Is the government’s overly aggressive solar thrust in public interest?
(This piece appeared in the Feb 11th issue of EPW ; reproduced below)
Shortly after
coming to power the Modi government declared a fivefold increase in the 2022 target
for solar generation capacity in the country to an eye popping 100 GW. Less than a year earlier, India’s electricity
establishment had estimated 100GW to be India’s solar potential till 2032 (MoP
2014:22)! To see the numbers in perspective, India’s current solar capacity is
less than 8 GW.
The target has
been set without reference to the coal-fired capacity addition in progress and
at a time when capacity utilization of existing thermal plants is very low and there
is a large uncertainty on how electricity demand will develop in the next few
years (Singh 2016, Tongia 2016:6).
The only argument
the government has offered in favour of its aggressive solar thrust is that
this would help India meet its international commitments on carbon emissions (GOI,
2015a). There have been questions raised about whether such a rapid build-up of
non-fossil fuel capacity is indeed necessary to meet these commitments (Tongia
2016:17). These have remained unanswered.
The government
estimates the investment requirement for 100 GW of solar generation to be of the
order of Rs 6 lakh crores. Globally, RE is a favourite of investors and the
government’s solar program has been enthusiastically received. Foreign
investors such as SunEdison, SkyPower, Fortum India and SoftBank and Indian
business houses including Adani, Tata and Mahindra have aggressively
participated in the large solar tenders. Competition is fierce and the Ministry
of New and Renewable Energy has had to hire large halls to accommodate all
interested players during pre-bid meetings (Kenning 2015)!
How will such an
aggressive solar program impact India’s electricity distribution companies? How
will it affect the cost, availability and quality of electricity for consumers?
Is the pace of solar adoption pushed by the government in public interest? These
are some questions that this paper attempts to answer.
1. Challenges
of renewable energy on the grid
The thrust of
the government is entirely on grid connected solar energy. A little background
is useful to understand the challenge this poses for electricity distribution.
Electricity
demand typically varies round the clock. For example, the all India average
pattern shows a higher demand during the day than at night with a sharp late
evening peak (PGCIL 2012: 57). It is a basic requirement of a stable
electricity grid that demand and supply be “balanced”, or in other words,
matched at all times and over different time scales.
Balancing demand and supply
There are
several options for balancing. On the supply side, the output of power plants can
be controlled to follow demand. On the demand side, the options can be to store
energy when there is excess supply and to curtail demand forcibly or through
economic disincentives when there is a deficit.
Conventional
power plants – such as coal, gas-fired and reservoir based hydro power - are
amenable to output control to varying extents. Their use in balancing is
determined by their operational “flexibility” - the range over which their output
can be changed and the rate at which the change can be made. The capacity
available for flexible use is termed “balancing capacity”.
The output of
gas-fired and hydro power plants with reservoirs can be changed rapidly and
over a large range to handle changing load. These plants are high in flexibility.
The old (“subcritical”) coal-fired plants were designed to provide a steady
output. Output changes in these plants happen relatively slowly and over a
smaller range and frequent output changes can lead to wear and tear with
attendant costs. These plants are low on flexibility. Newer “supercritical”
coal-fired plants are by design more flexible and resilient than the older
subcritical plants (PGCIL 2012: 120-124).
Currently, demand
is typically assessed from load profiles from the past (previous day, same day previous
week or year) which can give an indication of the load variations to be
expected. Conventional generators are scheduled to match the expected load.
The intra-day
variation in demand is addressed mainly by varying output of reservoir based
hydro plants. Coal plants provide the “base load” and their output is varied
only in a small range (PGCIL 2012:125). In recent years, this range has been
expanding steadily indicating need for increasing balancing capacity (MoP
2016b: 28). The use of gas-fired plants in balancing has been discouraged by
non-availability of gas and high price.
When there is
insufficient supply, “load shedding” is resorted to. The Indian grid has hardly
any storage capacity available as the need for storage solutions has not been
acutely felt in the past.
