Flickering interest in 'round the clock' power

The Union government recently announced a scheme to bundle renewable energy with thermal (coal/gas)-based power and sell them together. The idea is to ensure optimum utilisation and sale of renewable power and thereby reduce the cost of power at the consumers’ end. This would also help states meet their mandatory renewable purchase obligations (RPO).

The thermal power industry is elated at this decision, but the renewable energy sector is divided on the scheme. Some have called it a plan to salvage under-utilised stressed thermal power units and others think it detrimental for renewable power units.

The draft scheme proposed by the Centre said power generators “shall supply renewable power along with thermal power, in ‘Round-The-Clock’ manner, keeping at least 80 per cent annual availability”.

“Minimum of 51 per cent of energy shall be dispatched from renewable energy sources. This 51 per cent shall also include dispatch from storage system, provided RE (renewable energy) sources were used to store energy in the storage system,” said the draft. 
 

Generators who plan to sell bundled power under this scheme will have to quote a composite tariff at which they will sell the combined power. Tariff calculations would include renewable tariff and the first-year tariff of thermal power, adjusted to cover any changes in coal prices.

The payment to the generator would be in the similar ratio as the energy share in the composite supply. The scheme has proposed that the total composite tariff will consist of 51 per cent RE tariff, 30 per cent variable thermal tariff and 19 per cent fixed thermal tariff. The renewable tariff is a single-part tariff quoted for 25-30 years. Thermal tariff, however, has two portions – variable tariff, which is the cost of the fuel, and fixed tariff, which is the capital cost incurred on the project.

“It will help both developers and distribution utilities as it will add another source of power in the procurement profile. If the bid design is formulated properly the composite tariff would be lower than when purchased separately,” said A K Khurana, Director General, Association of Power Producers – a representative body of the thermal power sector.

Most industry executives believe this scheme could help salvage stressed thermal power assets. “The thermal power projects which do not have any sale agreements can be bundled with actively selling renewable projects. This will help them stay afloat,” said a sector expert. 

The power sector has Rs 2 trillion worth of stressed assets with 40 projects declared non-performing assets. Of this, more than two dozen are under stress because they have no power purchase agreements (PPAs) to sell power.

The challenge, however, lies in the fact that government will have no role in the bundling, apart from setting rules. The initiative would have to be taken by the power producers themselves. Renewable energy players are doubtful if any mainstream player will even evince interest. “Even if they do, how does that benefit me? I will be supplying 50 per cent of the total demand and will be paid 50 per cent,” said a senior sector executive.

Renewable sector consultancy Bridge to India in a recent note said, “We suspect that because of limited number of potential bidders, the scheme would not attract very competitive bids and may therefore not be cost attractive for discoms. With proposed mandatory blending of thermal power, the scheme remains beyond scope of most renewable power developers.”

The situation could get grimmer given the delayed payment by the states. Both thermal and renewable energy projects are facing payment delays from the states. Outstanding dues of thermal power projects stand at record high of Rs 83,000 crore. In case of renewable, the amount is close to Rs 11,000 crore (last recorded in July 2019), but the delay runs are for more than six months to one year.

Several states also do not honour the PPA they sign with renewable power projects. The ministry of power has mandated the “letter of credit” system of prepayment for the states to purchase power from any unit. However, that is for the current and future payments and offers no relief on dues.

Another challenge would be the “merit order despatch” of power based on tariff and energy source. While bundled power will get priority in the merit order, different composite tariff of the bundled power could add to the confusion. Some of the renewable power projects and large thermal projects have super-low tariffs in the range of Rs 1.75-2.5 per unit.

Sector experts believe the composite tariff would come to around Rs 3 per unit or so, according to the cost of thermal power in the bundled scheme, which varies across the country. As the cost of coal increases, the cost of thermal and thereby of the bundled scheme would go up. The cost of renewable power, however, is dependent on the cost of equipment in case of solar and on market demand in case of wind.

The draft scheme has mentioned, but not addressed the concern on the cost, said the executive quoted above. “But as hybrid projects (solar and wind projects built together) did not fly off, this initiative should be given a chance,” he said.

State-owned power generator NTPC has been preparing the ground for bundled power for some time. The company decided to back down some of its thermal power in order to blend with renewable and sell together last year. It has also decided to set up small solar and wind power plants at its thermal power sites.

No other major power developer has announced any such plan especially privately owned units. With most of them battling stress, this scheme would have to aim at plants with low utilisation first, said an executive, killing two birds with one stone.