CERC bid to develop an ancillary services market is laudable

Half of India was left without electricity for hours when northern and eastern grids failed last year. Essential services like rail and metro came to a halt while hospitals and airports had to use back-up power to carry on with their critical work. This could have been avoided if the domestic electricity sector had a well-developed ancillary services market.

Ancillary services include facilities like standby power generation capacity to feed electricity into the grid at short notice to maintain frequency stability. These are common in developed countries in North America and Europe. Mostly pumped storage hydel plants and natural gas-based, open-cycle generating stations, which can be switched on and off easily, are used for stand-by power.

India, despite its best effort at capacity addition, is still facing 10% peak-hour shortfall.

Regulatory initiatives have now begun to formulate a policy to encourage investment into ancillary services. The Central Electricity Regulatory Commission (CERC) has issued a staff paper to solicit the industry?s inputs on this issue.

After the consultation is over, the regulator will start a campaign to make state electricity boards (SEBs) aware of the necessity to develop an ancillary services market in the country. Meetings will be held by the CERC at regional levels to educate discoms about the advantages of ancillary services.

Some industry associations have also lent their support to the cause. For example, Independent Power producers Association ( IPPAI) held a day-long seminar recently to create awareness about the issue.

By introducing these services, the regulator aims to improve the reliability and quality of electricity supply, though consumers may have to pay a little more for that. The move will help SEBs avoid loadshedding by using standby capacity.

Further, this would also help in integrating into the grid renewable power supply from sources like wind and solar where generation schedule cannot be forecast with 100% accuracy unlike in conventional generating stations. Such renewable energy plants may have to cough up a huge penalty if their generation varies drastically from the given schedule. For example, a wind power generator may have to pay a huge penalty if the shortfall in generation is more than 30%.

The move comes at a time when the regulator is planning to further tighten grid frequency. The ancillary services market may also complement the regulatory effort.

Currently, some 8,700 MW gas-based capacity is stranded for non-availability of natural gas. These plants can be run on imported LNG (liquefied natural gas) if a special peak hour tariff policy can be put in place.

SEBs can use LNG-generated electricity to avoid loadshedding during peak hours. The power cost for SEBs would still be lower than what they pay for overdrawing power under the Unscheduled Inter-change (UI) route.

For example, SEBs may end up paying as much as R18 a unit for overdrawing electricity through the UI route. In comparison, LNG-generated power may cost around R7-8 a unit. Besides, reckless use of the UI route by SEBs to meet their power shortages could compromise the stability of the grid.

The proposed arrangement will also offer an opportunity to normal generating stations to supply extra power to the grid during peak hours to make up for lower demand during other hours. This will help these plants to make better utilisation of their capacity and improve profit margins. Consumers will be spared from long hours of loadshedding.

Following last year?s grid collapse, the CERC has become more cautious about the grid stability. It is expected to continue with its efforts to tighten the grid frequency band.

Meanwhile, a task force on peak power set up by the power ministry under the Central Electricity Authority has submitted its report, though findings are yet to be made public.