Indian power sector has opportunities to create value for the discoms and their consumers by mainstreaming behind-the-meter resourcesComments Off on Indian power sector has opportunities to create value for the discoms and their consumers by mainstreaming behind-the-meter resources
The electricity sector in India has experienced an evolution of sorts throughout the years. Since the early the 1990s, the sector has grown from a vertically integrated monopoly with generation, transmission, and distribution all under one roof, to the current structure in accord with the Electricity Act of 2003 where the three have been unbundled and now operate separately. The Bureau of Energy Efficiency (BEE) has made substantial progress towards promoting end-use efficiency with more than 15% savings demonstrated in the appliance-level energy use with its labelling and standards plans. The Indian power sector has created a conducive environment for renewable energy generators: as of 31 January 2022, renewables constituted 26.8% of the nation’s total installed capacity of 370 GW. The politics of subsidised or free electricity to a certain category of consumers, a legacy practice followed by the distribution companies (discoms), puts undue pressure on the entire power sector’s financial health.
The four charts below show Average Billing Rate (ABR),* Aggregated Revenue Requirement (ARR),** revenue gap (difference between the average cost of supply (ACS) and ARR, and Aggregated Technical and Commercial (AT&C) losses for discoms in major states.***
The distribution sector in India is also struggling. As of March 2021, the sector owes over INR 85,000 Crores (approx. U.S. $12 billion) to the generation companies. Discoms depend on the commercial and industrial (C&I) consumer base to subsidise the agriculture and the low-volume domestic customer classes, as seen in the difference between energy sales and revenues in the figure below.
Source: PFC, 2019
The C&I consumers will continue to provide the lion’s share of discom revenues, even if they take advantage of “open access” (the freedom to buy power from sources other than the incumbent discoms), because they are nevertheless required to pay high cross-subsidy surcharges and wheeling charges (power distribution charges). It’s important to retain such consumers within the incumbent discoms with key objectives of promoting higher renewable energy shares in the power mix, as well as reducing the electricity use with a deeper portfolio of energy efficient end-use practices. The discoms’ heavy dependence on C&I consumers to generate sufficient revenues creates significant barriers to decarbonisation investment opportunities among these consumers.
C&I consumers have an intrinsic need to reduce their power costs. Open access is a powerful opportunity for these consumers. So too are on-site efficiency and distributed resources, but such behind-the-meter investments are not encouraged by the discoms, given the threat of reduced revenues that they pose. Along those same lines, behind-the-meter generation (rooftop photovoltaic) within the consumer base is not easy to implement without on-site storage options or net metering/renewable energy export opportunities provided by the discoms. In several states, net metering policies do not favour the consumers creating large capacities to be exported to the grid beyond their diurnal requirements. It’s also opportune to deepen the behind-the-meter renewable energy and energy efficiency portfolio, combined with the storage solutions, at the consumer categories that are heavily subsidised.
One key opportunity to be explored in creating a substantive renewable energy, efficiency and storage portfolio on both sides of the meters is the possibility of discoms doubling up to become new energy service providers as much as legally possible. We hypothesise the possibility of developing a stronger efficiency, renewables, demand-responsive, end-use consumption, with adequate thermal and battery storage solutions at the consumer-side of the meter amongst all the customer categories.
Our team is currently exploring the efficacy and benefit-costs of discoms and consumers co-investing in behind-the-meter efficiency, dispersed solar, storage and demand-responsive end-use consumption patterns. We’re also researching in detail the regulatory regime that allows such investments, the benefit-costs of making investments in the behind-the-meter efficiency and renewables assets, and existing enhanced power sales opportunities through the possibility of selling saved energy for newer uses, such as electric vehicles. Other key benefits of enhanced renewable energy assets on the customer side of meter is the possibility of exporting renewable energy sources to other regions through an aggregated sale on the exchanges. More to come.
*ABR is calculated as ABR = Revenue expected from all categories million Rs /Approved sales in MU. The data has been obtained from the latest ARR of the respective utilities.
