Renewable power, when it isn’t sunny or windy

Meeting renewable energy goals will require developing storage capacities

The reduction in capital costs has played a major role, as has higher competition amongst IPPs in the bidding process accompanied with entry of foreign investors (Express File Photo)

India aspires to become GHG neutral, or Net Zero , by 2070 through its nationally determined contributions (NDC) to the Paris Pact. Renewable energy (RE) will be a key driver of this mission — 500 giga-watt (GW) of RE is targeted to be added by 2030. The country has added 72 GW of solar and 44 GW of wind as a part of this target. These have typically been characterised by long term 25-year power purchase agreements (PPAs) with state discoms. Commercial and industrial (C&I) capacities of 32 GW have also been added.

This remarkable growth in RE capacities has been helped with a must run status (evacuation of power from solar power plants and wind power plants should not be stopped except for safety related reasons) accorded to such energy projects. Favourable policies such as late payment surcharge, inter-state transmission system charge waiver and renewable purchase obligations have also helped. The reduction in capital costs has played a major role, as has higher competition amongst IPPs in the bidding process accompanied with entry of foreign investors. However, 500 GW could be out of reach without robust storage capacities and deeper power exchanges. After the Covid pandemic ended in FY22, power demand has picked up and peak deficits have been growing, especially during the summer months. In addition to variations across seasons, deficits have also varied across times of the day — peaking primarily during evenings. Peak demand is expected to grow from 240 GW in FY24 (year to date) to 285 GW in FY28 with peak deficits growing to almost 10-15GW by that year, primarily during evenings.

With discoms reluctant to go with must run RE, plain vanilla solar or wind with long term PPAs are increasingly being seen as the way to fulfil demands, especially during peak deficit hours. Recent bid announcements reflect the demand pattern — bids of increasing complexity as generators have been asked to do hourly demand matching to make RE comparable to firm and dispatchable sources (electricity repositories that can be programmed at the request of power grid operators, according to market needs). In some of these bids, demand fulfilment has to be at least 90 per cent (comparable to coal projects). Penalties for not meeting these demand patterns are high with 1.5 times the tariff for shortfalls.

The bids allow for excess power generated to be sold on the exchange to help IPPs bid at a lower tariff. For instance, in the recent firm and dispatchable RE (FDRE) bids invited by SECI, generators are required to match round the clock (RTC) demand of discoms on a 15-minute basis — demand varies across the day and across the months. Addressing this need requires a combination of solar and wind coupled with storage — either battery or pumped hydro. Storage capacities will be central to maintaining grid stability as we build more RE capacities.

To meet the time of the day demand in these bids, generators may have to combine solar and wind and manage intermittencies. They will need storage facilities to meet demand when wind and solar resources are not available. Accordingly, generators will over-size the projects so that the excess generation during the solar and wind hours can be stored. The choice of storage will depend on the demand profile of the discoms.

Pumped hydro can be extremely useful especially because its capital costs are far lower than that of battery storage currently (Rs 6-8 crore per MW compared Rs 10-12 crore per MW). However, storage solutions can vary according to demand. Battery storage can prove to be a viable option going forward as and when capital costs reflect falling prices. The production linked incentive (PLI) scheme and viability gap funding (VGF) being provided for battery energy storage systems need to be seen in that light.

The other option of addressing the excess generation beyond demand fulfilments would be to sell it to commercial and industrial consumers or to power exchanges. C&I consumers especially those who would like to fulfil their green commitments have turned out to be a viable segment for RE generators. However, the country needs more vibrant and deep power exchange markets. Though India’s power exchanges have certainly picked up over the last decade in terms of the percentage of energy being traded, they are still a far cry from developed economies.

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As more complex dispatchable RE becomes the order of the day, the need to trade excess generation will grow. In some of these bids, merchant sales will need to be upwards of at-least a quarter of overall generation if levelised cost has to meet the discom’s current average power procurement costs. Higher merchant sales can impact the project’s bankability and it is here that structures to ensure a guaranteed floor price and a certain volume can prove to be viable options. A central nodal agency backed by suitable backstops can provide this guaranteed floor to generators and also partake of the excess energy.

Excess power that can be sold on the exchange with a guaranteed floor realisation will improve bankability and may result in more competitive prices for the discoms. The excess capacity shall depend on the guaranteed floor rate for the extra power sold on the exchange, provided the exchange has an offtake at the time of generation.

Building capabilities for RTC green energy could also help meet the country’s ambitious green hydrogen targets. Power cost is likely to be a key driver to make green hydrogen projects viable. Without the development of compelling storage solutions and a deeper exchange market, we will neither meet our ambitious RE capacity targets nor attain the five million tonne green hydrogen capacity.

Singh is Group Head and Sural is Senior Executive Vice President at HDFC Bank