Here why energy sector embrace technological disruptions and use them as an opportunity

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Published: February 14, 2020 4:00 AM

Competition from Solar-plus-battery-Storage power seems set to challenge the viability of coal/gas-based power, and in the long run, of discoms

Renewables are considered ‘infirm’, as solar plants are held to be capable of supplying power only when the sun shines, and wind plants, when the wind blows. (Representative image)Renewables are considered ‘infirm’, as solar plants are held to be capable of supplying power only when the sun shines, and wind plants, when the wind blows. (Representative image)

Technological disruptions are quite subtle. Before you realise their full implications, the market is already transformed. Such a technological disruption recently happened in the renewable energy sector.

The Solar Energy Corporation of India (SECI) just concluded the auction of the world’s largest solar-plus-energy-storage tender. The tender, issued in August 2019, was for installing 1,200 megawatts (MW) of grid-connected renewable power generation capacity with energy storage. The critical condition of the tender was an assured supply of 600 MW of power for six hours daily during peak demand time—from 5.30 am to 9.30 am, and from 5.30 pm to 12.30 am. The peak power had to be supplied on a day-ahead, on-demand basis. This condition is generally applicable to ‘firm’ power suppliers like coal and gas-based plants, as these plants are available to produce power at all times. Renewables are considered ‘infirm’, as solar plants are held to be capable of supplying power only when the sun shines, and wind plants, when the wind blows. All this has changed with this tender.

Not only was the auction oversubscribed, but it also came out with unheard-of prices. Hyderabad-based developer Greenko won the bid for 900 MW capacity. It quoted an average tariff of Rs 4.04/kWh ($0.057/kWh) and a peak tariff of Rs 6.12/kWh ($0.086/kWh). Greenko is going to deploy pumped hydro storage technology to store electricity. ReNew Power won the remaining 300 MW capacity using battery storage technology. It quoted an average tariff of Rs 4.30/kWh ($0.061/kWh) and peak tariff of Rs 6.85/kWh ($0.096/kWh)—the cheapest renewable-plus-battery storage capacity anywhere in the world.

I am very excited about the bid of ReNew Power, and not so much aboutGreenko’s. While pumped storage is known to be the cheapest storage technology, no one expected solar-plus-battery storage to be as competitive as coal power for peak tariff. Also, there is a limitation to pumped storage, of how many such dams can be built, considering their ecological impact, unlike the case with unlimited potential of solar-with-battery-storage. The ReNew Power project is not only a significant milestone in renewable energy, but also has far-reaching implications. Let me elaborate.

Coal and gas-based power plants currently supply close to 80% of our electricity. They are the foundation of our power production infrastructure. But, coal plants are under tremendous pressure to reduce air emissions and greenhouse gases. Coal power prices are also increasing every year because of the rise in coal, labour and transportation costs. In comparison, the costs of solar and battery storage systems are falling on the back of major global and local innovations. The first impact of a competitively priced solar-plus-battery-storage technology, therefore, would be on the coal and gas power projects. The private sector is already weary of investing in coal power because of the long construction period, hurdles in environmental clearances, lack of power purchase agreements and coal linkages, among many other reasons. Gas plants are presently the most expensive way to produce electricity because of high gas prices. Shortly, there will be no commercial rationale to install new coal or gas power plant as renewable-plus-battery-storage would outprice them. This could be the beginning of the end of coal-based power plants.

A similar disruptive impact would be on the distribution companies (discoms). Most discoms are facing severe financial challenges. The all-India aggregate technical and commercial (AT&C) losses are still above 20%, and discoms are losing Rs 0.39 for every unit of electricity they sell. The current loss of all discoms is conservatively estimated at over Rs 45,000 crore every year. They are now going to come under tremendous pressure because of the rapid reduction in prices of renewables and battery storage.

Currently, we cross-subsidise electricity. Domestic and agricultural consumers are provided cheap electricity by charging higher tariffs to the large domestic, commercial and industrial consumers. Tariffs charged to these large consumers is now becoming untenable.

Take the case of industries. Industries in India pay one of the highest tariffs in the world. The industrial tariff in most states is in the range of Rs 9-10/kWh or $0.12-0.14/kWh. In comparison, the average electricity tariff for industries in the US is $0.069/kWh—half of what industry in Maharashtra pays. In China, it is $0.084/kWh, and in Vietnam, it is $0.088/kWh.

With such high tariffs, industries are looking for alternatives to survive. One of the main options is to reduce or eliminate purchase from the discoms. Industries are already using open access and captive power plants to meet their power requirements. In fact, the threat of open access is so high that discoms are putting major procedural hurdles and high charges to dissuade large consumers. Even then, the cost of solar and wind power through open access in many states is already cheaper than the utility tariffs. Now, cheaper renewable-plus-storage is going to be a game-changer.

In not so distant future, high-paying consumers (including gated communities in big cities) would start moving away from discoms. They would set up their own generation or have some other entity set up renewable energy plants with storage to enable 24×7 power supply. They will use grid and local distribution network as a transmission platform and pay charges to the grid operator for transmitting that power. Once this happens, it would make discoms even more unviable.

Thus, the traditional energy sector of India based on large coal and gas plants, and large state-supported discoms are on the verge of collapse because of one technological disruption—affordable renewable-plus-battery storage technology. We should expect more such technological disruptions in the near future. How we manage these disruptions would determine the future of our energy sector and the economy. The conventional approach would be to hinder things like open access and continue the state support to coal mines, coal power plants and discoms. I think this would be a completely wrong strategy. The right thing to do would be to embrace these technological disruptions and use them as an opportunity to reform the energy sector fundamentally. Without this, there is no sustainable energy future.

The author is CEO, iFOREST. Twitter: @Bh_Chandra

Views are personal

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