Renewable power has been steadily posing a David-like (of David and Goliath) challenge to polluting coal-fired projects ever since PM Narendra Modi declared the building of 175-gigawatt green capacity by 2022 as the centrepiece of India’s climate pledge. In 2015, the government had come up with a plan to ‘bundle’ solar energy with the then cheaper coal generation to push sales of renewable power through a market-driven approach. The ‘bundling’ mechanism soon became obsolete as renewable energy cost started falling dramatically. The cost of electricity using solar photovoltaic fell to $38 per megawatt hour—14% lower than cost of coal-fired power in 2019—according to consultancy Wood Mackenzie.
A new proposal now seeks to flip the ‘bundling’ scheme by using cheap renewable energy to subsidise costlier coal-fired power to ensure continuous supply. The Ministry of New and Renewable Energy on January 3 proposed ‘reverse bundling’, wherein “high cost thermal power’’ is bundled with cheaper renewable energy to overcome the ‘intermittent-ness’ of green power, and ensure uninterrupted round-the-clock electricity. At a time when coal power generators in the country are evading deadlines year after year to retrofit plants with emission controlling systems, using renewable energy to lower tariff of polluting power counters climate objectives.
The draft policy for round-the-clock electricity via ‘reverse bundling’ stipulates supply of 51% renewable energy with or without energy storage bundled with 49% thermal power component. The tariff for this bundled electricity could work out to be much higher instead of a simple average of cheap renewables and costlier coal supply. There are at least two reasons for this:
> Renewable energy can only be supplied for 6-8 hours, while battery storage plus thermal plants will cover power supply for the remaining 18-14 hours in a day. The cost of battery storage, although falling rapidly, could raise power tariff when supplying for several hours together. The high charge for a fixed amount of standby thermal power capacity needed for bundling will further add to the combined tariff.
Also, if thermal power is bundled with renewable energy without storage, the coal-fired capacity will have to be ramped up and down throughout the day or be shut for a part of the day depending on renewable generation. This may not benefit the coal-fired projects due to inefficient operation.
> The capacity utilisation factor (CUF) of a solar project is only 20%. If 80% power is supplied from thermal capacity, the mechanism is still workable because the coal-fired plants will be utilised to a larger extent. Necessitating renewables to form a 51% share of supply will make bundled power tariff expensive, due to the fixed charges of a large standby coal-fired capacity operated inefficiently.
The inability of power distribution companies (discoms) to buy enough electricity owing to their poor financial health is at the centre of this David-Goliath tussle between renewables and coal-fired power. The aggregate external debt of state-owned discoms is set to increase to Rs 2.6 lakh crore by the end of this fiscal, according to credit rating agency Crisil. Government data shows that discom dues to power generators have increased to over Rs 80,000 crore, of which almost Rs 65,000 crore was overdue by October-end last year. Simultaneously, coal thermal capacity utilisation has constantly been falling throughout the year and stands reduced to merely 50%, as of October.
State agencies have been struggling to find buyers for almost a year for 2.5 gigawatts power from stressed coal-fired units as part of a scheme to facilitate procurement of power from commissioned projects lacking purchase agreements. The tariff under this scheme at Rs 4.41/kilowatt-hour has been perceived as expensive, evoking poor response from buyers. Renewable energy tariff at less than Rs 3/kilowatt-hour, in comparison, is cheaper, and hence, more compelling for discoms to procure. Thus, reverse bundled power will have to face the same test of being attractive to discoms, who cannot be forced to buy it.
To be sure, electricity from renewable sources constitutes only about 10% of the country’s total generation mix, and there is a long way to go in achieving higher green power generation. As per the Central Electricity Authority’s estimates, coal will continue to dominate India’s energy mix constituting 50% of generation by 2030 in spite of its installed capacity being lower than that of renewables. India’s coal demand is expected to grow by more than that of any other country, in absolute terms, by 2024, according to the International Energy Agency. This necessitates mechanisms to ensure more renewable projects come online, especially as India has barely reached the halfway mark in installing the targeted 175 gigawatts by 2022.