Must-run or merit order despatch?

The proposed regulations from the Madhya Pradesh state electricity regulator (draft regulation) has brought the debate of merit-order vs must-run for Renewable Energy (RE) projects to main stream yet again. Incidentally, the draft National Energy Policy (NEP) proposed by NITI Aayog hints at withdrawal of must-run status for RE in the long run leading up to 2040( Read Why NEP is missing the big picture?). The draft NEP also proposes to withdraw other RE oriented benefits like non-levy of inter-state transmission charges.

Indian Electricity Grid Code (IEGC)

” All renewable energy power plants, except for biomass power plants, , and non-fossil fuel based cogeneration plants whose tariff is determined by the CERC shall be treated as ‘MUST RUN’ power plants and shall not be subjected to ‘merit order despatch’ principles”.- IEGC, 2010

The point of debate will be, are the current solar and wind tariffs determined by CERC for this regulation to hold good?

The 4th amendment of IEGC in 2016 brings back the discussion on ‘Merit order despatch’ however, it is only referenced to highlight the need from a technical minimum operation of thermal power plants.

The proposed amendment to the MP state government order on ‘Cogeneration and Generation of Electricity from Renewable Sources of Energy’ proposes, “The generation from Co-generation and Renewable Sources of Energy shall be subject to “Scheduling” and “Merit Order Despatch Principles” as decided by the Commission from time to time.”

The NREL study ‘ Greening the Grid’ clearly argues for a case of must-run for renewable energy projects or to radically shift to a merit-order despatch that considers production costs and not tariffs. The variable costs of existing fossil fleet is less considering they are paid an annual fixed availability cost. The study further recommends having an limit on annual curtailment hours embedded in the PPA to protect RE developers.

GTG

RE curtailment in 2022 could be between 8-16GW. (NREL)

What is required?

Merit order at regional & national level based on production costs and not just variable tariffs!

Regional coordination of resources will result in low variable cost resources from one state to displace expensive generation in other states. It is likely to happen considering a large part of recent ‘record-breaking’ renewable energy projects are slated in to come only in a few states in India. The NREL study concludes that having merit-order with scheduling and despatch optimized at regional and national level could result in a savings of 2.8% (₹ 6300CR) and 3.5% (₹7800CR) respectively by 2022 under the 175GW RE scenario.

Policy makers should envisage an alternate to merit-order despatch that is based on production costs and not just variable tariffs which will boost the confidence of RE developers who currently hedge their financial risks to anticipated curtailment.

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