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.

Is solar power development sustainable?

RE20173I got an opportunity to speak at the Times Renewable Energy Expo, a Renewable Energy (RE) conference in Pune this past week. I was privileged to be part of the panel featuring Dr Chetan Singh Solanki, Prof. IIT Bombay who has pioneered the adoption of solar power in rural communities. The theme of the panel was ‘Pace of RE scale-up in India’.

I represented India Energy Storage Alliance (IESA) and spoke about integration of energy storage with RE. The intent was to emphasise the need for energy storage in providing flexibility to the grid under increasing penetration of renewable energy. Being intermittent and seasonal, wind and solar energy do have its drawbacks. In spite of being a clean source of energy, the intermittent nature stresses the traditional fossil fuel plants and forces them to operate below optimal efficiency thereby increasing the operating cost and associated emissions. The message was well received by the audience comprising of project developers, researchers, policy makers and RE enthusiasts. But, the burning topic throughout the conference was ‘Are the record low solar tariffs realistic?’

The drop in solar prices

The recent bids in Bhadla that resulted in record low tariffs of ₹ 2.62/kWh and ₹ 2.44/kWh in a span of 2 days was a major discussion point. The drop from ₹ 3.15/kWh to ₹ 2.44/kWh (23%) in a month was never expected. (Read more about why there are no more outliers in solar)

 IMG-20170513-WA0002

Module costs

The drop in solar prices is attributed to the decline in module prices which is true but it hides the bigger picture. In a recent publication by Bloomberg, an Altman Z score analysis(see below) of the module manufacturers reveals a gloomy picture. Only one company lies above the mark with three others in ‘just safe’ zone while the rest have all indications to go burst. Incidentally Solar World just announced the beginning of its end. (Also, interestingly Bloomberg lists most of these companies under Tier 1 suppliers).

IMG-20170517-WA0002

Is the development sustainable?

Wind recently witnessed an intense debut reverse bidding and if the indications are right, it could well follow the solar route albeit at a lower rate. So the big question then turns out to be, ‘Is RE development sustainable?’ ‘Can companies and the stakeholders sustain this in the long run?’ I have due respect to all the experts in the big corporations who are winning projects at this price, I wouldn’t challenge their acumen. At a personal level, I just have a few points to say why I believe this development is not sustainable in the overall gambit of things.

  • There is intense corporate competition, with no long term visibility and the urge to develop large portfolios in a short time is driving the bids.
  • How can module manufacturers who are financially weak be trusted to produce quality product that performs for 25 years?
  • Supply is just one side, on the other side low tariffs is also driving down installation costs. There is an even bigger pool of ‘installation experts’ who offer manpower services at any price asked for (What about the logic that says your pay increases as you build expertise?).
  • And, the last one, preserve natural resources. I personally feel this is a huge problem, we don’t want to destroy land (and water) resources on projects whose performance is going to decline rapidly every year.

Renewable Energy development that is sustainable is the need of the hour!

Time value of Carbon

The first question we asked ourselves was ” Can we come up with an approach/system that is not being used or something that they wouldn’t develop by themselves with all their immense resources?”. Thus began our challenge in trying to define/develop a carbon labeling system or an approach that captures the real essence of carbon valuation in development of large infrastructure projects. Not everyday you would be challenged with a task that pits your wits against the best in the industry in the context of a course team project. That was specifically what I did when I was involved in a team project that was eventually presented to one of the top engineering and management consultancy as part of a project.

Why electricity?

As a team we had an option to pick any particular sector or provide a general approach to address the problem of ‘carbon labeling’ or what we internally call as ‘carbon valuation. We decided to pick up electricity sector in particular and look at address the missing links. But, Why?

Electricity

Image © Rafael

The world is de-carbonising, we are shifting our dependency from fossil power to renewables. Also, in due course of time in addition to an increased energy demand because of growing population we will have more sectors that rely on energy like rail transportation or even electric mobility and hence it was imperative to choose electricity which we believe is moving from just another secondary energy source to what we call will be a future ‘common currency’.

Defining the problem and a boundary

After finalising the sector, it was necessary to define the actual problem within the current valuation schemes in the sector and fix a boundary for operation. It was crucial to account for the extraction of resources, project planning, construction and operation. For simplicity purpose decommissioning and distributed energy generation  were kept out of the scope of ‘energy value chain’.

Energy Value Chain

Image © Rafael

Six

Image © Rafael

Even in the first few meetings, it was clear that there was a need to redefine the existing carbon labels or probably have a better representation and thus was born the concept of a ‘radar’ diagram.