**This is the approved ARR for the upcoming year for the respective utilities.
- Maharashtra: MSEDCL
- Punjab: PSCPL
- Gujarat: UGVCL; PGVCL; MGVCL; DGVCL
- Karnataka: BESCOM
- Tamil Nadu: TANGEDCO
As we stepped into the new year, my colleagues and I took time to reflect on the influence of our collective work at RAP in 2021. I share the following sample of our global impact in hopes that it inspires new ideas or opportunities to engage. Don’t hesitate to reach out to me or one of my colleagues if something sparks your interest!
RAP’s thought leadership drives progressive policy decisions
In 2021, decision-makers around the world adopted policies consistent with RAP’s thought leadership. We’re excited to see uptake of effective policies that meet the urgency of the moment and advance an equitable and efficient energy transition.
- China’s powerful National Development and Reform Commission announced a mandatory time-of-use electricity pricing policy for nearly all retail customers. The policy is a major step forward for engaging citizens in the energy transition, integrating renewables into the grid and advancing innovations like flexible charging of electric vehicles. It will put China at the forefront of this effort internationally.
- The European Commission’s “Fit for 55” legislative package lays a solid foundation for implementing the Green Deal climate goals. Key policies include a near doubling of Member States’ energy efficiency obligations, exclusion of fossil-fueled appliances from counting toward those energy savings, strong equity provisions to direct energy savings programs to people experiencing energy poverty, and faster rollout of smart charging for electric vehicles.
- The UK’s Heat and Buildings strategy is a roadmap that calls for phasing out fossil fuel heat systems by 2035, reforming energy tariffs to make heat pumps more cost competitive, and funding to accelerate heat pump uptake. RAP was appointed to the Business, Energy and Industrial Strategy Committee, delivering expert testimony and briefing government officials, advocates, industry, and the media.
- At least a dozen U.S. states have distribution system planning policies to encourage the use of clean distributed energy and build a more resilient, flexible grid. They are a crucial piece of the decarbonization puzzle, especially as building and transportation electrification takes off.
Debunking fossil fuel myths to shift the debate
RAP confronted the myths around the gas transition head on and equipped policymakers to challenge conventional wisdom. We made the case against the widespread use of hydrogen for heating in many different fora, including written analysis for Energy Monitor (the most read article since the launch of this outlet) and One Earth.
Our team published Under Pressure: Gas Utility Regulation for a Time of Transition, a toolkit with practical options for facilitating a smooth and fair transition off gas. We’re bringing together utility commissioners and staff from nine leading states for direct, behind-the-scenes conversations on navigating the challenging and sensitive issues of the gas transition. Through peer-to-peer engagements, decision-makers are finding the courage and tools to take action, even when confronted with misleading industry narratives.
We set the record straight on causes of the massive Texas outage—namely, the failure of natural gas generation and production and regulators’ inaction on prudent weatherization measures. Our article on the lessons learned established RAP as the source for accurate information on this consequential event. We published our analysis in Dutch, German, and Chinese – taking our messages on the need for more efficiency and demand flexibility global.
Electrifying buildings for equity and resilience
In partnership with the Global Buildings Performance Network, we launched a project to demonstrate how affordable housing developments can provide energy access and play a leading role in India’s energy transition. These grid-interactive, efficient buildings — housing for low- and middle-income families — will provide much needed demand flexibility to absorb high amounts of renewable energy and ensure vulnerable customers can participate fully in the energy transition.
Building a strong organizational foundation
In 2021, we made two commitments: to grow our organization to respond to the urgency of our mission and accelerating demand from government; and to increase diversity. We began an intentional update of the full range of our employee practices (values, hiring, advancement, and retention) to ensure they reflect RAP’s goals for justice, diversity, equity, and inclusion. We also crafted an engagement plan that centers storytelling to increase our impact.
For a downloadable and printable version of this summary, click here.
