Is discom health tripping the energy storage sector – EQ Mag Pro

Experts are of the opinion that making use of the ‘market mechanism’ may be a way out

In India’s energy sector, it seems you can’t take a step without tripping on the most vexatious problem ever, namely, the health of discoms.

The country’s various electricity distribution companies (discoms), which are utilities, mostly owned by the state governments, have run up huge losses and are saddled with mighty amounts of debt, politics and populism being at the bottom of the issue.

Now it looks like the problem is stunting the growth of India’s nascent energy storage sector.

The hurdle

The issue is this. A recent study of the Central Electricity Authority (CEA) has predicted that to meet India’s ambitious target of 450 GW of renewable energy by 2030, the country would need 27GW/108GWhr of grid-scale Battery Energy Storage Systems (BESS)—in addition to the proposed pumped hydro storage of 10GW—by 2030.

We are running out of time, so it is necessary to start building energy storage systems (ESS) now.

Yet, ESS tenders are hampered by the ability (and willingness) of the discoms who buy the power.

A joint study undertaken by JMK Research and think-tank–Institute for Energy Economics and Financial Analysis (IEEFA) has added up all the ESS capacity tendered out and checked as to how many of them have come up.

It found that of the cumulative tendered capacity of 4,320 MW, only around 1,995 MW were allotted—of which only a handful of projects have been commissioned.

Discoms play difficult

SECI, the government body tasked with developing the renewable sector, which conducts capacity auctions— that is basically facilitating the development of the renewable energy sector by functioning as demand aggregator—faces a major challenge.

It has to buy power from ESS companies and sell the power to discoms in states that have little renewable energy potential. So, SECI signs power purchase agreements with developers and Power Sales Agreements (PSAs) with discoms, back-to-back. Discoms, notes the study, “refuse to sign PSAs even after having an initial pre-bid understanding with SECI.” JMK and IEEFA believe that discoms go back on the understanding in anticipation of falling tariffs and their own internal financial difficulties.

For example, in 2019 SECI tendered out for 1,200 MW of renewable energy plus storage tender with guaranteed peak power supply for 6 hours a day (7 am–9 am and 6 pm–10 pm). Two companies won mandates to supply power. Hyderabad-based Greenko won 900 MW with pumped hydro storage and ReNew Power won 300 MW with battery storage–at ₹6.12 a kWhr and ₹6.85 a kWhr, respectively. The off-peak power tariff was ₹2.88 a kWhr, which is not too small either.

SECI is yet to sign the PPA with the two companies because it could not sign corresponding PSAs with discoms, which apparently find the power too pricey. SECI has more recently tendered out for 500MW/1,000 MWhr of ESS on standalone basis. Even here, “final offtaker entities are yet to be defined.”

Are markets the answer?

There seems to be a growing realisation that selling power to discoms may not be the best way to go forward and perhaps a better way is to make use of the ‘market mechanism’. Accordingly, in the SECI tender for 500MW/1,000 MWhr, the developer has been given the option of selling up to 40 per cent of his power through the energy exchange. JMK-IEEFA researchers (Jyoti Gulia, JMK and Vibhuti Garg, Prabhakar Sharma and Akhil Thayillam of IEEFA) believe that “with better forecasting of load demand, future tenders may further explore the potential of capacity markets to provide additional revenue.”

Revenue from the capacity market can make up 5-10 per cent of the total revenues of a BESS project, depending on the battery size–this would ultimately contribute to a reduction in discovered tariffs.

Standalone ESS

In the recent past, there have been two standalone ESS tenders—SECI’s and that of NTPC, for 500MW/3,000 MWhr. By decoupling renewable energy generation and its storage, it ushers in an era of ‘ESS-as-a-service’. Together, these two tenders have offered 1GW/4GWhr of capacity, which is a respectable number and hence bring in benefits of scale.

Moreover, these tenders are technology-agnostic technology and is left to the choice of the developer (bidder). And by allowing the developers to sell a part of their energy through the exchange, the offtaker risk is somewhat mitigated.

ESS-as-a-service could engender a new industry, say JMK-IEEFA researchers. This, along with electric vehicles, creates a demand for energy storage equipment manufacturers, giving them confidence to avail themselves of the PLI scheme (a government’s incentive scheme) for 500 GWhr of storage. The government’s think-tank, NITI Aayog estimates a domestic battery demand of 100-260GWh in 2030, rising (almost 17 times) from an anticipated value of 11-15GWh in 2022.

One dismaying aspect of ESS is the lack of enterprise on the part of all stakeholders for trying out new technologies. Today, all ESS is only battery or pumped hydro storage. Flow batteries are emerging as viable, safer and easily scalable technology for stationary applications. The technologists are ready with it.

Prof Kothandaraman Ramanujam of IIT-Madras, who has developed lead-based flow batteries (more viable than the traditional vanadium-based batteries), stresses that the technology is economically viable and best suited for grid stability and wind energy storage applications. But developers, perhaps because of ultra-cautious bankers’ reluctance to finance new technologies, have kept away from this technology.

Source: PTI