 

The six metrics

Once the idea of a radar representation was finalised, the metrics had to be defined and after thoughtful consultation the six final metrics of evaluation turned out to be

  • Levelised Cost : The idea behind this was to evaluate every project in terms of what commitment it offered in terms of CO2 mitigation per pound of price paid. The rationale was to compare the higher feed in tariffs/strike prices against the projected carbon mitigation possibility over an entire project lifetime covering up the initial construction and operational costs.
  • Carbon payback: This metric was quite clear and had to be there among the rest. It indicated the time period required to recover the initial carbon that is invested in construction.
  • Upstream Carbon: The amount of carbon equivalent that goes into construction of a power project. This figure is typically given in the life cycle assessment (LCA) calculation of any power project.
  • Operational emissions: Not all technologies have a constant operational emission. Few technologies have more operational emissions compared to construction over a project lifetime.
  • Geographic Efficiency: The unorthodox approach kicks in here. Why aren’t transmission and distribution inefficiencies accounted in terms of carbon? In terms of natural gas projects or off shore wind farms, something about the supply and distribution system is missed in carbon valuation of projects.
  • Project Timeline: Large scale power infrastructure projects across the world never start and finish as predicted in the planning phase. Specifically in UK, we have some project classics that have been in the planning phase for too long to actually define what the eventual carbon offset is going to be. Herein comes our USP, project planning and timeline is crucial for defining the ‘Time value of Carbon‘.

In defining the six metrics it had to be ensured that these could be used in all power projects.

Projects and process

In order to evaluate the concept it was decided to test it on actual project cases. Since, we had six metrics and had to define a ‘One Carbon Label’ the idea was to run through eight different projects from different technologies and rank their carbon performance.

  • The projects were careful chosen based on the availability of credible data from reliable sources to test in the metric.
  • Projects within the UK would make it more attractive.
  • An Analytical Hierarchy Process (AHP) was run through in order to weigh down the six metrics against each other and normalise them over a score of 100.

Key Insights from results

Map

Image © Author

  • As expected a renewable energy project ended up being high in the ranking. Although the sizewell B did well to come second, but the inherent issue with problem in the implementation timelines of a nuclear power plant was visible.
  • A solar project does well too. But solar captures something more important in upstream carbon. Where are the panels being manufactured? If China, what is the grid emission factor in China that equates a carbon value. The DECC solar feasibility study clearly defines this crucial value.
  • A high promising project like a Severn Tidal is pulled down just because of its over two decade of project planning.
  • A hydro project is definitely renewable but it doesnt score well on the geographic efficiency and its massive construction carbon.
  • And due to obvious reasons, a power plant run by natural gas and coal hit the extremes of the rating scales. Carbon Capture and Sequestration would have been considered if not for lack of reliable data.
CO@

Image © Brendon

The next big idea in the project was to put one score and a cool looking label. It  was decided to rank the projects as A, B C just to stay in line with energy efficiency ratings and colour codes.  The final scores defined the ‘One carbon labelling system’. The score were computed on AHP and colour coded accordingly. Onshore wind, nuclear, solar got a ‘a’, tidal, hydro and biomass a ‘b’, natural gas a ‘c’ and coal a ‘e’. These rankings and scores are particular to the specific projects under each technology and sector that was evaluated for the exercise and this by no means proclaims an uniform score for a particular technology at the current time.

 

The Launch

To an extent we expected a critical review of the system at launch. The method and system was presented to the senior management of the firm. We did face a few hard questions on the approach, because we did do a comprehensive work of evaluating the existing projects and putting a score which in our view was ‘realistic’. We did have to justify the use of six metrics which to an extent duplicates carbon valuation of the project, but the six metrics are intended to a wider audience who would favour one metric over the other. And the idea of having a one score from the six metrics was also challenged, but we believe it is essential to get an overall score that balances all the metrics. The big question as expected was ‘When and where do think this could be used?’. Well, when there is an opportunity to make policy suggestions to government by comparing different technological options and accounting cost and valuing carbon this tool could be used. It does more than an LCA and it is dynamic in context of time. The tool overall captures the various system dynamic interplay in an energy project, right from planning, material manufacturing and import to  construction and operation. In conclusion, as we set out to do in the start if there was one theme or key information that the client could takeaway from our presentation and approach it would have to be the ‘Time value of Carbon’ and we were glad that they did acknowledge it as a key message from our presentation.

Special thanks to my team Rafael, Brendon, Tahawar, Martin and Alessandra for their contributions. Cover image © Alessandra.