E3-India initiative in collaboration with Gokhale institute of Politics & Economics, Cambridge Econometrics and Regulatory Assistance Project are jointly launching a book: Economy-Wide Assessment of Regional Policies in India: Applications of E3-India Model.
The book is an extended synthesis from the E3-India (Economy, Energy, Emissions) project, an initiative aimed at enabling evidence-based policy making at the regional level in India. This volume, edited by Prof Kakali Mukhopadhyay (Gokhale Institute of Politics and Economics, Pune & McGill University, Canada), is a compilation of sector-specific studies that exploit the E3-India model to assess the national and sub-national policy implications and their distribution across states. To this end, the project constructed the first ever set of regional Input-Output tables for 32 States and Union Territories in India for comprehensive economy-wide assessment of regional policies.
E3-India is a macro-econometric model used to simulate the effects of economic and energy policy at the national and sub-national level, providing the information that policy makers need when assessing the merits of policy proposals. The model has been in the public domain and freely available to researchers since December 2019.
We invite you to a virtual book launch and deep dive of regional policy analysis with a panel of distinguished senior experts.
The launch is hosted by:
- Dr Rajiv Kumar (Vice Chairman, NITI Aayog and Chancellor Gokhale Institute of Politics and Economics, Pune, India)
- Prof Terry Barker (Honorary Professor, School of Environmental Sciences, University of East Anglia, Founder and Trustee of the Cambridge Trust for New Thinking in Economics and Founder and Director of Cambridge Econometrics Ltd.)
Discussion and remarks by distinguished senior experts
Book contributors will highlight the relevance of modelling wider state level economic impacts of flagship government of India policies, including Make in India initiative, Atmanirbhar Bharat relief packages, India’s nationally determined commitments (NDC’s), and doubling farmer’s incomes.
More details and a schedule of events available here.
能源行业在实现脱碳目标中起着至关重要的作用，制定雄心勃勃的脱碳目标是政府的职责，而国家、地区的能源监管机构将在政策落地方面发挥关键作用。英国格拉斯哥当地时间11月3日，睿博能源智库与英国能源监管局(Ofgem)，国际能源署，世界银行，国际可再生能源署等召集了全球能源监管机构和组织，启动了国际“能源监管转型加速项目”(Regulatory energy Transition Accelerator)，旨在提高能源监管机构的能力，以促进高效、迅速和公平的能源系统脱碳。
全球供暖转型也需要能源政策和监管的转变。11月11日，由联合国环境规划署主持的全球建筑建设联盟与多家机构共同主办了 “清洁供暖论坛”（Clean Heat Forum）。该论坛通过将公共部门和私营企事业单位领导人聚集在一起，使参与者能够共同创造并分享最佳实践政策、标准和公众参与战略，以减少破坏气候、造成空气污染的来源。加速使用高效清洁的供暖技术、恰当的建筑设计以及配套的解决方案，也将有助于减轻健康和能源负担、促进繁荣和创造更多就业。
Distribution companies (discoms) are under increased pressure to begin maintaining an uninterrupted supply of electricity. In her recent annual budget speech, India’s finance minister Nirmala Sitharaman noted that the discoms’ “monopoly behaviour” is a deterrent to the country’s economic growth.
As a means of correcting the problems, Sitharaman announced actions were underway to open the power sector to more competition, thereby providing consumers with choice putting greater pressure on the discoms — who will remain the primary operators of, and investors in, the grid for the foreseeable future — to ensure better reliability and quality of power supply.
These efforts to reform the traditional discom business model are creating fresh opportunities for distributed energy resources (DERs). They should be explored fully for the economic, reliability, and environmental benefits they can provide, relative to traditional grid investments.
If, as is likely, clean distributed energy resources are found to be critical elements of a least-cost plan for improving reliability, lowering total costs and cutting emissions, then the regulatory rules should ensure that implementing that plan will be the discoms’ most profitable course of action.
