The power generation segment is evolving rapidly, in line with the country’s energy transition and clean energy targets. While there is strong growth in renewable energy capacity addition, the role of thermal power is changing significantly, from being the main source of baseload power to a more supportive one, helping to balance the variable renewable energy generation in the grid. Leading power developers provide their insights into sector advances, major hurdles and emerging requirements…
What is your assessment of the performance of the power sector in the past one year or so?
Over the past year, India’s power sector has witnessed significant growth, propelling the nation to its current status as the world’s third-largest electricity producer and consumer. This achievement is primarily driven by the country’s expanding population and the rapid electrification initiatives undertaken by the government. As of April 2023, India’s installed power capacity reached an impressive 416.59 GW, with renewable energy sources contributing more than 40 per cent to this capacity. Notably, power consumption surged by 9.5 per cent during fiscal year 2023.
The Indian government has played a pivotal role in advancing the power sector by implementing various policies and schemes, particularly in the field of solar energy and green hydrogen. Key initiatives such as the Deendayal Upadhyay Gram Jyoti Yojana, Ujwal Discom Assurance Yojana and Integrated Power Development Scheme have been instrumental in promoting electrification across the nation.
Furthermore, the rapid progress of the green energy corridor projects, which aim to integrate renewable energy sources seamlessly into the national grid, brings India closer to achieving its ambitious target of 500 GW of renewable energy capacity by 2030.
The Indian power sector is about to complete a decade of change and transformation, which has altered the outlook for the sector. On September 1, 2023, the nation’s power demand reached an all-time high of 240 GW, reflecting the country’s remarkable post-pandemic economic development.
India has made significant strides in the field of renewable energy over the past few years, thanks to supportive government policies, continuous financial inflows, the adoption of cutting-edge technologies and a number of fiscal policy incentives. Additionally, it has made progress towards achieving the Sustainable Development Goals, particularly Goal 7 – ensuring that everyone has access to affordable and clean energy.
Due to its cyclical nature and the widening gap between energy demand and renewable capacity addition, the energy sector continues to be heavily dependent on the thermal sector. The load factors of state, central and private sector thermal units have improved significantly. The deviation settlement mechanism legislation underwent numerous changes, affecting the energy industry; while grid ancillary services, such as automatic generation control and reserve regulation ancillary services, were created. Through the development of numerous segmented avenues, such as the day-ahead market, the term-ahead market, the green day-ahead market and the real-time market, the energy trading sector has become more structured and has seen an increase in trade volume.
Suresh Kumar Narang
During 2022-23, the total installed capacity of the country increased by about 16 GW to reach 416 GW, with major capacity addition in renewables. However, this addition is bringing to the fore, a new set of issues where intermittency and reliability may pose challenges to grid stability and security. The all-India demand crossed around 1,500 BUs annually, registering approximately 10 per cent growth rate with the all-India peak demand reaching about 212 GW. Coal- and lignite-based generation accounted for around 75 per cent of the overall generation in 2022-23, forming a strong and reliable base to meet the growing energy demand. The energy demand of the past financial year has already been dwarfed by the data for the first half of financial year 2024, in which the maximum demand touched approximately 240 GW, registering about 13 per cent growth and the average demand is well poised to cross the 15 per cent growth mark.
The Government of India has come up with multiple initiatives to support the power sector – the implementation of production-linked incentive (PLI) schemes to enhance the country’s indigenous manufacturing capabilities, increased focus on hydro pumped storage plants and battery energy storage systems (BESSs), sanctioning of smart meters on a large scale, introduction of a national framework for energy storage systems, notification of green hydrogen standards, etc.
On the regulatory front, we have seen quite a few changes over the past year, with the major ones being the notification of late payment surcharge rules, flexible operation of coal-based thermal power plants (TPPs), biomass co-firing, electricity amendment rules and the introduction of carbon credit trading scheme, to name a few.
