Time-of-day pricing can de-stress India's electricity sector: Study

The report faulted India's current flat tariff system as it offered little incentive for network or consumer efficiency through load smoothing

With $100 billion of existing and proposed thermal power plants facing financial distress, India needs to introduce time-of-day pricing for both producers and consumers, a study said.

In its latest report, US-based Institute for Energy Economics & Financial Analysis (IEEFA) has faulted India's current flat tariff system as it offered little incentive for network or consumer efficiency through load smoothing.

Tim Buckley, co-author of the report and director of energy finance studies (Australasia) said, “The pricing system also does not incentivise the ramping up of flexible, peaking power generation capacity to meet peaks in demand”.

“India’s electricity generation and demand profiles have become ‘peakier,’ meaning there is clearly more demand at certain times of the day such as evening or during hot weather periods. As India’s economy grows this will become even more apparent, putting stress on both consumers, businesses and electricity generation systems currently struggling to meet those peaks”, he added.

As India’s reliance on renewable energy increases, IEEFA notes there will be increased need for firming capacity to back up renewables at times of high demand. Technologies that can provide this include pumped hydro storage, gas peaking plants, faster ramping, more flexible but lower utilisation of coal-fired power plants, and battery storage. Enhanced national and international grid interconnectivity could also play a role. 

The Central Electricity Regulatory Commission (CERC) is working towards a centralized day ahead market design mechanism. While the real time settlement in the day ahead market will yield savings by despatch of least cost generation to meet energy requirements, this is complementary to time-of-day pricing will provide incentives for creation of flexible source of generation to meet balancing requirement of grid and maintain grid stability. 

“Right now, however, a stronger price signal to incentivise fast ramping peaking power generators will help drive the roll-out of flexible power technologies that can meet India’s future peak demand. India must introduce time-of-day pricing to help manage peak demand while providing a better deal for consumers”, Buckley said.

Total renewable energy installations in the country reached 75 GW by September 2018, representing 21 per cent of total installed capacity and generating a record high of 11.9 oer cent of all electricity in the July-September quarter.

“India is going through a renewable energy transformation, but the pricing signals have yet to catch up. India needs electricity production tariffs that encourage flexible electricity generation to meet the peaks in demand. This would help ensure grid stability as the share of renewable energy continues to increase”, said Anil Gupta, co-author of the report and director with Enerfra Services Pvt Ltd.

The report suggested that a real-time energy market with gate closure (one hour before the time of operation) to be introduced and the existing ancillary services framework to be further strengthened and graduated to a market based mechanism. 

Further, once the hourly market matures, India could think of reducing gate closure time to 15 minutes. This could generate significant cost savings for the national system as a whole and further time of day pricing will provide right price signals for creation of balancing capacity to provide grid stability, subject to sufficient interstate grid transmission capacity be established.