Surplus power: An opportunity beckons

Representational image (Photo: Getty Images)

India is witnessing a strange paradox. Providing electricity to ensure one light and a fan to the poor is in itself a big deal, and amidst tall government claims, many villages in the country are still not electrified or despite installation of electricity poles, remain powerless. Under these circumstances, the Central Electricity Authority, under the Ministry of Power, has come out with a report, according to which there will be 1.1 per cent surplus power in 2016-17.

Surplus or deficit power is seen in terms of power supply and demand throughout the year. If demand for power is greater than its supply, it would be considered deficit of power; where supply of power is more than its demand, it would be called a power surplus situation. In fact, this is the first time that we have surplus power, according to government statistics. The situation does give satisfaction, but it poses a problem as well. Due to surplus power, power plants are under stress because of lower demand and lower prices in view of competition. The important question is whether this challenge can be converted into an opportunity.

While analysing the reasons for surplus power, experts opine that demand for power is estimated from the people connected to the grid. However, a large number of people are still not connected to the grid. If we add the prospective demand from those deprived of electricity so far, then this surplus will vanish. As per international comparisons, India’s per capita consumption of electricity is among the lowest in the world. India’s per capita electricity demand is 1070 kilowatt hours, while the global average is 3026 kilowatt hours. Among BRICS nations, India is at the bottom in terms of per capita electricity consumption. Due to lower incomes, people have lower purchasing power and therefore they consume less electricity. However, electricity demand is on the rise year after year. In 2014-15, electricity demand increased by 6.6 per cent and in 2015-16 by 4.2 per cent. The government is making efforts to increase the capacity to generate more power, to facilitate availability of power for an increasing population. By August 2016, the total capacity was 306 Giga watts. Today total production of electricity is 1108 billion units from utilities and 166 billion units from captive power plants.

It is satisfactory that we have surplus power and there are few possibilities of power cuts. However, we still have 3.2 per cent power deficit during peak hours. The current government pats itself on the back for the surplus power. However, CEA has estimated that though we have surplus power in the southern and western parts of the country, there is still power deficit in the eastern and northern parts of the country.

Power deficit was a major problem in India till some time back. However, the situation of electricity surplus is no less challenging as electricity producing units will have to sell electricity at un-remunerative prices and therefore may incur huge losses. As a result, future capacity generation may get adversely affected if electricity generation becomes a loss-making business. The last three years have seen 77636 megawatts (MW) of installed capacity in power generation.  Due to the efforts of the present government, especially the Prime Minister, significant strides have been made in solar power and there is a great future for it in the country. Therefore, it is essential that we are able to maintain a balance between demand and supply of electricity in the country.

Even when faced with power surplus, we are still using a large amount of petroleum products for transportation and cooking. A huge amount of LPG is being imported for cooking. If we are able to produce enough electricity, would it not be appropriate to promote use of electric stoves. All over the world due to environmental hazards, people are turning towards electric vehicles. While going fast on solar power generation, the Prime Minister has set a target for reducing petroleum imports by at least 10 per cent. If we are able to achieve this target, the country will be saving at least US $10 billion to 12 billion. Today, India is the fourth largest oil importing country of the world. So, a reduction in imports may also cause further reduction in the prices of petroleum products globally. We may not only be moving towards energy security, the commitments made in the Paris Deal may also be achieved faster.

Due to power surplus and fast increasing electricity generating capacity, India has also started exporting electricity, though in small quantities. We are exporting electricity to Bangladesh, Nepal and Myanmar. Electricity exports to Sri Lanka are under process by laying a cable under sea. Therefore, we can say that in times to come, India may not only be self-sufficient in electricity, it may even be exporting electricity to neighbouring countries.

Riding on electricity surplus, by increasing the use of electricity in cooking and transport, we may not only be protecting our environment, even costs may come down. On the one hand we may be able to reduce our oil import bill, and on the other, earn valuable foreign exchange. However, for converting the challenge of surplus power into an opportunity, we will have to keep a close eye on the scenario, so that the targets of electricity generation are not hit due to lower prices of electricity.


