Despite its sheer scale and notable challenges such as funding requirements, why may India successfully pull off the world鈥檚 biggest energy transition?
India is poised to succeed in the transition due to its commercial viability. Regardless of energy transition or carbon neutrality goa...
Despite its sheer scale and notable challenges such as funding requirements, why may India successfully pull off the world鈥檚 biggest energy transition?
India is poised to succeed in the transition due to its commercial viability. Regardless of energy transition or carbon neutrality goals, the significant reduction in solar prices makes it a more economical choice when compared to thermal energy. While managing the base load due to the intermittent nature of solar has been a challenge, the overall benefits make it a compelling option. However, with a sharp decline in storage prices in the past six months, this switch makes even stronger sense. Additionally, the kind of capacity we are contemplating, or the prices we have been seeing, constitute a combination that cannot be avoided. The Indian power sector has witnessed high demand growth of around 8-10 per cent over the last three years, and it is expected the demand will continue to grow at a CAGR of 6-7 per cent over the next decade. Further, we have set an ambitious climate goal and decarbonisation of the power sector will be a key lever to achieve the same. Therefore, to meet the increasing power demand and climate goals huge non-fossil capacity addition has been targeted. The non-fossil-based capacity is expected to increase to around 500 GW by 2030 from the current 200 GW. The ministries of power and new and & renewable energy have taken various measures to accelerate the renewable energy capacity addition such as focusing on building green transmission corridors, developing the ecosystem of manufacturing in India through PLI (Production Linked Incentive) for solar and battery storage, waiver of ISTS (Inter State Transmission System) charges for renewable energy projects, and enforcement of payment discipline through LPS (Late Payment Surcharge) Rule. This conducive environment in terms of projected demand and policy support will drive the addition of 300 GW of non-fossil capacity by 2030.
Also, while our current green energy contribution stands at 11-12 per cent, and around 20-21 per cent, when including hydro, it is important to recognise our progress in renewable energy capacity addition. A comparison with European countries like Germany, which started the transition much earlier, to surpass 50 per cent, and the UK which is approaching 40 per cent shows there is room for growth. The US 鈥� with a different energy mix 鈥� and China are also significantly advancing in this area. This comparison highlights opportunities for further development in our renewable energy sector.
Amid the increased focus on solar, wind and hydrogen, why is there a need to give equal attention to the country鈥檚 largely untapped hydroelectric potential?
Hydropower generation comes with challenges, such as the time required to create capacity and cost escalation. New technological disruptors such as solar are bound to be utilised in such a scenario. Hydropower has been a focus over the past 100 years. While there are no major discussions about increasing the pace of creation of that capacity, multiple projects are still under construction. However, there is a silver lining. In a joint statement with India, Nepal has committed to developing 10,000 MW of hydro capacity over the next ten years while commissioning more than 1,000 MW capacity. And since their demand is limited, the surplus electricity produced will get supplied to us. Hydro is an important technology that supports renewables in a big way and we must go for it by enhancing our capacity. Natural gas-based generation is currently not feasible for India, owing to steep prevailing market prices with no visibility on their reduction shortly. Hydro-generating stations will provide crucial round-the-clock clean energy and inertial and ancillary support for renewable energy integration. Currently, we have around 46 GW of hydro capacity, and around 15 GW is under construction, which is expected to be commissioned over the next seven years. Further, there are discussions to see the feasibility of adding another 50 GW.
Further, to support the growth of hydro
addition in India, HPO targets have also been announced till 2030.
Is the role of thermal power gradually becoming that of a filler or does coal still have a future?
India is steadily working towards ensuring consistent round-the-clock electricity supply to the end consumer. Thus, there is an urgent need to match the rapidly growing demand. In the last three years, we have seen 8 per cent (FY22), 10 per cent (FY23), and 8 per cent (FY24) growth in demand. While any new capacity addition will get immediately absorbed, more will still be required. So, coal will continue to be a base load generator for probably one more decade, if not more. The thermal power plants will be operating with high PLFs (Plant Load Factors) to support the grid. Besides, there is one more factor at play here. We have the scope of demand shifting. Currently, most states are meeting high demand from the agriculture sector during the peak evening hours. However, there is room for improvement in this approach. With surplus solar power available during the day, some of this demand should be moved to the peak solar generation time. Several states are already working on it. Such initiatives will help us flatten our demand curve. To meet the unprecedented increase in demand and the fact that storage technologies to address the intermittencies of renewable energy are still not competitive, coal-based capacities are expected to play an important role in providing the base load and peak load over the next decade. Around 29 GW of thermal capacities are expected to be commissioned over the next four years, with discussions already underway to add another 80 GW based on the demand trends. So, overall, we need coal-based capacities to help meet the growing power demand, maintain supply reliability, and support variable renewable energy integration.
What is your view on India鈥檚 potential to become a net electricity exporter through cross-border trades?
Cross-border electricity trading has gained momentum and currently, nearly 18 BU (billion units) of electricity is traded between India and the neighbouring countries such as Nepal, Bhutan, and Bangladesh. The cross-border transmission corridor needs to be expanded to support the trade of electricity in the region. Looking at the demand and supply complementarity of India and its neighbours, cross-border trade is expected to grow further. With 2600 MW of electricity currently supplied using existing corridors, India is a net exporter to Bangladesh. Nepal and Bhutan purchase power from India during their dry season (November-April), when their hydro generation is lesser, and they export power to India
during the wet season (June-September) when they have ample hydro generation. With India鈥檚 focus on adding capacity in the coming years, there will be additional supply in the system which will pave the path for the country to emerge as an exporter of electricity to neighbouring countries.
