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Renewable Energy, Not Ready for Primetime ... Yet


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We hope for a future where all our energy comes from Renewable sources. However, we believe that this future is further away than most people think. We explain why and advise managers of distribution companies, regulators and investors to exercise caution while increasing renewable capacity in electricity grids.

Published in: News & Politics
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Renewable Energy, Not Ready for Primetime ... Yet

  1. 1. RENEWABLE ENERGY Not ready for Primetime … yet May 2018
  2. 2. NOTE: This InfoCapsule, focuses on Variable Renewable Energy (VRE) viz. Wind and Solar PV. Unlike coal, gas and nuclear plants, VRE power plants generate electricity when the sun is shining or when wind is blowing not when we want them to generate. Hydro Electric plants are renewable and we have some control on when they generate electricity.
  3. 3. In recent auctions, the price bids of electricity from Variable Renewable sources, match or are even lesser than that from Fossil fuels. SOURCE: power-tariff-falls-to-a-record-low-of-Rs264-pe.html Renewable Energy Cost falling
  4. 4. Renewable Energy Low cost worldwide Min Rs/KWhr Max Rs/KWhr Wind 2.0 3.9 Solar PV 3.0 3.4 Solar thin film 2.8 3.1 NOTE: Costs from different sources may not be strictly comparable as many assumptions (about costs: capital, operating, fuel, days and hours a plant operates, taxes, etc) go into these estimates. However, these numbers are very good for scale comparisons, especially if the difference in electricity prices from different sources is significant. SOURCE: Lazard’s Levelized cost of Energy Analysis Version 11.0, AskHow India calculations.
  5. 5. Renewable Energy Better in many ways SustainableCombats climate change Clean Lowers import bill Easy to maintain
  6. 6. If Variable Renewable Energy is getting cheaper AND it is better in many other ways, Does it mean that India and the world will soon become fully renewable? Would all new power capacity addition be Variable Renewable Energy?
  7. 7. And to understand Why, we first need to understand how electricity reaches our homes, shops, factories and fields. We need to know more about The Electricity Grid NONot with the current VRE (Variable Renewable Energy) technologies.
  8. 8. An Electricity Grid is a collection of many Suppliers and Buyers. Suppliers could be different power plants like Hydroelectric, Coal, Solar or Nuclear plants. Buyers could be households, industry and agricultural users. The Electricity Grid
  9. 9. Advantages The Electricity Grid Scale More efficient large plants can be put up if they serve many customers. Reliability Unlike a grid, if one plant is supplying one customer then she would not get any electricity when the plant is down for maintenance. Balancing A grid takes advantage of the fact that different customers require power at different times. Thus, the maximum capacity needed in a grid is not the simple addition of maximum demand of each customer.
  10. 10. The Demand in an Electricity Grid varies through the day In a heavily urbanised area for example, the maximum demand could happen between 6 to 10 in the evening when people at home switch on their lights and televisions, and shops and malls also have their air conditioning at maximum. 00:00 24:0012:0006:00 18:00 Max Demand DemandMegawatts Time of Day ➛ ➛ Note: The demand curve is different for different days and varies across seasons. It is also very different for different regions. The curve shown is a simplified one. The Electricity Grid
  11. 11. Supply must be instantaneous When you switch on the light at home, the electricity used is instantaneously generated by one of the power plants in the grid. If you increase your power consumption, power plants have to instantaneously generate more power. This is a property of electricity. The Electricity Grid
  12. 12. 00:00 24:0012:0006:00 18:00 1000 MW Max Demand DemandMegawatts Time of Day ➛ ➛ Note: Calculating the generation capacity needed to provide reliable 24 x 7 electricity in a grid is complex. A 20% buffer is taken here for illustration. 1200 MW 20% Buffer How much Generation Capacity would be needed in a Grid? To provide reliable 24x7 electricity, the grid capacity should exceed the maximum demand. In a simplified example, if maximum demand in a day is 1,000 MW, then the grid needs a generation capacity of 1,200 MW (excess capacity caters to: i) scheduled maintenance and ii) unscheduled breakdown) The Electricity Grid
  13. 13. IF we want to provide people 24x7 electricity, then Capacity (should) = Max Demand + Buffer and none of this can be Variable Renewable. If the 200 MW buffer in our example is Solar Photo Voltaic, it would not be available in the evening. On an evening, even if a single 100 MW non renewable breaks down or has to shut for repairs – only 900 MW will be available for a demand of 1000 MW. Many people would not get electricity that evening. How much Generation Capacity would be needed in a Grid? The Electricity Grid No Sun Zero MW No Power
  14. 14. So any Variable Renewable Energy added to the Grid will be excess capacity, and it will come with excess capacity creation cost. This Capital Cost of excess capacity has to be borne either by the Government or the Customers. 1) This Capital Cost should be included in what we are calling Hidden Cost of Renewables. Capital Cost however is not the only hidden cost.
  15. 15. 2) Variable Renewable Energy tariffs quoted in headlines are significantly low because of tax rebates. By contrast, a very high component of Coal prices is government levies and taxes. A narrow view of just ‘price’, does not account for this not-level playing field. Thus Tax Foregone is the 2nd Hidden Cost of Renewable. 3) Furthermore, VRE power plants switch on and off on the basis of external factors (sunlight and wind) - not on basis of demand, making the grid unstable. So Grid stabilisation Technical Costs, are the 3rd Hidden Cost of Renewable. Hidden Cost of Renewables 1) Capital Cost 2) Tax Foregone 3) Technical Cost