Coal Ministry opposes NITI Aayog’s draft Energy Policy

NEW DELHI: Wary of losing Coal India’s pricing power, the Piyush Goyal-led Ministry of Coal has raised reservations over the draft National Energy Policy, which favours aligning domestic coal prices with international rates. The lack of consensus between the Centre and the ministry has delayed the policy, which has been in the works at NITI Aayog, the government’s thinktank, for more than a year now.“There has been severe opposition from the top coal ministry officials to the policy as they don’t want markets to determine prices of coal in India,” a senior government official told ET on condition of anonymity.

According to the official, the ministry is scared of this forward-looking policy because it would lose control over coal prices and would no longer be able to maximise profit for Coal IndiaBSE 0.48 %.

Coal secretary Anil Swarup declined to comment on the matter.

State-run Coal India LtdBSE 0.48 %. is the country’s largest producer of the commodity, which it sells at prices approved by the company board.

The company produces 84% of India’s coal, according to its website. Due to a combination of lower international prices and inadequate domestic production, the value of India’s coal imports touched a high of $17.8 billion in FY15. Higher domestic production in FY16 lowered imports to $13.7 billion.

NITI Aayog’s National Energy Policy is aimed at curbing imports by increasing production of renewable energy in the country fivefold to 300 billion units by 2019 and tripling coal production to 1.5 billion tonnes. Coal imports are envisaged to come down by 10% by 2022 and by 50% by 2030.

“The draft National Energy Policy is ready and we have used the best possible inputs and the best possible expertise. We had extensive discussions will all secretaries and it will be uploaded shortly,” NITI Aayog CEO Amitabh Kant told ET.

According to Kant, once inputs have been provided by everyone, it is not necessary to reach a consensus on all issues. “NITI Aayog is a think-tank. It must have differences.

If it were to have consensus on everything, NITI Aayog would have been miserably failing to do its job,” Kant said.

“We are advocating reforms, we are advocating changes, trying to push India to a higher growth trajectory and therefore differences are necessary and are obvious.

Wherever there are differences, we’ll pose them before the Prime Minister and let him take a call. The final call is with the PM, who is also the chairman of NITI Aayog,” Kant added.

Coal Ministry opposes NITI Aayog’s draft Energy Policy
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Power projects of 24,000 Megawatt capacity facing viability issues

New Delhi: Thermal power projects currently under various stages of construction in the country are facing viability issues due to either weak sponsors and poor offtake by distribution companies or fuel issues, research and ratings agency CRISIL has said.
“CRISIL estimates around 24,000 Megawatt capacities are facing viability issues. Of these, 13,000 Mw capacities face commissioning risks because of weak sponsors, while the rest are reeling because of poor offtake by discoms or inadequate fuel arrangements,” CRISIL said in a statement today. It added around a third of the capacities with weak sponsors can be revived through debt restructuring or sale to a new sponsor.The government has taken initiatives to increase coal production over the past year and the 5:25 refinancing scheme of the Reserve Bank of India (RBI) has reduced operational capacities at risk from 46,000 Mw estimated earlier to 40,000 Mw currently.“While lack of fresh long-term PPAs continues to impact generation capacities, facilitation of medium-term PPAs and corresponding coal linkages, continued focus on augmenting domestic coal production, and facilitation of open access by states can help further reduce the capacities at risk,” said Sudip Sural, Senior Director at CRISIL.

The ratings body also said the aggregate gap, or loss of distribution companies (discoms) of 15 states that have joined the Ujwal Discom Assurance Yojna (UDAY) would more than halve to 28 paise per unit by fiscal 2019 compared to 64 paise last financial year (2015-16). Therefore, the aggregate losses of these discoms are seen declining 46 per cent to Rs 20,000 crore from Rs 37,000 crore earlier.

