State power playbook: New scheme to improve renewable energy transmission

A new central government scheme seeks to strengthen renewable energy transmission within states

After years of deliberations, the central government has finally hit upon a solution to a problem that has bedevilled plans to speed up the use of renewable energy: That of a mismatch between power generation capacity and the infrastructure needed to transmit that power to consumers. 

A new scheme, Green Energy Corridor (GEC)-III, focuses on the private sector rather than the government to build the network needed to transmit green energy across the country. It does that through allowing a bidding process. 

Greenfield transmission works are to be developed through competitive bidding, with private transmission service providers responsible for building, owning, operating and maintaining these projects. Brownfield works to strengthen or upgrade existing networks are to be implemented on a cost-plus basis. 

Transmission network providers will be allowed to compete for projects under what is called tariff-based competitive bidding (TBCB), which awards the contract to the bidder offering the lowest tariff. While this has been the norm for developing inter-state transmission systems, the idea now is to allow it at the level of local power infrastructure within states. 

Because electricity is in the concurrent list, its supply is largely controlled by state bodies. Seen in that context, the GEC-III scheme is ambitious, aiming to improve power supply by resolving traditional issues around how power is transmitted.   

Twin problems RE power transmission is beset by two main problems — intermittency and curtailment. Intermittency is the lack of availability of renewable energy round the clock. Solar power is a good example: Its ebb and flow depends upon the time of day. 

Curtailment, on the other hand, happens when there aren’t enough transmission corridors — strips of land — to take electricity from power stations to distribution companies, and thereon to consumers. 

GEC-III’s solution is to strengthen the intra-state transmission network and deploy battery storage systems, once power is received from states that are rich in renewable energy sources. 

This will combine transmission infrastructure with storage capacity so that renewable power can be integrated with the local grid and made available during periods of higher demand and non-solar hours. 

Big numbers  The numbers behind the scheme, which will be implemented across all states. are impressive. The project outlay itself is of ₹1.86 trillion, including a central financial assistance (CFA) of ₹54,082 crore. The money will go into building the infrastructure needed to produce 135 Gigawatt (Gw) of renewable energy and deploying 50 Gigawatt hour of battery energy storage systems (BESS). 

Of the ₹54,082 crore CFA, ₹45,005 crore, or 83 per cent, is earmarked for developing the transmission systems. The larger backdrop is India’s plan to ramp up non-fossil fuel based power generation capacity from the existing 300 Gw to 500 Gw by 2030 and 786 Gw by 2036. To meet this ambition, state power distribution companies and other large consumers must by law scale up their use of renewable energy. 

This expansion plan faces two broad challenges: RE resources are concentrated in a small number of states, while electricity demand runs across the country. Additionally, solar and wind generation varies with weather conditions and time of day.

This means power generation capacity must be matched by storage, adequ­ate transmission infrastructure, and grids that are able to adapt to the fluctuations of renewable energy flows. States with low solar or wind energy capacity will benefit once transmission projects are commissioned to the successful bidders. “The principle underlying GEC-III is therefore clear: transmission must precede renewable energy generation. Adequate transmission availability provides certainty to renewable energy developers, reduces the risk of renewable energy curtailment and enables states to meet their renewable consumption obligation (RCO) trajectory,” the Ministry of New and Renewable Energy (MNRE) said in its statement launching the scheme earlier this month. 

A first J V N Subramanyam, joint secretary at MNRE, said: “It will lead to tariff-based competitive bidding for intra-state transmission systems, which has never happened before. This will lead to commissioning of new transmission lines at many places where evacuation faces congestion. This will also ensure that RE evacuation happens at the same pace as RE projects’ development.” 

“The country’s power sector will reap the benefits of this scheme for many decades to come,” he told Business Standard in an interaction. 

The official pointed out that the existing cost-plus model is prone to time and cost overruns, which are ultimately paid for by the consumer. “However, tariff-based competitive bidding leads to transparent discovery of tariff, apart from significant de-risking of the developer, which ultimately brings down the final price for the consumer,” he said. 

