India needs to ramp up system flexibility to meet 450GW renewable energy target

Purva Jain, Energy Analyst, Institute for Energy Economics and Financial Analysis (IEEFA)

India is committed to increasing renewable energy capacity to 450 gigawatts (GW) by 2030. While this requires massive amounts of investment in the sector, and the US$12.6 billion investment in the first nine months of the fiscal year (FY) 2022/23 is a good sign, it also needs plans for flexible generation.

Need for flexible systems

Enhanced flexibility in the power system is necessary to reap the benefits of the proposed renewable energy capacity fully. Renewable energy is variable and intermittent, affecting system operation and supply. Injecting more variable renewable energy in the system calls for a set of solutions that enable enhanced flexibility and responsiveness of the grid and system.

There are both demand- and supply-side solutions to this problem. These include flexible generation options such as gas-fired peaking power plants, energy storage including pumped hydro and grid-scale batteries, demand-side management measures and improved market designs.

Generation and storage

Gas-based peaking power plants can provide flexible generation and help balance the grid due to rapid ramp-up rates and start times. A recent study by the Institute for Energy Economics and Financial Analysis (IEEFA)  found that operating up to 12.5GW of gas-based capacity using domestically produced gas can meet maximum peak demand till 2030 as an economical medium-term solution for integrating renewable energy in the grid.

Gas-based power can complement battery energy storage systems (BESS), which should reach commercial scale and can be a more standalone measure by 2030. BESS can be useful for distribution companies and transmission utilities to meet peak power demand and decongest transmission systems. In addition, grid operators can benefit from storage systems for ancillary services, such as frequency regulation, black start and load management.

India’s green hydrogen mission, with an outlay of almost Rs20,000 crore (US$2.45 billion), could also be helpful for grid flexibility. Power-to-hydrogen is a useful method for enhanced flexibility for industrial users and as a storage option for excess renewable energy.

Demand Side Management

Demand-side management (DSM) is another important tool for enhancing grid flexibility and integrating more renewable energy into the system. It involves encouraging consumers to alter their electricity usage patterns with incentives to use electricity at non-peak hours and syncing with renewable energy availability.

DSM, at present, remains limited to commercial and industrial (C&I) users with a time-of-day (ToD) tariff. As part of ToD tariffs, electricity distribution companies levy different charges based on the timing of electricity usage. This penalises use during peak hours and can encourage use during excess solar availability.

For instance, the Andhra Pradesh Electricity Regulatory Commission (APERC) modified its ToD tariff for high-tension industrial consumers in its 2022-23 order. The modifications accommodated high and low grid demand with a greater penalty for high season and included a day slot with a 0.50 paisa per unit discount. Regulators should expand this to other consumers to avoid renewable energy curtailment. Kerala, for example, has in place a ToD tariff for domestic users consuming more than 500 units per month.

As electricity generation becomes more decentralised with rooftop solar and solar pumps, there is a greater need to incentivise demand response. Other countries offer lessons in this regard. South Korea, with 4.55GW of capacity registered in demand response markets, effectively reduced consumption by 29 gigawatt-hours (GWh) in one month alone.

Third-Party Aggregators can play a critical role in enabling demand-side flexibility for end-users through virtual power plants. There are different demand response aggregators in developed countries, such as CPower in the United States, Flexitricity in the United Kingdom and Actility in France, which act as an intermediary between the consumer and the grid.

Market-Based Approach for Flexibility Services

Ancillary services are expensive in India, and mostly thermal generation reserves currently offer them. New market design models and regulations are necessary to allow the participation of more efficient options like BESS and pumped hydro storage (PHS) to support the grid.

The regulation on ancillary services issued by Central Electricity Regulatory Commission (CERC) in January 2022 is a step in that direction. It provisioned for procurement of ancillary services from market-based mechanisms to maintain the grid frequency of 50Hz. An IEEFA report noted that this move could open more revenue streams for energy storage systems and encourage enhanced deployment, further benefiting renewable energy integration in the system.

Another example of a market-based approach for obtaining flexibility is the introduction of renewable energy plus storage tenders in the last few years in India. More such steps will help decarbonise the grid.

The introduction of flexibility options in the power system in India is at a very nascent stage right now. However, the current small steps will need to grow larger if India wants to take advantage of the planned renewable energy capacity additions. For instance, the recent approval from the regulator for introducing trading in High Price Day Ahead Market (HP-DAM) includes battery storage and imported gas-based plants as eligible sellers. This will promote battery storage and grid flexibility.

Karnataka: An example

Karnataka is a leading example of efforts for enhanced renewable energy integration, which other states can follow.

With one of the largest renewable energy generation in the country, Karnataka is taking important steps to enhance grid flexibility and operations. The government has recently approved an Rs4,000 crore (US$0.49 billion) grid-connected PHS unit through a public-private partnership.

Further, the Karnataka Renewable Energy Policy 2022-27 aims to develop the energy storage market in the state with round-the-clock renewable energy tenders, energy storage systems, PHS projects with private investments and energy storage-as-a-service (ESaaS). There are, however, no mandatory obligations for co-locating storage with renewable energy or any storage target for the policy period, which could slow the pace of energy storage deployment.

The state is also looking at demand-side management measures to increase renewable energy use, such as shifting agriculture demand to daytime. The state government has also invited tender for the solarisation of agriculture feeders, covering 75,000 individual pump sets.

With 50% renewable energy installed capacity and 30% energy consumption from clean energy, firmness and flexibility of the electricity market and grid is critical for Karnataka. Therefore, the state must keep taking concrete steps in that direction.