Power sector transition: The way forward

What are the technology options for India’s power system going forward from a transition perspective to integrate for 450 GW of renewable energy? Kashish Shah elaborates… 

The three key solutions ideal for India’s power sector transition are flexibilisation of coal-fired power plants, utility scale battery storage and green hydrogen. There needs to be some policy revival required to unlock financial investment into these key areas. 

Why is it important to think about the integration of largescale renewables? Since solar and wind are highly seasonal and intermittent, we need to make sure that our grids operate flexibly as well as stably. From the target perspective, 450 GW of renewables can contribute to 32 percent of the total generation by 2030. Germany had 46 percent renewable penetration in 2020, while California had about 30-36 percent, South Australia, one of the leading states of Australia, had about 60 percent of renewable energy penetration. And at this moment, in India, we have about 13 percent at the end of FY 2020-21.

Flexibilisation of coal-fired power plants

We have about 209 GW of on-grid coal-fired capacity at the moment. The first step would be to optimally and flexibly utilise this capacity, which has been operating at below 60 percent of utilisation rate for about last four years. When we talk about flexibility, it is important to consider some of the key parameters that entail flexibility in coal-fired power plants. These include minimum thermal loads and ramp rates. 

Operating these coal-fired power plants flexibly involves some costs. The first will be capital expenditure to retrofit these coal-fired power plants, which will depend on the capacity, age, and the technology of the combustion of coal-fired power plants. Second will be the operational expenditure that the power plant will incur in terms of heat losses, extra oil consumption and also the wear and tear of equipment. A study done by CEA and NTPC predicts what could be the additional production cost per unit for various sizes of coal-fired power plants and found that it is much cheaper to operate a smaller coal-fired plant flexibly than a bigger size coal power plant. Also, comparing some flexibility parameters for thermal power plants versus other technologies such as pump hydro storage and battery, batteries stand out in terms of providing the flexibility. Batteries can actually reach from zero to hundred percent of its load in less than one second. 

Battery market

In the last decade, we’ve come a long way, somewhere around $1,100 per kilowatt hour for a standalone lithium-ion battery. Now we are at $137 per kilowatt hour. The Bloomberg New Energy Finance (BNEF) suggests that these costs could be declined further by 55 percent by the end of this decade. Also, we need to talk about the landed cost of solar plus or wind plus battery. So, the wholesale electricity tariffs are predicted to be as low as 3.32 by 2025, or 2.83 per unit by 2030, which would be 30-40 percent lower than the pithead of coal fired power plants that we have in India.  Given this potential, IEA suggests that the battery capacity in India could be as high as 140-200 GW, which would be the largest for any country at that time.  

With reference to cross learnings from other international markets, the Australian battery market’s project development market is booming at the moment as in the last 6-8 months, all the states have announced battery projects of the size of 500 MW, 700 MW, with a four-hour battery storage capacity. The beauty of this boom of the Australian electricity and the battery market is that it’s driven by market economics. Higher penetration of renewables has increased the requirement of frequency control and ancillary services on the back of which governments have decided to develop their own battery storage projects. If Australia is the prince of the battery market, the real king is the US at the moment. In less than three months, the US added 2 GW of battery capacity on this grid and it’s projected to be around 8 GW by 2025. Also, we look at solar plus battery storage tariff in the US from some of the options that have happened in the last few years. The lowest tariff of the US is $22 per megawatt hour for solar plus storage. 

Now let’s compare this with the Indian tariffs. The lowest tariff that we’ve achieved is ₹1.99, which translates to about $27. Comparing this to a $22 solar plus storage, there is a massive gulf, but an opportunity and potential for our solar plus battery storage costs to go down. Having talked about Australia and US, who’ve been doing wonderfully well, in terms of deploying battery assets, we’ve made a few small steps. There are a couple of batteries already operational in India. Tata Power has already commissioned a 10-MW battery with a one-hour storage capacity in its daily distribution business. There is also another 8-MW battery coming up in the Andaman and Nicobar Islands.

Green hydrogen: Something to look forward

Last but not the least, the technology solution for India to look forward to, is green hydrogen. As a fuel, green hydrogen has been above all these fuel for the last couple of decades. Given its wide range of application in transportation, industry production of ammonia, methanol and also potential use in energy storage, this is a key fuel or a technology solution that India must look into. 

Green Hydrogen’s existence was there from a couple of decades; the reason for Green Hydrogen being the talk of the town since the last 12 – 6 months is the cost deflation. One of the key studies suggest that the ultra-alkaline electrolysers’ costs could dramatically be declined by 56 percent from what it is currently at ₹6.3 crore per MW to ₹2.8 crore by the end of this decade. Also, cheap availability of solar and wind has brought down the production cost of hydrogen and it’s predicted in India. The landed cost of hydrogen production could be as low as ₹150 per kg by 2030. 

In terms of green hydrogen, it is something to look forward in the future. Right now, the costs are prohibitive but, there is a critical mass being built in the international markets by deployment of billions of dollars into these projects. Some policy recommendations for new technologies; one is time of day pricing which can allow differentiation between peak and off-peak hours. As we’ve already spoken about gas, hydro, and coal, these are the assets that we have already on hand and how flexibly can we operate them to allow flexible operation off-grid. We have 25 GW of gas plants which become the number one low hanging fruit for flexible operation. And green hydrogen is something for the future. The developed markets are already incurring the cost of learning and India should wait for the prices to come down and create a hydrogen economy.

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Author:

Kashish Shah, Energy Finance Analyst, Institute for Energy Economics and Financial Analysis (IEEFA)