Opinion
India’s renewable energy target may prove elusive without course correction
Summary
- Achieving 500GW of RE generation by 2030 calls for addressing the pain points that are slowing India’s transition away from fossil-fuel electricity. We need a new approach based on an equitable sharing of demand and price risks between power producers and discoms/grid operators.
India’s energy transition will be centred around the use of solar photovoltaic (PV) technology for at least the next 25 years. Going beyond the country’s declared target of 500 gigawatts (GW) of non-fossil-based power capacity by 2030, projections now show that solar-based capacity could reach an order of 1,000GW by 2047. Presently, it is at 85GW.
Wind-based capacity will also grow rapidly. Overall, deeper penetration of renewable energy in our electricity generation is essential for India’s energy security and decarbonization. If done prudently, it will also lead to greater cost effectiveness.
Also read: Data explainer: India’s green energy goals face stiff test
The rate at which renewable energy (RE) capacity addition has been taking place is impressive. That said, the yearly capacity addition rate is falling short if we are to hit the 500GW target. The best-case scenario for RE capacity addition is of 30GW per year in the next three-four years.
Recently, there was a ministerial statement about 151GW of RE projects being at various stages of development and about 76GW of RE projects likely to be commissioned in next three-four years.
No doubt, there have been challenges relating to the supply of solar modules as well as cells, and the acquisition of land for projects. But even bigger challenges are emerging from difficulties faced by the distribution companies (discoms) that buy this power supply and grid operators.
Power purchase agreements (PPAs) are not being executed by discoms at the rates that various central agencies are concluding RE-supply tenders at. Though this information is not yet available in the public domain, it is estimated that Solar Energy Corporation Of India (SECI) and other RE implementing agencies (REIAs) have about 18GW of ‘unsold inventory.’
Discoms in India face three major difficulties: huge uncertainty in forecasting the demand for any period beyond 10 years, challenges in flexing their coal-based power plants, and translating the significant costs that arise from their RE obligations into higher consumer tariffs.
Taking into account the capacity addition likely from 10 million rooftop solar plants across India and PM-Kusum projects in rural areas, we could get close to 50GW more over the next three-four years. This will impact net demand from the power grid.
The pace of electrification of Indian transport and industrial processes is highly uncertain. Whether projected demand from new manufacturing units will materialize as expected remains a big question.
Also read: Green revolution 2.0: Why India needs an integrated energy policy
On the other hand, firm RE contracts are offering peak power supply for two hours every evening, whereas discoms need evening peak supply for 4 to 6 hours. These contracts also require discoms to lock their demand patterns for the next 25 years.
Recent system operation reports indicate that even when power prices on exchanges were as low as ₹1-2 per unit in solar hours, many states were not scaling back their coal-based power supplies even to easily doable levels, though it could have saved on costs.
Difficulties arise from efficiency losses as a result of ‘flexing’ the power generation level to accommodate RE. Discoms have to absorb these flexing costs while also paying for firm RE supplies at close to ₹5 per unit even during solar hours for which market price have fallen to ₹2 per unit on exchanges.
If we want to integrate 500GW of RE or more into the power system without consumer tariffs rising as a result, a new approach is required based on an equitable sharing of demand and price risks between power producers and discoms/grid operators.
RE plants should be exposed to market-based dispatches within manageable limits, but with a minimum revenue-protection support.
Under this new regime, discoms should have the freedom to choose whatever type of RE is the most cost effective option for them, subject to compliance with renewable purchase obligations (RPOs). Hence, complete fungibilty across various types of RE (solar, wind and hydro) should be allowed in RPO targets.
Next, instead of bundled solar-plus storage PPAs , discoms should procure their own storage and optimize their RE integration costs according to the peculiarities of their existing generation contracts and demand patterns.
Some long-term PPAs (up to 70-80% of the optimized RE demand) will be necessary to tide over market price volatility.
However, the duration of PPAs must be reduced to 15 years, which should be adequate for bankability, as the debt repayment period is mostly around 12 years.
Also read: The rooftop eclipse on India’s solar ambitions
The balance capacity should be procured through short-term market dispatch-based deals with plants whose PPAs may be expiring or have excess capacity after meeting their long-term contractual commitments.
These contracts could be CFDs (contracts for difference), designed to incentivize plant owners to innovate—like offering co- located storage—and earn extra revenue by supporting the electricity system through periods of high peak demand.
The resultant cost efficiency will be in the interest of consumers and will help mobilize more support for a faster energy transition.
The author is a former Union power secretary and currently director at The Lantau Group.
