New modes of renewable energy procurement in India- GV Sanjay Reddy’s take

As the share of RE increases, it will have greater impact on the grid. Key challenges include: (a) higher grid integration costs due to the variable and unpredictable nature of solar-wind resources; (b) the need for greater system flexibility and improved voltage control; (c) difficulty forecasting and planning for RE procurement; (d) limited demand-side management by discoms; (e) a focus on the levelized costs of energy from RE rather than the overall cost of supply to consumers; and (f) increased power generation costs for thermal projects. In this analysis, GV Sanjay Reddy, Chairman Reddy Ventures and Vice Chairman GVK, looks at how India’s electricity sector is adapting to meet these challenges by implementing innovative RE procurement models.

The electricity sector in India is rapidly changing. Renewable energy (RE) capacity in the country has more than doubled in the last few years, reaching 89.2 GW in September 2020. Between the first quarters of 2018-19 and 2020-21, the share of renewable energy in the electricity mix increased from 9.8% to 11.8%, (POSOCO, 2020). The share of renewable energy in the Indian grid is expected to reach 55% by 2030, with 450 GW total installed capacity.

GV Sanjay Reddy explains, “Increasing the share of renewable energy in the Indian grid necessitates the development of novel approaches to grid stability. Possible solutions include deploying energy storage to reduce generation intermittency and increasing the flexibility of thermal projects. In addition, wholesale market redesign, advanced forecasting, smart metering, and demand-side management may aid in ensuring a smooth transition. However, unlike in most developed countries, the impact of demand-side management has been limited in India due to the infancy of smart-metering infrastructure and the low adoption of time-of-use tariffs.”

Therefore, India’s chief renewable project tendering agency, Solar Energy Corporation of India (SECI), has begun to roll out innovative procurement models on behalf of discoms to procure firm or less intermittent RE– Hybrid, Assured peak power supply, and Round-the-clock (RTC) energy/power supply.

Hybrid- At the energy evacuation point, generation from solar and wind projects is blended in these tenders. In comparison to a solar or wind project, a hybrid project can provide relatively smooth diurnal generation. Hybrid projects typically have a high capacity utilisation factor (CUF) (40 to 50%). A model like this reduces discoms’ flexibility requirements while increasing transmission infrastructure utilisation.

Assured peak power supply- These tenders seek to meet a discom’s peak demand by deploying energy storage projects such as solar and/or wind. Such models guarantee consistent supply during peak hours (typically six hours per day) and improve dispatchability by reducing intermittency.

RTC (round-the-clock) energy/power supply- By oversizing and combining solar and wind projects with energy storage, thermal, gas, and other technologies, these models aim to increase the dispatchability of solar and wind projects even further. The recent tender (Pan-India (SECI) solar-wind-storage, RTC-I, 400 MW) requires a minimum CUF of 80%, but the SECI can increase the CUF based on the discom’s requirements. Such tenders reduce discoms’ flexibility requirements.

First, the success of these innovative models is dependent on a number of factors and considerations that must be addressed immediately by policymakers and industry. “Energy storage is required to reduce intermittency and firm up RE. Offtake of energy by discoms via these models is heavily reliant on the tariffs discovered, which are heavily influenced by storage costs and lifecycles,” says GV Sanjay Reddy.

Secondly, the levelized cost of energy (LCOE) of a RE project is no longer the only indicator of its viability. Instead, policymakers and utilities should consider overcall costs to consumers by calculating the grid integration costs of procuring renewable energy. Some typical examples are transmission infrastructure costs, flexibility costs, deviation settlement mechanism costs, etc. Because they involve developers selling surplus RE generation and discoms buying it to offset shortfalls, the success of these innovative models is also dependent on the liquidity of wholesale markets (e.g., day-ahead, green term-ahead, and real-time markets). GV Sanjay Reddy notes, “The lack of awareness and related capacity building among discoms is a major reason for the current low volumes of power exchange.”

In conclusion, the viability of thermal projects may be impacted as the dispatchability of RE increases through the use of these models. These projects may be forced to retire early as a result of this. Therefore, policymakers and electricity sector planners may need to devise an appropriate transition strategy while phasing out thermal projects.