India’s power sector has matured over the last few decades, especially with the reforms ushered in by the Electricity Act in 2003 and per-capita consumption of electricity has more than doubled since then. Yet, a large number of consumers still depend upon a combination of grid and backup supply solutions including diesel generators, kerosene lanterns, lead-acid batteries, gas water heaters for reliability and quality of power.
These dirty and expensive decentralised systems in use today are not a policy choice, but rather a forced outcome of India’s discoms inability to meet their customers’ needs.
However, the falling costs and wider availability of cleaner technologies have now altered this value proposition. They allow for discoms to shift from wires-only solutions to non-wires alternatives and greater reliance on clean decentralised solutions. While reliability has largely been a private cost, in some cases discoms have implemented pilots to optimise power supply and distribution costs.
These dirty and expensive decentralised systems in use today are not a policy choice, but rather a forced outcome of India’s discoms inability to meet their customers’ needs.
In addition, there has been a push from the central government for the development of decentralised solar capacity that can inject power at the sub-distribution level grid to meet local reliability needs while avoiding transmission infrastructure upgrades and network losses.
A Ministry of Power’s scheme aims to set up ten gigawatts (GW) of decentralised solar projects, install 1.75 million stand-alone solar agriculture pumps, and solarise one million grid-connected agriculture pumps. Discoms are the implementing agencies for this scheme and stand to benefit from reductions in power procurement costs and losses due to these installations.
Discoms in some states have been actively pursuing energy efficiency and demand-side management measures, such as time-of-use tariffs with special volumetric rates during off-peak periods, manual and automated demand response pilots for load reductions, appliance replacement schemes, and solar PV microgrids with battery storage, among others.
These measures will further assist the discoms in improving local grid reliability at a low cost. And while they also create value by saving money and improving local reliability, they may also lead to revenue losses for the discoms. This is because prices are volumetric in nature — as they should be for the sake of economic efficiency and fairness.
Reductions in sales usually result in lower revenues. However, the structure of prices — and especially their relationship to underlying costs — can either exacerbate or mitigate the revenue impacts from changes in sales on discoms’ bottom lines.
One example of this are the cross-subsidies built into tariffs: commercial and industrial (C&I) consumers pay more than their fair share of the costs of supply so that agricultural and low-use residential consumption can be served at low, non-compensatory prices.
This has been a long-standing feature of electricity pricing in India. But it means that measures to improve efficiency at C&I sites will have a particularly adverse impact on discom net income, whereas end-use efficiency for residential and agricultural users will actually improve the discoms’ financial health.
Furthermore, time-of-use prices — where costs are allocated to hours of use — also determine when it is better, from a discom’s financial perspective, to avoid consumption.
The challenges that arise out of legacy decisions, such as tariff design, inter-class cross-subsidisation and even long-term contracts with thermal power plants, are barriers to solutions that would otherwise benefit the entire system. The trick to overcoming these obstacles is to make sure that the interests of the individual actors — the discoms, the customers, and competitive providers — are best served when their actions best serve the public interest.
For lawmakers, this is about understanding where the incentives lie and correcting them when they work against desired objectives.
A version of this article originally appeared in Foresight Climate & Energy.
India’s electricity regulators, at the central and state level, are tasked with setting appropriate regulations and standards that govern grid reliability and protect consumer rights. While the incidence of complete blackout is rare, the reliability of distribution networks — better known as discoms in India — is below par, especially in rural areas.
One of the main reasons for inaction by discoms is that they have limited financial resources to invest in network upgrades — a key prerequisite to strengthening the local grid. Discoms struggle to meet their working capital requirements. Raising funds for long-term capital expenditure is therefore an even bigger challenge.
Discoms can now, however, think beyond traditional network upgrades to meet local reliability and power quality requirements in a much cleaner and more efficient way. Technological improvements and maturation have driven cost reductions for several newer modular solutions, such as rooftop PV, energy storage, or microgrids. This holds promise to solve the grid reliability challenges in a more sustainable way. There are some insights to be gained by taking a look at the experience of utilities and regulators elsewhere, in building up the ecosystem for newer solutions to work.
