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Tim Buckley, Director of Energy Finance Studies Vibhuti Garg, Energy Analyst September 2019
1
Flexing India’s Energy System Through Market Mechanisms A Recipe for India to Achieve a Least Cost, Low Carbon Electricity Market Twice Today’s Size
Executive Summary Indiahassetexceptionallyambitiousrenewableenergytargetsincluding175gigawatts(GW)by2022andrisingto523GWby2030,whichincludes73GWoflargehydrocapacity.Suchtargetsinvariablyencountervariousnewheadwinds.
Thislastyearhasbroughtsomeenergychallengestothefore,includingcentre-statepolicyinconsistencies,makeinIndiavsleastcostmoduleprocurement,andquestionsoverthegrid’scapacitytoincorporatearapidlyrisingvariablerenewableenergy(VRE)penetrationsoquickly.
India’selectricitysupplyhashistoricallybeenlargelycoaldominated,with201GWcurrentlyoperational,representing56%ofcapacityand74%oftotalgenerationin2018/19(Figure1).
Inthelast2-3years,theshareofsolarandwindgeneration,althoughlow,hasincreasedrapidlyto22%ofcapacityand9%ofgeneration(19%includinghydro).
Inthisnote,IEEFAreferencestheproposedtransformationpathwaysofthreeotherleadingrenewableenergyintegrationmarkets;California,GermanyandAustralia,toconcludethatacombinationoftechnologieswillbeneededtomanagepeakdemandrequirementswhilstmaintaininggridstabilityatleastoverallcost.AsperFigure2,thereareagrowingnumberofcountrieswithover20%VREpenetration,withDenmark,whichisstronglygrid-interconnected,leadingtheworldin2018atover50%.
India’sCentralElectricityAuthority(CEA)hasputaheavyemphasisonbatteryenergystoragesystems(BESS),modellingasmuchas34GW/136GWhby2030.WhileBESSisincreasinglycommerciallyviable,deploymentatthisspeedandscaleisunprecedented,bringingassociatedlearning-by-doingcostsandintegrationrisks.
IEEFAWOULDRECOMMENDALOWERRISK,MULTI-TECHNOLOGYFIRMINGSOLUTION,includinginterstateandinternationalgridconnectivityenhancements,pumpedhydrostorage,gaspeakingplants,fasterrampingcoal-firedpower,utility
Significant renewable energy installs require a
combination of technologies will be needed to manage
peak demand requirements whilst maintaining grid
stability.
Flexing India’s Energy System Through Market Mechanisms
scaleanddistributedbatteries,hybridprojects,demandresponsemanagement(DRM),greaterdiversityofgenerationsources,andevensolarthermalwithstorage.
Atime-of-daypricing(TOD)signal,on-demandpeakingsupplycontracts-for-differentwithcontractuallongevity,orsimilarmechanismsarealsoneededtoincentivisecapitalmarketstoopenupinvestmentsinon-demandpeakingcapacity.
Figure 1: India's Electricity Capacity and Generation (2018/19)
Source: CEA, IEEFA Estimates
Figure 2: Share of Electricity from VRE, Top 10 Countries 2018
Source: REN21 Global Status Report 2019
Capacity IncreaseGW % TWh % Utilisation GW vs FY19
Coal-fired 239.8 32.2% 1211.5 51.7% 57.7% 39.1Gas-fired 24.4 3.3% 53.3 2.3% 25.0% -0.6Diesel-fired 0.0 0.0% 0.0 0.0% 0.0% -0.6Hydro 63.4 8.5% 183.4 7.8% 33.0% 18.0Nuclear 11.9 1.6% 74.1 3.2% 71.2% 5.1Renewables 405.0 54.4% 789.6 33.7% 22.3% 327.2Bhutan/Nepal n.a. n.a. 31.2 n.aTotal 744.5 100.0% 2,343 98.7% 388.2Battery Storage 34.0Captive power 51.4Total 795.9
---- Capacity ---- -- Generation --
Flexing India’s Energy System Through Market Mechanisms
Table of Contents
ExecutiveSummary.................................................................................................................1
India’sPeakingSupply:TechnologyAlternatives.......................................................4
InternationalElectricitySectorCaseStudies................................................................7
APriceSignaltoIncentivisePeakingSupply.............................................................12CapitalRequirements...........................................................................................................13
Conclusion.................................................................................................................................14AboutIEEFA.............................................................................................................................15
AbouttheAuthors.................................................................................................................15
Table of Figures
Figure1:India'sElectricityCapacityandGeneration(2018/19).......................2
Figure2:ShareofElectricityfromVRE,Top10Countries2018.........................2Figure3:India'sElectricityCapacityandGeneration(June2019)..................14
Flexing India’s Energy System Through Market Mechanisms
India’s Peaking Supply: Technology Alternatives Indiahassetambitiousrenewableenergytargetsincluding175gigawatts(GW)by2022risingto523GWby2030,whichincludes73GWoflargehydrocapacity.