The power sector has undergone a great learning curve in the past year or so. In the race to transform the sector into a green one, our grid has endured several challenges. This reminds me of the pre-availability-based tariff regime, when we witnessed grid failures every month. Although the issues were not grave, there were several grid failures and multi-GW outages due to high renewable energy penetration in some interstate transmission system (ISTS) pockets, especially in the Rajasthan zones (northern region), which have historically been deficient in baseload stations and industrial loads. This is because, while renewable energy is a good source of steady-state active power, it is a poor source of reactive power and is particularly inadequate during faults, characterised by very high system impedance. Any grid disturbances, such as line faults, destabilise both the active and reactive power demand-supply balance, leading to oscillations where renewable energy is unable to effectively mitigate the damage. This leads to a collapse of the grid, providing real-life lessons for both grid operators and power producers.
This is the problem today, when renewable energy penetration is just at 11 per cent, energy-wise. Imagine what will happen when the penetration level reaches 50 per cent by 2030.
Another performance parameter that is often discussed is the potential impact of climate change on wind resources, which has negatively affected wind farm performance in the past year. However, overall, the mood is positive but cautious.
What, according to you, are the emerging needs and requirements of the power sector?
The integration of renewable energy with fossil fuel-based generation is extremely important to achieve sustainable, long-term solutions, given the urgent need to address climate change issues.
To meet the renewable power targets while ensuring reliability, incorporating energy storage technologies such as batteries and pumped hydro can significantly enhance grid efficiency. This approach boosts the capacity factor of existing resources and reduces dependence on polluting sources. It also supports the efficient supply of electricity, particularly for baseload plants like coal, which have slow response times to grid demand fluctuations. The benefits of integrating energy storage have a ripple effect across all stakeholders, as it reduces costs by enabling the storage of low-cost energy for use during peak demand periods when renewable sources might not be generating at the full capacity.
Moreover, modernising our grid with advanced technologies is essential to facilitate consistent and cost-effective adoption of renewable power. A digitalised grid offers increased transparency by incorporating asset monitoring, consumer behaviour analysis and efficient demand load management throughout the value chain.
To further bolster the affordability of renewable power, it is crucial to establish mechanisms for the banking and wheeling of renewable energy within state grids on an annual basis. This step can significantly promote the accessibility of renewable power, making downstream products such as green ammonia and green methanol highly competitive in international markets. In this way, we can contribute to the global transition towards more sustainable and eco-friendly energy solutions.
The power sector is leading the ongoing energy transition, driven by a rapid decline in renewable electricity costs, particularly for wind and solar power generation. Coupled with cost-effective energy storage solutions (ESSs), they will soon displace coal-based generation and dominate the power supply mix. Despatchable renewables, especially solar photovoltaics integrated with ESS at the generation site, are expected to become competitive with new coal power stations. The rise of utility-scale renewable projects is underpinned by innovative regulatory approaches that promote the pairing of solar with other generation technologies and energy storage, facilitating round-the-clock (RTC) supply. India’s future prosperity will hinge on affordable, clean and reliable energy. India’s commitment to achieving net zero emissions is poised to lead the nation on the path to clean, green and sustainable economic development. With new technology interventions including solar roofs, electric vehicle (EV) charging, solar pumps and energy management solutions, the power sector is set to play a crucial role in India’s energy transition.
With increasing renewable energy penetration into the grid, the flexible operation of thermal assets becomes a primary requirement. To prevent reserve shutdown, thermal plants should be able to quickly ramp up and lower their technical limits. The current demand pattern has a cyclical aspect – there is a sizeable disparity between the day’s peak demand and average demand. Demand-side management strategies, such as regulations for industrial and commercial time shifting and load centre distribution, can lower this disparity. Additionally, in order to ensure grid stability, more thermal assets need to be incorporated into various grid ancillary services. There is a significant need for load forecasting, stability analysis, anomaly detection, etc., due to the increased adoption of data-driven digital and artificial intelligence (AI)-based solutions.
Suresh Kumar Narang
Orderly energy transition, along with seamless integration of variable sources such as solar and wind into the grid, is the key requirement of the sector. The development and adoption of economically viable energy storage technologies is crucial for storing excess renewable energy and ensuring grid stability during intermittent power generation and meeting peak load requirement.
Energy efficiency and environmental sustainability are major themes in the power sector development. Promoting energy efficiency in industries, commercial buildings and residential sectors can reduce the overall electricity demand and enhance sustainability.
