The spike in power market prices

“Wind and solar power projects are powered by natural sources and hence their tariffs should be low”, is a general statement you would have heard often. In the last couple of years in India, the penetration of renewable energy has seen an increase and the spot market prices, the rates at which electricity is bought and sold in the commodity market has seen a constant decline.  The major sellers in the electricity market are Independent Power Producers including wind and solar developers who are not tied with contracts to public utilities to sell power and on the other hand a buyer can be any electrical consumer with a contract demand of generally over 1MW. Like in any general market dynamics, the price of electricity in the open market is determined by the supply-demand scenario. In the last few years owing to increase in development of power projects particularly wind and solar power plants the supply side of the market was strengthened. On the contrary demand growth has not been able to match the supply scenario and hence the spot electricity market prices were declining. If you have been closely tracking the updates from Indian Power Ministry’s ‘Vidyut Pravah’, an online platform that shows the instantaneous power availability and prices for every 15 min time block, you would have seen prices between INR 2-3/unit i.e. below 5 Cents/kWh. Since September 2017 India has managed to achieve ‘One Grid, One price‘ with the spot market price same throughout the country for every individual time blocks.

Yearly price

Daily average price (2016 vs. 2017)

Weekly prices

Average weekly prices (2016 vs. 2017)

The daily average price was in fact lower in the summer of 2017 compared to 2016 while the prices have just gone one way ever since. A closer look in the months of September and October 2017 will reveal the prices have doubled year on year. During a few 15 min time blocks the spot price has also touched INR 7/kWh.

In the last few months however, the market prices have scaled new highs. They have doubled on average for every 15 min time block with peak price nearly tripling from the average for the same time last year. Why is this happening in spite of India’s Renewable Energy deployment increasing faster than ever?

Listen to this episode from Emerging Tech Radio to find out the reasons in detail.

The reasons range from increased buying from DISCOMs in the spot market moving from long term contracts to lack of availability coal across power plants in the country.

The complete playlist of Emerging Tech Radio podcast.

 

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India’s new electrification scheme: Saubhagya

According to various report sources India has a population of about 200-300 million without access to electricity i.e. about 15-20% of the total population. In spite of having various electrification programmes over the years from multiple governments, household level electrification has been a distant dream for many in rural community. This past week, Indian Prime Minister, Narendra Modi made an announcement, yet another electrification scheme, this time targeting household level electrification, Pradhan Mantri Sahaj Bijli Har Ghar Yojana  or “Saubhagya” as its popularly referred to.

Will this scheme help India achieve a 100% electrification by December 31,2018? On this episode of ‘Emerging Tech Radio’ I look at India’s long road towards a 100% electrification and the new programme.

Check the full audio episode below

Electrification in India has long been a major talking point both at the national and international level. Power availability has been a major point of concern for long. Only in the last financial year did India turn positive in terms of net energy availability at the national level, however, that has not translated into energy access for all. In terms of village level electrification, India witnessed a strong progress between the census period of 1981-1991 where electrification in villages crossed 50% and reached over 85%. The next couple of decades however saw no progress with less than 7% increase in the electrification status. Incidentally that also happened to be a period where large market reforms were announced in India including in the electricity sector which underwent a period of deregulation. However, since 2011, the electrification drive has gained momentum moving from just over 90% to 99% in recent times.

Since the new Government took office in 2014, India has seen a new range of programmes aimed at rural electrification. In 2015, the Prime Minister made a statement that 18,452 un-electrified villages at that point in time would be electrified in 1000 days. In the last response made to the parliament in July by the then Minister for Power, the no of villages to be electrified stood at 3618. However, the latest update on the interactive online platform GARV that is built to update and track this progress the no has come down to 2952.  The concept of village electrification has been a point of debate for a long time, officially a village is considered electrified if it has basic distribution infrastructure, electricity for public places and 10% of households have access to electricity.

The Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY) launched in 2014 has been the pioneering scheme to drive village electrification. In addition to laying wires to village it looks at feeder separation, augmentation and strengthening of rural transmission and distribution network. The plan laid significant emphasis on developing distributed rural micro-grids to cater to remote community electrification.

The focus of the Indian government since last year has steadily turned to household electrification. Even their portal GARV was revamped to provide household level electrification status. The previous target year for household level electrification was 2022 under the 24×7 Power For All proposal which included The Integrated Power Development Scheme (IPDS), launched in 2015 with a budget outlay of 45,000Cr with an emphasis on Power quality and reliability.

The Saubhagya scheme announced by the Prime Minister in the past week has a total budget outlay of 16,320 Crore rupees or 2.5bn$.  The funding has a central and state government component with a major outlay being funded by the central government.  Rural Electrification Corporation (REC) which has been leading India’s electrification initiatives has been chosen as the nodal agency for this scheme. The scheme as the government notes will support both the central and state government achieve power for all objectives by focussing on one of its key component of electricity connection to all.

I tried to invite a director from REC for the podcast show, however since the programme is yet to be formally approved by the CCEA, the Committee for Economic Affairs, there is no concrete roadmap that REC has been given for him to talk about and hence declined to comment on this. However, he did clarify that this programme will run totally in parallel to the DDUGJY programme with a different set of objectives, targets and budget outlays. States are expected to prepare project reports on status on household level electrification before seeking funds under this scheme. He went out to add the DDUGJY programme is well on its way to achieve the objectives of strengthening the rural electricity distribution network. Also, as per a recent parliamentary note by Ministry of Power, the programme has provided over 26mil free electricity connections to below poverty households since launch.

So Whats different in this programme?

