8. SYSTEM INTEGRATION OF VARIABLE RENEWABLE ENERGY

Figure 8.9 Average tariffs awarded to projects in different solar parks under the solar park policy

INR/kWh (weighted

average)

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Solar parks have been an effective approach to mitigating grid connection risk and reducing system flexibility requirements in India, while driving down VRE procurement costs.

Note: Each tariff refers to a different solar park within the following states: Andhra Pradesh (AP), Rajasthan (RJ) and Madhya Pradesh (MP).

Source: MNRE (2017), Success Story of Solar Parks in India, https://mnre.gov.in/file-manager/akshay-urja/october- 2017/Images/37-41.pdf.

Distributed resources

Distributed energy resources are poised to grow significantly in India in the coming decades. These resources include distributed generation, distributed battery storage, demand response and EVs. While they have a number of benefits for individual customers, from the power system perspective they also have the potential to provide system flexibility services at the local level and also at the bulk power system level if aggregated.

Solar capacity targets include 60 GW of utility-scale investment at 36 solar power parks in 21 states and 40 GW of rooftop solar. In the light of these ambitious distributed PV targets, the growth of non-registered rooftop PV systems could become a near-term system integration challenge for India. These systems often do not comply with system security and grid code specifications and if growth reaches sizeable shares, such installations can challenge system stability in distribution systems. Visibility of these assets for system operators is another challenge. One option to incentivise registration, compliance and visibility of plants is to provide appropriate remuneration for injections into the grid or other incentives to promote registration. The cost of such schemes should be weighed against the expected benefits from reliable grid operation. Forecasting of distributed solar may also pose challenges in the future.

A new scheme to support farmers to replace existing diesel pumps with solar PV pumps has been initiated by the GoI in early 2019. One million of these pumps are planned to be grid connected, and thus system integration considerations will be important. The policy will allow farmers to become prosumers and sell power to the DISCOMs at a predetermined feed-in-tariff. This may not, however, allow DISCOMS to use these pumps for system flexibility. The scheme aims to add solar and other renewable capacity of 25.75 GW by 2022. The feed-in-tariff type of remuneration of such a large number of solar PV installations can pose a system operation challenge if the feed-in will be automatic without DISCOMs having curtailment options.

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Demand response and retail pricing

The retail price is the most important price signal provided to distributed energy resources, most directly under net metering, which defines the value of distributed energy resources that feed electricity directly into the grid or indirectly as the value perception of end users. The net metering schemes introduced in 28 Indian states support the expansion of distributed solar PV. However, net metering does not tackle the question of optimal system integration of these resources.

Retail prices can also provide signals for demand-side management and demand-side flexibility services, such as demand response through time-of-use or time-of-day pricing to industrial, agricultural and commercial consumers. Demand-side management is defined as an often-involuntary traditional arrangement, such as interrupting service at critical times or ripple control by distribution companies (for example, the timing and scheduling of night power for electric boilers in France). Demand response, in contrast, means a typically voluntary response to a price signal.

Demand response, generally speaking, is driven by the end-use customer’s desire to reduce electricity costs (or associated price and volume risks). This goal can be accomplished either through retail electricity cost savings via an appropriate retail electricity contract or tariff, or through wholesale market revenue via payments as a participating supply-side resource. On the demand side, the customer may reduce electricity consumption when the retail price is high and increase consumption when the retail price is low to reduce overall electricity cost. On the supply side, the customer may receive a payment to reduce load when the wholesale price is high (potentially resulting in an increase in consumption when the price is lower) and use the payment (or “revenue”) from the wholesale market to reduce electricity cost. Both approaches enable customers that are price sensitive to reduce electricity cost.

India has significant historic experience with demand-side management. India’s DISCOMs have traditionally suffered from the lack of available generation capacity, and they have therefore frequently used demand shedding as a local system balancing tool. This made electricity demand in India de facto highly responsive to price or supply changes, a remarkable difference to most countries in the world.

Time-of-day (TOD) tariffs are already used in India’s industrial sector; they are mandatory in certain states for energy-intensive consumers and are being introduced in the commercial sector. By setting different prices for energy consumed at different hours, TOD encourages energy-intensive consumers to introduce demand response. For instance, industrial consumers are very sensitive to electricity price changes and a large amount of steel, chemicals and cement manufacturing capacity is able to shed load. The profile of the TOD tariff differs by state, based on the state generation mix and load profile. Peak hours are usually between 18.00 and 22.00. In some states, months or monsoon seasons can be relevant for price setting, too (CEA, 2014). Even at lower electricity prices, large amounts of load can be easily shed for 5 to 8 hours, for instance for refrigeration, cooling, cleaning and water heating. This situation is quite specific to India.

To leverage this demand flexibility for better system integration of renewables, further changes to the retail pricing and tariff systems are needed. Electricity retail tariffs are approved by State Electricity Regulatory Commissions (SERCs) for each DISCOM with respect to their respective monopolistic regions. Therefore, the price of electricity mirrors the generation mix costs for the specific region within the state. India’s retail tariffs show

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8. SYSTEM INTEGRATION OF VARIABLE RENEWABLE ENERGY

great variance between different states and across different end-user types. Average commercial and industrial prices are very high compared to average agricultural and residential prices, mainly due to highly subsidised retail tariffs in the agricultural sector (Figure 8.10).

Figure 8.10 End-user electricity prices for different regions, 2015

Source: Power Finance Corporation (2016), The Performance of State Power Utilities for the Years 2013-14 to 2015-16, www.pfcindia.com/DocumentRepository/ckfinder/files/Operations/Performance_Reports_of_State_Power_Utilities/1_ ReportonhePerformanceofStatePowerUtilities2013-14to2015-16.pdf.

International experience suggests that subsidised final electricity prices can reduce the incentive for the deployment of demand management, demand response and energy efficiency programmes.

The high level of cross subsidies levied on industrial consumers to subsidise lower prices for other consumers are a barrier to further pricing reforms. In fact, high industrial electricity prices incentivise industrial users to self-generate electricity for self-consumption, for example using solar PV instead. This trend has been very strong in India, leaving higher proportions of network charges to be paid by the users of remaining units. At the same time, industrial demand response is then no longer available to support grid management and flexibility.

EVs

Electric car sales in India are still negligible as a share of vehicle sales. In 2013 the GoI launched the National Electric Mobility Mission Plan 2020. The government has a target for 15% of vehicle sales to be electric by 2022 and introduced a significant incentive programme, the so-called Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles, or FAME. It provides subsidies to cities across India worth around 60% of the cost of the purchase of EVs. India also has a support programme for local EV manufacturers. Many states, such as Karnataka, Telangana, Delhi, Andhra Pradesh and Maharastra, have followed national policy and set state-level targets for the deployment of EVs, including electric buses.

Depending on the charging method used, EVs can provide flexibility resources to the power system (smart charging, time-of-use charging, vehicle-to-grid [V2G] services). However, they can also create significant system integration challenges locally.

In line with the EV ramp-up, further adjustments to the TOD tariff systems will be required. As of today 13 Indian states have a defined tariff for charging of EVs, but only 4 states

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