Bundled Benefits

New guidelines for round-the-clock renewables complemented with thermal power

When the first phase of the National Solar Mission was launched in India around 10 years back, solar power tariffs were as high as Rs 15 to 16 per unit. To promote its uptake and improve viability, the government introduced a quasi feed-in tariff mechanism through which solar power was bundled with cheaper thermal power from NTPC’s coal power plants and sold to utilities. Moreover, with NTPC as an intermediary between solar power generators and discoms, providing counterparty guarantees and ensuring timely payment to developers, risks of investing in a new technology were significantly reduced.

The situation has reversed now, with solar power tariffs declining to below Rs 2.50 per unit levels. In fact, the Solar Energy Corporation of India’s (SECI) recent solar power auction for 2 GW of capacity saw tariffs dropping to record lows of Rs 2.36 per unit, much cheaper than coal-based thermal power. Even wind power projects are being allocated at tariffs of less than Rs 3 per unit, with the lowest going down to Rs 2.43 per unit. Thus, logically, it is better for discoms to procure renewable power, especially solar and wind, over the more expensive thermal power, which is expected to become costlier with rising coal prices. However, the intermittency issues of solar and wind power generation and limited hours of availability pose problems in grid integration. Moreover, there still remains the problem of low capacity utilisation of transmission infrastructure.

To address these issues, in March 2020, SECI issued an exploratory tender inviting developers to supply a total of 5,000 MW of round-the-clock (RTC) power from grid-connected renewable power projects bundled with power from coal-based thermal projects. Under this tender, bidders would quote a composite single tariff for renewable energy complemented with thermal energy, and SECI will enter into power purchase agreements (PPAs) with successful developers for a period of 25 years. Initially, the last date for the submission of bids was May 4, 2020, but it has been extended many times with the revised deadline for bid submission now being September 1, 2020.

Further, in July 2020, the Ministry of Power released the “Guidelines for tariff based competitive bidding process for procurement of round-the-clock power from grid-connected renewable energy power projects, complemented with power from coal-based thermal power projects”. Thermal power will be utilised to balance renewable energy and provide RTC power to discoms, thereby obviating the need for discoms to procure balancing power.

Bundling guidelines

The key features of the guidelines are mentioned below:

