India’s insatiable appetite for electricity and the government’s push for clean energy have meant sunny times for solar power. Plunging solar tariffs—including a record-low bid of Rs3.3/kWh (kilowatt hour) recently—augur well.

So much so that solar power has reached, or is reaching, grid parity in terms of direct cost compared with the all-India average power purchase prices of distribution utilities. That’s encouraging, given the ambitious solar capacity installation target of 100GW (gigawatts) by 2022. But the thing to remember is that solar power cannot be viewed in isolation. We need to assess the phasing and timeline of the 100GW target in a holistic manner through an integrated energy policy. Else, India will remain a power paradox, with vast swathes of the country reeling under power cuts in times of surplus power generation. Essentially, the following areas need to be addressed:

Integrated power demand and supply scenario

Although, as per the Central Electricity Authority (CEA), the country had a marginal deficit during fiscal year 2017, the number does not include the uncontracted stranded capacity, estimated at 25-30GW. Including this would mean a surplus of ~10% even during peak times. CEA expects this situation to continue for the next five years, given the quantum of planned capacity addition.

However, the surplus story finds few takers given the stark reality of many states witnessing four-to-five-hour-long outages and with a massive back-up captive generation. This is largely due to distribution utilities’ unwillingness to procure power but to resort to power cuts. Moreover, we need to further revise demand assessment after including the government of India’s target of electrifying all households by 2019 and providing 24 hours power supply to a majority of consumers. Hence, the solar capacity addition plan needs to be integrated with the power situation based on the supply requirement (without a significant surplus or without stranded capacity of power generation).

Integrated plan to meet peak demand

A critical issue with solar power is that the generation profile fails to match the peak demand profile. Therefore, matching the peak requirement and the cost of peak capacity need to be assessed and included in the plan. Currently, there are varying estimates on the “additional" cost of meeting peak power demand, ranging from Rs3/kWh to Rs5/kWh.

This is when the cost of a combined cycle plant is compared with an open cycle plant, which is essentially driven from an increase in the station heat rate from ~1800 kcal/kWh (for the combined cycle) to ~3300 kcal/kWh (for the open cycle). Kilocalorie (kcal) is a unit of power.

With batteries/storage an expensive proposition, increasing the share of solar requires greater balancing in the hydro/gas power requirement to meet the variability and peak demand. Therefore, the plan to meet peak power demand—either supported through batteries or through hydro/gas—needs to be integrated with the annual capacity addition plan for solar power.

Besides, regulators need to quicken the process of adopting the National Tariff Policy provisions by moving towards separate peak and off-peak tariffs in a time-bound manner. They must also enable time-differentiated generation (different fixed charges for generation availability during peak and off-peak periods) and transmission tariffs (different fixed charges for transmission availability during peak and off-peak periods).

Integrated grid management plan

Third, there is a limit to how much infirm solar power a local grid can support owing to stability issues. While most capacity addition in solar has taken place at the state level, this needs to be dovetailed with interstate transactions. An integrated plan is essential, one which evaluates the impact of solar capacity addition on transmission charges in the context of excess cost on other forms of power generation. Considering ~20GW of interstate solar transactions, this impact is estimated to close to 15-25 paise per unit.

Integrating all efficient form of generations

As per the Draft National Electricity Policy, thermal plant load factors (PLFs) under the renewable capacity addition scenario of 175GW will be ~48%. Obviously, a 175GW target for renewable energy in a scenario of lower PLFs is not a recommended situation for efficient supercritical thermal plants. Therefore, we need to develop an overall integrated power market that provides these efficient plants opportunities to run at full capacity.

A potential solution is to plan the early decommissioning of highly inefficient older plants. In its report on the replacement of old and inefficient subcritical units, CEA had identified old plants (>25 years life) generating ~33GW that can be considered for one of the three (Rs)—retirement, renovation and modernization (R&M), or replacement with supercritical units.

Instead of investing in new supercritical units or going in for a fresh R&M as regards the older units, we can replace the procurement from these inefficient units with already commissioned or under-construction stranded efficient supercritical capacity. This may be undertaken via transparent bidding by the same procurer holding power purchase agreements with these old plants. This would not only help distribution utilities cut power purchase cost, but also help integrate stranded supercritical capacity with the annual solar capacity addition plan.

Vivek Sharma is Senior director, energy and natural resources at CRISIL Infrastructure Advisory.

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