Scaling Renewable Energy – What’s Holding Us Back?, ET EnergyWorld

The last budget included a number of announcements on renewable energy (or rather non-fossil energy, given nuclear), but most of the announcements were improvements to existing plans. These are welcome, but will they be enough?

If the world is to have any hope of avoiding the worst effects of climate change, rapid scaling of renewable energy (RE) is a critical need. India is doing well by global standards, but we are not doing enough – we need to more than triple our current deployment to meet 2030 targets. However, very few countries are adding RE fast enough – China is an exception, but it is still adding more coal capacity!

Why aren’t we scaling RE fast enough? A useful approach is not to ask what we are doing, but rather what we are doing NO we do? We support more domestic production, we make more RE offers and we ask for bigger mandates like renewable purchase obligations (RPOs). What we don’t do is solve the ecosystem problem, which means driving enough sustainable demand from the bottom up. Top-down pressures, including targets, can only go so far.

At the risk of oversimplifying, here’s the question: if RE is so cheap, to the point where some suggest “no more new coal is needed,” then why do we need RE targets or mandates? Shouldn’t end users and other stakeholders simply add RE on their own?

The reality is more complicated, starting with how we measure the cost of renewable energy. Most metrics rely on the levelized cost of energy (LCOE), an average number that ignores both time-of-day considerations and the impact of the system on the rest of the grid. Intermittent or variable renewable energy (VRE) is actually quite cheap, but that’s before adding significant amounts of storage, such as batteries.

The key stakeholders are the electricity distribution companies (discoms) whose primary responsibility is to balance demand with supply and they are aware of the limitations of RE. Cheap solar power ensures that they do not run out of supply during the middle of the day but struggle to meet the evening peak.

Distribution companies are also facing cash shortages, partly due to welfare redistribution policies which result in inadequate tariffs and despite overpayments by selected segments such as commercial and industrial users; many others underpay. Distribution companies are thus becoming the weakest link in the chain and are the reason why a significant number of “successful bids” for RE projects undertaken by SECI and others do not find any distribution company willing to sign a power purchase agreement.

The missing link between top-down pressure and bottom-up pull must be the right framework.

We need to price electricity accurately, both for consumers and generators. This starts with time-of-day pricing, but also includes transmission (which is related to location), variability, and the retirement of other generators. Coal plants are limited in how much partial output they can go to when renewables are high in the middle of the day, and all of those peaks and troughs hit them with consumption and loss of efficiency.

For consumers, this is a double-edged sword. Those who can change their loads to accommodate cheaper (and cleaner) solar energy will save money, but what about the rest? Households have most of their load in the morning and evening. And of course, the time of day requires new tariffs and the right equipment, such as a smart meter.

Second, we need to be precise in pricing and signaling. Our historical norm is socialization, which spreads the burden but masks the true costs. Overpaying consumers will be the first to leave the discoms under power transmission, which is already happening with rooftop solar panels.

There are new RE offerings called “24/7” (RTC) or “fixed and dispatchable RE” (FDRE), but they are not truly fixed or dispatchable (a topic for another day!). They help, but they are mostly oversizing RE, with limited storage at best. We socialize when we offer “free transmission” to REs – it is free to them, but someone else pays. Similarly, if rooftop solar consumers use “net billing” where they can over-generate at midday and take it back at night, that is a cost to others. California already restricts support for rooftop solar, and as we scale our own rooftop solar (partly driven by the PM Surya Ghar Muft Bijli Yojana), we cannot sustain this model indefinitely.

Third, extending the signalling issue, we need to ensure that we do not engage in greenwashing. When a consumer collects or offsets their rooftop solar generation by transferring it to and collecting it from a Discom, they are technically using non-solar energy (i.e. coal) at night. The same greenwashing risk applies to renewables used to produce green hydrogen, which, like rooftop solar, can currently collect generation through a Discom to manage time-of-day variability. Ultimately, greenwashing is a bigger problem with a range of carbon offset instruments that rely on accounting standards for decarbonisation rather than verifiable, additive decarbonisation.

The good news is that VRE is already very cheap and we have a lot of room to expand before network bottlenecks force large-scale storage or network upgrades. But the goals can’t get us there because either the goals don’t stack up or if they need more funding or increase costs, they risk becoming an unfunded mandate.

Some countries have created two sets of targets – hard and ambitious. The former entail penalties for non-compliance, while the latter are encouraged and possible but not mandatory. But finding the right balance is difficult and requires in-depth analysis. Current countrywide exercises in “resource adequacy” planning are an important step, but they do not take sufficient account of uncertainty or risk management.

The biggest change we need is a change in attitude. RE is both cheaper and more expensive than people think. It may even be cheaper on average, but it also leads to greater volatility and uncertainty, which comes at a price. Today’s “cost-plus” pricing, where costs are passed on to consumers, may seem low risk to upstream players, but it mainly passes risk downstream. Similarly, we have price caps on our power exchanges, ostensibly to protect consumers, but they are too low to attract gas-based generation relying on imported LNG. Ultimately, we have to accept higher prices at certain times of the year and for certain users in exchange for saving money elsewhere, and also for going green.