India Seeks Power Market Overhaul to Absorb More Renewables

Employees place a solar panel into a box at a manufacturing plant in Bangalore. (Photographer: Dhiraj Singh/Bloomberg)

India Seeks Power Market Overhaul to Absorb More Renewables

India is considering changing the way electricity is bought and sold in the country, proposing a mechanism that makes it easier to absorb more renewable energy into the national grid and brings down power costs for buyers and users.

The so-called market-based economic dispatch will replace the current system of bilateral power purchase arrangements between buyers and power producers, giving retailers access to a nationwide pool of generators, the power ministry said in a draft note on its website. The proposal aims to ensure a smooth flow of renewable energy into the grid.

If all generating plants in the country participate in the exercise, it could potentially yield cost-savings of about 120 billion rupees ($1.7 billion) annually in power purchase costs, according to the note.

The new mechanism will help India’s state distribution utilities benefit from the falling cost of renewable power, easing the financial difficulties that lead to unreliable supplies to customers and payment delays to generators and fuel providers. Under the new plan, the state retailers will need to pay in advance for electricity, alleviating the chronic cashflow problems generators face.

India, the third-biggest emitter of greenhouse gases, is planning to expand its renewable power capacity nearly five-fold by 2030 to meet its decarbonization targets. Fixing the financial health of its state utilities will be key to reaching those goals.

In the first phase of the plan scheduled to begin in April next year, the ministry plans to trial the idea with state generator NTPC Ltd.’s power plants. The limited exercise will help identify deficiencies prior to a nationwide rollout, it said.

State distributors currently buy most of their power through bilateral contracts spanning 25 years or longer. Such an approach sometimes causes inefficient plants to run at higher capacities than efficient ones, the ministry said.

In the new system, prices offered by generators across the country and bids from all buyers will be pooled at power exchanges to reach a nationwide rate, according to the note.

The new system “inherently promotes cheaper and efficient plants,” the ministry said. It ensures that utilization of plants near coal mines goes up, while those getting coal from far-away sources and paying large freight costs see reduced demand for their power.

©2021 Bloomberg L.P.

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