In the renewable energy space, most of the development occurs through competitive bidding, which is confined to long-term power procurement by discoms. Apart from that, intra-state open access and captive arrangements are available, which received a huge impetus initially due to flexibility offered by energy banking provisions. However, there is no market-based instrument at present for renewable power trading. The IEX, as a market operator, had initially proposed a green day-ahead market to the Central Electricity Regulatory Commission (CERC). However, it could not be implemented since it required some changes in the existing mechanisms. It then proposed a green term-ahead market to the CERC, which is easier to implement since it is in line with the current procedures. This market mechanism would enable much needed contracts between renewable generators and willing buyers through a trading platform. It will create an avenue for generators to sell their bundled power and for buyers to be able to meet their RPOs.
Currently, renewable energy generators can sell unbundled power in a day-ahead market and get RECs (green attribute), which can again be sold. Considering the recent competitive bidding prices, this is a very lucrative option as RECs are currently priced at Rs 1.50-Rs 1.75 as against the power tariff of Rs 3.0-Rs 3.5 per unit. Even after considering the exposure to deviation charges, this option will hold merit. With a robust forecasting and scheduling mechanism, the deviation exposure can be considerably reduced, leading to higher market realisation. With a real-time market round the corner, it will further help renewable generators to correct their position.
Globally, most of the countries follow the concept of aggregation, wherein the system operator is incharge of forecasting and scheduling, unlike India where every developer does this on its own. In Germany, all projects registered under the feed-in tariff (FiT) mechanism are required to participate in the market and if market realisation is less than the FiT, then the difference is compensated. The concept of virtual power plants (VPPs) is gaining traction globally. Under this, a supply portfolio can include various generators, storage solutions and also demand response mechanisms. The operator participating in the market can either manage deviation through its own generation/demand response or participate in the market to honour the committed schedule.
India has to treat renewables in the same way as they are being treated globally. Instead of revising the schedule, the generator must correct its position through the market. Currently, the burden due to schedule revision is on the discoms, which find it difficult to manage the deviation due to large-scale renewables and its impact on power systems. Already, many states have put a check on the banking provisions and more restrictions may be imposed in the future if renewables continue getting preferential treatment. The Indian power sector needs a more competitive and market-based approach for renewable power development. A real-time market mechanism is expected to be launched in January 2020, which will allow generators to buy power from the market. Thus, while a generator is selling power in a day-ahead set-up, it can also buy power from the market to meet any shortfall in its scheduled generation. This is going to be a half-hourly market, with trading starting 75 minutes in advance while a generation schedule is provided 90 minutes in advance according to the existing regulations. Thus, a generator with any shortfall in the provided schedule has 15 minutes to buy power from the real-time market, and avoid paying deviation settlement mechanism (DSM) charges. This market is also expected to attract participation from discoms, which may need to buy and sell power in the markets to account for the intermittent renewable generation. The power prices under this mechanism will depend on demand and supply factors, and buyers and sellers may bid according to “must-buy” and “must-sell” situation before going for DSM.
Another key issue is the disparity in the way renewable energy is traded. The waivers on transmission losses and charges are only for those projects that are selling under competitive bidding to discoms. If the generators sell power under open access such waivers are not allowed. The government is aiming for 175 GW of renewable energy by 2022 and this disparity will be a deterrent for achieving this target. A level playing field should be created for all mechanisms, whether they are discom-based contracts, power exchanges, or open access agreements. The preferential treatment and waivers may work if the share of renewables is small. However, with the government’s vision to make renewables a dominant source in the energy mix, it is essential that renewable power is made self-sustainable and more accountable. Developers should have more options to create a balanced portfolio to leverage both long-term contracts and exchanges.