DECLING POWER TARIFF AND ITS IMPLICATIONS

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Over the past few years, the Indian power sector has witnessed some transformational changes that are set to alter the very structure of the power industry in the times to come.

The advent of commercially viable yet affordable power tariffs through renewable technologies —both wind and solar — is perhaps the most disruptive change in the Indian energy scenario. While tariffs for power, based on fossil fuels and hydro-electricity, have been increasing steadily due to high capital and operating costs, renewable power tariffs are steadily heading downwards and have now reached too-good-to-be-true levels of around Rs2.50/kWh, committed for 25 years.

Such a declining trend in power tariffs is a welcome disruption but what is even more heartening is that this decline does not seem to be driven solely by the aggressiveness of bidders for bagging these projects. In fact, the decline in power tariffs in India follows a global trend, and is strongly backed by declining costs of renewable power equipment, be it solar or wind, due to technological advancements and rapid scaling up of the international market, thus providing a sense of comfort to various stakeholders. With more supportive policies, advanced technological interventions and market evolution, renewable power tariffs could dip further.

However, despite good news on tariff trajectories of renewable power, fears of unpredictable power generation and complete non-availability during certain parts of the day continue to lurk. Rules of nature have to be respected and, therefore, it is on us to adapt our system and fully utilise all energy alternatives available to get optimum results that benefit the economy and end-users of all categories.

India is fortunate to be in a geographical position that bestows abundant solar insolation almost all across the country for most days in a year. It also has fairly large wind energy potential, both on-shore as well as off-shore. The country also has significant reserves of power-grade coal. Thermal power has served as the core of the Indian power industry and would continue to be the cornerstone for at least a couple of decades more, or at least till the time commercial and environmental costs of coal mining and combustion for power generation do not become an insurmountable impediment.

The issue, however, is to deal with black-out periods associated with renewable capacities and maintaining grid stability. The challenge could have been less daunting had India been sitting on a large base of hydro-electric power or low-cost gas available to be used as a bridge capacity. But in absence of these, a solution could be found through coal-based thermal capacity. By 2020, when most of the on-going thermal projects get commissioned, India can have around 300GW of thermal capacity.

Technically and commercially, it works best if the thermal plants operate round the clock as baseload capacity. However, operating environment has changed and the concept of baseload operation is no more applicable. In the emerging scenario,  coal-based thermal plants could  normally be operated at the technical minimum level (around 50 per cent) during the period when renewables are available and could ramp up to 85 per cent or above, depending on grid requirements during renewable black-out periods.

The possible ramp-up rate of coal-based generation of two to three per cent per minute allows the system operator enough flexibility to maintain grid stability at all times while ensuring full utilisation of cheap and non-polluting renewable resources.

Such an arrangement would not just provide much needed operational and commercial viability to thermal generators, currently under duress, but could also easily support the capacity creation of about 300 GW of renewable power in the country. A blended offering of thermal and renewable power could lower retail consumer tariffs providing a boost to economic activities and helping thermal assets gain greater acceptance and a fresh lease of life, besides paving the way for a seamless transition to the phase when batteries/storage devices are developed enough for low-cost and reliable commercial applications.  Blended power could ensure adequate space for justified and purposeful co-existence for all market participants by removing threat perceptions and offer opportunities to all players.

 

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