However, the gap will still be well above the ‘nil’ level envisaged under UDAY because some states with very high aggregated technical and commercial (AT&C) losses have lesser preparedness to reduce it because of inadequate feeder separation, feeder and distribution transformer metering, and poor track record of other efficiencies. Also, the ability to increase tariffs is restricted in some states because elections are due within 12 months, cross-subsidisation is high, and tariff orders are delayed.

The gap is calculated as the difference of average revenue realised (ARR) and the average cost of supply (CoS). “Rajasthan, Haryana, Chhattisgarh, and Uttarakhand are expected to fare better in the implementation of UDAY and are therefore likely to be the biggest beneficiaries. However, UP, Bihar and Jammu & Kashmir are expected to be the laggards. These three states would account for almost two-thirds of the gap in fiscal 2019. So concerted efforts by them will be critical to narrowing future gap,” said Gurpreet Chhatwal, Business Head – Large Corporates at CRISIL.

Energy requirements of discoms are expected to increase at a compound annual growth rate (CAGR) of 7 per cent by financial year 2018-19 as compared to around 4 per cent till 2015-16. However, this will not be a major respite to generation capacities that do not have long-term PPAs as fresh signing of PPAs seems unlikely. This is because 25,000 Mw of capacities with already-signed PPAs are expected to be operational by fiscal 2019 and there will also be some pick-up in plant load factors of existing capacities because of better fuel availability.

CRISIL said any uptick in long-term PPA signings is possible only if discoms turn profitable by fiscal 2019 and strive to meet the government’s ‘Power for all’ objective.

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A Case for Cautious Optimism: Renewable Energy Auctions in Latin America

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Global Trends in Renewable Energy Investment 2016’s list of top 10 developing countries with renewable energy sector investment in 2015 included Latin American countries Brazil ($7.1 billion), Mexico ($4 billion), and Chile ($3.4 billion). IHS Markit sees continued growth in renewable energy investment in Latin America with new solar installations scheduled to reach 2.7 GW of installed PV module capacity this year alone. This trend is expected to continue with Chile and Mexico having held successful auctions that garnered high participation and some of the lowest prices per megawatt hour (MWh) globally. Although these data points are cause for optimism in the region, a relatively young government in Argentina trying to restore a badly damaged international reputation and economic and political woes in Brazil caution against over exuberance.

Two Success Stories in Latin America in 2016: Mexico and Chile

Following sweeping reforms to its energy sector regulations, Mexico’s first renewable energy auction in March rendered 10 packages of 15-year power purchase agreements (PPA) and 20-year contracts for clean energy certificates. The average, overall price awarded in this auction was $41.80/MWh. A total of 69 firms presented 227 projects, but ultimately 10 firms were awarded 16 projects. This high level of interest and competitive pricing was largely due to investors perceiving Mexico as a country that has a vast potential for the development of renewable energy projects, a stable and transparent regulatory framework, and a well-developed project finance sector (which in the case of this auction was attributable to the PPAs having longer terms and being denominated in U.S. dollars rather than Mexican pesos). The awarded projects are expected to generate billions of dollars in investment throughout Mexico, which is holding its second power auction, the winners of which are expected to be announced on Sept. 30.

Equally successful was the Chilean auction, which attracted 84 participants and resulted in the lowest price for solar PV projects globally — $29.10/MWh. The average awarded price was $47.59/MWh. This auction reduced the average energy price per MWh in 2013 by 63 percent and in 2014 by 40 percent. Like Mexico’s auction, this auction’s low pricing and high level of participation was principally due to awarded PPAs having 20-year terms and being denominated in U.S. dollars. Auction participants were also encouraged by Chile’s new transmission law, which permits grid expansion for specific regions and improves connection among Chile’s three grids.

Similar to Mexico, if the awarded energy supply results in projects actually being built, Chile could reap the hefty rewards brought by lower energy prices and increased investment throughout the country. The Chilean government estimates that these projects will help lower electricity costs for families and small businesses by 20 percent within five years and bring approximately US$3 billion in investment. However, many remain concerned that these projects might not be completed given Chile’s aging transmission infrastructure and transmission congestion, as well as exposure to spot price fluctuations in some project locations in Chile.