India’s2019CentralElectricityAuthority(CEA)paper1assumes34GW/136GWhofbatteryenergystoragesystems(BESS)willbeneededtobalanceandfirmtheever-increasinggridsupplyofVREthatresultsfrommeetingtheambitioustargetof523GWofrenewableenergyby2030.
Thereisahugegapbetweenwhatislikelytobecommerciallyfeasibleoverthecomingdecadeandthesmallscaleoffacilitiesinoperationsofar.Forinstance,India’slargestoperationalBESSistheTataPowerDelhiDistributionLimited(TataPower-DDL)10MWhfacilitycommissionedinFebruary2019.
WhilethepaceofchangeinBESSisstaggering,thelearningbydoing,thesupportivescaleofmanufacturingrequired,andthetechnicalsupportinfrastructureneededissimplynotyetinplacetofacilitate34GWbythe2030target.
BloombergNewEnergyFinance(BNEF)highlightsglobalbatterypriceshavefallen85%since2010.2IEEFAexpectsafurtherhalvingoverthecomingdecade.Theconvergenceofelectrificationtechnologiesinthepower,transportand(potentially)industrialsectorsarecombiningtodriveinnovationandscaleaheadofmostexpectationsglobally.
Batteries,bothdistributedutility-scaleon-gridandsmallscalebehind-the-meter,areexpectedtoproliferateandprogressivelyreplaceexpensive,polluting,noisy,importdieselgenerators.
Whilebatteriesareanewtechnologyintermsofstationarypowerandgridapplications,theevidenceto-dateisoverwhelminglypositive.Thepaceoftechnologicaldevelopmentmeansbatteriesarehighlylikelytoplayakeybalancingroleasvariablerenewableenergy(VRE)penetrationincreases.
Theinternationalexperienceoverthelast2-3yearssuggestsexponentialbatteryuptakeforsometimeyet(referbelow),butnotsufficienttogivehighconfidencethattheCEA’sambitiousnew34GWby2030targetcanbeachievedatsuchspeed.
1India’sCentralElectricityAuthority(CEA),Draftreportonoptimalgenerationcapacitymixfor2029-30.2BloombergNewEnergyFinance,EnergyStorageInvestmentsBoomAsBatteryCostsHalveintheNextDecade,31July2019.
Global battery prices have fallen 85% since 2010. IEEFA
expects a further halving over the coming decade.
Flexing India’s Energy System Through Market Mechanisms
TataPower’sJuly2019announcementforaUS$600mlithium-ionbatterymanufacturingplantintheDholeraSpecialInvestmentRegion(DSIR),Gujarat,isanimpressivecommitment.3
ItislikelyjustthefirstofseveralinitiativestosupporttheGovernmentofIndia’s(GoI)2014“MakeinIndia”strategyintheenergysector,locallyinvestinginkeygrowthindustriesofthefuturetomaximiseverticalintegrationbenefits.
GIVENINDIA’SAMBITIOUSVRETARGETS,IEEFAWOULDRECOMMEND:
• Implementationoftime-of-dayorcontracts-for-differencepricingtoincentivisefirmingpowersupplyonamulti-technologyapproachtofuturegridstability;
• Interstateandinternationalgridconnectivityenhancements,notingabroadercoveragebothsomewhatsmoothsVREsupply,assistsingridintegrationandbalancing,andopensupinternationalBIMSTEC4gridconnectivityoptionsaswell;5
• Acceleratingdeploymentandretrofitsofpumpedhydrostorage(PHS)capacity,bothonexistinghydroelectricitydamsandclosedloop“off-river”systems;6
• Fasterrampingcoal-firedpowerplants;
• Co-locatedwind-solar-batteryhybridprojects;7
• Gaspeakingplants,givenIndiahas25GWofstranded‘baseload’gasplantsalreadybuilt,withinsufficientfuelaccessandaninabilitytosecureasufficienttariffwhencompetingwithleastcostrenewableenergy;
• Utility-scaleanddistributedbatteries;
• Demandresponsemanagement(DRM)toshiftenergyconsumptionfromthepeakhoursinthe24hourday;and
• Solarthermalwithstorageinthelongertermasthistechnologycostdeclines.
