Development of Mechanisms to Incentivize Inter-state Exchange of Renewable Energy

Development of Mechanisms to Incentivize Inter-state Exchange of Renewable Energy

Announcement- Public Release of White Paper

February 9, 2021

An ambitious renewable energy (RE) agenda is driving India’s progress toward a clean, green, energy-secure future. The Government of India has embarked on a journey to add 175 GW of RE capacity by 2022. As India pursues its transformative RE goals, there is a need to also proactively address critical issues such as the need for effective grid integration and RE power exchange market. USAID’s Greening the Grid–Renewable Integration and Sustainable Energy (GTG-RISE) initiative is supporting informed dialogue and policymaking on such issues by building a rich base of evidence and analytical insight. A virtual event on February 9 marked the public release of GTG-RISE’s latest analytical offering — a white paper titled “Development of Mechanisms to Incentivize Inter-state Exchange of Renewable Energy”.

India has a skewed distribution of renewables, with Western and Southern regions rich in solar and wind resources while other areas lack them. Inter-state RE exchange is, thus, an issue of crucial importance, given its bearing on RE demand and, consequently, RE capacity additions. GTG-RISE’s white paper explores this issue from the perspective of changes required in policy and regulations guiding RE, transmission development and its pricing and electricity market related changes to integrate RE and allow for it to be procured freely across states.

A knowledge piece with insights, the white paper suggests a broad roadmap for the future, suggesting measures that speak to immediate and medium-term priorities. The recommendations cater to issues in three areas key to bolstering inter-state RE exchange. A quick summary of the recommendations is presented below.

Shape a harmonized, enabling regulatory framework: Central and State level regulations on forecasting & scheduling (F&S), deviation settlement mechanism (DSM), and ancillary services (AS), among others, are in place to improve grid discipline but remain limited in their effectiveness because they are not fully harmonized, for example, non-uniformity in incentive and penal mechanisms at the central and state levels. A uniform penal structure would simplify the process and ensure ease of doing business for RE project developers. Unavailability of real-time RE data also limits the regulations, for example, by slowing implementation of F&S regulations at the state level. Effort and investment must, thus, go toward improvements in communication infrastructure of state transmission utilities, including upgraded telecommunications network, smart meters at pooling sub-stations, and supervisory control and data acquisition (SCADA) data availability to RE generators’ qualified coordinating agency (QCA) to allow better planning and response.

Build robust transmission infrastructure: Transmission infrastructure has not kept pace with RE power plant development in RE-rich states. States should prioritize the planning and execution of the required transmission network capacity to facilitate RE evacuation within and across state borders. Alongside, the exemptions for inter-state RE transmission charges and losses for meeting renewable purchase obligations (RPOs) must also be evaluated. These exemptions were intended to jumpstart a virtuous cycle of RE investments, which they have done very successfully with resultant scale and cost reductions. However, with RE gathering centrality in the generation mix, waivers of charges are fundamentally unsustainable and must be re-examined and replaced with more long-term measures for market integration of RE.

Design and implement supportive market and commercial frameworks: Indian power sector’s prevailing market and commercial frameworks were developed in the context of conventional power plants, leading to the dominance of long-term agreements for energy transactions. This does work out well for variable RE generators. Participation in day-ahead markets (DAM) with limited flexibility to revise schedules exposes them to higher deviation penalties. Intra-day markets are more suitable for RE power generation, but any lack of revision to the schedule still results in deviation penalties. Until Real Time Market (RTM) was introduced, utilities managed demand and supply imbalances by using the deviation settlement mechanism (DSM) route. Transiting future RE development to market-based frameworks is essential for any sustainable electricity market development. A Contracts for Differences (CFD) based approach to RE participation in the electricity market is recommended in the white paper.

As was appreciated by senior government officials at the white paper’s launch, its useful insights would be of value to all stakeholders as they strive and plan ahead for India’s clean energy future.

“We at MNRE are grappling with the question ‘ what should be the shape of the future with so much RE integration?’. RE balancing is an issue of deep interest for us, especially the market design that would be appropriate to facilitate RE… findings of different studies on this subject, including the insights from this GTG-RISE white paper, will certainly will help the way forward”Aniruddha Kumar, Additional Secretary, Ministry of New and Renewable Energy

“Contracts-for-Differences (CFD) mechanism for renewable energy as recommended in the white is definitely going to be the opportunity to explore.We have to look for something new for the RE markets and need to deliberate more on all other such recommendations made in the white paper to define a futuristic roadmap”K.V.S. Baba, Chairman and Managing Director, Power System Operation Corporation (POSOCO).

“India has non-uniform distribution of RE sources and therefore inter-state RE holds the key in achieving the larger potential of RE in the country. Market-based procurement of RE is inevitable as we have planned for RE being our primary engine for generation capacity additions going forward. For enabling RE participation in futuristic markets… we need to re-look into regulatory, transmission pricing and market mechanisms for any such RE transition.”Shubhranshu Patnaik, Senior Adviser, GTG-RISE initiative, and Partner & Head, Power & Utilities, Deloitte India

USAID’s GTG-RISE is a five-year program being implemented in partnership with the Ministry of Power, Government of India. It is a key Asia EDGE (Enhancing development and Growth through Energy) initiative implemented by Deloitte Consulting LLP.