What are the most prominent trends in the Indian power sector today?
Indian power sector has been a significant contributor to the national economy. The last decade, the sector shown in trends on broad parameters of macroeconomics, supply security, generation infrastructure, and transmission infrastructure, degree of competition, regulatory scenario, and assessment of future potential.
During the recent years, the sector operations have been scaled up due to changes in structure of energy sector, consumer behaviour, load profile, new policy and climate change. To this effect, a significant change in energy prices is also seen. Select trends also include dropping prices for renewable and more and more need for energy storage, the finalization of the nation’s first carbon regulations, and the proliferation of distributed energy resources, changes are taking hold faster than many expected.
The power sector also saw major milestones achieved in some of challenging areas even as uncertainty held back others. It was not an easy time to plan demand and supply to remain on safer side. There are good indications that 2019 could be different and represent a period of rebalancing and revival.
In a nutshell, the power sector has witnessed various issues, which include changes in power market regulatory structure, decline in conventional coal power, use of natural gas, renewable parity, load defection problems of utilities, a new paradigm sees as solar energy game. Not only these, impact on electricity tariff, debates over rate design reforms and value of distributed energy recourses, modernization of grids, customers focused utilities buying into shortage; changing business models are also seen. It is also evident that — the traditional electric utility model would be upended, and utilities would need to adjust their business models to operate in a new energy future.
For many power companies and politicians, the single most noticeable trend in the utility industry is the steady retirement of coal-fired power plants. In this regards, coal-based thermal power generation is set to make a return as DISCOM are bound to call for bids to contract fresh capacity to serve a growing base-load demand.
Keeping the future demand in mind, coal production has been scaled up and that continued to improve (doubling over the past decade to over 600 million tons). Such target of Coal ministry and central PSE could maintain stock levels at power plants, with increase in capacity utilization (plant load factor) from 59 per cent to 62 per cent. The market valuation of operating thermal power plants looks certain to improve, with better performance and with lesser competition as fewer new plants are getting commissioned. In the renewable energy segment, in contrast, there was level of high competition seen between the companies. These companies may see their valuation getting moderated as the outlook for capacity growth in the near-term is soft and competition for fewer bids continues to be fierce. Here, the drop in tender flow reflects the buyer’s concerns of pricing and seller’s challenges in terms of availability of land, substation capacity and financing.
This was also evident in the part that the current government and power sector regulators took steps to deal with the effects of a rising share of renewable energy, up from 8.9 per cent last year to 10.9 per cent. The generation, spread unevenly across the day, is backed-up by coal-fired power plants unsuited for such a role, using up more coal and causing wear and tear. This makes a case for developing renewable energy projects with storage, which can absorb the variability and provide a ‘clean peak’ when needed. State governments could take this next evolutionary step in 2019 and tender for projects that combine the best of renewable energy and base-load power plants.
The battle to retain big consumers will come into focus this year. Over the years, high tariffs have caused many large-energy users to switch to alternate suppliers by signing corporate Power Purchase Agreements (PPAs). The loss of revenue and cross-subsidy has reached serious proportions, and utilities are starting to act. This year’s tariff reviews may see utilities settle for a lower rate hike to keep customers and, instead, seek a levy on the corporate PPAs as a compensation for being the supplier of the last resort.
The losses on supply to smaller consumers, that were a persisting drag on the sector, are being seen with a different perspective. The utilities are now helping smaller users aggregate so that private developers are attracted to set up local generation, either at an individual level (e.g., smaller solar rooftop) or at the community level (e.g., mid-sized rural wind-solar hybrid projects). This helps utilities leverage long-term development capital through Renewable Energy Service Company (RESCO) tenders to save on their current fuel costs and operational losses.
The business operations of utilities are getting more complex and overextended with their rapid growth. In the past year, utilities connected 23 million new households and will experience similar growth spurts as distributed generation, behind-the-meter storage, and charging points for electric vehicles take off. The power companies will look to invest in digital technologies and outsource work to private operators to manage this growth efficiently.
India turned a net electricity exporter for the first time in 2017 but, the market opportunity remained very regulated and tepid (exports constitute just 0.5 per cent of the output). A major change in mindset is evident in the new guidelines for cross-border power trade issued last month, which could lead to development of a regional power market. The stage is now set for companies to develop integrated power generation (based on imported fuels) and transmission projects, pursue multi-country PPAs, and export cheaper renewable energy to other South Asian nations.
The state and central government power agencies, too, are keen to go beyond borders to popularize their successful programmes such as with solar parks and Energy Service Company and RESCO models. This could speed up the pace of adoption and innovation in the sector, expanding the market opportunity for power companies in 2019 and beyond.