Non-wires alternatives (NWAs) refers to technologies and other interventions that can, individually or collectively, present an alternative to traditional wired solutions such as new and upgraded distribution lines, feeders and substations. Typically, NWAs include a combination of distributed generation, demand response, energy storage and end-use energy efficiency measures to meet a given set of network requirements.
Motivations for the promotion of NWAs differ from region to region. In some places, they are being promoted with an aim to integrate a larger share of cleaner energy resources; while in other places it is to decrease the variable and fixed costs of distribution utilities. Elsewhere, NWAs are promoted as a means to increase the resiliency and reliability of the local grid.
The Bonneville Power Administration in the northwest of the United States, was an early employer of NWAs. In the 1990s, it cost-effectively deferred expensive network upgrades in the San Juan Islands by investing primarily in broad-based efficiency measures (such as lighting, insulation, heating and cooling, and process equipment) in homes and businesses.
More recent examples include the Brooklyn-Queens Demand Management (BQDM) programme and the Oakland Clean Energy Initiative. The BQDM programme allowed New York’s distribution utility, Consolidated Edison, to achieve 50 megawatt (MW) peak demand reduction with demand-side resources, thereby deferring a $1.2 billion substation upgrade. In the case of Oakland Clean Energy Initiative, the utility was able to retire an uneconomic power plant without a transmission upgrade.
Role of regulators
Typically, regulators play tough when they scrutinise a discom’s capital expenditure plans, a majority of which involves low-voltage distribution network upgrade, partly because the discoms have an inherent financial motivation to spend — at times beyond what is reasonably required — to earn an almost-assured rate of return. It is also partly due to the public pressure put on regulators when they are asked to approve higher costs and, in turn, hikes in retail tariffs.
Regulators should be guided by three core objectives during the process of annual capital expenditure approvals: optimisation of grid investments and performance; integration of cost-effective non-wires alternatives; and increased customer engagement.
Typically, regulators play tough when they scrutinise a discom’s capital expenditure plans.
A prerequisite for these is an environment that requires discoms to engage stakeholders in a public resource planning and power procurement process. Such engagement builds trust and a shared vision — a distribution system plan that the regulators, discoms, and public can support — and thus a greater likelihood that desired outcomes will be achieved.
It will not be easy, but it is worth the effort. Regulatory commissions will have the challenging task of making sure participants are motivated (mostly financially) to shift to a new approach to grid planning and investment that will encourage and accommodate a variety of solutions. This means that, among other things, access to usage and other relevant data by NWA service providers will be critical. By opening up the network in this way, regulators can encourage innovation in product offerings for enhancing reliability, improving environmental performance and lowering overall costs.
Traditionally, high value-usage consumers have invested on their own in resources, especially diesel backup generators, to ensure uninterrupted power supply where the discom network is unreliable. That leads to an increase in the total cost of electricity procurement for these consumers. With an increased role of the regulator and deployment of low-cost, cleaner modular solutions, the total cost of reliability can be reduced for all consumers in the system.
It is essential that discoms open up to the possibility of an integrated approach for planning network upgrades, benefit from new technologies, and the regulator should take the lead in seeing this through. The way to move ahead lies in reimagining the system as one in which end-users are partners with the discoms in creating value for the network and themselves.
Perhaps the place to start on that journey is to create a new approach to infrastructure planning, one that will drive solutions that create greater societal benefits than costs. But this is unlikely to be enough so long as discoms lack the motivation to do so. The societally preferred outcome should also be the preferred course of action for discoms. It is therefore up to regulators and policymakers to create the means for fairly evaluating NWAs and incentivising discoms to create and manage this change for a better societal outcome.
A version of this article originally appeared in Foresight Climate & Energy.
