Move towards differential time-of-day power tariffs: How would it impact consumers?

Time-of-day tariff norms – the fine print

Under the ToD tariff system, the power tariff during “solar hours” — the duration of eight hours a day as specified by the respective State Electricity Regulatory Commission (SERC) — of the day shall be at least 20 per cent lower than the normal tariff. On the other hand, tariffs during peak hours will be at least 20 per cent higher than the normal tariff for commercial and industrial consumers, and at least 10 per higher for other consumers.

“ToD tariff would be applicable for Commercial and Industrial consumers having Maximum demand of 10 KW and above, from 1st April, 2024 and for all other consumers except agricultural consumers, latest from 1st April, 2025. Time of Day tariff shall be made effective immediately after installation of smart meters, for the consumers with smart meters,” the Power Ministry said. Smart meters are a prerequisite for ToD tariff systems.

The amended rules prohibit the duration of peak power consumption hours to exceed the duration of the solar hours, which would be eight hours.

As per the government, most SERCs have already implemented ToD tariffs for large commercial and industrial categories of consumers, and with the installation of smart meters, ToD metering at the domestic consumer level will also be introduced.

Also, power distribution companies will be required to display on their websites the tariffs for each category of consumers, and in case of a change in rates, consumers will have to be notified at least a month in advance.

Potential benefits of ToD power tariffs

Union Power and New & Renewable Energy Minister RK Singh described the ToD tariff system as a “win-win” proposition for consumers as well as the country’s power system. “The TOD tariffs, which are separate tariffs for peak hours, solar hours, and normal hours, send price signals to consumers to manage their load according to the tariff. With awareness and effective utilisation of the ToD tariff mechanism, consumers can reduce their electricity bills. Since solar power is cheaper, the tariff during the solar hours will be less, so the consumer benefits,” the minister said.

During the non-solar hours, mostly thermal, hydel, and gas-based power is consumed, which is relatively costlier than solar power. Hence, tariffs during non-solar hours will be relatively higher, reflecting the higher cost of electricity. As for peak power consumption hours, the government hopes to discourage consumers from placing excessive load on the grid with higher-than-normal tariffs. If the load on the grid during peak consumption hours goes down, the requirement for additional investments in grid infrastructure for maintenance and upgradation also declines over the medium to long term.

The government also expects the ToD tariff structure to lead to better integration of renewable energy sources with the country’s electricity grid, which will hopefully expedite India’s energy transition. “The ToD tariff will improve the management of renewable generation fluctuations, incentivize demand increase during the periods of high RE generation hours and thereby increase grid integration of larger quantities of renewable power,” Singh said.

For consumers

The move is expected to provide some flexibility to consumers to plan and optimise their electricity consumption so that the major share of their power use falls in the discount window. While the objective of the move is to offer a nudge to consumers to optimise their electricity consumption, especially during peak hours, this is also a major demand side management (DSM) tool that is expected to result in better grid integration of the increasing share of renewable power in India.

The Union Power Ministry said that ToD tariffs are recognised globally as a key DSM measure that is used as a means of incentivising consumers to shift a portion of their demand from peak hours to off-peak hours, “thereby improving the system load factor by reducing the demand on the system during peak period”.

Around 20 countries, including at least 17 European nations and the United States, have time-based power tariff structures in one form or another.

But the success of ToD tariffs, especially at the consumer level, is contingent on smart metering being implemented at the unit level, and users being made aware of how to optimise their consumption patterns to take advantage of the scheme, experts said. This might be earlier when it comes to large users such as industrial and commercial units, and domestic users in urban areas. But the entire exercise needs a fresh approach to consumer awareness and education by the distribution utilities and other entities.

Grid management tool

In order to operationally sustain a huge monthly addition of an average of 1,000 MW from non-fossil fuels or renewables to the electricity grid, policymakers are of the view that India needs to urgently work on developing viable energy storage options. In India, which is the world’s third largest producer of renewable energy, nearly 40 per cent of installed electricity capacity comes from non-fossil fuel sources. This green push has resulted in a sharp 24 per cent reduction in the emission intensity of GDP between 2005 and 2016, but it has also thrown up challenges of a grid being increasingly powered by renewables.

Even as the Lithium-ion storage battery option for grid application is now being ruled out as unviable, at least for now, an emerging policy push in the direction of solar and wind-based generation cannot continue to be pushed down to struggling electricity distribution companies or discoms. The renewables challenge is compounded by the fact that SECI (Solar Energy Corporation of India Ltd) — the state-owned company conducting solar auctions — has locked a number of contracts involving green developers in rigid PPAs (power purchase agreements) with no scope for innovation, according to sectoral experts.

Energy storage is needed alongside green energy sources to primarily balance out the variability in a renewable generation – electricity is generated only when the sun shines or when the wind blows. This is not always in sync with the demand cycle. Storage can help tide over this shortcoming associated with renewables.

For procurers such as state-owned discoms, renewables are not always a viable option precisely due to these vagaries in the generation trends, which means they still have to depend on thermal or nuclear generation for meeting base load demand. Renewables bundled with a viable storage option help overcome this problem.

There are two alternatives being considered by the government now: hydrogen and hybrid generation models blended with off-stream pumped storage. In 2023, as the hidden challenges of the RE (Renewable Energy) transition are likely to manifest more concretely, the government is making a renewed push on both technologies. A policy for stepping up green hydrogen production and tapping into its potential as a fuel has just been cleared by the cabinet. The Union Ministry of Power has also wrapped up a survey of all pumped hydro sites and hydro PSUs have been given a target of taking up pumped hydro schemes. The Ministry of Power has also written to the Union Coal Ministry to consider the option of opencast mines as potential sites for pumped hydro in the future.

Constraints in integrating RE generation

The main challenge is the non-availability of natural gas to run gas turbines to complement the growing RE capacity in the generation mix. India’s vast fleet of coal-based power plants of 200 MW series is more than 25 years old, runs on old technology and does not promise robust reliability. Further, considering that India’s load demand is far from saturated, there is the need to replace obsolete coal-based plants with supercritical highly efficient coal-based plants as an intermediate goal for total transition. However, this may not be acceptable to the international community in view of the impending climate crisis.

The country’s current installed generation capacity is around 410 GW (1 gigawatt is 1,000 megawatts) while the maximum demand is around 229 GW. Of the installed capacity, the total electric power installed capacity from non-fossil fuel-based energy resources was 179 GW, which is over 40 per cent of the total electric power installed capacity, primarily solar and wind. To compensate for the intermittency, pumped-storage hydroelectric plants – where it stores energy in the form of the gravitational potential energy of water that is generally pumped from a lower elevation reservoir to a higher elevation reservoir when renewable power is available, which is then released to move a turbine to generate electricity when renewable generation is not available – is being seen as the most viable alternative.

DSM tools essentially help grid managers and policy planners tide over these problems in RE integration till the time these storage issues are tangibly addressed.