IEEFA recommendations for India power sector reforms

Torrent Power

The latest report from the Institute for Energy Economics and Financial Analysis (IEEFA) has revealed recommendations for Indian power sector reforms.

The transition to a resilient electricity grid with increasing amounts of cheaper renewable energy will require reforms to the scheduling and dispatch of power, some of which can potentially help electricity distribution companies (DISCOMS) save billions of dollars, IEEFA said.

India added a record 15 gigawatts (GW) of renewable energy capacity in the fiscal year 2021-22 and this rate of clean energy installation will need to accelerate further for the country to meet its climate targets.

The report reviews the electricity market design and structure for the scheduling and dispatch of power. IEEFA says electricity market design must evolve to address new challenges for the grid as renewable generation capacity rises.

Currently, 90 percent of the electricity traded in India is through long-term power purchase agreements (PPAs). The two-part tariff structure of thermal power PPAs has locked DISCOMs into long-term capacity payments.

Combining this with self-scheduling of power dispatch at a regional level by DISCOMs restricts sharing of generation resources at a country level. This results in a sub- optimal outcome as expensive power plants are utilised more, resulting in higher power procurement costs for DISCOMs.

Policymakers are trying to address this issue through various models of power dispatch. A Security Constrained Economic Dispatch (SCED) pilot pooled 58.1GW of inter-regional thermal power stations and recorded a saving of Rs20.7 billion ($260 million) between April 2019 and February 2022.

The Central Electricity Regulatory Commission has also proposed a Market-based Economic Dispatch (MBED) mechanism to pool all the generation resources, potentially reducing power procurement costs by Rs120 billion ($1.6 billion) annually.

“There has been no update on the proposed pilot of the MBED mechanism. If the CERC has not yet staged the pilot, it should do so at the earliest as it would significantly improve cost and resource efficiency,” says Kashish Shah, Research Analyst, IEEFA.

IEEFA said policymakers increase the share of open market platforms in the electricity market, which would help the renewable energy sector.

There are three power exchanges – Indian Energy Exchange, Power Exchange India and Hindustan Power Exchange – that facilitate the trading of green power. A larger shift to open markets will allow competition and add dynamicity to electricity trading.

They provide a time-of-day price signal for energy storage technology solutions, such as utility-scale batteries and pumped hydro storage, as well as demand-side management.

System operators in India still procure ancillary services from the un-requisitioned surplus capacity of coal-fired power plants.

Believe battery energy storage and pumped hydro storage technologies are better suited to providing ancillary services than coal-fired power plants as they have significantly shorter response times and higher ramp-up and ramp-down rates.