India is ignoring two basic costs while estimating solar and wind electricity tariffs

August 21, 2020 7:30 AM

While estimating our solar and wind electricity tariffs, we are ignoring two basic costs. The first is the balancing cost, and the second is the cost of recycling the solar waste

Incidentally, there are some studies which show that thermal plants can very well operate at even lower than 50% capacity after investing in some retrofitting. Incidentally, there are some studies which show that thermal plants can very well operate at even lower than 50% capacity after investing in some retrofitting.

By Somit Dasgupta

For any meaningful planning exercise, the costs should be correctly assessed, and ideally, it should be the life-cycle cost. By ignoring certain costs, a planner may get away in the short-term or even the medium-term, but never in the long-term. This premise holds true for our renewable energy programme also. While estimating our solar and wind electricity tariffs, we are ignoring two basic costs. The first is the balancing cost, and the second is the cost of recycling the solar waste at the end of life after 25 odd years.

Generation from renewables is intermittent in nature since unexpected cloud cover, or sudden fall in wind velocity will lead to an immediate dip in generation. In order to maintain the stability of the grid, we need to rely on other resources to counterbalance the drop, which can be done best by hydro-based generation, and in the absence of hydro, through gas-based generation. The problem, as far as India is concerned, is that we have not been able to make substantial additions to our hydro capacity during the last decade or so due to a variety of problems; for gas, there is practically no spare domestic availability. One can, of course, import gas, but the price of gas is volatile. In this situation, we are forced to balance the grid through our coal-based plants. Consequently, with our target of 175 GW of renewables by 2022 (and also 450 GW by probably 2030), the coal-based plants at certain times of the day will operate at below the technical minimum. The present regulations of CERC compensate a coal-based generator for the extra operational cost that he has to bear, but it should not be below 55% of the capacity.

Incidentally, there are some studies which show that thermal plants can very well operate at even lower than 50% capacity after investing in some retrofitting. This, however, leads to inefficient operation and also promotes wear and tear, which is not accounted for in a transparent manner. The important point to note is that we do not have any credible estimate of the ‘balancing cost’ for the country as a whole. However, in a study done in CEA in December 2017, it was estimated that in the case of Tamil Nadu, this cost would be Rs 1.57 per unit spread over the renewable generation. The corresponding figure for Gujarat was estimated at Rs 1.45 per unit. This cost would include, amongst others, the impact of deviation settlement, the impact of having to back down and extra transmission charge. This cost, if added to the cost of generation from renewables, will give a completely different story vis-à-vis cost of generation from coal-based plants.

The second aspect that we ignore is the cost of recycling the solar waste once its life is over. The life of a solar plant is about 25 years and given the pace of installation in India, this will become a major issue by about 2040. There are some estimates that the annual volume of PV waste in India is likely to reach two lakh tonnes by 2030 and 1.8 million tonnes by 2050. Today, the bidding documents only make a mention that the developer shall ensure that the entire waste is properly recycled, but there is no monitoring. Cost of recycling, however, will come down in the future when the waste can be commercially extracted. As of now, even internationally, only glass, aluminium and copper can be extracted from the waste commercially. It is estimated that the cost of recycling can vary from $250 to $600 per tonne, which is far more than the value of the recycled material. In addition, there will be transportation cost which can range from 60% to 100% of the recycling cost.

To conclude, while addition to generating capacity through renewables should be fully supported, the associated costs should be estimated and paid for. While the cost of recycling is easy to calculate and can be easily added in the tariff up front, accounting for ‘balancing cost’ can be complicated. So let’s get our arithmetic right when it comes to comparing the generation cost of renewables vis-à-vis coal.

The author is Former member, Central Electricity Authority. Views are personal

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