One expert warns that the grid can’t handle even a fraction of what has been promised.
At the RE-Invest 2015 summit in India last month, banks, financial institutions and the private sector offered bold commitments to shift the country’s power supply to clean, renewable resources.
Nearly 300 global companies committed to generate 266,000 megawatts of solar, wind, biomass and mini-hydro within the next decade. The investment is estimated to total more than $300 billion.
The commitment for 266,000 megawatts of renewables are approximately equal to the current total of installed power capacity of India, more than half of which is coal. The Indian government already had an ambitious target of100,000 megawatts of solar by 2022.
What didn’t come along with the remarkable commitments was any explicit roadmap for how the grid would support such a shift in generation, even if just a portion of it actually comes to fruition.
“Even if you get a fraction of what was committed, the grid cannot handle it,” said Rahul Tongia, a nonresident fellow at Brookings India, which has written a report on the challenges of renewable investment in India.
Many experts have pointed to the problems that complicate renewable project development in India, including securing land, offtakers, financing, grid connection and management.
But even if those issues were magically solved, the existing grid simply can't handle the increased intermittent load. India needs an estimated $250 billion investment in the grid in the next five years just to maintain the status quo.
The wrong price signals
Unlike Europe or the U.S., where some regions are seeing renewable penetration heading toward 30 percent or higher, India does not have a true wholesale power market that allows for power to be purchased on an hourly basis. Without wholesale power prices, there is no way for renewable investment to bring down power prices as it has in other places like Germany.
Most of the distribution companies buy power via long-term bilateral agreements, explained Tongia, with zero time-of-day components. Some states use grid frequency as a proxy for supply and demand, he noted, but this approach is largely inadequate.
With no wholesale market, there is no locational marginal price (which values energy, congestion and losses) as there is in the U.S. To complicate matters further, most utilities simply cannot afford the price of new power under any circumstances.
Tongia said distribution companies might pay ₹0.5 per kilowatt-hour for power from a hydro resource that was built by the state decades ago because the cost of the infrastructure is fully paid off. Solar is coming in at about ₹5 per kilowatt-hour and new coal might be ₹4, he said. And while that will become cheaper over time, that may mean "the next two quarters for these utilities,” he said.
A significant financial problem for Indian distribution companies is that many of them are sitting on what are known as regulatory assets, a term for the I-owe-yous that distribution companies are given by the state because they’re not allowed to raise rates on customers. Tongia, who also serves as a technical advisor for the central government’s Smart Grid Task Force, said one utility in New Delhi told him that its total regulatory assets were equal to the company’s annual revenue.
Along with a lack of pricing signals and market mechanisms to encourage investment, there are technical challenges as well. There are essentially no ancillary services for the grid, which are key for balancing grid conditions.
It’s not just a challenge at the distribution level. India will need more transmission lines to usher the kilowatts from large-scale renewable projects to where the energy is needed. There is a plan for "green energy corridors" with a price tag of $7 billion, but “there’s a lot of devil in those details,” said Tongia.
Even if power gets to the location that it is needed, peak load in India is largely in the evenings, and not well matched to the output of wind and solar. At least some renewable projects would need to be matched with energy storage to provide power when it’s needed the most.
A larger conversation
Despite the litany of challenges, renewables are coming, even if it’s far from the hundreds of megawatts being discussed in high-level meetings. Renewables could be the straw that breaks the camel’s back in terms of grid investment and utility market innovation, said Tongia. He suggested another driving factor could also be retail competition, which is being considered in Parliament this spring.
To tackle many of these issues, various stakeholders need to get into the same room. Tongia said people are already talking about ancillary services and building up wholesale markets and solving interconnection issues -- but most of those conversations are happening in silos.
Ideally, any broad conversation would also bring together all of the energy players, and not just the electricity sector, since electrification in India initially displaces kerosene and diesel.
“Like it or not, changes are coming,” said Tongia. “So let’s have a bigger conversation.”
(This news story is from Green Tech Media)