India has given electricity generation companies the flexibility to replace thermal power and hydropower with renewable energy under existing long-term supply pacts, a move that’s aimed at boosting demand for cleaner power.
The new norms by the Ministry of Power allow power producers to bundle solar and wind power from plants within the same premises or 100 kilometres of a project, according to guidelines announced recently. Tariffs will vary based on the location of the renewable projects.
The norms are the latest move to boost demand for green energy in a nation with some of the world’s most polluted cities. In June, India proposed a nation-wide short-term power trading mechanism where supply from generators quoting the lowest pricing would get sold first. While it’s applicable for all kinds of power, BloombergQuint earlier reported the move is expected to benefit renewable energy generators the most.
Under the latest change, the responsibility of balancing power requirements and driving renewable energy demand shifts from distribution companies to generators. Currently, discoms have to source 10% of their power from renewable sources. But they aren’t doing so because of a funding crunch. The new rules may help them meet the obligation without facing additional burden.
Three types of renewable projects will be eligible for power bundling and fungibility. Those located within:
The premises of a generating station.
100km of a generating unit.
The premises/in the vicinity and supplying renewable energy to buyers of power from the same company’s another project at a different location.
Tariffs Applicable
If the renewable project is located within the premises of a generating station, the tariff would be determined by the state commission or regulator—provided the renewable project and tariffs are built through a competitive engineering, procurement and construction tendering.
If the renewable project is located in the vicinity of a generating station, green energy should be procured via competitive bids.
A generating company can set up a renewable energy plant within its vicinity through tariff-based competitive bids called by a central government-approved third party.
If power comes from a battery energy and storage system, it should have been established by a renewable power plant through competitive bidding.
Who Stands To Gain
The guidelines require renewable power to be supplied to distribution companies at a tariff less than the energy charge rate—or the variable cost that depends on coal prices—originally scheduled by the generating station. The tariff would include the balancing cost, or the difference between solar and thermal power.
Also the generator will have to take on tariff risk or higher pricing making the trade unviable.
The state-run NTPC Ltd. is expected to be the biggest beneficiary of this change, according to Elekore Energy, an energy information service provider. NTPC has 56.2GW of coal-based capacity and has a target of 60GW of renewable installed capacity by the end of 2032. The state-run company will be able to sell bundled thermal-renewable power under its existing power purchase agreements.
Queries sent to NTPC's chairman and managing direct didn't elicit a response.
Savings Capped
Still, lack of any major incentive makes renewable energy bundling unattractive, according to experts who spoke to BloombergQuint.
The net savings realised, if any, by supplying renewable power is to be shared equally (50:50) between the generator and the beneficiary discom. And it’s capped at 7 paise for every kilowatt-hour to the generator, according to the revised guidelines.
The scheme restricts the savings for the generation company and independent power producers, Sabyasachi Majumdar, vice president at ICRA Ltd., told BloombergQuint. The developer remains exposed to the short-term power market if renewable energy is not scheduled due to technical constraints or shutdown of the conventional plant, he said.
Another concern is whether discoms with “relatively expensive thermal supply” will be willing to buy bundled renewable and conventional power, according to Kapil Mantri, head of corporate strategy at Jindal Steel and Power Ltd. In the blending arrangement, even after sharing the difference, the effective buying price for the renewable portion may work out to be costlier than procuring only renewable power, he said.
Tata Power Ltd. didn't respond to queries.
The option to bundle would have worked for independent power producers for achieving renewable targets if such capacity had a “must run” status, said a report from India Infoline Research. The must-run tag implies that a power plant has to supply electricity to the grid under all conditions.
Plant availability of solar and wind farms is also limited since they require sunlight and a certain wind speed.
In the absence of the must-run status and the lower plant availability factor since, renewable capacity is exposed to offtake risk, India Infoline said. And long-term viability will be at risk if there is a steep decline in thermal power prices, it said. That would make coal-fired electricity cheaper than solar and wind energy.
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