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.


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.

National Energy Policy: India

NITI Aayog recently released the draft National Energy Policy (NEP) for public consultation. The NEP has been a work in progress for nearly 2 years. The NEP once finalized will replace the Integrated Energy Policy formulated by the erstwhile planning commission in 2008.

The objectives

  • Develop a long term road-map (up to 2040) to provide clarity to all concerned stakeholders.
  • Energy access at affordable prices
  • Improved energy security and independence
  • Promote sustainability
  • Foster economic growth

Considering the NEP is being drafted at a time when India’s ambitious energy targets for the short term are underway, it tries to unify the objectives of 175GW of Renewable Energy (RE) target by 2022, 24×7 Power for All for 2022 and 100 smart cities by 2022. The NEP also reigns in the objectives from India’s Nationally Determined Commitments (NDC) to the Paris climate deal (know more) of 33%-35% emissions intensity reduction by 2030 in comparison to 2005 levels and non-fossil fuel based energy capacity increase to 40% by 2030. Not to forget, the vision of 100% Electric Vehicle (EV) fleet by 2030.

Analysis and outcomes

NITI Aayog’s approach to the planning is noteworthy considering the use of energy modelling tool, India Energy Securities Scenario- 2047 where the supply and demand scenarios of Business As Usual (BAU) and NITI ambition for 2040 is simulated.


  • Gross Domestic Product (GDP) to grow at around 8% up to 2040.
  • Energy demand (across sectors) to grow from 4926 TWh (2012) to 13,192-15,820TWh by 2040.
  • Share of electricity in energy demand to be 23.2%-26.1% (2040) from 16% (2012).
  • Energy demand will increase 2.7-3.2 times by 2040.
  • Per capita electricity consumption to increase from 887kWh (2012) to 2,911-2,924kWh in 2040.
  • Installed coal based generation capacity to grow to 330-441GW by 2040 from 192GW in FY 17.
  • RE generation capacity to reach 597-710GW in the same period.
  • Nuclear power generation capacity expected to increase from the current capacity of 6.7GW to 22.48GW by 2030.
  • The RE capacity is expected to account 50%-56% of total capacity by 2040.

Key policy recommendations

NEP, as expected recommends a slew of policies for RE projects, fuel sourcing, air quality and energy technology and Human Resource Development (HRD).

  • Gradual withdrawal of ‘must-run’ status and other supports such as non-levy of inter-state transmission charges for RE projects.
  • Cross-subsidy bill should be equally shared between industrial clients and large domestic consumers in the short term and totally removed by 2040. (If reforms like UDAY are successful!)
  • EVs and energy storage are emerging technologies and should be suitably incentivised through time of use tariffs and related policies.
  • Accelerated Depreciation(AD) and Feed-in-Tariffs (FiT) are appropriate tools to drive RE growth in the near term.
  • Need to redefine the concept of ‘Electrification’ in electrification programmes like DDUGJY.
  • Coal will be phased out as declining energy storage costs is making variable RE viable.
  • Efficient use of Direct Benefit Transfer (DBT) to provide vulnerable consumers in the sector to foster ‘Equity’ and in turn sustainability.


Recommendations for meeting the ‘uncertainty’ and ‘variability’ challenges in RE integration:

  • Upgrade grid technology– System operators at Central and State level to undertake the process
  • Upgrade grid operation protocols– Update grid codes and shift scheduling & dispatch from 15min to 5min
  • Expand balancing areas– Move from state to regional level grid operations
  • Upgrade grid planning practices– Green Energy Corridors
  • Balancing resources-estimation, procurement, dispatch– Ancillary services regulations

Open points

Renewable Purchase Obligation (RPO)– NEP believes RPO will be one of the major drivers for RE in the short term but doesn’t provide a road-map to what happens when RPO ceases beyond 2020-22.

Regional inter-connection– RE being geography dependent will be concentrated only in about 8-10 states. Although this is acknowledged there is a lack of clarity on how regulations could drive inter-regional capacity transfers beyond the period when non-levy of inter-state transmission charges ceases.

Must-run status– One of the recommendations is to move away from classifying RE as ‘must-run’ but little thought is given to the current state of RE curtailment in spite of being ‘must-run’.

Electric Vehicles– NITI Aayog could have provided suitable recommendations to bring energy storage under the ambit of electricity act and proposed to permit energy resale to promote development of EV charging infrastructures.

Overall, the NEP draft is a good starting point backed by suitable analysis and modeling although it misses out on making a strong policy statement. Hopefully the missing gaps in policy recommendations and road-map are plugged in due course of stakeholder consultation.

The draft document: National Energy Policy

Energy as a Service

In the last few weeks two big announcements caught my attention. Incidentally both of them happened to be Electric Vehicle (EV) charging stations. The first one garnered more attention because the union Minister for Roads inaugurated what was claimed to be ‘ The first public EV charging station’ in India (Nagpur). Following that, India’s largest power generating company NTPC announced its foray into EV charging stations.  Interestingly these are not the first EV charging stations, they are quite a few and in fact a website hosts a list of all such stations. Most of them are Mahindra showrooms considering they have the only 2 EV models manufactured in India.

Are we in a hurry or already late?- The missing gaps

The development in this space are encouraging but is this model sustainable or is it just a stop-gap arrangement tiding the wave of excitement in this sector? Before concluding on that here are a few open points:

  • The Electricity Act (2003) doesn’t permit sale of electricity unless you are registered as a distribution licensee. In this case, the energy resale to charge batteries is categorically not allowed.
  • Standards for charging stations are yet to be formalised. Public charging stations have to be compatible with a host of vehicles and chargers. Automotive Research Association of India (ARAI) has only recently finalised the standards for AC charging while the DC charging standards are yet to be announced.
  • Chargers

    The range of standards: Cty-IEA EV outlook 2017

  • Bharat Charger: The charger for India, a DHI initiative under the vision to get an all-electric fleet by 2030 has proposed a standard for charger. The initiative is laudable considering the grand vision but we are yet to have a final specification on that.

Energy as a Service (EaaS)

In spite of having a few gaps in the system both at the regulatory and technical front it is quite interesting to see the so called ‘public EV charging stations’ springing up in the country. As in any nascent market development it could be due to either of the two reasons; there is a significant demand for these or the businesses’ are keen to be front-runners in this space. I believe it is more of the latter and a little probe into these businesses have confirmed the same. While the developed world is trying to create a market for these, India has already begun what will be called ‘Energy as a Service (EaaS)’ business model.

evHow else does one account the amount of electricity dispensed at these stations to charge the batteries without being termed a ‘resale’? Only the ones being setup by Tata Power Delhi Distribution could escape being termed a resale. (However the 5 stations setup by them offers charging free of cost to Mahindra vehicles). The charging stations at Mahindra showrooms are as expected, ‘free’ with the costs in built in the sale. Similarly the charging station at Nagpur is an exclusive model developed in partnership with OLA.

The EV charging stations although not a perfect model for EaaS, is a good starting point. In due course, the charging stations would start differentiating in terms of the source of power, charging frequencies, time of charging etc. which would provide customers a wide range of choice, something we have been used too in other new-age services. However, in order to create a sustainable business model, the charging stations have be to be compliant within the regulatory and technical frameworks in due course.