What are we doing to utilise the full capacities of our existing power plants, which mostly operate at low capacity?
Capacity is the amount of electricity a generator (a company) can produce energy when it’s running at full blast. Achieving high capacity is an issue as power plant operations are affected by many challenges, that include raw material arrangement and handling, distribution cost, skilled manpower, material handling skilled, technical expertise to handle to plant operations etc. It is seen that the capacity utilization in Indian coal based power plants hovered between 60% and 62% in 2018-19 because of large capacity additions in the past five years.
Power generators also face an important issue to service loans when PLFs, the industry term for utilization level, many times falls below a certain level of 60%. It is fact that PLF of coal power plants, many of which are already distressed due to lack of adequate demand and coal supply issues, has been low amid tepid power demand.
Capacity utilization of coal-based thermal power plants sometimes is seen fallen below 60% during the financial year 2019. For an optimal energy mix supply, even under a blue-sky scenario in which solar addition increases to 18GW, annually while new coal-based capacity of 8GW is added. It is also expected that coal-based thermal power plants operating at few lower values of plant load factor (PLFs) would continue to face challenges in many aspects.
There has been contribution of capacity addition from side, government as well as the private one. It however says that central government-owned utilities are given relatively more preference than private developers given their ability to better manage counter-party, resource utilization in terms of fuels and off-take risks. In this regards, it can be said that investing in new energies poses challenges around risk-return trade-offs and agility in decision making, which can be addressed through“ operations of power plant’s realignment, culture shifts and a strategy at power plant level which focuses on leveraging strengths but redefining protocols”.
Renewable energy-based plants, equipped with the Central government’s “must-run” status, are already preventing thermal power stations from improving their PLFs by supplying much of the incremental electricity requirement. The operations of thermal plants are critical and complex and generally will have to go online and offline (ramp rate) much faster with the advent of renewable energy. For example, a typical 500 MW unit coal fired power plant, the ramp rate is around 5 MW per minute. To make these plants more flexible, retrofitting equipment (that depends on mini and large electronics circuits, current and safety requirements), of course which involves additional investments.
Not only this, the low PLF condition has prompted the sector at stable-to-negative in the last few years despite visible improvements in the financial health of select distribution companies and lower dependence of generating companies on imported coal. The other reasons behind the improvement in the financial health of certain discoms is attributed to lower transmission and distribution losses, tariff hikes and cost rationalization.
Consequently, DISCOMs made strategy to marginal tariff hikes, increasing proportion of single-part tariff power purchases, installation of prepaid or smart meters to improve collection efficiency and lower billing errors, softer merchant tariff rates, continued usage of higher domestic coal than imported coal, and stable or marginally higher PLFs, leading to lower per unit cost as fixed cost gets absorbed over larger volumes.
Indian power sector positively look forward to stable outlook on most of its rated power plant as the operations would continue to manage fuel and counter-party risks due to a favorable tariff mechanism, a comfortable liquidity position and support from central and state governments.
In a country like India, in spite of huge operational and resource challenges to coal, gas and hydro power plants, we are finding ways to achieve the twin objectives of more energy and less carbon through a healthy mix of all commercially-viable energy sources, adding that India will chart its own course of energy transition in a responsible manner.
What is necessary to ensure smooth power evacuation from all our power plants?
We must know what are the issues related to smooth power evacuations. There are large or small operations that depend upon size of the power plants and sometimes resource type sued for energy generation. To understand this, operations and power evacuation in hydro power plants are the best. Unlike the generators in large hydro power stations, which operate in voltage control mode, the generators in small hydro power stations (SHPs) are forced to operate in power factor control mode due to their limited reactive power support. In fixed power factor operation, smaller variations of voltage at the evacuation bus are managed by on load tap changing at the generator transformers. However, during large and frequent variations in voltage, such SHPs face difficulty in evacuating the power due to delayed response by the operators and inadequate tap settings of the generator transformers.
Therefore, it is necessary to ensure such technical issues related with power evacuation and, to overcome such practical limitations faced by SHPs use of Static VAR compensators (SVCs) seems feasible options to ensure smooth evacuation of every unit of real power generated. The power generated from such plants goes to neighbouring grid in a grid connected power system for the purpose of consuming energy. Many tests those compliances IEEE 30-bus test system by way of connecting the SHP units to the most critical system bus of the test system with SVC control at the local bus are performed. To ensure the operations, testing have been fruitful and validated with the support of power flow tools such as Matlab.
Next part of the interaction will appear in the next issue of EI..