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Time-of-use pricing structure for rooftop solar will be effective in India: IEA

G Balachandar Chennai | Updated on August 02, 2021

India has set a target of 40-GW rooftop solar capacity by 2022

As rooftop solar is reshaping demand curves in India, time-of-use tariffs can tap into demand response potential, according to industry analysts.

India has installed more than 6.5-GW rooftop solar capacity. With huge potential, India has set an ambitious target of 40-GW rooftop solar capacity by 2022.

The increase of rooftop solar comes with its own State-level challenges, such as the impact on discom financial stability (due to revenue losses), distribution system issues (reactive power, voltage and reverse power flow) and demand forecast uncertainty.

Also read: Commercial, industrial rooftop solar segment set to increase, become more cost-effective

“However, it is important to note that installation of rooftop solar does not only come with challenges, but also benefits. Rooftop solar can lower system losses because electricity production is consumed close to the production site. Discoms can also avoid power purchase and defer investments; however, this all depends on how well rooftop solar generation fits with the consumption profile,” according to Szilvia Doczi, former energy analyst and Tarun Khanna, PhD Researcher, Hertie School, Berlin, said in a note of International Energy Agency.

In general, when designing tariff structures, it is important to consider incentives and distributional aspects. If tariff structures allow consumers to avoid sharing the grid costs of discoms, a situation may arise where these costs are shifted from wealthier consumers, who can afford to invest in rooftop solar, to lower income households, which do not have the option of investing in rooftop solar.

It is also important to incentivise self-consumption and system-friendly deployment to ensure effective system integration of rooftop solar.

Tariff structure

One way of incentivising self-consumption, demand response, and general system friendly deployment of rooftop solar, is to look at the tariff structure. The rules for settling rooftop solar production in India is different from State to State, but some general principles can be applied.

As power systems become more decentralised with the deployment of rooftop solar, electric vehicles and battery storage must implement effective price signals to provide the right incentives for system-friendly investment. Effective price signals can be achieved through prioritising the implementation of dynamic time-of-day (ToD) tariffs (for commercial and industrial consumers with advanced metering options) as well as eliminating cross-subsidies.

This could be done similarly to the experience in California, where all rooftop solar customers (including residential) of regulated utilities have been required since 2016 to be on time-of-use (ToU) rates (ToU and ToD are used interchangeably as they refer to the same concept).

However, careful consideration and regular revisiting of peak hours and local peak requirements would be required as rooftop solar additions and demand response continue to reshape State demand curves, said IEA note.

Over the long term, a more general use of ToU/ToD tariffs accessible to all users could incentivise a large share of customers to shift part of their consumption to times when renewable energy is available. ToU/ToD price signals sent through smart metering, associated with automated appliances and connected devices, could unlock massive flexibility resources and help the system become more efficient.

Published on August 02, 2021

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