How the proposal for inviting solar tariff bids in dollar
terms and India’s largest thermal power generation company may hold the
key to making the dream of 24×7 power a distinctive reality for the
country’s 1.3 billion citizens, even in the midst of contradictions that
riddle the growth of India’s power sector. For those unfamiliar with the story of the horse that Hollywood made
famous, Seabiscuit was a small horse who had an inauspicious start to
his racing career.
History, though, remembers Seabiscuit not for his
diminutive stature or early failings, but as an unlikely champion who
served as a symbol of hope to the American population during the Great
Depression.
To draw an unlikely analogy, India’s renewable energy industry has
been much like Seabiscuit in terms of its inauspicious start. This is
something openly accepted by our country’s Minister for Power, Coal
& Renewable Energy — Mr. Piyush Goyal — who when asked at a recent
interaction about the much-anticipated rollout of India’s 100 GW plan
for solar power and the reason for its delay, aptly replied:
“I have publicly pledged myself to [the] cause of the 175,000-MM capacity target… We
are working on various things to bring the cost down and make this
viable. Unless we plan properly, the 32-year-old ministry, which has
achieved 3,000 MW of solar capacity, will only manage to double it over the next five years. Instead, I want to see a 3,300% increase.”
India’s power sector is certainly unique in the way it is structured,
and hence the difficulties that it presents are also distinctly
challenging. Issues that the country’s leadership have to deal with
range from the inadequacy of sufficient power generation, to the
unavailability of transmission infrastructure, an unstable grid network,
to a nepotistic culture of politics wherein politicians have believed
it is their right to promise free power to favoured constituencies.
Therefore, the challenge before the government — as it works towards
the fulfilment of its promise to provide 24×7 power to all 1.3 billion
citizens of India in the next 5 years – is not to find a way to merely
kill 2 birds with 1 stone, but a way to kill 10 (or however many more it may be practically possible) with a single stone – in a limited period of time! [Note: The aim is not actually to kill any birds, and that would go against the aims of CleanTechnica.]
It’s a well-known fact that India is a country riddled with
contradictions. As a popular forward appropriately puts it, ours is a
nation…
… where a pizza is delivered to you faster than an ambulance or the police,
where you can get a car loan @ 5% interest, but an education loan only @ 12%
where 1 kg of rice costs Rs. 40, but a mobile sim card is available free.
Therefore, it should be no surprise that India’s power sector is
plagued by a similar set of seemingly illogical — yet very
real — inconsistencies. India’s per capita power consumption, which stands at about 940 kWh,
is amongst the lowest in the world. By comparison, China consumes 4,000
kWh per capita whereas developed economies average 15,000 kWh per
capita. To make the figures intelligible to the average reader, 940
kWh units of electricity is just about enough to power 4 lights and 2
fans (and nothing more) for 8 hours daily throughout the year.
Hence, the emphasis of the government on the creation of capacities
for generating the power required to meet with the evident shortfall in
electricity available for supply to households and industry would appear
to be perfectly rational. This would also explain the focus of India
and the world on the targeted addition of 100 GW of solar sower over the next 7 years, as solar energy today provides the fastest means of creating a reliable and sustainable source for generating power. Yet…
“On April 29, 2015, there was so much surplus power at 3.30 pm that the national grid monitoring station indicated power was available at zero rupees per unit.”
Similarly, on the 7th of May, 2015, “there were no takers
for 100 million units of electricity, equivalent to 1,500 MW of
coal-fired and 2,500 MW of gas-based capacity, from state-run generation
utility NTPC.”
Similar issues exist with transmission infrastructure.
The responsibility to establish the transmission infrastructure
required to provide last-mile connectivity of electricity to consumers
is the responsibility of state-owned electricity utility companies. It
is, however, an acknowledged fact that state electricity boards are
financially overstretched due to the ‘fiscal imprudence’ of states which
have caused individual state DISCOMS losses of up to Rs. 15,000 crore
($2.3 billion) per year. Hence, the only logical way for them to be able
to invest into the creation of the required infrastructure would be by
making their operations profitable.
In spite of this, state governments continue to promise subsidised
power to preferred sectors and constituencies, even as the state’s
electricity regulatory commission is preparing itself to pass an order
on delayed power purchase adjustment charges (PPAC) which could see power bills shoot up by up to 20% in the national capital.
Three years ago, north and east India faced the dubious distinction
of waking up 680 million people in the middle of a mid-summer nightmare
as the northern grid collapsed. It took more than 2 days for the grid to
start wheeling out power normally. The reason for the collapse was
states over-drawing more than their centrally allocated power from the
national grid.
These are the same states which are unwilling to purchase surplus
power available with NTPC, and the same states which promise
free/subsidized power to gain political leverage, thereby developing a
culture where freebies are seen as an entitlement, and electricity is
assumed to be a free resource, just like air and water.