GivenIndiahasalreadyinvestedin201GWofcoal-firedpowerplantsnowoperatingwithsub-optimalplantloadfactors(PLFs)of~60%,andwithafurther85GWofnewcoalplantproposalsinthepipeline,IEEFAalsoseesmeritinexpeditingtheintroductionoffasterrampingcoal-firedpowertechnologiesasabalancetoleastcostbutvariablerenewableenergy.
3EconomicTimes,TataGrouptosetupRs4,000crlithium-ionbatteryplant,12July2019.4BIMSTEC:TheBayofBengalInitiativeforMulti-SectoralTechnicalandEconomicCooperation5IEEFAIndia:Gridinvestmentneedstomatchenormousgrowthinrenewableenergyinvestment,21January2019.6IEEFA,PumpedHydroStorageinIndia,March2019.7UtilityDrive,Solar+wind+storagedevelopers'gearingup'ashybridprojectsedgetomarket,9July2019.
Flexing India’s Energy System Through Market Mechanisms
InAustralia,AGLEnergyhaspioneeredfacilitatingfasterrampingcoal-firedpoweratlimitedcapitalcostinanapproachingend-of-lifeplant-its2.0GWcoalplantatLiddell,NewSouthWales-bydiallingdownexpectedaverageutilisationratesandintroducingnewoperationalprocedures(includingbettercommunicationwiththegridoperator).8
DRMislikelytoproveacost-effectiveandcriticallyimportantsolutionwithamultitudeofapplications.AsdiscussedintheGermanysectionbelow,aluminiumsmeltersareextremelylargeusersofelectricity,withtheeightaluminiumsmeltersinIndiaaccountingforalmost60terawatthoursannually.Withnewcost-effectiveretrofittingtechnology,energymodulationofthemagnitudeof+/-30%allowssmelterstobeusedasavirtualpowerplant(VPP)orvirtualbattery,modulatingdownenergyusewhenthereisexcessivedemandonthegrid,andmodulatingupenergyusewhenthereisexcessivesupply.Theproponentsofthistechnologyestimateatotalretrofitcostfor8smeltersofUS$400m,afractionoftheUS$2bncostofanequivalentbatterysystem,withtheaddedbenefitofnotimelimitation.
AgreaterdiversityofgenerationsourceswillalsohelpmanageVRE.
TheGoIislookingtoaccelerate10GWoflong-stalledhydroelectricityinitsmediumtermplans,9withnearly100GWofuntappedelectricitypotential,admittedlyrequiringalonglead-timeduetotheexpensive-to-accessremoteHimalayanlocations.GivenNationalHydroPowerCorporation’saveragetariffsareRs3.34/kWh,thisisentirelycost-competitivewhendiversificationandtime-of-dayflexibilitybenefitsarecostedin.10
Theproposedgap-fundingofUS$900mforthefirst1GWofoffshorewindproposedforGujarat11islikewiseaboldmovetoprogressivelyopenupthispotentiallyhuge,new,sustainable,zeroemissions,zeropollution,domesticenergyresourceforIndiaoverthecomingdecade.12ThiswillprovideadditionalgenerationsupplydiversitytohelpmanageVREgridintegration.IEEFAcommendstheGoIforcarefullyproceeding.Thistechnologywilllikelyseecostshalveby2025.
Internationalexperienceshowsamorediverse,predominantlydomestic-sourcedgenerationfleetwillprovidegetterenergysecurityandimproveflexibilitytomanagetime-of-dayandseasonalsupplyanddemandvariabilitybetter.
8AGLEnergy,NSWGenerationPlan,18July2018.9BusinessStandard,Centretomovepolicytopromotehydropowerwithunitsof10GWcapacity,5December2018.10Livemint,IshydropowerbackinplayinIndia'senergymix?10August2019.11RechargeNews,Indialinesup$900m'gapfunding'forfirstoffshorewindfarm,28June2019.12Platts,Europe'soffshorewindindustryexpandingintoAsia:event,25June2019.
Flexing India’s Energy System Through Market Mechanisms
International Electricity Sector Case Studies IEEFAdrawsuponthreeinternationalcasestudiesincludingCalifornia,13GermanyandAustraliatohighlightvariousleadingtechnologiesandadaptivemarketstructuresdesignedtomanagetheincreasingshareofVREintheelectricitymix.Foramorecomprehensivereview,pleaserefertoIEEFA’s2018study:‘HereandNow’—NineElectricityMarketsLeadingtheTransitiontoWindandSolar.