Major Set-backs for Brazil’s Renewable Energy Market

While Brazil has been the Latin American leader in investment in the renewable energy sector, it appears to be regressing. In the past few weeks, six developers that were awarded PPAs in Brazil’s first energy auction in 2014 have undertaken efforts to terminate their agreements. These developers contend that their projects are no longer viable due to the lack of affordable financing that is attributable to factors such as Brazil’s economic and political instability, including the devaluation of the real vis-à-vis the U.S. dollar and the absence of a local supply chain. Further complicating Brazil’s outlook is its cancellation of a solar energy auction planned in July and the postponement of its October auction until December.

Newcomer Argentina is Trying to Follow Mexico and Chile’s Footsteps

Next month Argentina is scheduled to announce the winners of “RenovAr-1,” its first renewable energy auction. This auction attracted 123 offers totaling 6,366 MW. Like Mexico and Chile, this auction drew significant interest because its PPAs will have a longer term (20 years) and will be denominated in U.S. dollars. Additionally, developers and investors were reassured by the Argentine government’s creation of FODER (Fondo Fiduciario de Energías Renovables), a sector-specific fund which is backed by a World Bank guarantee, and that will provide security for payments under awarded PPAs, as well as project financing assistance. All of these factors seem to indicate that Argentina’s first energy auction should be as successful as those held by Mexico and Chile earlier this year.

Cautious Optimism, Not Skepticism

Latin American countries such as Mexico and Chile have demonstrated that well-planned power auctions have the potential of spurring substantial growth in renewable energy investment in relatively short periods of time. Argentina appears to be heading in the same direction. Brazil, however, will need to undertake major changes to its auction program in order to attract the same level of interest Mexico, Chile, and Argentina have attracted from investors but in a sustainable manner. Optimism in the potential for continued growth in investment in the region’s renewable energy sector should be met with caution, not skepticism given the strides that have been made by countries such as Mexico and Chile.

Kevin S. Levey (left) is a partner in the Squire Patton Boggs Energy & Natural Resources Practice. Kevin focuses on the development of solar, biomass, biofuels and other renewable energy power projects, as well as clean coal-fired power projects in the US and other countries. He has advised large multinational companies on the construction, financing, operation, acquisition and sale of major power generation, liquefied natural gas terminal and pipeline projects in Latin America, including Brazil, Chile and Mexico.

Loana Martín is an associate in the firm’s Energy & Natural Resources Practice, focusing her practice on corporate transactions in the energy and infrastructure sectors, developing natural gas pipelines, solar power plants and other major infrastructure projects in the US and Latin America. Both are resident in the firm’s Washington DC office.

Lead image: The Fan Land, Atakama, Chile. CreditAndrew Kudrin | Flickr

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Massachusetts Goes All-In on Energy Storage

energy storage

The next wave of clean energy policy making will be more focused on energy storage, as evidenced by the release this week of the long-awaited Massachusetts energy storage report, titled “State of Charge.”  The study was co-funded by the Massachusetts Department of Energy Resources (DOER) and Massachusetts Clean Energy Center (MassCEC), and it represents a major new policy direction for the state on how to capture the economic and environmental benefits of emerging energy storage technologies.

In impressive fashion, the 200-page report, supported by detailed economic analysis, lays out how Massachusetts can use a smart combination of procurement, financial incentives, market economics, and economic development strategies to expand storage deployment and help grow the storage industry. It is a road map showing how energy storage can save money, increase penetration of renewable power and address climate change in Massachusetts — and, by extension, in other states.

The report proposes that the state invest millions in storage deployment incentives and market development, with the goal of incentivizing 600 MW of new advanced storage capacity by 2025, resulting in an anticipated $800 million in system benefits to ratepayers. These policy actions would be a big step in moving the state toward the report’s modeled optimal deployment level of 1.766 GW of storage, and may be augmented by the new Massachusetts energy diversity law that empowers DOER to set an energy storage procurement mandate for the state’s utilities.

