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.
“You Never Know How Far You Can Run, Unless You RUN.”
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