California is Targeting 60% Renewables by 2030 and 100% Carbon-free Electricity by 2045 California,thefifth-largesteconomyintheworld,hasbecomeagloballeaderinrenewableenergy.Withrenewablessupporting34%ofthestate’stotalenergyneedsin2018(twoyearsaheadofthe33%by2020mandate14),thecommunityhascalledforanevengreatercommitmenttocleanenergyasanessentialbenchmarkfortheeconomicsuccessofthestate.
InAugust2018,CaliforniaenactedSenateBill100,settingatargetof100%carbon-freeelectricityby2045.AngelinaGaliteva,vicechairoftheCaliforniaIndependentSystemOperator(ISO)whichoverlookstheenergymarket,seesthetaskofreachingthe100%renewableenergytargetasentirelyachievable.15
TheSenateBillmandatedamoveto60%renewablesby2030,withallnewhousestohavesolarby2020andcommercialbuildingsby2025.WenotedistributedrooftopsolarinCaliforniaisalsoplayinganincreasinglyimportantroleinmitigatingmiddaydemandpeaks.
In2018,California’sPacificGasandElectricCompany(PG&E)launchedconstructionoftheworld’stwolargestutility-scalebatteryprojectsto-date.Theyincludea300MW/1,200MWhprojectbyVistraEnergyanda182.5MW/730MWhproject(bothtobesuppliedbyTesla),16nearlythreetimesthesizeofthelargestlithiumbattery-storagefacilitycurrentlyinoperationinSouthAustralia(Tesla’sHornsdalePowerReserveat100MW/129MWh).
InJune2019,theLosAngelesDepartmentofWaterandPower(LADWP)signedapowerpurchaseagreement(PPA)with8minuteEnergyfortheproposed400MWElandsolarprojectatUS1.997c/kWh(zeroescalatorfor25years),including200MW/800MWhofenergystorageatanadditionalUS1.3¢/kWh.17Thislandmark
13IEEFAupdate:HowCaliforniabecameagloballeaderinrenewableenergy,11April2019.14CaliforniaEnergyCommission,CaliforniaOnTrackWith2020RenewableEnergyGoal,22February2019.15RenewEconomy,EnergyInsidersPodcast:100percentrenewables–IsCaliforniadreaming?20February2019.16GTM,PG&EProposesWorld’sBiggestBatteriestoReplaceSouthBayGasPlants,2July2018.17PVMagazine,LosAngelesseeksrecordsettingsolarpowerpriceunder2¢/kWh,28June2019.
California is right on track to reach its 100% renewable
energy target.
Flexing India’s Energy System Through Market Mechanisms
transactionsawa15%reductiononthepreviousrecordlowsetinJune2018atUS2.3c/kWh(again,withazeroescalator).
InJune2019,GeneralElectriccloseditsCaliforniangas-firedpowerplantcommissionedonlyadecadeearlier,one-thirdofthewaythroughitsengineeringlife18andtakinganestimatedUS$700mwritedownintheprocess.
IEEFAnotestheinevitablestrandedassetnatureofIndia’s25GWofbaseloadgas-firedpowerplants.Alreadyintheworld’slowestpricegasmarket,VREiscombiningwithbatteriestochallengebaseloadgasplantviability.
Theabilityofexpensiveimportedliquifiednaturalgas(LNG)toplayanythingotherthanaback-uppeakingpowerroleinIndiaisrapidlydiminishingintothenon-economicrealmsofnowobsoletetechnologyideasthatsoundedlogicalatthestartofthedecade.
In Germany, Renewables Reached a Record 77% Penetration in May 2019 Renewableenergyhascontributedarecord47.2%ofnetelectricitygenerationacrossGermanyyear-to-datetoJuly2019(withVREat34.6%plushydroat4.1%andbiomassat8.6%).
Anewmonthlyrecordhighof54.6%oftotalgenerationwassetinMarch201919whilerenewableenergycontributedarecord77%ofelectricitydemandinGermanyforonedayinMay2019(andover100%forthefivehoursbetween11amto4pm).
Germanyisconsistentlysettingnewrecords.The47.2%achievedto-datein2019representsasignificantincreasevsthepreviousannualrecordsetin2018at40.6%.Germanyiswellontracktoachieveitstargetofgenerating65%ofitselectricityfromrenewablesourcesby2030,20andontherighttrajectorytoreach100%by2050(thattargetwassetbackin2010).21
InternationalgridconnectivityisakeybalancingfacilitatorofGermany’srapidlyrisingVREshare.In2018,Germanyhadanetexportsurplusof49TWh(80TWhofexportsless31TWhofimports)ofelectricitybringingin€1.8bn.France,theNetherlands,SwedenandtheCzechRepublicarethefourprimarymarkets.
