India must formulate a policy to encourage development of peaking power plants if it wants to end the practice of loadshedding by distribution companies during peak hours. Consumers have to arrange for power back-up devices like UPS, inverters, batteries and gensets to deal with power cuts, which significantly increases their actual electricity costs.
According to a survey undertaken by Wartsila, a power solution provider, of the economic implications of power cuts in 21 cities in 2009, investments made by consumers on energy back-up devices worked out to R1 lakh crore. Additional expenditure made on fuel costs and maintenance was estimated at R30,000 crore.
India is aggressively adding power generation capacity to ensure energy security for its fast-growing economy. However, there is an obvious anomaly in the policy approach being followed for capacity addition. Electricity demand tends to vary with the time of the day. It peaks during certain hours and remains moderate during the rest of the time of the day.
Almost the entire generation capacity set up in India is designed to meet baseline electricity requirement only. The result is that when power demand peaks during certain hours in the morning and evening, it exceeds the power availability by a significant amount. Since the base-load plants lack the flexibility to increase generation to meet the higher electricity demand during peak hours, distribution companies are left with no option but to resort to load-shedding to maintain grid stability.
On the other hand, base-load power plants have reduce generation during off-peak hours due to fall in demand. That hurts cost economics of such power plants.
India can overcome these problems by setting up power plants, which would run during peak hours only. But such plants need higher tariff compared to base-load generating stations to become commercially viable.
The central electricity regulator plans to set out a special tariff regime for peaking power plants. It has already circulated draft guidelines for the determination of tariff for peaking power plants. But regulator?s initiatives alone might not be enough to encourage developers to invest in peaking power plants. The government needs to give a policy push.
The Planning Commission has started the exercise to prepare draft approach paper for undertaking capacity addition in the power sector during the coming 12th Five-year plan. It would be advisable for the government to rethink its strategy on capacity addition.
Open cycle gas-based power plants are the most appropriate for meeting peak power requirement as generation from them can be ramped quickly. As per an estimate by Wartsila, some 30,000 mw peaking power generation capacity would be required by the end of the 12th plan.
Affordability of natural gas should not be an issue for peaking plants given their low share in overall electricity generation. The current peak power shortage in the country is about 10%.
The existing gas-based power plants in India mostly run as base-load generating stations. Distribution companies prefer cheaper power from coal and hydropower plants. They buy costly power from gas-based plants as the last option. Demand for electricity from gas-based declined by 8% in May this year. So business risks for these plants are relatively much higher.
Natural gas is a clean source of energy. Investing in peaking power plants would also help India meet its emission reduction targets.