IEEFA India: Improving India’s electricity sector through time-of-day pricing
Jan 7, 2019 (IEEFA India): With some US$100bn of existing and proposed thermal power plants in financial distress, and low cost but variable renewable energy capacity best able to meet the ambitious targets set by government, India has an opportune moment to transform its electricity sector by introducing time-of-day pricing for both producers and consumers.
A new IEEFA briefing note, “Flexing India’s Energy System- Making the case for the right price signals through time-of-day pricing,” finds the current pricing system in India is a largely flat tariff providing little incentive for network or consumer efficiency through load smoothing.
Tim Buckley, co-author of the briefing note and IEEFA’s director of energy finance studies in Australasia, said the pricing system also does not incentivise the ramping up of flexible, peaking power generation capacity to meet peaks in demand.
“India’s electricity generation and demand profiles have become ‘peakier,’ meaning there is clearly more demand at certain times of the day such as evening or during hot weather periods,” said Buckley. “As India’s economy grows this will become even more apparent, putting stress on both consumers, businesses and electricity generation systems currently struggling to meet those peaks.”
The co-authors of the briefing note found that India’s increasingly obsolete subcritical coal-fired power fleet is not flexible enough to viably meet growing demand peaks with a shift in generation pricing. “Coal-fired power stations cannot be ramped up and down quick enough to respond to peaks,” said co-author Vibhuti Garg, IEEFA energy economist. “Pricing tariffs are also not available to incentivise network efficiency and flexible peaking power generation.”
Total renewable energy installations in India reached 75 gigawatts (GW) by September 2018, representing 21% of total installed capacity and generating a record high of 11.9% of all electricity in the September 2018 quarter.
“India is going through a renewable energy transformation, but the pricing signals have yet to catch up,” said co-author Anil Gupta, Director with Enerfra Services Pvt Ltd. “India needs electricity production tariffs that encourage flexible electricity generation to meet the peaks in demand. This would help ensure grid stability as the share of renewable energy continues to increase.”
As India’s reliance on renewable energy increases, IEEFA notes there will be increased need for firming capacity to back up renewables at times of high demand. Technologies that can provide this include pumped hydro storage, gas peaking plants, faster ramping, more flexible but lower utilisation of coal-fired power plants, and battery storage. Enhanced national and international grid interconnectivity will also play a role. The Central Electricity Regulatory Commission is working towards a centralised day ahead market design mechanism in India. While the real time settlement in the day ahead market will yield savings by dispatch of least cost generation to meet energy requirements, this is complementary to time- of- day pricing will provide incentives for creation of flexible source of generation to meet balancing requirement of grid and maintain grid stability.
India is already planning a doubling of pumped hydro storage capacity and considering near term measures to promote gas peaking power generation, leveraging India’s existing base of 25GW of largely stranded gas-fired power generation. Battery technology will get ever-cheaper as global production capacity continues to increase.
“Right now, however, a stronger price signal to incentivise fast ramping peaking power generators will help drive the roll-out of flexible power technologies that can meet India’s future peak demand,” said Buckley. “India must introduce time-of-day pricing to help manage peak demand while providing a better deal for consumers.”
Read the Briefing Note here: Flexing India’s Energy System – Making the case for the right price signals through time-of- day pricing
Media contacts
Australia: Kate Finlayson [email protected] +61 418 254 237
Authors contacts
Tim Buckley, Director Energy Finance Studies, IEEFA Australasia [email protected]
Anil Gupta, Director, Enerfra Services Pvt Ltd, India [email protected]
Vibhuti Garg, Energy Economist, IEEFA [email protected]
Kashish Shah, Research Associate, IEEFA [email protected]
About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.