Germanyisalsooneoftheleadingbatterystoragemarketsglobally.Bytheendof2018,
18Reuters,GeneralElectrictoscrapCaliforniapowerplant20yearsearly,22June2019.19FraunhoferISE,NetpublicelectricitygenerationinGermanyin2019,2019.20Reuters,Germanyneedstoeaserulestohit2030renewablestarget,19June2019.21TheGuardian,Germanytargetsswitchto100%renewablesforitselectricityby2050,8July2010.
Germany is on track to achieve its target of
generating 65% of its electricity from renewable
sources by 2030.
Flexing India’s Energy System Through Market Mechanisms
some120,000householdsandcommercialoperationshadalreadyinvestedinsolarintegratedbatterysystems.Thisisexpectedtoaccelerate,asretailgridparityofsolarplusstoragewasachievedbytheendof2018.22Cumulativeinstallsoflarge-scalebatteriesacrossGermanymorethandoubledin2019toreach371MW(adding199MWin2018).Beyondcost-reductions,technologicalbreakthroughscontinue,withtheexpectationthattheenergydensityofbatterypacksshouldincrease50%between2016-2025.
Additionally,Germanyisexploringhydrogenandrenewableenergy-to-gastechnologydevelopmentsforlongertermstorageanddemand-supplymanagement.TheGermangovernmentistrackingcorporateplansforover€2bnofhydrogenmobilityinvestmentby2024.
Germanyisalsoundertakingtheworld’sfirstcommercialscaledeploymentofDRMtechnologiesinthealuminiumsmeltingindustry(whichaccountsfor5%ofworldelectricitydemand).TheTRIMETsmelterinEssenhasbeenretrofittedtoallowenergydemandtobeincreasedordecreasedbyupto30%fromnormaloperatingamperage,theequivalentofavirtualbatteryof2,000MWh.23
Itisearlydays,butwithincreasedVREpenetrationtoover65%by2030,DRMisgoingtoneedtoplayacriticaldemandsiderole.
Australian Renewable Energy Contributed 23% of Generation Renewableenergycontributed23.1%oftotalgeneration(includingrooftopsolarat4.5%andhydroelectricityat7.3%)acrosstheAustraliannationalelectricitymarket(NEM)inthetwelvemonthstoJuly2019.
SouthAustraliaistheleadingrenewableenergystateinAustralia,withVREgenerating48.9%oftotalgenerationinthesame12-monthperiod.24SouthAustraliahasa10GWpipelineofnewrenewableenergyprojectsunderwayplusalmost4GWassociatedstorageprojects,puttingitwellontrackforanet100%renewablesby2030target.25
TheAustralianEnergyMarketOperator(AEMO)isproactivelymanagingthedevelopmentoflongtermthinkingwithitselectricityIntegratedSystemPlan(ISP),26notingend-of-lifeclosuresofmostAustraliancoal-firedpowerplantsoverthecomingtwodecades,andhencetheinevitableincreaseinleast-costVRE.
DespitethelowpopulationdensityofAustralia,inter-stategridconnectivityplaysanimportantroleinbalancingthegrid.TheISPincludesamorethandoublingofgridcapacityoverthecomingdecade,tofacilitateatreblingofVREandtoaccesssignificantnewPHScapacityforbalancing,particularlyformedium-andlong-termseasonalrequirements.NewlinksbetweenSouthAustralia-NewSouthWales
22GermanyTrade&Investment,TheEnergyStorageMarketinGermany,2019.23LightMetalAge,TrimetStartsTrialOperationofits“VirtualBattery”,10June2019.24OpenNEM,EnergySouthAustralia,webpageaccessed19August2019.25RenewEconomy,SouthAustraliahas10GWwindandsolarinpipelineasitheadsto100%renewables,23July2019.26AustralianEnergyMarketOperator,IntegratedSystemPlan,2018.
Flexing India’s Energy System Through Market Mechanisms
(NSW),Victoria-NSW,Queensland-NSW,andasecondsubsealinkforTasmania-Victoria,havebeenputforwardforacceleratedevaluation.
AustraliaisevaluatingamassiveexpansioninPHS.ThelargestprojectsaretheUS$4bnSnowy2.0proposalof2,000MW/350GWh27andtheHydroTasmaniaBatteryoftheNationproposalofupto2,500MW/30GWh.28Inaddition,therearenumerousdistributedPHSprojectsbeingdevelopedbyprivateindustry.MostadvancedoftheseistheGenexPower250MWoff-riverPHS,supportedby250MWofsolaratthenowclosedKidstongoldmineinfarnorthQueensland.FundingisnowinplacefollowingcompletionofaA$610m(US$425m)debtfacilityinJuly2019.29AEMOmodels4.1GWofadditionalPHStobeoperationalacrossAustraliaby2030,and14GWoftotalstoragerequiredby2040.30
Australialeadstheworldindistributedresidentialrooftopsolarsystemsandisontrackforarecord2GWofrooftopsystemstobeinstalledin2019alone,takingthecumulativetotalto10GW.