Implications of renewable energy for balancing
The presence of
solar energy generators on the grid makes balancing more challenging for
several reasons. One is that electricity regulation in India incentivizes solar
energy by conferring a “must run” status on solar generators; their entire
output must be accepted into the grid. This makes solar power plants “inflexible”
from a balancing standpoint.
A second is that
solar power is variable. Solar power plants produce power only in daylight
hours and their output varies with the movement of the sun, peaking at midday. Balancing
now needs to be carried out for load as well as supply variability.
A third reason
is that solar output is dependent on weather. Cloudy or foggy conditions lower
output and introduce intermittency into the variations. The expected output
under such conditions, obtained from models using weather forecasting data, has
to be available sufficiently in advance to enable scheduling of conventional
generators for balancing. Since weather is not entirely predictable, actual
generation will show deviations from forecasts and these have to be handled in
real time.
Wind mills are
the other major source of renewable energy (RE) in the Indian context. Together
with solar, they account for over 90% (160 GW) of the RE target for 2022. These
plants also have a “must run” status and produce output that is variable and
influenced by weather conditions. From a balancing perspective, they have
issues similar to solar.
Balancing areas in India’s federal electricity setup
There is another dimension to balancing
that derives from India’s federal electricity setup - electricity provisioning
is a state government responsibility. Each state has to maintain the supply-demand
balance in its own grid which becomes the “balancing area”. Access to balancing
capacity commensurate with the RE capacity planned is required in each
balancing area, that is, at the level of every state.
The RE potential of a state depends on
various factors like the level of solar irradiation and wind conditions. Seven
states – Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Madhya
Pradesh and Rajasthan – are suitable for both wind and solar generation and
account for 70% of the aggregate wind and solar capacity planned across India (MNRE
2016). These have been termed “RE rich” states.
As to generation, historically, states have
had their own dedicated power plants or shares in the capacity of central public
sector power plants. State distribution utilities procure a bulk of their power
requirements (89% in 2011-12) through long term power purchase agreements
(PPA’s) with these state owned plants and some private plants (NTPC 2012). The
remaining comes from generators with ‘untied’ capacity that are either recently
commissioned private plants that have not found long term customers or private
plants operating as merchant producers.
Long term PPA’s pretty much fix the
generation resources and balancing capacity in the portfolio of a state. They also
come in the way of states pooling their balancing resources. A state looking
for additional balancing capacity outside of its fixed portfolio has to find it
from the limited pool of ‘untied’ generators.
For these reasons, there can be a wide
mismatch between the balancing capacity in different states and the RE capacity
planned for them.
The experience of Tamil Nadu:
Tamil Nadu currently
has the highest RE capacity penetration among all states with RE (largely from
wind mills) accounting for 56% of its overall generation capacity. Its balancing
capacity is inadequate for this level of penetration (GIZ 2015: 54, 63-65). Use
of its limited reservoir-based hydro capacity for balancing is restricted by
irrigation release schedules and periods of high inflows into reservoirs when
hydro power generation cannot be curtailed. Neighbouring Karnataka and
Telangana, which are part of the Southern Electricity Region, are rich in hydro
power resources, but these are not available to Tamil Nadu. The state has no
flexible gas-fired plants and limited flexibility available in its old
coal-fired plants (CEA 2013:13).
Till early 2016,
in the absence of capability for wind power forecasting, short term power
purchases were planned after making assumptions about wind generation. If wind
power generation was greater than expected, after exhausting its limited
balancing options, the state utility would have only two options - either back
down power from private coal plants contracted for short term power or cut off
wind power plants from the grid.
Either option
has been problematic for the utility - violating contract provisions in one
case and not respecting the “must-run” status accorded to wind generators in
the other. The dispute involving the state utility, coal-fired plants and the wind
power producers is now in the courts (Vaitheeswaran 2015). Legal issues aside,
there are negative economic consequences either way. Varying power from coal
plants means underutilization of capacity and higher costs related to wear and
tear. Backing down wind power means wasted energy.