What about India鈥檚 Northeast region鈥檚 potential to emerge as a power generation hub for the South and South East Asian region by tapping into its hydro potential?
Yes, there is a definite opportunity there. However, the lack of adequate transmission capacity is a challenge that cannot be overcome overnight. Bangladesh often experiences acute electricity shortages and is interested in purchasing more power from us, but we can鈥檛 meet this export demand owing to limited transmission capacity. There are discussions around adding 50 GW of hydro projects in addition to the projects under construction and a good share of this will be developed in the Northeast region. A lot of capacity creation is required to go beyond our boundaries. There have been conversations with Sri Lanka about undersea transmission cables, which have led to positive developments in power grid interconnection. Ultimately, it鈥檚 about developing a robust transmission network. Once established, this network will allow energy electrons to flow seamlessly. However, this process requires time due to various geopolitical factors.
Amid all these developments that we have spoken about, what will be the role of power exchanges like IEX?
IEX is committed to enhancing regional energy security and cooperation by encouraging participation among South Asian countries. We have received a positive response from countries like Bhutan and Nepal. We get more than 10 million units as 鈥榮ell鈥� per day from Nepal. Similarly, during the lean season, Bhutan and Nepal鈥檚 dependency on the Indian spot market increases to 1000 MW in certain time blocks. These activities testify to our potential to provide a vibrant trading environment. We offer a borderless platform, designed to be scalable and adaptable to meet any demand increases. more transmission capacity becoming available in the future, we anticipate even greater cross-border trading, further strengthening regional energy integration. With the per capita consumption in the region currently being low, it is bound to increase significantly in future. Besides the cross-border energy trading, with the rapid transition of the energy sector led by renewables and technology, there is a need to increase the share of exchanges in the country. Several regulatory and policy initiatives are being undertaken in this direction. Mindful of the need for a vibrant power market, the government in the Draft National Electricity Policy has set a target to increase the share of spot markets to 25 per cent by 2030.
And what happens when we also start supplying electricity to countries beyond our immediate neighbourhood?
Today, we are even discussing trilateral transactions. Recently the government has approved a bilateral transaction from Bangladesh to Nepal. By creating virtual nodes on Indian territory, we can facilitate such transactions, allowing countries to trade electricity even if they are not directly connected. A user fee will be charged for
the transmission lines. Thus, such transactions can happen.
Moving on to another issue, is it
fair to expect season-based pricing from power exchanges when in the past few years weather patterns globally have been somewhat erratic over concerns of global warming?
Weather patterns have become increasingly unpredictable due to global warming, affecting season-based pricing. For instance, in 2022, we had an acute deficit for some time that caused the prices to spike significantly. However, the rains in April last year contributed to lower average prices, which fell from over `10 per unit two years ago to around Rs.4 per unit. The primary reason behind the 2022 power crisis was the lack of preparedness for the unexpected surge in consumption following the recovery from the COVID-19 pandemic. Consequently, adequate coal stocks were unavailable for plants to operate at full capacity. Similarly, imported coal-based plants were also not operational. Nor was natural gas available. The resulting crisis was due to all these pieces coming together. Since then, significant improvements have been made. Today, we are in a much better position, with the average price for the year at Rs 5.24, which is quite reasonable. Prices have only risen during certain peak hours, which is expected with the growing rise in solar capacity. Another good thing is that capacity additions are in the pipeline. Once this capacity is commissioned, we anticipate further stabilisation of prices.
Be it stocks or commodities, the success of any exchange is ultimately determined by the ordinary retail investor. So, when do we see such participation happening in power exchanges?
At IEX, we already have over
7,000 registered participants, which includes
a significant number of commercial and industrial consumers with a demand of over
1 megawatt (MW). As enthusiastic participants, their volume fluctuates depending on the prices. We have close to 4,500 open-access consumers who are commercial & industrial players. This is like having the end consumer registered with you. We have taken things to the level where smaller commercial entities such as hospitals and hotels are registered with us. They buy electricity from us as per their requirement. To answer your question whether electricity trading has percolated to the micro level, I feel it is already there. The next logical step in this direction would be green energy open access. The green energy open access has reduced the threshold limit to 100 kW for renewable power consumers from the
existing 1 MW for conventional power. We look forward to welcoming more participants
to our platform once that happens. Today, if large industries constitute primary buyers, the green energy open access will enable SMEs (small and medium enterprises) to also participate in buying and exchanging power through our platform.
How do you see the production and consumption of electricity changing over the next ten years?
According to the CEA鈥檚 (Central Electricity Authority) forecast, power demand growth is expected to remain robust, ranging between
6-7 per cent over the next decade. The CEA estimates that energy demand will increase from 1624 BU in 2024 to 2279 BU by 2030, with peak demand rising to 335 GW by 2030. Capacity additions and drastic changes in the energy mix would contribute to this increase. Today we have 20 per cent renewables in
our energy mix. The UK with 40 per cent renewables in its energy mix routes over
50 per cent power through exchanges. Greater participation in the market is hugely beneficial for renewable energy integration. I strongly believe that markets are going to play a critical role. The policymakers in the government are already thinking in that direction. The fiscal year 2024 witnessed several favourable policy and regulatory interventions that further deepened power markets. Notable among these were the implementation of regulations such as GNA (General Network Access), IEGC (Indian Electricity Grid Code), and Transmission Charges Sharing. Further, amendments to the Electricity Late Payment Surcharge Rules have mandated the sale of URS (Un-Requisitioned Surplus) power on exchanges. All these measures are helping deepen power markets. In future, market-based models such as CfD (Contract for Difference) will help achieve the nation鈥檚 renewable aspirations to transform the power sector.
