175 GW Renewables Target By 2022 : Boon Or Bane

India has embarked on an ambitious target of setting up of 175 GW thru renewable energy sources by 2022.  Considering the current 38 GW of renewable based power plants already installed,  this implies setting up additional 137 GW  which will generate additional  219 Billion KWhr ( @ 1.6 Million KWhr/MW)  by 2022. Whether this additional generation will be a boon or bane is a  $110 Billion question since that would be the investment that would be required for achieving the 137 GW of renewable power.

In order to analyze this issue, it is necessary to quickly estimate the likely energy requirement by 2022 and evaluate the power generation capacity needed to meet the requirement. This has been carried out for the year 2016-17 by CEA and as per their Load Generation Balance Report,  the unrestricted energy requirement for  2016-17 is estimated at  1215 Billion Units  ( BU )  and the energy availability at 1228 BU. Thus there is 1% surplus power estimated by end of 2016-17.

With  Business as Usual approach,  with  electricity growth at 5% per annum, the annual energy requirement in 2022 works out to 1550 BU which means requirement of additional 336 BU.

The installed capacity at the end of March 2016 is 302 GW  with corresponding generation of 1107 BU, with coal plant capacity of 185 GW,  Renewable Energy Sources at 38 GW, balance being Hydro, Nuclear, Gas & diesel.  The PLF of coal plants was 62% which translates to 1004 BU in 2015-16.  Assuming 1.6 MU/MW for renewable energy sources, contribution of RE sources is about 60 BU which is about 6% of coal based power generation in energy term.

The question that needs to be addressed is : For meeting the requirement of 336 BU in 2022, how much  of it should come from coal plants and how much from renewable sources so that we have an optimized investment.

In this context, it is also required to keep in mind that about 10,000 MW of power plants which are already commissioned  do not have coal and there are coal plants which have coal but do not have PPA.

Since the government is working on resolving these issues, it is safe to assume that another 15,000 MW of already commissioned coal plants would start contributing by 2022 and can provide 100 BU.  The PLF of the balance 170 GW can be increased by 10% which will yield another 150 BU.

It is also safe to assume that at least additional 10,000 MW of coal plants are likely to be operationalised from 2017-2022 since the work on those plants would already have commenced.  This would contribute another 60 BU.

Thus the coal plants wherein the investments have already been made will  have the ability to contribute a total of about 300 BU.  The asking rate for meeting the 2022 energy requirement comes down  to 32 BU.

This implies that if we add another 138 GW of renewable generating about 219 BU,  there would be a surplus power of  187 BU.  Either the coal plant would have to back down or the RE plant would  be stranded.  Since the RE projects are  must run projects and the discoms have to necessarily procure this power, it will obviously impact the coal plant.  Discoms incur an additional expenditure of Rs 3500 Cr for each 1% PLF  of coal power purchase ( on All India basis ) being substituted with RE power.

It is quite clear therefore that the addition of 175 GW of renewables  with Business as usual approach will have serious financial impact for  the coal plant generator and the discoms or the RE power generator.

The consequences of the surplus power situation is already seen from the recent news item regarding the over Rs 1000 Cr outstanding payments to Wind power producers by Maharashtra discom.

http://economictimes.indiatimes.com/industry/energy/power/maharashtra-discom-owes-over-rs-1000-crore-to-wind-energy-developers/articleshow/52771407.cms

“Germany’s shift to renewable energy is hurting utilities from EON to RWE AG as margins get squeezed at traditional coal and gas-fired plants because green power gets priority access to the grid. EON, the third-worst performer in Germany’s DAX stock index in 2015, is responding by spinning off its fossil-fuel plants into a separate company. RWE in 2013 had its first annual loss since 1949.

The tragedy of this mandated oversupply is that low wholesale prices, which at times are even negative, are not getting passed along to the consumers. Rather next year German consumers will see new record-high electricity prices. Already poor households are reeling and electricity is becoming a luxury for the affluent only.”

Unlike Germany, where the discoms are able to pass on the higher power purchase cost to consumers, there is only a certain level  to which the discoms can pass on the higher power purchase cost in India since whichever ruling political party  tries to increase power tariff  faces a grave risk of losing in the elections.

Unlike Europe or US which are high on the list of Per Capita CO2 emitters,  India is at the bottom of the list on a Per Capita basis.

The logical question that arises is whether India should push for high renewables. The answer is a clear “Yes”.  Rationale for the renewables is that they can substitute for the oil which India is importing in huge quantity. This can be achieved by switching from IC engines to Electric Motor for transport vehicles.

187 Billion Units of surplus power in 2022 will be able to displace about  50 Million Tonnes of Oil which is equal to an annual saving of  about  $ 19.5 Billion at $ 50/bbl.

An investment of $ 110 Billion in renewable can thus lead to saving of $ 19.5 Billion in foreign exchange- about Five and a half year’s payback.  Makes sound economic sense in addition to other benefits like zero-emission,  reducing congestion ( with Electric Buses)  and huge employment benefits. 

Even if a few Billion Dollar capital subsidy is provided by the government initially, that would help in causing a huge shift from  IC engines to electric motors.

Yesterday’s news in the ET about GOI planning to give boost to EVs is encouraging.

http://economictimes.indiatimes.com/industry/auto/news/industry/government-panel-working-on-power-surge-plan-for-electric-vehicles/articleshow/52963969.cms

Electric Bus today costs about Rs 25 Million.  However, with over 200 Bus body builders in the country who have the skills needed to integrate the Electric Bus and with local assembly of Lithium Ion battery packs, the electric bus cost will come down rapidly ( within 2 years ) to a level of Rs 15 Million.

India can also go for the Electric Trolley Bus Option where the electric bus draws power from overhead conductors thru pantograph just like a tram. However, unlike a tram which requires rails, the Electric Trolley Bus does not require any rails.

The Electric Trolley Bus is a well established system.  One of the reason for the trolley bus not becoming popular is the high initial cost of the Overhead wire infrastructure in the western world where the OHE infrastructure cost is pegged at US$ 1 Million/Km. 

Since there are numerous electrical contractors for Indian Railways who are well experienced in engineering & construction of the overhead wire( OHE ) infrastructure,  due to intense competition, the cost of installing the overhead wire in India will be only Rs 10 Million / Km. 

The OHE system lasts for over 25 years and they can reduce the on-board battery capacity to a minimum and also address the issue of limited life of batteries.  The Electric Trolley Bus can be  integrated locally for under Rs 10 Million, which is equal to or only marginally more than a CNG bus cost.

The Electric trolley bus is an ideal fit for the BRTs since the BRTs are a fixed route and high volume routes and is not likely to change.  

Coming back to the question of whether 175 GW renewables will be a boon or bane therefore will depend on whether the renewable power is used to displace  “oil”   or  “coal based  power”.