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Power Ministry proposes bundling renewable energy and thermal power

Venkatesh Ganesh Mumbai | Updated on January 18, 2020 Published on January 17, 2020

 

To help distribution companies (discoms) with dues with the help of private sector, the Ministry of New and Renewable Energy (MNRE) has proposed an idea which involves bundling renewable energy and thermal power.

The government has released a draft paper with to achieve a happy medium of availability, cost and Renewable Energy (RE). RE includes solar, wind, small hydro or a combination, with or without energy storage system.

The capacity additions in RE makes a case for “reverse bundling”, wherein high cost thermal power is allowed to be bundled with cheaper renewable energy, and is provided “round-the-clock to the discom,” the paper noted.

Higher cost of thermal power is attributed to rise in cost of coal imports and no significant capacity addition. Approximately, 70 per cent of India’s power requirements are coal-based. Additionally, for the discom, this can also bring down power buying costs, the draft said. At present, cost of renewable power is anywhere in the range of ₹2.60 to ₹2.80 for solar. In comparison, generation cost of coal is approximately ₹4.6 per unit.

Reverse bundling

Even as cost of RE capacity decreased, discoms continued to buy thermal power which accentuated their problem as coal got costlier. In effect, the government is attempting to do “reverse bundling”, which involves adding more RE to the energy mix.

“In the first phase of Jawaharlal Nehru National Solar Mission (JNNSM) in 2010, to facilitate grid-connected solar power generation, the concept of bundled solar power was introduced. Now, with solar power getting cheaper, the effort is to reduce the cost burden for a discom,” said Rupesh Sankhe, Vice-President, Elara Capital.

Dues from discoms have touched ₹80,000 crore, which, in turn, has resulted in non-payment to power generators. For example, ReNew Power has seen a rise in payment delays from State distribution utilities, from 155 days in March 2019 to 235 days as on September 2019, according to Fitch.

Cost-saving

The draft also pointed out that discoms will not have to integrate RE power into the grid since the responsibility of giving firm power will be with the power generator. “Discoms ended up buying expensive thermal power to supplement RE and through reverse bundling they can save on costs as well as manage the grid better,” said Sankhe.

The draft has called on power generators to supply 51 per cent power annually from RE Power and the remaining from thermal power. In the past, such provisions were not there and now the government is looking to change it with increased RE capacity, said an executive from a discom. The draft also states that the power generator can combine storage for ensuring that it achieves the required minimum annual availability of 80 per cent.

Industry watchers pointed out that one of the advantages of using RE is that Power Purchase Agreements (PPAs) signed for long periods tend to be consistent unlike thermal power wherein there is a certain amount of fluctuation, based on the coal price movement. Also, the solar, wind and small hydro power generation does not involve any variable cost in terms of recurring fuel cost, and includes annual operation and maintenance costs.

Published on January 17, 2020
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