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Tim Buckley, Director of Energy Finance Studies Vibhuti Garg, Energy Analyst September 2019

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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 --


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


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.


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.


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.


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.


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.


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.


(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.


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.


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.


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.


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


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.