  • Power sources: As per the guidelines, eligible developers can set up solar power projects or wind power projects, or a combination thereof, with or without an energy storage system. If the energy storage system is charged using a source other than solar or wind power, it would not qualify as renewable power. Meanwhile, eligible thermal power plants include those which have been partly or fully, commissioned before the issuance of bids or are under construction at the time of issuance of bids, but have spare generation capacity that can be made available for long-term supply of RTC power under these guidelines. The minimum quantum of power that can be offered by the bidder should be 250 MW in order to have economies of scale and suitability of coupling with the interstate transmission system (ISTS). Since a bidder can tie up with more than one thermal power plant for his renewable energy project, thermal capacities even much smaller than 250 MW can be utilised.
  • Imposition of power availability: The power generator shall supply RTC renewable power complemented with thermal power, keeping at least 85 per cent availability both annually and also during peak hours. These four peak hours either in the morning or evening out of 24 hours in a day will be clearly specified beforehand in the tender by the procurer. The generator can combine energy storage for ensuring that it achieves the required minimum annual availability of 85 per cent. However, of the total energy supplied in one year, at least 51 per cent has to be renewable energy and the balance from thermal sources.
  • In case project availability is less than 85 per cent on an annual basis or during peak hours, or renewable power generation is less than 51 per cent of thet total annual energy mix, for reasons attributable to the developer, penalties shall be levied. The developer shall be liable to pay a penalty of 25 per cent of the cost of this shortfall in energy terms to the procurer in both the cases. This will be calculated at the maximum indexed composite tariff payable during the year.
  • Tariff: Bidders will quote a composite single tariff for renewable energy complemented with thermal power. This composite tariff for per unit supply of RTC power quoted by the bidder shall be the key parameter for bids. This tariff shall be quoted for the power delivery point or the CTU interconnection point. While different components of RTC power can be connected at different CTU substations, for better grid balancing they shall be connected within the same regional load despatch area. Since the cost of thermal power varies with the price of coal and operations and maintenance cost, 25 per cent of the composite tariff shall be indexed and adjusted to accommodate such variations in cost in the entire energy mix. For the thermal component of power, 50 per cent of the indexed composite tariff shall be deemed as the thermal fixed charge tariff and the rest as the thermal variable charge tariff.
  • PPA: The intermediary procurer (like SECI or NTPC) will enter into a PPA with the RTC power generator as well as a power sale agreement (PSA) with the end procurer (usually discoms). A trading margin of Re 0.07 per unit will be paid to the intermediary procurer by the end procurer. The PPA period should be not less than 25 years from the the scheduled commencement-of-supply date (SCSD).
  • A developer shall attain the financial closure in terms of the PPA within 12 months from the date of execution of the PPA for project size of up to 500 MW; 18 months for project size between 500 MW and 1,000 MW; and 24 months for project size greater than 1,000 MW. Likewise, project commissioning should be achieved within 18 months for project size of up to 500 MW, 24 months for 500-1,000 MW project size, and 30 months for project size greater than 1,000 MW. Delays in commissioning and commencement of power supply, beyond the mentioned timelines, would lead to penalties on the developer.
  • Payment security: The power procurer shall provide payment security to the generator through a revolving letter of credit of an amount not less than one month’s average billing for the project under consideration. Payment security can also be provided through a payment security fund, which shall be suitable to support payment for at least three months’ billing of all the projects tied up with such fund. In addition to that, the procurer may choose to provide a state government guarantee ensuring that there is adequate security to the generator, in terms of both payment of energy charges and termination compensation, if any. Further, in case of no or reduced power offtake due to grid breakdown or any other issue at the procurer’s end, the developer will be compensated accordingly.
  • Land and transmission availability: In case no site is specified for a renewable energy project by the power offtaker and developers can select the site, appropriate lease agreements should be provided at the time of bidding. Moreover, developers should obtain approval from the CTU, confirming technical feasibility of connectivity of the plant to the CTU substation. The respective state governments and other agencies shall endeavour to provide the necessary support to facilitate land transfers and connectivity of the plant to the CTU substation. These measures will help in the timely commissioning of projects.

The way forward

While auctions have been conducted for solar-wind hybrid projects as well as energy storage in the past, the RTC and peak power supply tenders are a recent development. However, the recent exploratory tenders have been successful in discovering competitive tariffs. For instance, in May 2020, SECI auctioned 400 MW of renewable power on RTC basis with ReNew Power emerging as the winner for the entire capacity at a tariff of Rs 2.90 per unit. In another recent tender, SECI auctioned 1.2 GW of project capacity for peak power supply using renewables and energy storage. The Greenko Group emerged as the winner with 900 MW of pumped storage capacity at a weighted average tariff of Rs 4.04 per kWh and a quoted peak tariff of Rs 6.12 per kWh.

Meanwhile, ReNew Power secured 300 MW of renewables plus battery storage capacity at a weighted average bid of Rs 4.30 per unit and a quoted peak price of Rs 6.85 per unit. This has prompted SECI to issue another similar peak power supply tender for 1.2 GW of project capacity. Going forward, similar bids can be expected for flexible power instead of plain vanilla solar or wind power auctions.

With the share of cost-competitive but intermittent renewable power increasing in the energy mix, ensuring the stability of power grids has become imperative. Thus, a mix of various renewable energy technologies along with energy storage is being considered as an apt solution for a robust grid instead of just one renewable power resource. Adding thermal power to renewable generation and energy storage is expected to improve grid balancing. Summing up, through this “reverse bundling” scheme of complementing cheaper renewables with expensive thermal power, the government aims to create a win-win solution for both developers as well as discoms.

By Khushboo Goyal

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