Preferential Treatment

Declining renewable energy tariffs to alter merit order dispatch

With multiple sources generating power at various costs, power procurement from the grid is based on the merit order despatch mechanism, wherein electricity is supplied as per the cost of generation. As a result, power with the lowest cost of production is given priority for procurement by discoms. However, with the increasing integration of renewables, merit order despatch is expected to be altered significantly.

Impact of falling tariffs

Owing to the drop in tariffs in recent auctions, both wind and solar power generation have now achieved cost parity with coal-based power generation. As a result, the merit order despatch is expected to change in favour of renewable-based power. This will lead to better solar and wind power offtake and increase investor interest in the sector. However, renewable energy projects are highly site sensitive and riddled with land acquisition and clearance issues, which may render project development at such low tariffs unviable. Therefore, for the merit order despatch mechanism to seamlessly integrate renewable power, the actual cost of generation will have to be reduced.

There is a strong need for transparency in merit order despatch operations in order to facilitate the promotion and integration of renewable energy. Efficient resource potential assessment and management to provide investment-grade solar and wind power will help improve renewable energy costs. Meanwhile, single-window approvals for renewable energy developers for pre-identified land zones will reduce the gestation period and reduce time and cost overruns. Improved transmission layout planning for the evacuation of solar and wind power will ensure offtake of power from resource-rich to resource-deficit states. Moreover, a unified framework to encourage competition in the sector will help renewables move up the merit order.

Operational challenges

Given the variable nature of renewable energy, its integration into the existing grid infrastructure is a significant challenge. In Gujarat, the installed wind and solar capacities stand at 5,502 MW and 1,492 MW respectively, as of December 2017. An in-depth analysis of the wind generation pattern in the state reveals that the high wind period from mid-May to August is typically a low-demand period, and that demand is usually high in the low generation months of mid-August to December. This creates a demand-supply imbalance that disturbs the merit order. The must-run status of renewable energy plants puts further pressure on the merit order despatch mechanism. In the monsoon, when wind generation is high and demand is low, cheaper generation has to be backed down. Also, in case of a sudden drop in wind power generation, costlier power has to be scheduled for despatch.

Moreover, the ramping up and down of grid-based power due to fluctuating wind power generation can lead to high operational costs. On June 10, 2016, the Gujarat grid experienced a wind power ramp-up variation of 963 MW in a span of two hours, while on January 10, 2017, the grid saw a ramp-down variation of 1,158 MW in only a couple of hours. Similar is the case with solar power generation, with high variations witnessed throughout the day. Such disparity at quick intervals overburdens the grid and results in underdrawal or overdrawal. Thermal power generation is the backbone of the Indian power grid. However, the existing fleet of thermal power plants (TPPs) lacks the quick ramp-up/down capabilities required due to increasing renewable energy integration. Also, the frequent backing down of these plants is uneconomical and increases capital and maintenance costs. Current issues facing coal- and gas-based power plants include the uncertain renewable energy generation, and the lack of quickly synchronised hot-start as compared to cold-start, which takes comparatively longer to synchronise.

Mitigation strategies and outlook

To improve renewable energy integration into the grid, forecasting and scheduling by developers and state load despatch centres should be based on Indian weather patterns. Moreover, battery storage can go a long way in saving energy costs by storing cheap power during high generation, low demand periods, which can be used in low generation, high demand scenarios. However, the technology is economically prohibitive at present.

The increased flexibilisation of TPPs and inclusion of pumped-hydro power plants will also help reduce the variability and uncertainty of renewable energy. Ancillary services may be introduced in renewable energy-rich states by the respective commissions. Moreover, energy banking between states with any financial transaction may be a viable option.

Based on a presentation by J.D. Trivedi, Deputy Engineer, State Load Despatch Centre, Gujarat Energy Transmission Corporation Limited


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