Competitive bidding is also likely to be adopted for projects to be set up under the PM Surya Sarovar scheme aimed at developing 5,000 Megawatt (Mw) of Floating Solar Photovoltaic projects with integrated Energy Storage Systems.

Subramanyam said the scheme would mainly strengthen state grids and evacuate power from RE-rich zones, but that investments in the interstate transmission system will continue to happen. 

He said investments of ₹8-9 trillion are expected to come in under the GEC scheme till 2035 — money that will go into strengthening the intrastate transmission networks to be developed under the TBCB mode. 

“Generally, RE projects get commissioned within 12 to 18 months, whereas the transmission lines take about 24 to 36 months. That is where the gap exists. We see that as a temporary issue rather than as a permanent problem because we are invested into resolving it. Also, battery storage capacity creation at the developers end is going to handle a lot of curtailment issues.” 

Bidding challenges Competitive bidding, however, comes with its own set of challenges. Industry experts caution that unrealistic and aggressive bidding by inexperienced and small companies can create stranded assets where developers find it difficult to live up to the committed tariffs. Policy planners, therefore, must provide for adequate safeguards in the contract itself, they said.

“When a sector is being opened up for the first time with new initiatives, and it is realised that investors may be reluctant to walk into the space, it is always better to have the cost-plus model as it provides certainty,” said a senior analyst with an accounting and consultancy firm, who declined to be identified.  

“But once a sector has its own established and mature playbook, including the technology and counter-party risk sharing — for example, transmission projects under the GEC scheme — then competitive bidding is the best model." 

At the same time, he added, bidding must be carried out with a strong networth criteria for participation, to ensure only serious players are allowed to bid. 

The GEC scheme’s importance is that it is expected to help India unlock the core issue of curtailment of transmission corridors that can impede the growth of new solar and wind capacity. 

This in turn is needed because clean energy has accounted for the bulk of the power capacity additions in the last couple of years. India's non-fossil fuel power capacity has reached 308 Gw, out of a total 560 Gw of installed power generation capacity from all sources. 

“Within the renewable energy sector, most of the new capacity is based on solar. In fact, out of the 55 Gw renewable energy capacity added in the last financial year, 

45 Gw came from solar alone. We are confident we will exceed the 500 Gw target in 2030,” Subramanyam said.

He added that what investors like about the Indian renewable energy space is the policy certainty provided by the government and the bankability of projects. That is why private sector investments have dominated growth, he added. For the industry, choosing clean energy supply has become an economic imperative. 

Need to diversify An added dimension is the government’s attempt to avoid putting all its eggs in one basket. The 45-odd Gw of solar power capacity commissioned in the last financial year, for instance, was evenly distributed across three pillars. 

A total of 15 Gw came from large utility-scale projects, another 15 Gw from ‘distributed RE’ — smaller projects such as those set up under the PM Surya Ghar and PM Kusum schemes — and the rest from commercial and industrial consumers. All of this comes against the backdrop of India’s commitment to reaching net-zero carbon emission by 2070 and the shock of a sudden supply shortage of fossil fuel from West Asia. Hence the clear need to tap the promise of renewable energy. 

How GEC-III can boost RE capacity goals 

• Govt gave its nod for the ₹1.86 trillion GEC-III scheme in September with an eye on strengthening transmission and improving renewable energy (RE) integration between states
• GEC-III envisages evacuation of 135 Gw RE, deployment of 50 Gigawatt hour of battery energy storage systems, with financial assistance of ₹54,082 crore 
• First ever tariff-based competitive bidding for intra-state transmission projects may boost transparency and investments, while lowering costs for consumers
• Battery storage and wider transmission network may tackle power issues of intermittency and curtailment faced by RE projects
• While warning against unrealistic and aggressive bidding, which may create stranded assets, experts say that GEC-III is a step in the right direction to attain 
• 500 Gw non-fossil fuel power capacity by 2030