Incontrasttotheheavycommercialandindustrial(C&I)emphasisinIndia,Australiaisstilloverwhelminglyfocussedonresidentialrooftopsolarsystems(at10GW),reflectingamirrorreversalofthetariffpricingstructureinIndia(Australianresidentialtariffs(atUS$200/MWh)aredoublethatpaidbyindustry).Fromasmallbase,AustralianC&Iinstallsalmostdoubledin2018toreachacumulative270MW.31
LikeGermany,AustraliaisrapidlyenhancingtheUS$10bninvestmentto-dateinrooftopsolarwithtime-of-usepricingsupportedbysmartmetersandbehind-the-meterbatterystorage.InSeptember2018,Victorialaunchedaprogramtoincentivise10,000residentialstoragesystems,32buildingona50,000solarandstoragesystemsprograminSouthAustralia.33
InDecember2017,SouthAustraliacommissionedNeoen/Tesla’sHornsdalePowerReserveat100MW/129MWh,thelargestBESSgloballyatthetime.Aninitialsystemevaluationstudyconcludedtheprojectwasverysuccessfulindeliveringonthe
27SnowyHydro,AboutSnowy2.0,webpageaccessed19August2019.28ARENA,BatteryoftheNation–TasmanianpumpedhydroinAustralia’sfutureelectricitymarket,June2018.29NorthAustraliaInfrastructureFacility(NAIF),NAIFFACILITYBOARDAPPROVESINVESTMENTDECISIONFORUPTO$610MOFCONCESSIONALDEBTFUNDINGFORTHEKIDSTONPHSPROJECT,11July2019.30AEMO,Buildingpowersystemresiliencewithpumpedhydroenergystorage,July2019.31TheAustraliaInstitute,NationalEnergyEmissionsAudit,May2019.32VictorianGovernment,CheaperElectricityWithSolarBatteriesFor10,000Homes,11September2018.33SouthAustralianGovernment,Solarphotovoltaicsystemsandbatterystorage,2018.
Australia is rapidly enhancing the US$10bn investment to-
date in rooftop solar with time-of-use pricing, supported by smart meters and behind-
the-meter battery storage.
Flexing India’s Energy System Through Market Mechanisms
SystemIntegrityProtectionSchemeandincontributingtotheFrequencyControlAncillaryServices(FCAS).34TheresultsfromthefirstyearhighlightedtheexcellentsavingsintermsofgridservicescostspaidbytheSouthAustralianconsumer,andalsothe‘aboveexpectations’financialresultsfortheBESSowner,Neoen(generatingagrossreturnoninvestmentof20-30%).35
Australiahassubsequentlycommissionedgrid-scaleBESSinVictoriaatBallarat(30MW/30MWhbyFluence)andatGanawarra(25MW/50MWh).36IndustryisnowintegratingBESSintoanumberofnewVREdevelopments.InJuly2019thelatestproposalwasannounced,a200MWsolarprojectsupportedbya100MW/300MWhbatteryinSouthAustralia.37
BuildingupontheproposedNEMsettlementperiodshorteningfrom30to5minuteintervalsfrom2022,38inJuly2019theAustralianEnergyMarketCommissionreleasedadraftproposaltoallowforamuchwiderparticipationofDRMinthewholesaleelectricitymarket,againfrom2022.39ThenewsystemallowsC&Ielectricitycustomerswillingtoreducetheirpoweruse,toselltheirdemandreductionintothegridthroughanewthird-partybody.Thatbodywillbidtheirelectricityintothemarketaswholesalepricespeak,andwithgridpriorityoverexistinggenerators.Ineffect,the"negawatts"availablefromenergyusers–whoaresavingenergy–wouldbecompetingagainstthemegawattsabletobesuppliedbygenerators.40
GivenAustraliaoperatesawholesalepricingmarketthatcanrangefromanegativeA$1000/MWhfloortoapeakofA$14,000/MWh,theintroductionofDRMtechnologiesislikelytoplayakeyroleincriticalpeakpowermanagement(especiallyforthemostdifficult10-20hoursannually).41
34AEMO,InitialOperationoftheHornsdalePowerReserveBESS,April2018.35RenewEconomy,DeepdiveintofirstyearofTeslabigbatteryatHornsdale,7December2018.36VictorianGovernment,BatteriesandEnergyStorage,2018.37RenewEconomy,AlintasignsupforhugesolarandbatteryprojectinSouthAustralia,18July2019.38RenewEconomy,GarnautslamsAEMCmovetodelay5-minutesettlementswitch,5September2017.39RenewEconomy,Newdemandresponseruletoerodemarketpowerofgeneratorcartel,18July2019.40AustralianFinancialReview,How'negawatts'couldhelpbusinessescuttheirpowerbills,18July2019.41AEMO&EnergyNetworksAustralia,OpenEnergyNetworks,RequiredCapabilities,July2019.
