Energy Market Overview

Transformation in the Indian power sector is a process of evolution rather than revolution. While some changes are radical: the 175-gigawatt (GW) capacity target for renewable energy by 2020, or the extension of power supplies proposed in Saubhagya, for example. Other changes are less substantial, but nonetheless contribute to a better holistic performance from the Indian power sector. For example, despite the significant strides in installed renewable energy capacity, coal will remain central to India’s baseload generation for the foreseeable future. About 60 per cent of India’s installed power capacity is coal-based. This is set to increase to 70 per cent in 2026, according to BMI Research.

But coal generation is evolving. New emissions norms – when implemented – will set standards for sulphur dioxide (SO2), oxides of nitrogen (NOx) and mercury. There are significantly tighter standards for particulate emissions. In addition, the demands coal plants place upon water resources are being addressed: all plants with once-through cooling have toinstall cooling towers (CTs); existing CT-based plants need to reduce water consumption up to maximum of 3.5 m3/MWh; new plants need to achieve zero liquid discharge.

The drive for renewables is unquestionably the right thing to do. But facilitating this will require transformations in other areas of India’s feedstock mix. The trend for using gas to buffer intermittent renewable sources of power in countries like the UK and USA, is not lost on government. Oil Minister Dharmendra Pradhan noted publicly last year that gas-based power can play a big role in integrating India’s renewables to the grid. Gas' share of India's feedstock mix should Pradhan noted, double from the seven to 15 percent.

This year’s Union Budget included measures intended to stimulate the domestic gas sector and reduce gas imports. Attention has to be directed towards transforming the system of bidding for exploration and changing from revenue sharing to the exploration programme for Category II and III basins. The steps taken by the Government are positive and will be important for the natural gas sector.

So, while renewable energy is making most of the headlines, transformation in our power sector is taking place across the board. Success in the areas discussed above will not mean we have reached a fixed end state. Our transformation will continue beyond these milestones – driven in large part by new technologies.

Electric vehicles (EVs) are just one example. In the Union Budget Finance Minister Piyush Goyal emphasized the importance of making India a pollution free nation, stating that a green and clean India is the third Dimension of the Government’s vision. He cited adoption of EVs as an important element of this.

In countries where EV uptake is becoming widespread we are seeing unprecedented market changes as EV owners begin to offer spare battery capacity, or sell unused power, to power companies and discoms. Trends towards such prosumers and distributed energy systems will continue to gather pace.

Another area where we will see the growth of prosumers – organisations that consume, generate and sell electricity - is data centres.

India is Asia’s second fastest growing data centre market, behind China.To provide uninterrupted, reliable services data centres require uninterrupted, reliable sources of power. Electricity accounts for circa 40 percent of a data centre’s operating costs.

To ensure uninterrupted service most data centre operators will generate some, if not all, of their own electricity. This is usually achieved by a mix of renewable and thermal energy sources, battery storage, and grid connectivity all managed by smart power distribution technology – creating a microgrid.

As well as resilience microgrids can offer potential revenue streams as power companiesoften pay major users to reduce loads and peak times, andwill buy surplus power generated or stored by the microgrid.The rise of the prosumers will – over time - signal some major changes in traditional genco and discom business models.

The proliferation of microgrids, for data centres, and as standalone power generation and storage projects has a potentially significant role to play in the modernisation of India’s grid. Battery storage is an important tool in stabilizing the grid when a significant amount of renewable energy is integrated. Microgridsand hybrid systems will enable a more reliable and consistent output by stabilizing fluctuations in output from the intermittent resources. By optimising output and reducing variability, such systems will also improve the bankability of renewable energy projects.

In terms of generation capacity India has a surplus. Yet many Indians still lack access to the grid, and communities still suffer frequent power outages. Modernising the transmission system; and improving the financial stability of the discoms are central to addressing these challenges.

For this reason, UDAY has to be among the power sector’s most significant initiatives. Moody's 2017 upgrade in the outlook for India's power sector from negative to stable, was to a large degree based upon optimism about the ability of UDAY to improve the financial stability and operational performance of state discoms.

But the transmission sector still faces long-term challenges. Among the most significant are discoms not honouring high-tariff renewable power purchase agreements (PPAs); and also refraining from signing fresh thermal PPAs. There is also curtailment of offtake of renewable power. Fiscal measures to encourage independent power producers to sign long-term PPAs for both renewable and thermal power would be a good step.

On a more general level, many Indian infrastructure projects – including those in the power sector - are affected by time over runs, placing project viability at risk. Delays in land acquisition and site handover remain key reasons for schedule over runs during the pre-execution phase. Government guidelines to speed-up the process plus the online clearance application system are helping address these challenges – but the problem remains stubborn.

We are heading in the right direction, journey time may not be entirely as we anticipated, but progress to-date suggests we are well on the way.

| Article published on 17/04/2019 by Moulin

 
 
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