DOER is supposed to decide by the end of this year whether to establish an energy storage procurement mandate, and if so, for how much additional storage. State utilities would then have until 2020 to meet the mandated procurement target. If established, this would make Massachusetts the third state to create a storage mandate, and the first in the Northeast.

While the study does not recommend an energy storage mandate, it does provide a sophisticated cost/benefit analysis model showing the economic benefits of procuring 1.766 GW of energy storage. According to the study that procurement would cost between $970 million and $1.35 billion, but would yield $2.3 billion in system benefits to ratepayers, plus $1.1 billion in market revenue to the resource owners; and $250 million in regional system benefits to the other New England states due to lower wholesale market prices across ISO New England (ISO-NE). Climate benefits include a carbon emissions reduction of more than 1 million metric tons of carbon dioxide over 10 years — equivalent to taking 223,000 cars off the road.

The study begins by laying out the business case for storage. The state’s electric system is inefficient, it says, with storage capacity accounting for less than 1 percent of the state’s daily electricity consumption. The grid must be balanced by the nearly-instantaneous ramping up and down of fossil fuel generators, requiring the building and maintenance of numerous gas “peaker” plants that only run 2 percent to 7 percent of the time. That means these plants sit idle more than 90 percent of the time.

The report also points to inefficiencies in the grid infrastructure and resulting high costs to ratepayers due to “highly variable” electricity prices. The report claims that from 2013-2015, the top 1 percent most expensive hours for electricity consumption accounted for more than 8 percent ($680 million) of Massachusetts ratepayers’ annual electricity costs, and that the top 10 percent of hours during those years, on average, “accounted for 40 percent of annual electricity spend, over $3 billion.”

The report suggests that energy storage is “the only technology that can use energy generated during low cost off peak periods to serve load during expensive peak periods, thereby improving overall utilization and economics of the electric grid.”

So, if storage is so beneficial, why isn’t there more of it already? The Massachusetts study identifies the single biggest barrier to energy storage deployment:

“While the system benefits alone justify an investment in storage from a ratepayer perspective, the revenue mechanisms that would encourage investment from a private storage developer are insufficient. Without a means to be compensated for the value the storage resource provides to the system, private investors will simply not invest in building storage projects in Massachusetts…. The biggest challenge to achieving more storage deployment in Massachusetts is that there is a lack of clear market mechanisms to transfer some portion of the system benefits… to the storage project developer.”

This is the main problem addressed by the study’s policy and program recommendations, which fall into two broad categories: (1) recommendations to expand deployment of advanced energy storage in the state, and (2) recommendations to grow the energy storage industry.

The deployment-oriented recommendations include grant and rebate programs, such as doubling funding for demonstration projects from the previously-announced $10 million to $20 million; offering $20 million in rebates for customer-sited storage out of state ACP funds; dedicating $150,000 to support commercial/industrial feasibility studies; awarding the remaining $14.2 million in DOER’s Community Clean Energy Resiliency Initiative budget; and allocating $4.5 million in demonstration project grants for utilities and market actors to demonstrate peak demand management.

The study also recommends adding storage as an eligible technology within the existing Green Communities Grant, Alternative Portfolio Standard, and Next Generation Solar Incentive Programs, and allowing storage to be included in all future long-term clean energy procurements.

There are also recommendations that the state clarify the regulatory treatment of utility storage, including the treatment of storage in grid modernization plans; adopt storage safety and performance standards; clarify interconnection requirements; facilitate sharing of electricity customer load data and use cases by facility type; and create an advanced storage working group at ISO-NE to remove regulatory and market barriers that keep storage from participating in regional wholesale energy markets.

Recommendations to grow the energy storage industry in Massachusetts include creating an energy storage cluster and expanding the MassCEC investment programs to support energy storage companies; expanding MassCEC’s workforce training programs; and engaging the state’s universities to support energy storage startups in Massachusetts and invest in research and development and testing facilities to anchor an energy storage cluster.