2. Preparations
for RE
The central government’s
massive RE targets require a commensurate increase in balancing capability at
least in the RE rich states. Balancing resources can be augmented by dedicated transmission
corridors distributing RE across states, grid storage and additional flexible
generation – all long gestation infrastructure (PGCIL 2012:116). Besides
resources, accurate forecasting of RE generation is essential for balancing. What
follows is an assessment of the central government’s preparatory work in each
of these areas.
Grid Storage
Pumped storage
is not only the most widely deployed grid level energy storage technology, it also
the most flexible and competitive one (GIZ 2015: 80). Pumped storage hydro
electric plants store and generate electricity by moving water between
reservoirs at two different heights. While India has a very limited capacity of
operational pumped storage, the electricity establishment has identified a
number of hydropower projects that can be developed to support pumped storage
(CEA 2013: 39-43). The government however has just woken up to the need to
identify concrete projects and there is talk of setting up 10GW of pumped
storage (ET Bureau 2016).
Grid level battery
storage technologies are evolving and in one estimate 3-8 times more
expensive than pumped storage (GIZ 2015:80). There are
several vested interests active in promoting these technologies including the US
– India business council and the government seems to have
fallen for the hype created around them. The public sector Solar Energy
Corporation of India has put out tenders for solar capacity with storage
components potentially driving up the cost of solar electricity (Clover 2016).
The storage component is miniscule as of now and nowhere near the scale needed to
be practically useful to the distribution companies (DISCOMS).
It seems that storage
can be safely discounted as an option for balancing in the run up to 2022.
Forecasting and Dispersing RE
Renewable energy
management centres (REMC’s) are to be set up in at least all the RE rich states
with the responsibility for state wide forecasting of RE. The costs incurred in
managing the uncertainty in predicting renewable generation will not be part of
its purchase cost; these costs are to be “socialized” among grid users (CERC
2015). Till mid 2015, there was no centralized forecasting for renewable
generation anywhere in India (GIZ 2015:60). Tamil Nadu has inaugurated its REMC
recently (Srikanth 2016).
Transmission
corridors (termed “Green Energy Corridors”) providing RE clusters in RE rich
states access to neighbouring states were a part of the 12th plan.
The corridors are under implementation with an enlarged scope to include
connectivity to the "ultra mega solar parks" and will enable RE generators to disperse
electricity in a wider geography with more balancing resources than available
in the RE rich states (MoP 2016b:42).
Both the forecasting
and transmission infrastructure are early work in progress and there is no
visibility into when they will be ready.
Flexible generation
There is little
chance of capacity addition in gas-fired thermal plants in the 2022 time frame
with existing gas-fired plants running at partial capacity because of the cost
of gas which has to be imported. Hydro power projects totalling over 12 GW are
under construction (CEA 2015). Possibly less than half of this capacity will be
amenable to flexible use. Most projects are many years behind schedule because
of environmental related standoffs and opposition from local populations.
Old coal-fired
plants can be made more flexible through retro-fitting. This will require
capital expenditure and there are no signs that governments (who own most of
these plants) are seriously considering this option. A total of 73 GW of coal
capacity is under construction of which supercritical plants account for 50 GW (CEA
2016, MoEFCC 2015:72).
One can conclude
that coal-fired plants, in particular super-critical ones, will be the mainstay
of RE balancing. With conventional capacity addition far lower than planned RE
capacity addition (of 130 GW), India’s overall “balancing potential” – the
ratio of balancing capacity to RE capacity – is set to decrease in the run up
to 2022.
Market for balancing capacity
The mere
existence of flexibility in generation will not translate to flexible
operations as the later has negative financial implications for the operator.
For instance, in the case of coal-fired plants, these are due to wear and tear
reducing the life of the plant, higher maintenance costs and costs associated
with capacity underutilization and lower efficiency. The government is
therefore moving to incentivize flexible operations. There is already a
regulation to compensate generators for holding capacity in reserve for
responding to grid management requests in real time. A framework for market
based pricing for balancing capacity is just down the line.
Will market
based incentives solve the problem of making adequate balancing capacity
available in the RE rich states?