Not too long ago, electricity consumers across states in India used to suffer long and frequent power outages. Daily or weekly load shedding – pre-defined intervals for planned power supply cut-off – was so prevalent that people used to plan their routine around their distribution company’s (discom’s) load shedding calendar. That changed substantially a couple of years ago when the peak demand deficit reduced to a low of 0.8% from the highs of 16.6% in 2007, largely as a result of private sector investment in power generation infrastructure, (mostly coal-based capacity).
What didn’t fully change is the frequency of planned outages or interruptions that consumers have to face, even after India has been declared a power-surplus nation. So, while supply of electricity came more in line with demand as a result of new capacity installations, the requisite investments in adequate distribution infrastructure fell short. In other words, the reliability of our electric grid is still a problem in the peri-urban and rural areas. And it should be addressed, not only for the benefits a highly reliable grid can have on future economic growth, but also for the opportunity this presents in making way for the energy transition to a cleaner and more equitable system.
This is the first in a series on electric grid reliability in India. Today, we begin by looking at the reasons behind the persistence of poor reliability around the country. In the two articles that will follow in the coming weeks, we will make recommendations for new regulatory approaches to resolve reliability problems, and then analyse the overall impact of improved reliability on India’s climate action planning.
Grid reliability – directives versus expectations versus reality
ISO New England, the regional transmission organisation in the eastern United States, defines reliability as “the electricity you need, when you need it.” Ideally, this means that end-use consumption should not be affected by either a lack of generation and procurement in the wholesale and bulk electricity system (generation and transmission) or by disruptions on the local distribution network. Of course this does not mean — from a societal cost-benefit perspective — that massive public spending on achieving 100% reliability via investments in multiple tiers of redundancy is desired.
Policy makers and regulators therefore have determined the minimum requirements for a reliable grid from two distinct, yet related, angles. One is the set of requirements to be met by the generation and transmission utilities and system operators, and the other is that to be met by the distribution utilities, together yielding a desired level of reliability for the end-consumers at a cost they—society as a whole—is willing to pay.
The National Electricity Policy, issued by India’s Ministry of Power in 2005, provides a vision for reliability. It prescribes creating adequate reserve capacity margins and a spinning reserve of at least 5% at the national level to ensure grid security, along with quality and reliability of power supply. It directs state regulators to specify standards for reliability and quality of power supply by distribution utilities. The National Electricity Policy further provides for consumer interest protections and directs state regulators to draw up a roadmap for improvement of a distribution utility’s reliability index (which is to be calculated and monitored for all cities and towns).
The Indian Electricity Grid Code Regulations, 2010, and subsequent amendments establish “rules, guidelines and standards to be followed by various persons and participants in the system to plan, develop, maintain and operate the power system in the most secure, reliable, economic and efficient manner.” These regulations apply to the bulk power supply system.
At the distribution level, discoms are guided by the Standards of Performance regulations, which are notified by state electricity regulatory commissions (SERCs). These regulations define reliability indices – such as the system average interruption frequency index, system average interruption duraction index and customer average interruption duration index – along with more procedural directions for consumer rights and protection, such as time taken by the discom for a new connection, restoration of supply on failure, time to resolve consumer complaints and the like. They also prescribe provisions on compensation to consumers in case the discom fails to meet minimum standards of performance requirements.
Most recently, the Ministry of Power issued the Electricity Right of Power Consumers Rules, 2020, with an aim to ensure a minimum standard of service for the supply of electricity to end consumers. This rule requires state electricity regulatory commissions to develop clear guidelines for discoms to follow for maintaining a 24/7 reliable distribution network. It also directs SERCs to prescribe detailed mechanisms for performance measurement of discoms and suitable compensation for consumers in case of non-performance.
While these directives and regulatory oversight have improved reliability on the bulk power system, the same is not true for the distribution network. What it means is that, although the incidence of regional, large-scale blackouts is rare, the end consumers (especially from rural and peri-urban areas) are nevertheless subject to intermittent and frequent power outages. A 2019 Global Competitiveness Report by the World Bank ranks India at 108th place out of 141 countries on the reliability of electricity supply.