The bottom line is that Massachusetts — assuming programs and policy making follow this study’s recommendations — is about to throw nearly every tool in its considerable policy toolbox at the problem of how to make energy storage go, and go big, in the Commonwealth.

The study is a landmark product, not just for Massachusetts, but for all states; and it serves as an example of what can and should be done to move our electricity grids out of the 19th century and begin leveraging real and significant support for technologies that will save money, improve reliability and resiliency, reduce greenhouse gas emissions, and support the transition to renewables and distributed generation.

But no report is perfect; so what’s missing from this one? Well, for one thing, there is no mention of how to make the benefits of energy storage accessible to low- and moderate-income communities, which need energy cost savings and resiliency the most; nor is there any discussion of storage in multifamily affordable housing, where it can provide both resilient power and economic benefits.

Given the Baker-Polito Administration’s heralded $15 million Affordable Access to Clean and Efficient Energy Initiative — a cross-cutting initiative designed to focus the state’s multiple energy and housing agencies on expanding clean energy opportunities for low- and moderate-income residents — this omission may be remedied during implementation.

And there is still the open question of whether the state will implement measures to reach the modeled, economically optimal, storage deployment level of 1.766 GW. Between the report’s policy recommendations and new enabling legislation, the state may have the new tools to get there. How far it will actually go, still remains to be seen.

On the whole, though, the report is an impressive piece of work — the kind of thorough analysis other states should look to when teeing up energy storage policy development. And if even half the report’s recommendations are quickly implemented, it will position Massachusetts as a clear leader in the development of meaningful energy storage policy, programs, and deployment. It’s now up to other states to follow Massachusetts’ example.

Clean Energy Group and the Clean Energy States Alliance (CESA) are working to support MA DOER and MassCEC in their energy storage and resilient power initiatives, by providing technical assistance directly to municipal awardees of DOER’s Community Clean Energy Resilience Initiative, and by providing policy and program development support to both agencies, through the Energy Storage Technology Advancement Partnership (ESTAP) and Resilient Power Project. ESTAP is supported by US DOE-OE through a contract with Sandia National Laboratories, while the Resilient Power Project receives foundation support.

Lead image credit: AES Energy Storage

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EIA: Natural gas to generate more than one-third of US power this year


Dive Brief:

  • Natural gas will generate 34% of the United States’ power this year, with production peaking this month and next as the families fire up their air conditioners to cope with hot summer weather.
  • Total gas generation will be 4% higher this year compared with 2015, according to new analysis from the U.S. Energy Information Administration.
  • Coal’s share of the power mix is expected to be 30%, with nuclear and renewables following at 19% and 15%, respectively.

Dive Insight:

Coal’s decline and the rise of natural gas generation is accelerating. EIA’s latest predictions regarding the United States generation mix show a significant shift from the estimates released less than a year ago.

“Natural gas-fired electricity generation in the United States is expected to reach a record level this year,” the agency said in a note digging into data form its most recent Short-Term Energy Outlook. “Monthly natural gas-fired generation is expected to reach record highs in July and August, when weather-related demand for air conditioning increases electricity demand.

Gas will generate 34%, compared to coal’s estimated 30%, edging out EIA’s prediction in December when the agency estimated gas’ share of generation would be 31.6%, with the coal generation set at 34.1%.

Gas was second to coal for years and first generated more energy in April of last year. But since then, its share has been rising while environmental regulations and cheap fuelstock have pressured coal plants offline.

However, renewable growth will soon begin to cut into gas’ dominance, EIA said.

“Notably, the natural gas share of power generation is expected to decline for several years after 2016 as it competes with renewables and as natural gas prices rise,” the agency said. In its Annual Energy Outlook 2016 Reference case,  EIA predicts gas generation share falls until about 2020, then climbs steadily over the next two decades.

“Natural gas is projected to regain the largest share in the electricity mix by 2022 and maintain that position through 2040,” EIA said.

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