A major talking point since the announcement was the mention of independent solar panel with battery systems for remote and inaccessible households. The solar power packs of 200 to 300 Wp with battery bank would comprise of Five LED lights, One DC fan, One DC power plug. It also includes the Repair and Maintenance warranty for 5 years. The primary mode of supply in the programme will still be drawing lines from the nearest distribution point, if not available a pole and line will be installed and only remote locations will be offered the single home systems. The Saubhagya programme will build on the work done under previous programmes by also reaching out to electrified villages and ensuring every household has a power supply.

Does this solve the problem?

As the electrification drive progressed for the last three years under the current central government there were regular updates from the former Power Minister, Piyush Goyal. He had stated the problems faced by agencies in implementing the programme a few times in the parliament. For e.g. nearly a thousand out of the identified 18000 odd villages are uninhabited.  This points to a gap in the existing benchmark for this data, which happens to be last census in 2011. People in these villages could have migrated since then. The second problem happens to be the actual remoteness of the village, its terrain or other issues including naxal affected areas. Apart from the infrastructure issues like right of way and forest land clearances etc. the other major factor was, deciding who gets the subsidy under the programme.

The new Saubhagya scheme will probably remove the hurdles of infrastructure development through the offgrid systems but issue of subsidy will remain.  The scheme guarantees free electricity connection for all under the Below Poverty Line (BPL) status as per the 2011 census. Families who are not covered under the scheme can still be eligible for the programme benefits by paying 500 Rs which is recovered in instalments spread over 10 months. Just to clarify, the ministry has subsequently released a note saying energy consumed will be billed as per local state tariffs, only the installation and setup costs will be waived off which is a significant cost to reach the last mile electricity consumer. The plan also proposes to have a comprehensive review mechanism to track status of each household who receive benefits.

How is the new announcement perceived?

As per the official statistics, nearly 40 million households are yet to be electrified. The 1600 Cr proposal would equate to a 4000 spend per household approximately for electrification.

The Saubhagya scheme intends  to plug existing gaps and comprehensively address the issues of entry barrier, last mile connectivity and access to electricity connections to all un-electrified households in rural and urban areas. At the moment the industry view on this is divided right in the middle with a few who believe the programme has the specifics to fill the gap and connect the last mile consumer and a few others who term this programme as a lack in aspiration by moving away from the concept of micro-girds that have been providing reliable power supply in remote locations to switching to a single-panel battery system that serves a light and mobile charging unit. Not to forget, there are instances where even an electrified village receives less than 12hrs of supply every day with poor quality being a major issue.

I had a quick chat with Dr Rahul Walawalkar and this is what he had to say in the podcast about the MICRO initiative.

Finally, at this moment I feel it is tough to be highly critical of the programme, only time will tell if it is going to be a success. I just hope it doesn’t turn out to be a check-box solution, where a scheme was formulated just to make sure India ticked the box of 100% electrification. Power has to be seen as economic enabler for the rural community. It’s high time, India moves away from a check-box mentality and offers reliable power solutions for all.

MoP consultation paper on Open Access

Ministry of Power (MoP) recently invited comments on a consultation paper on issues related to Open Access (OA). Electricity Act (2003) which provides non-discriminatory Open Access (OA) to all consumers for use of evacuation infrastructure has been caught up with regulatory hurdles at every stage of implementation.  State utilities who are on the losing side as consumers migrate through OA have ensured the market mechanism fails to take-off.

The MoP committee which has come up with this consultation paper has categorized the issue along the tariff structure and consumer behaviour

Frequent shifting of Open Access consumers

The argument of frequent consumer shifting is accepted to an extent considering the fact, short term Open Access clients are unable to project their load demand to utilities. The proposal calls for OA clients to schedule for power requirement 24 hrs prior to seeking OA clearance to ensure state utilities are prepared to meet the demand.

Cross Subsidy Surcharge

Cross Subsidy Surcharge (CSS) has always been a major point of debate and there have been multiple revisions to the formula that calculates this charge. Owing to an increase in OA transactions CSS charges are already high. The proposal is to limit the CSS to 20% of consumer tariff and introduce category wise CSS. The proposal also calls for CSS based on time of day, peak, normal and off-peak which is quite interesting.

Additional Surcharge

Additional Surcharges are increasing across states after every tariff revisions owing to an increased capacity of stranded assets bound by long term Power Purchase Agreements (PPA). A calculation method based on a revised definition of stranded asset (based on capacity stranded on account of OA) and amortization of assets has been proposed to remove the potential double accounting of charges to consumers.

Stand-By charges

In recent times BESCOM has charged OA clients with a high temporary tariff on account of classifying the power sold to them under stand-by charges. Although the existing regulations at the state level forbid such charges, BESCOM has incurred the wrath of OA consumers for the past few months. The proposal calls for definition of stand-by charges based on a two part tariff with the upper limit set at 125% of the consumer tariff under the category.

Tariff design and rationalisation

In the end the paper clearly acknowledges the fact, the failed two-part tariff structure has lead to the overall collapse of the market mechanism and OA. A better structured tariff structure would have limited the damage of OA shift on the state utilities. (Read more about the inefficient electricity tariff structure from an earlier post)

Overall, the paper calls for a major revamp of the OA regulations and it brings out a need to align with the recommendations in the National Tariff Policy (NTP,2016). The consultation paper has been dubbed as anti Open Access by multiple stakeholders but I see this as a frank assessment of our tariff structures and gives an opportunity to rectify the basic flaws in the existing inefficient tariff structure.

Read more: MoP Consultation Paper