What is not obvious is why, with these directives in place, the discoms do not plan and invest in appropriate measures to improve the reliability of their networks. More so, what inhibits them from deploying cost-competitive and clean distributed energy resources closer to the consumers usage point, which can help them meet their standards of performance?
One may argue that this indifference stems partially from a lack of regulatory will to penalise discoms for non-compliance with the standards. This may derive in part from a lack of public pressure: Given how consumers have internalised a significant share of the reliability costs over the years, expectations that discoms will actually improve reliability across the board for all consumers are low. A third reason, which is probably the most substantial and crucial of all, is the perennial poor financial health of the discoms limits them from making fresh investments that they likely see producing only marginal benefits. Still, they are entitled to earn a regulated return on equity on investment, which reliability-related assets would constitute. But then, with poor balance sheets and tariffs not in line with the cost of service, the inducement of earning returns on capital investments is only good in theory.
In practice, other solutions can fill this missing link. They may include driving investments in more distributed clean energy solutions, such as rooftop PV along with storage on select feeders where reliability is below average. This can be a substitute to a broader and expensive sub-distribution system strengthening. In general, a cost-effective, clean and efficient approach for improving reliability can occur via non-wires alternatives.
Non-wires alternatives are being evaluated by regulators the world over, to solve the local challenges of grid resilience, flexibility and equity. In the Indian context, local non-wires solutions can also help solve the reliability challenge. Such an approach can save ratepayers money and can also lead to a cleaner and more equitable grid, thus reducing emissions from diesel back-up generators and providing an overall impetus to the energy transition pace. These solutions can be implemented at lower costs – cost of distributed clean energy resources have dropped significantly over the last few years while the cost of traditional solutions are increasingly going up – and carry lower risks because the installation and performance of such resources is more stable and reliable than traditional grid-based solutions.
For that to happen, regulators will have to play an active role. That goes beyond setting standards and actually incentivising discoms to explore alternate solutions (which we’ll take up in the next installment in this series). Key takeaways remain: Distribution-level reliability has been poor in India due to lack of investments and the discoms’ lack of innovation in attempting new approaches. This has resulted in customers relying on high-cost and high-emissions solutions, such as self-owned diesel generators and batteries.
This is the first part of a series on reliability. We will update this post with links to the second and third blogs when they are published.
India’s fully synchronised national power grid and ongoing reforms in the wholesale markets have created a perfect foundation for beneficial power trade across Indian states, especially for renewable energy like solar and wind-based power. As renewable energy becomes progressively cheaper, renewable-rich states are in the perfect position to trade with low renewable energy-potential states. While there are challenges in implementing such a system, certain states have a competitive advantage if they act now and either align this opportunity with their industrial policies to either supply the cheapest power to the market, or create the ability to use cheaper power from markets for growth.
This policy brief makes a case to key stakeholders to look towards renewable energy as a commodity for trade and promote it as an industrial policy. We explore the role of wholesale markets in integrating incremental renewable energy in the energy mix. With the help of a stylised case study, we illustrate various macroeconomic impacts of renewable energy trade. The study takes a representative case of Tamil Nadu exporting its cheap, wind-based power, which can help meet the existing non-solar renewable purchase obligations for select northern states — Delhi, Punjab and Haryana.
We find that both renewable energy-exporting and importing states are better off as a consequence of renewable energy trade in a number of ways:
- Incremental investments in wind capacity by Tamil Nadu lead to enhanced direct and indirect demand along with reduction in cost of electricity production.
- The renewable energy-importing northern states of Punjab, Haryana and Delhi benefit due to availability of potentially cheaper electricity and its concomitant positive impacts on state GDP, employment and income.
- Coal-based generation in the power mix goes down in all the states, but the overall macroeconomic impact of the renewable energy trade is positive for both exporting and importing states.