybrid case and 42% more in the solar case, when the
load factor is 0.2 compared to 0.4 (see Fig. 6).

Figure 4 Distribution of total cost depending on load factor

Figure 6 Impact of load factor on energy wastage
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The results confirm that the design of a microgrid is
significantly affected by the expected load factor of the
demand. A microgrid designed to power a community of
households only, with low load factor, will be much more
expensive overall than a microgrid designed for
community that has anchor loads such as hospitals,
schools, GSM towers or manufacturing units.
VI. CONCLUSION
The effect of the load factor on the microgrid design has
been studied. When anchor customers such as small
businesses, schools, rural hospitals or GSM towers,
represent around 30% of the load, the Levelised Cost Of
Energy (LCOE) can be reduced by 22% for a microgrid
powered by solar and wind energy, and by 48% for a solar
microgrid. In absence of anchor customers, the investment
in battery storage is almost half of all expenses and
energy wastage is almost as much as the useful energy,
which points out that microgrid electrification is a valid
solution when there are anchors customers who consume
energy throughout the day.
This emphasises the need for microgrid developers to
identify key consumers who will improve the load factor
of the microgrid, at the design stage. This approach leads
to important savings on energy cost for the whole
community and improves the chances of long term
success of the microgrid. Anchors customers can generate
local revenue, offer job opportunities and are key
contributors for the sustainable development of rural
areas. Suitable energy tariffs may be developed to attract
such entrepreneurs [30].
These results can be used as inputs by policy makers
and microgrid entrepreneurs to encourage the creation of
small enterprises whenever villages are electrified using
microgrids. This is how rural India can come forward.
ACKNOWLEDGEMENTS
The authors would like to thank Amrita University for
supporting our research and providing the funds for the
software licence.
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