There are some
constraints. Firstly, the generation capacity available in the electricity
market untied to PPA’s is currently limited, though it is slated to rise with
the commissioning of new plants. Secondly, inter-regional transmission
constraints can come in the way of RE rich states using flexible capacity from
regions other than their own.
The later
problem is illustrated by the Southern Electricity Region which has been facing
a generation capacity deficit for several years. Coal-fired generators in the Western
Electricity region are unable to provide power to the Southern Region because
of transmission bottlenecks and their capacity lies underutilized. Market based
pricing for electricity has not solved the problem of electricity deficit in
the southern region in five years; electricity prices at the Indian Electricity
Exchange have remained significantly higher for the southern region compared to
the western region from 2011 onwards (Kasturi 2016:24).
Two years after
announcing massive RE targets, the government still does not have an assessment
of the actual balancing capacity available with the RE rich states or how this
will grow in future! It appears to believe that the market for balancing
capacity will somehow solve all problems.
3. The
real cost of solar
State utilities
are generally strained financially and will not be keen to purchase RE as long
as it is relatively expensive. To make RE more attractive, the central government
has worked out ways of subsidizing it at the cost of public sector companies in
the power or fuel sector. Inter-state transmission charges for solar
electricity have been waived at the cost of the PGCIL.
NTPC contracts
for solar power from producers and sells it to DISCOMS after subsidizing it in
the following way. It “bundles” solar power with low cost power from its coal-fired
plants and offers utilities power at a rate which is lower than its purchase
price for solar electricity (Upadhyay 2015). This bundled price has to approach
“grid parity” – the average price of electricity contracted by utilities - for
NTPC to be able to find willing buyers.
Of course, even
if solar prices reach grid parity it does not mean that solar has become cost
effective compared to other sources of energy. The cost of balancing variability
in generation through flexible capacity held in reserve must also be attributed
to solar power. To this must also be added the cost of infrastructure for
forecasting RE and the costs arising from errors in forecasting. The government
has not even hazarded a guess at these costs yet.
As subsidies alone are not enough to
make solar power attractive, the government has also taken recourse to coercion.
The new tariff policy calls for high RE purchase obligations for DISCOMS with the
target for solar alone being 8% of non-hydro power consumed by every utility by
2022 (MoP 2016a). To make sure that states comply with the RPO targets, such
compliance has been made part of the conditions associated with the ‘Ujwal
Discom Assurance Yojana’ (UDAY) that provides relief to indebted state DISCOMS
(GOI, 2015b).
Negative consequences of force feeding RE
Forcing DISCOMS to absorb RE beyond
their ability to handle it will have consequences for the health of the DISCOMS
and the cost and quality of electricity supply. A key assumption behind UDAY is
that power costs will come down with lower cost of coal and help DISCOM
finances. Rapid solar penetration will push up the cost of power.
Utilities are already hard put to handle
load variation even today. They lack accurate load forecasting, flexibility in
conventional generation, balancing resources such as pumped storage and
generation reserves to handle different eventualities on the grid (MoP 2016b:
11). For customers, this has meant a regime of poor quality and unscheduled power
cuts. With high RE penetration and an expected further deterioration in balancing
potential, this regime is bound to continue in to the future. The government is
also preparing to use demand curtailment curtail for balancing by pushing for
large scale installation of smart meters that will allow setting time-of-day
tariff (MoP, 2016a).
Public interest will be better served if
the pace of solar (and wind) capacity build up is compatible with the balancing
capacity available with the states and their ability to manage RE variability.
The government must pay as much attention to capacity building in
inter-regional transmission, pumped storage and highly flexible generation as
it is doing to solar generation.
Renewable energy targets based on these considerations
rather than impetuous declarations will be sustainable and allow steady
decrease of carbon emissions. A slower adoption of solar generation will be
beneficial for yet another reason - solar power, as long term trends suggest,
will only get cheaper with time.
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India's outdated electricity grid needs major upgrade says expert
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India's outdated electricity grid needs major upgrade says expert