None of the above, though, leaves us any wiser on how the
government is equipped to handle these contradictions. Neither does it
seem to suggest how solar power may be the ‘symbol of hope’ for India’s
electricity woes.
Not till we begin to look at recent policy announcements and analyse the latest government actions a little more closely…
In an earlier article, I delved into the significance of NTPC’s alignment with the central government’s National Solar Mission in depth. NTPC – which is India’s largest energy conglomerate and 431st
in the ‘2015, Forbes Global 2000’ ranking of the world’s largest
companies – had pledged to buy 15,000 MW of solar power on behalf of the
MNRE in addition to setting up 10,000 MW of solar power in its own
capacity as a power developer.
Likewise, Coal India, Indian Railways, SJVN, and Power Grid have made similar commitments to establish solar power plants with the pledged capacities ranging from 1–4 GW. All
of the above, like NTPC, are independent of the political control of
the states, and hence free from self-fulfilling political policies which
seem to govern the procurement of ‘power.’
Announcements and implementation in India, though, always seem to be
separated by years of patience. That appears, fortunately, not to be the
case in respect to India’s 100 GW Solar Mission, as in the 2 weeks
following NTPC’s announcement, the road map for their
establishing/procuring 25,000 MW of solar power has been made publicly
available, and 5 tenders for the cumulative establishment of 1930 MW of
solar capacity have already been released.
Of this tendered capacity, 1420 MW is on behalf of MNRE, where NTPC
would enter into long-term PPAs with power developers for the purchase
of the generated solar electricity, while 510 MW would be awards for EPC
contracts for the establishment of solar power generation plants for
NTPC itself. This is in addition to the 500 MW EPC contracts recently
awarded by NTPC for the construction of its first 4 x 125 MW solar
plants in early May 2015.
In addition to this accelerated rollout of capacities, the government
has publicly stated its intent to consider dollar tariffs in order to
encourage foreign investments, as it plans to auction 15,877 MW of
capacity in 17 approved solar parks this year alone.
While the modalities of the same are still being worked out, the
basic framework for dollar tariff bids appears to be along the following
lines, which would most likely be facilitated through PTC India. This
comes in the backdrop of PTC (Power Trading Corporation) firming up its
renewable energy plans – as a part of which PTC India Financial Services
(PFS) and International Finance Corporation (IFC) have recently
collaborated to finance green energy projects.
- As international power generating firms are interested in setting up solar plants in the country if they can receive payments for the power sold in dollar terms, the government would look at inviting competitive bids to allocate capacities in solar parks/ UMPPs in USD. This tariff would be fixed for 20–25 years, and the Indian electricity distribution firms — which cannot bear the risk of currency fluctuation — would sell the power to its consumers in rupee terms.
- However, because of the fluctuation in the rupee vis-a-vis the dollar, to protect Indian distribution companies who will commit to pay the tariff in dollar terms for such a long period, a hedging mechanism is being worked out, wherein the ministry may also consider imposing a “hedging cost” on the dollar tariff.
- The funds collected as the “hedging cost” would be put in an escrow account to cover for the depreciation of the rupee versus the dollar, while the hedging cost of 1.5 cents, or 90 paise, would be added to the tariff.
- The tariffs are expected to be in the region of 6 cents, or Rs 3.60 at an average exchange rate of 60 to a dollar, with a normal rate of depreciation. The final tariff thus would work out to be 7.5 cents (Rs 4.50) a unit.
- As a benchmark, in today’s power scenario in India, the electricity generated from solar energy is currently priced at around Rs 6 per unit, from coal at Rs 3–4 a unit and from gas at Rs 4.7 a unit.
The ministry expects to generate a hedge fund of Rs 6,000 crore,
which would be enough to cover 3% depreciation in the value of the rupee
over the 25-year contract. However, if the rupee devalues by 5% against
the dollar, then the money would be good for 15 years.
For all the contradictions that may exist in India’s power sector,
and for all the challenges that may stand in the way of the achievement
of our government’s promise to provide 24×7 power to our citizens in the
next 5 years, the one thing that we can be certain of as a country, is
that any shortfall in achievement would not be due to the absence of
enterprise or a lack of sincerity in the dedication, hard work, and
commitment towards a cause.
Of the many things we could learn from the determination and resolve
of ‘Seabiscuit,’ what might be a more worthwhile takeaway for India’s
people is the spirit of the United States, which in the face of all
doubt found reason to believe in the ability of a banged-up, under-sized
horse, even when such belief defied any historical or logical
rationale.
The ambitious 100 GW Solar Mission that India has embarked upon
requires a similar belief if it is to see the success of ‘Seabiscuit.’
Technological advancements have today made it possible for the sun to
light the path of our nation’s transformation from being power deficient
to becoming power sufficient. It is up to us to look up and find in the
sun our ‘symbol of hope’ to dispel the dark clouds of our country’s
electricity woes.
http://cleantechnica.com/2015/06/01/indias-seabiscuit-solar-energy-can-symbol-hope-indias-electricity-woes/