Flexing India’s Energy System Through Market Mechanisms
A Price Signal to Incentivise Peaking Supply in India IEEFAnotestheneedforcreatinganeffectivemarketsignalviaatime-of-day(TOD)pricingstructure.Thiswouldincentivisefirmingofflexiblesourcesofgeneration,42andprovidebankablepricesignalsforon-demand,flexible,peakingpowersupply,therebybalancingpeakpowersupplyandpeakdemand.SuchamovewouldbuildonthereverseauctionsuccessinVRE.
WithIndiaprocuringever-moreverylowcostbutvariablerenewableenergy,electricityproductiontariff(pricing)structuresneedtobebetteralignedtoincentivisefasterrampingandflexiblepowergeneration.Thisisimportantindeliveringatleastcostonintermediateandpeakingpowerneeds,whilealsoprovidinggridstabilitywiththeincreasingshareofVRE.Suitablesupplysidepricingstructuresneedtobeevolvedtobetterincentiviseflexiblegenerationsolutions.Further,asademandsideresponse,time-of-daysmartmeteringandpricingstructuresforconsumersalsoneedtobeevolvedforpeakloadmanagement.
Additionalvariables,suchasenergyefficiencytechnologies,seasonalchangesintemperature,andthegrowinguseofairconditioners,suggesttheshape/width/magnitudeofIndia’sloadcurvewilllikelyundergochangeintothefuture.
Forinstance,aspertheInternationalEnergyAgency’s(IEA)WorldEnergyOutlook2018,thenumberofhouseholdsinIndiaowninganairconditioner(AC)increasedby50%inthelastfiveyears.By2040,two-thirdsofhouseholdsareprojectedtoownanACunit,astaggering15-foldincreasefromtoday.Whiletheshareofcoolinginelectricitysystempeakloadsis~10%in2016,thissharewilllikelyincreasetoover40%by2040undertheIEA’sNewPolicyScenario,alteringtheshape/width/magnitudeofloadcurvesubstantially.
ThecurrentpricingsysteminIndiaisalargelyflattariffprovidinglittleincentivefornetworkorconsumerefficiencythroughloadsmoothing.IfIndiatookintoaccountthedifferentcategoriesandtypesofenergydemand,andthevariationsinsupplyandcostsofservice,itwouldlikelybringefficiencygainsfromdifferentialpricingatpeakperiods.
Betterconsumerpricesignalsduringpeakperiodswillincentivisetheuseofenergyduringperiodsoflowdemandandreducetheburdenonthegrid,whileaToD
42IEEFAIndia,FlexingIndia’sEnergySystem:MakingtheCasefortheRightPriceSignalsThroughTime-Of-DayPricing,8January2019.
Better consumer price signals during peak periods will incentivise the use of
energy during periods of low demand and reduce the
burden on the grid.
Flexing India’s Energy System Through Market Mechanisms
pricingsignalwouldbetterincentivisevariablegeneration‘kickingin’attimesofpeakdemand.
WenotethepositiveprogressatIndia’sCentralElectricityRegulatoryCommissioninworkingtowardsreformingtheenergymarkets,includingtheproposaltochangethemarketdesigntoshifttowards:morecentralisednationalproductionandeconomicdispatchofelectricityinaday-aheadmarket;43areal-timeenergymarketwithgateclosure(onehourbeforethetimeofoperation);andafurtherstrengtheningoftheexistingancillaryservicesframeworkandgraduationtoamarket-basedmechanism.44Furthermore,oncethehourlymarketmatures,Indiacouldthinkofreducingthegateclosuretimeto15minutes.Thiscouldgeneratesignificantcostsavingsforthenationalsystemasawhole.Further,TODpricingwillprovidetherightpricesignalsforthecreationofbalancingcapacity,whileprovidinggridstability,subjecttosufficientinterstategridtransmissioncapacitybeingestablished.