With the rapid expansion of solar and wind energy capacity, coal is likely to experience a reduction in its share, but it will continue to play a pivotal role in meeting the overall energy demand. Flexi operation of TPPs would be needed along with BESS and pumped storage power to meet the varying demand profile. To enable enhanced flexible operation of TPPs, huge capex would be required for major modifications, or else, it would lead to additional costs in the form of lower efficiency and secondary fuel support.
I believe that the strengthening of the regulatory framework and alignment of stakeholders, coupled with long-term planning, can provide immense investment opportunity in the power sector and create value for all stakeholders, thus taking India successfully through the energy transition.
As EVs become more acceptable, the power sector must accommodate the expected increased electricity demand from the charging infrastructure. This includes planning for EV charging infrastructure and smart charging solutions.
Grid stability, reliability and security are of paramount importance for the sustainable development of our economy. Rapidly greening the grid is essential for the sustainability of not only the economy, but also the human race in the face of climate change. We, the sons and daughters of Mother Earth, have already breached the Intergovernmental Panel on Climate Change’s Representative Concentration Pathway (RCP) 1.9 scenario of containing the global temperature rise to 1.5 degrees. In order to balance sustainability and grid stability, there is an urgent need to augment renewable energy sources that can replicate the characteristics of baseload stations, both in terms of steady-state and transient-state stability. In essence, further renewable energy augmentation should operate like a closed-loop control system rather than the current open-loop control system. In other words, it needs to react to any contingencies through inertial, primary, secondary and tertiary responses. This inherently includes pre-fault reactive power management as well. This can be achieved through a blend of renewable energy and storage technologies, including both chemical and mechanical types. The good news is that government bodies are now fully aware of this fact and are vehemently introducing tenders for solutions such as peak power, RTC supply, load following including firm and despatchable renewable energy (FDRE), and grid-based BESSs.
Another requirement is the readiness of power sector infrastructure and policies regarding the hydrogen vector, which has the potential to enable decarbonisation and achieve net zero ambitions. To produce just 5 million metric tonnes of green hydrogen per annum, 150 GW of renewable energy is required. Therefore, there is a great need for a resilient evacuation system, consistent policies, meticulous planning and substantial investments in grid infrastructure.
What are the key challenges facing the segment? How can these be addressed?
The Indian power sector struggles with critical challenges such as transmission and distribution (T&D) losses, regulatory delays, power purchase agreement (PPA) changes due to coal price fluctuations and mounting unpaid discom dues. High T&D losses in the country result from outdated systems, metering gaps and electricity theft, causing cash flow problems for distribution companies. This has deterred them from investing in the sector due to low tariffs set by regulatory commissions. As a result, there has been a reduction in investments by the distribution companies in the sector.
Over the past year, fluctuating imported coal prices and various obstacles in procuring local coal, including legal, political, technological and financial challenges, have forced power generators to rely on expensive imported coal. This has significantly increased the cost of power generation and placed a heavy financial burden on power generators, resulting in a rise in non-performing assets in the sector.
While many problems can be addressed at the state level, the central government’s intervention is essential for swift resolution. Technical issues can be tackled through significant investments in modernising T&D systems, including the adoption of smart meters. Additionally, substantial regulatory and policy reforms are needed to ensure affordable access to coal and to establish appropriate tariff structures.
Additional measures that can be considered include:
- Legalising all electricity connections and requiring every power consumer in the country to maintain a bank power account for automatic monthly bill payments. Consumers should also provide a security deposit, equivalent to at least two months’ worth of average power consumption bills.
- Implementing a “One Nation, One Power Price” policy in India.
- Promoting competition in the power market by removing cost-plus PPA advantages for all generators, whether they are state-owned or private.
With India’s clean energy transition still under way, the dependency on coal will persist for the next few years. Multiple power plants across the country have not been able to deliver their full generation capacity due to insufficient coal stock. This poses a challenge in terms of power generation. The energy mix needs to be carefully planned, in consideration of these factors.
