Greater Flexibility: Thermal generators allowed to use renewables to meet contractual obligations

Thermal generators allowed to use renewables to meet contractual obligations

As the power sector gears up to integrate 175 GW of renewable energy into the grid and meet its climate commitments, grid balancing mechanisms and optimal utilisation of resources have gained significance. Acknowledging this, the Ministry of Power (MoP), in April 2018, notified a detailed mechanism for allowing flexibility in the generation and scheduling of thermal power stations. Earlier, in 2016, the MoP had introduced a similar concept for flexible utilisation of coal to ensure avoidance of unnecessary coal transportation and bring down generation costs.

As per the latest notification, generating companies (with tariff-regulated thermal stations) will have the flexibility of using its thermal or renewable power to meet its scheduled generation from the specific thermal station. This will help discoms meet their renewable purchase obligations (RPOs) without facing any additional financial burden, particularly given that most of the states already have adequate power purchase agreements (PPAs). Further, the responsibility of arranging for grid balancing power (due to the intermittent nature of renewables) will be shared with generators, instead of only discoms as per the present regulations. The flexibility will provide generators an opportunity to optimally utilise renewable capacity and help in reducing emissions, besides boosting renewable capacity addition.

NTPC, which has most of its projects operating on a cost-plus basis (regulated tariff), will benefit from the scheme. In fact, in response to the notification, NTPC floated a tender for 2 GW of renewable energy, which it plans to blend with coal-based capacity and sell to discoms under existing contracts. This would allow the company to improve its earnings from cheaper renewable power, while reducing its carbon footprint. This will also assist NTPC in achieving its 30 per cent renewable capacity target by 2032 from about 2 per cent at present. The company aims to become a 130 GW company by then.

Power Line presents the key features of the mechanism notified by the MoP…

The MoP order states that there is a need to provide flexibility to generation stations to generate and supply renewable power under the existing or future contractual agreements. This is required in view of the impact of the new environmental norms on thermal power generation capacity, energy storage capability of hydro stations, infirm nature of renewable generation, balancing power requirements of discoms and renewables’ role in reducing carbon emissions. Discoms will have the flexibility to procure renewable energy within their existing PPAs and meet their RPOs. For generators, it provides an opportunity to optimally utilise generation from renewable sources.

The details of the mechanism for allowing flexibility in generation are as follows:

  • Applicability: Any generating company having thermal power stations (coal, lignite or gas based) can set up or procure renewable capacity anywhere in the country, either at the existing stations or at new locations.
  • Generating companies will be allowed to use such renewable capacities for supplying power against existing commitments to supply power from thermal stations.
  • The scheme is applicable to only regulated tariff-based thermal projects (cost-plus tariff) as per Section 62 of the Electricity Act, 2003.
  • Flexibility is not applicable to renewable projects for which PPAs have already been signed by the generators and beneficiaries.
  • Scheduling and commercial mechanism: The thermal power generating station must confirm the declared capacity (DC) as per the existing regulations. The DC must be in line with the PPA terms and the availability of the primary fuel. It should not be based on the availability of additional renewable power. Once the schedule for the next day is finalised, based on the generating station’s DC, it will have the flexibility of using either its thermal power or the generating company’s own renewable power or procured renewable power to meet the scheduled generation.
  • The aggregate power actually supplied from various generating sources will be considered for deviation settlement mechanism (DSM) purposes.
  • Renewable power would be supplied to discoms at a tariff equal to the energy charge rate (ECR) of the thermal station, which was originally scheduled. This includes the balancing cost and tariff risk to be taken by the generator.
  • In case of any financial gain from the supply of renewable power in place of thermal power under the existing PPA, the generator must share it with the discom, in a 50:50 ratio. This can be determined during the truing-up exercise done by the appropriate regulator at the end of the year.
  • The extra generation available from the existing thermal stations, corresponding to the renewable generation capacity and up to the contracted capacity, can be utilised by the discoms at the time of need.
  • RPO/RGO: Power generated from such renewable energy sources will be eligible for cross-subsidies notified by the government, including a waiver from interstate transmission system (ISTS) charges and losses. It will qualify for meeting the discoms’ RPOs. Further, in capacity terms, such renewable power will also qualify for the renewable generation obligation (RGO) of the generator, once it is notified as envisaged in the Tariff Policy.
  • DSM and scheduling: As mentioned earlier, while confirming the DC of thermal stations, the generator must not take into account the forecast generation from the renewable capacity. Once the schedule is finalised, the generating station can supply from the thermal station or a combination of thermal and renewable power to meet its scheduled power. No DSM will be payable or receivable by the generating station if it is able to meet the scheduled generation by supplying a combination of the two power sources in any ratio.
  • The scheme is optional and can be used if found feasible by the generator.
  • Any changes required in the regulation for the implementation of this scheme will be made by the appropriate electricity regulatory commission.
  • The Central Electricity Authority (CEA) will monitor the implementation of the scheme and suggest changes if required to the central government. It can consult the various stakeholders involved including the Ministry of New and Renewable Energy, Power System Operation Corporation Limited, the Central Electricity Regulatory Commission, and discoms.
  • The CEA has also been given the responsibility to suggest a roadmap for the implementation of the scheme at the company level, which is a change from station-wise flexibility to company-wise flexibility.

The government is considering various ways to help the country meet its commitments as part of the Intended Nationally Determined Contribution. Under this, the country aims to have 40 per cent of its installed capacity from non-fossil fuel sources (including renewables, hydropower and nuclear power) by 2030. In line with this, the MoP’s long-term growth trajectory of RPOs notified in January 2016 as part of the Tariff Policy requires state discoms to gradually increase their procurement from renewable sources to 17 per cent by March 2019 (including 10.25 per cent of the non-solar RPO and 6.75 per cent of the solar RPO). The MoP’s latest scheme will certainly help discoms, which are already cash strapped, in meeting their RPOs within the existing contracts. Although there could be some implementation issues initially, they could be addressed with experience, a task that has been assigned to the CEA. The allowed flexibility in the generation and scheduling of thermal plants will help generating companies balance their portfolios and contribute to the country’s energy transition.

Swarna Kesavan