Capital Requirements IEEFAhasanalysedthelikelyrequirementsforsourcesofcapitaltofundtheambitious2030visionforIndia.Theexpansionto523GWofrenewableenergyincludinghydroelectricitymeanstheinstallationof400GWofnewzero-emissionscapacity.
OverUS$700billionofnewinvestmentwillbeneededtodeliverIndia’stotalnewgeneratingcapacity,aswellasgridtransmissionanddistributioncapacityacrossIndiaby2030.Thiswillrequireadramaticupscalingofdomesticandinternationaldebtandequitycapacity.
WhileIndiacurrentlyhasanother85GWofcoal-firedpowerplantsunderconstructionoratvariousstagesofplanning,45currentcommissioningratesofcoalhavedroppedby80%fromthe20GWnetannualadditionsevidentinthefouryearsto2015/16,tojust3GWin2018/19.
IEEFAemphasisescapacitystudiesneedtolookatbothnewcommissionsandend-of-lifeplantclosures,giventheCEAestimates46GWofcoalplantclosuresby2026/27(4-5GWpa).
TheJune2019quartersawjust45MWofnewthermalpowerplantadditions(wellbelowtheCEAexpectationsof1.2GW)(SeeFigure2),whileVREinstallsof2.82GW
43CERC,DiscussionPaperonMarketBasedEconomicDispatchofElectricity:Re-designingofDay-aheadMarket(DAM)inIndia,December2018.44CERC,DiscussionPaperOnRe-designingAncillaryServicesMechanisminIndia,September2018.45GlobalEnergyMonitor,July2019.
Over US$700 billion of new investment will be needed to deliver India’s total new generating capacity as well
as grid transmission and distribution capacity.
Flexing India’s Energy System Through Market Mechanisms
arerunningatfortytimesthisrate.IEEFAnotesthisinstallrateneedstotrebletoputIndiaontrackforits523GWby2030target.
Figure 3: India's Electricity Capacity and Generation (June 2019)
Source: CEA, MNRE, IEEFA Estimates
Conclusion India’selectricitysystemtransformationandconcurrentmovetoaccelerateanddeepentheambitious100%electrificationtargetisexceptionallyambitious.
Plansfor523GWofrenewableenergyby2030andconcurrenttargetsfor34GWofbatterystorageareimpressiveandworldleading.
Itfulfilstheneedtoenhanceenergysecuritybyreducingover-relianceonexpensiveimportedfossilfuels.
Indiaissettotakeonagloballeadershiproleinbuildingalowemissions,leastcostelectricitysystemofthefuture,leapfroggingnowoutdatedtechnologies.
However,withtransitioncomesinvestmentandimplementationrisks,andtheneedtomoverapidlytoensuremarketandregulatorystructureskeeppacewiththerapidtransformation.
Source Mar 2019 Jun 2019 Change (GW)
Renewables 77.6 80.5 2.82Large Hydro 45.4 45.4 0.00Nuclear 6.8 6.8 0.00Thermal 226.3 226.3 0.05Total Ongrid Capacity 356.1 359.0 2.87
Flexing India’s Energy System Through Market Mechanisms
About IEEFA TheInstituteforEnergyEconomicsandFinancialAnalysisconductsresearchandanalysesonfinancialandeconomicissuesrelatedtoenergyandtheenvironment.TheInstitute’smissionistoacceleratethetransitiontoadiverse,sustainableandprofitableenergyeconomy.www.ieefa.org
About the Authors Tim Buckley TimBuckley,IEEFA’sdirectorofenergyfinanceresearch,Australasia,has25yearsoffinancialmarketexperiencecoveringtheAustralian,Asianandglobalequitymarketsfrombothabuyandsellsideperspective.Timwasatop-ratedequityresearchanalystandhascoveredmostsectorsoftheAustralianeconomy.Formanyyears,Timwasamanagingdirector,headofequityresearchatCitigroup,aswellasco-managingdirectorofArkxInvestmentManagementP/L,agloballistedcleanenergyinvestmentcompanythatwasjointlyownedbymanagementandWestpacBankingGroup.Vibhuti Garg VibhutiGarg,anIEEFAenergyeconomist,hasadvisedprivateandpublicsectorclientsoncommercialandmarketentrystrategies,investmentdiligenceonpowerprojectsandtheimpactofpowersectorperformanceonstatefinances.Shealsoworksoninternationalenergygovernance,energytransition,energyaccess,reallocationoffossilfuelsubsidyexpendituretocleanenergy,energypricingandtariffreforms.InadditiontoIndia,shehasworkedinNepal,Bangladesh,VietnamandintheCaucasus.