  16. 16. Can we reduce the hidden costs? 00:00 24:0012:0006:00 18:00 DemandMegawatts Time of Day ➛ ➛ To efficiently add Renewables to the Grid, we could 1) STORE ENERGY during the late night / early morning slack, and 2) SHIFT DEMAND from the late evening peak 1 STORE ENERGY 2 SHIFT DEMAND
  17. 17. Reducing hidden costs: 1. Energy Storage Energy storage comes in 2 main categories: 1) Physical and 2) Chemical 1. Physical storage, could be Pump Storage plants where energy is stored by pumping water from a low level to a higher level reservoir when demand is low (or when excess Renewable Energy is available) and using this water to again generate electricity at peak demand. NOTE: Compressed air storage is another physical storage option. The energy is stored by compressing air in an underground storage cavern. Only 440MW of installations exist around the world.NOTE: 5 of 9 Pump storage plants in India, function with a total capacity of 2600 MW. PUMP STORAGE Generation
  18. 18. In 2) Chemical Storage, 2a) Flow Batteries and 2b) Lithium Iron Batteries are the 2 best types of batteries for high quantity electricity storage. But Chemical Storage has significant associated challenges: i) Immaturity of technology: Battery storage is not yet a mature technology and hence the total batteries connected to the grid, across the globe is low. We need batteries that can be installed at large scale on the grid. ii) High Storage Costs: Rs / KWH Min Max Compressed Air 7.5 9.1 Pumped Hydro 9.9 12.9 Lead Acid 17.4 36.5 Lithium Iron 27.6 60.6 Flow (V) 2017 12.0 22.0 Lithium Iron 2017 17.0 22.0 Reducing hidden costs: 1. Energy Storage NOTE: Storage Cost assumes cost of capital, funding, storage efficiency options, etc - so, estimates are more to share the scale of Storage Costs. Source: LAZARD’S LEVELIZED COST OF STORAGE ANALYSIS—VERSION 3.0, AskHow India calculations
  19. 19. But the biggest problem in storage is that it is good for storing demand variation over small time period. For longer periods, the capacity required is humongous. Reducing hidden costs: 1. Energy Storage Similarly, storing solar energy for use in rainy season calls for storage capacities that are very large and hence very expensive. ANALOGY: The Water Dept announces a disruption in your home’s running water supply. You prepare for 2 hrs with 2 buckets, for 2 days with 2 drums, but … for 2 months, You need a small lake!
  20. 20. Reducing hidden costs: 2. Shift Demand Some grids in developed countries charge customers different prices, depending on time of the day. Thus, electricity is cheaper at times of excess supply. The idea is to shift demand from high to low demand time. However, some demand cannot be shifted. For instance, people will not switch on lights in the afternoon instead of night just because it is cheaper. Also, Suppliers need the ability to record consumption at different times i.e. have ‘time of the day’, smart metering.
  21. 21. Reducing hidden costs: 2. Shift Demand Widespread time-of-day, smart metering may be difficult in India, when 100% metering is still a goal. In rural Uttar Pradesh for example, less than 3% of consumption is metered. However, there are viable options – e.g. farmers who use water pumps, could use solar energy as they can time the pumping during day and would not require this facility in monsoon. Other option is to not supply villages and small cities with electricity during peak demand hours. However, this is not an ethical option and is becoming increasingly difficult politically. Smart Metering Metering Source:
  22. 22. Reducing hidden costs: 3. Supply options Hydro and Gas power plants are also good fit with VRE commercially. This is because most hydro power plants in India do not work 24 hours (except in monsoon) and because gas power plants are cheaper. The gas price and availability is however a concern. If a grid has a lot of Hydro and or Gas based generation capacity, then its stability can be better managed as these plants can be switched on and off more easily. HYDRO GAS
  23. 23. Hidden cost of VRE Hidden cost of VRE: Who pays? Customers? Government? Hidden Cost of Renewables Source:, AskHow India calculations. If Customers bear cost: Price of electricity goes up German households are estimated to pay Rs 5.51/KWh as Renewable Surcharge in a total of Rs 23.35/KWh.
  24. 24. Hidden cost of VRE Who pays for the Hidden cost of VRE? IF Government bears cost Subsidies for renewable energy means less spend by government for army, roads, schools, police, hospitals, farmers, etc.
  25. 25. Cost of electricity THE ISSUE in India The big issue in electricity sector in India is: Customers pay less than the cost of electricity. This is because: 1. Lots of electricity is lost (including in theft). 2. The cost of generation has risen sharply. 3. Many customers segments pay very low tariff at least partly because electricity is unaffordable. In this scenario, we need to add VRE cautiously: - after studying the grid in detail and fully mapping the demand characteristics and the supply options. - so that the hidden costs do not surprise us in future.
  26. 26. Renewable Energy Adoption Tradeoff: (Known + Hidden Costs of VRE) versus (VRE Benefits) As a society we can still decide to invest in VRE even when all hidden costs are taken into account. But, Decision makers should make this decision consciously and not on basis of headline tariff.
  27. 27. DECISION MAKERS CHEAT SHEET 1. How much Energy Storage capacity does your Grid have? HIGH LOW 2. How flexible is your Grid’s Energy demand across time of day? HIGH LOW 3. How much do Hydro + Gas compose of your Grid’s total power? HIGH LOW 4. The amount of investment your grid will require to maintain stability with significant VRE addition? HIGH LOW Renewable Energy Adoption RENEWABLE ADOPTION POSSIBLE RENEWABLE ADOPTION DIFFICULT 4 HIGHs 4 LOWs