Backup Power

Re-evaluating the cost economics of DG sets

As a result of various central government initiatives, the demand-supply gap in the power sector has reduced significantly over the past few years. However, one area that still needs improvement pertains to the quality of power supply, which is highly unreliable. Intermittent power supply and frequent outages directly affect the operations of industrial and commercial establishments. Diesel generator (DG) sets have long been used as a backup source of power in cases of emergency such as power outages or in off-grid locations. These have been deployed in industrial/ commercial establishments as well as in residential societies. However, with increasing grid connectivity and the growing uptake of environment-friendly fuels, it has become imperative to revisit the cost economics of DG sets, especially in comparison to other sources of energy.

DG sets have been a popular power backup solution primarily because of their short installation time, quick start-up and low upfront costs. In India, different sizes of DG sets ranging from 2 kVA to 7,000 kVA are used, with 15 kVA to 2,000 kVA being the most common. However, the cost of power generation through DG sets is fairly high, which is mainly on account of the high cost of the fuel. The capital cost has a share of 12-15 per cent in the total cost of a DG set, while operations and maintenance costs account for the remaining.

Capital cost

DG sets entail a low initial capital cost vis-à-vis other captive/backup power solutions based on coal or gas. Unlike a gas-based or coal-based power generating unit, a DG set does not involve the construction of large facilities/civil works. However, the cost of setting up a DG set can vary widely based on the specifications and technology used. The capex calculation for a DG set typically includes the cost of a genset, a battery bank, a power interface unit and a switched-mode power supply system.

The cost of a DG depends on the speed of its engine. As per India Infrastructure Research, the average capital cost of a liquid fuel (diesel/naphtha/kerosene/furnace oil)- based plant works out to Rs 34 million per MW. Typically, high speed engines with 1,500 revolutions per minute (rpm) cost Rs 15 million-Rs 18 million per MW, intermediate speed engines with 1,000 rpm cost Rs 20 million-Rs 25 million per MW, while low speed engines with 600-750 rpm cost over Rs 35 million per MW.

Generation costs

The cost of generation for a diesel genset can range from Rs 16 per unit to Rs 40 per unit. For instance, in the case of rural telecom towers, the cost shoots up due to pilferage, transportation cost of diesel, etc. In contrast, the cost of electricity generation from other sources is much lower, ranging from Rs 3 per unit to Rs 7 per unit for coal- and gas-based units.

As per a study conducted by the Centre for Science and Environment in January 2017, the cost of power generation from DG sets across residential societies in Delhi, Haryana, Uttar Pradesh and Rajasthan is in the range of Rs 27-Rs 33 per unit, which is almost three times higher than rooftop solar tariffs of less than Rs 10 per unit. Owing to declining tariffs, rooftop solar systems with battery storage are becoming a more financially viable option for providing power backup and meeting the partial load requirement of such societies. The study further suggests that residential societies can easily replace DG sets with rooftop solar power systems and save substantially on costs.

The way forward

Given the high per unit cost of generation of a DG set and the declining cost of rooftop solar plants, consumers need to re-evaluate their existing backup power options. In addition, the increasing focus of statutory authorities on pollution control is expected to further drive up capital costs of diesel gensets. Although the newer gensets have a high initial upfront cost, they are expected to have a lower social cost in terms of reduced emission levels to meet the regulatory requirements.

In the recent past, photovoltaic (PV)-DG hybrids have gained traction as they address the issue of variable load patterns introduced by solar PV generation. The use of solar PV-DG hybrids lowers the fuel consumption as PV modules support the base electricity load and diesel provides backup in case of an unexpected outage. The industry needs to scale up new models such as rental power solutions and PV-DG hybrids for the deployment of DG sets.

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