Other major challenges in the energy sector are demand forecasting and renewable generation prediction. Today, we are still unable to accurately forecast load demand and plan generation, even in the age of AI and ChatGPT. Additionally, ageing thermal assets with increasing operations and maintenance costs and capex pose a major challenge for demand fulfilment.
Further, in recent years, huge amounts of capex has been infused to achieve net zero compliance in technologies such as flue gas desulphurisation, flexible operations and renewable energy bundling. Although the projects are under way, clarity is still needed regarding cost recovery and compensation mechanisms. Further, in some cases, after the successful implementation of new regulatory schemes, tariff approval by state and central regulatory bodies needs to be simplified and streamlined in a time-bound manner. Otherwise, it will pose a huge financial burden on generating stations and will destabilise the economics of established power plants. These challenges can be addressed through clear policy formulations, applicable to plants under all relevant sections.
Suresh Kumar Narang
The continuing deterioration in the financial health of discoms is a major cause for concern as this impacts the entire power sector. Aggregate technical and commercial losses, lack of investment in the power infrastructure and huge unsustainable debts are some of the challenges facing discoms. Recent developments such as the provision of free electricity to consumers pose fresh challenges for the overall viability of the sector. The revival of discoms should be supported to a large extent through timely revision in tariffs, installation of prepaid smart meters, timely payment of subsidies by the government and improvement in operational efficiency, billing and collection efficiency.
The regulatory environment continues to be challenging with issues such as contractual logjam and disputes, and delays in regulatory decision-making, which causes uncertainties in the investor mindset, leading to stagnation of fresh investment in the sector. We need regulatory commissions and Appellate Tribunal for Electricity functioning at full strength to overcome this problem.
Although Coal India Limited has shown improvement in coal production and offtake, fuel security and supply chain constraints continue to remain a top concern for the thermal sector. Coal reserves in the country are sufficient to meet the demand for the next 100 years. Speeding up the process of commercial coal mine auctions and ensuring timely clearances for mining can help overcome this challenge.
The timeline for compliance to new environmental norms is approaching and seamless integration of flue gas desulphurisation (FGD) system would be another task for TPPs. It is important to note that the installation of FGD entails huge capital cost, which, in turn, would lead to increase in the tariff. To offset the cost of FGD installation and operation, the government should waive off the GST compensation cess on coal for TPPs, that are installing FGD in compliance with the notification by the Ministry of Environment, Forest and Climate Change.
The government has now made it mandatory to co-fire biomass pellets to contain the pollution around the national capital. However, there is still uncertainty regarding biomass pellet availability and their procurement throughout the year. It is essential that the government provides more regulatory certainty and support in the form of incentives to encourage the sector and ease supply chain issues.
Although India has announced its intentions to cut down carbon emissions as well as achieve the target of net zero by 2070, the policy framework to achieve this is still evolving and requires huge investments. To meet the ultimate goals of ensuring reliable and affordable electricity access to all the citizens, it is necessary that the government and all the stakeholders work together to achieve this collective objective.
The key challenges in the power sector are:
- The lack of coordination between grid operators and power developers to address grid stability issues resulting from renewable energy penetration.
- The huge imbalance between ISTS/ ISTS substation availability and the pace of renewable energy augmentation integration.
- Refurbishment of grid infrastructure to enable the repowering of very old but rich wind sites that have been underutilised due to fragile grids.
- Unavailability of land for renewable installations.
- The lack of offtake of RTC or FDRE power at initial projects due to high tariffs.
- A catch-22 situation exists, where it is believed that climate change is adversely impacting wind resources around the globe, especially in tropical countries such as India. Thus, placing high stakes on wind energy is not a viable option.
Grid operators are now being more transparent about their requirements in order to avoid gaps in the analysis of grid code requirements, thereby mitigating adverse impacts on investments and expected returns.
Indeed, any journey will encounter hiccups when the traveller hasn’t fully foreseen the pitfalls in the road ahead. However, this will lead to gradual friction, foster maturity among all stakeholders and ultimately pave the way for sustainable and win-win solutions.
Regarding the catch-22 situation, the only way forward is to take better estimates of wind resources by taking into account various RCP scenarios through climate modelling, and accordingly making decisions on returns.