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Published on: Nov. 9, 2021, 1:31 p.m.
A paradigm for energy transition
  • Future Ready Convergence Clean Energy Solutions hold the key for Energy Transitions

By Saurabh Kumar. The author is an Energy Expert

The energy sector worldwide is moving in an unprecedented direction. The standard wires & transformers business with centralised power units through large country level grids is giving way to decentralised, intermittent and dispersed systems. Estimates suggest that in 20 years, energy demand will rise by almost a quarter, due largely to population growth and urbanisation. Climate change concerns are already putting the brakes on coal, let alone only its use as baseload power.

 Concerns around proliferation and safety mean that nuclear power will not fill baseload gap, if any. This is likely to mean that electric mobility will become attractive, particularly to developing countries like India where energy security, savings of foreign exchange due to import substitutions and affordability are key. Solar will likely have a bigger share of new installations – which in turn could reduce demand for petrol. Digitisation of the grid will become more common to allow real time response to demand and supply management.

Demand for cooling will go up as India urbanises and air-conditioners get more affordable – not to mention as climate change gets more acute. Natural gas will become a candidate for coal replacement and grid balancing. And finally, batteries will become financially and technically viable as demand increases and innovative business models develop.

All this means the current way of thinking about electricity and its generation and distribution will (need to) change. Innovations in off-grid solar and wind generation, electric vehicles, battery storage and other related services are bound to develop. The market will need to find the right incentives for storage and dispatchable generation and adjust – or support – the shift from monolithic centralized systems to distributed energy resources.

The concerns of climate change will make coal a less likely option for base load power and issues related to proliferation and safety would not allow nuclear power to fill in the base load gap. Even with the declining share of coal in the generation mix, the potential emissions reduction can nearly double by 2030 of what it is in 2018, which is 2.6 million tonnes. In this backdrop, the energy sector transitions that will take place are as under:

Solar power will dominate the new installations

Digitisation of the grid will become pervasive and will allow real time response to demand and supply. All of this has significant climate change benefits which if captured appropriately, can become valuable source of revenue in an otherwise nascent market. 

Cooling demand, particularly in tropical countries like India, will perhaps be the single biggest driver for demand and in turn will make grid peakier as has been the case globally. Grid management will become a challenge.

Natural gas will be a candidate to replace coal for base load as well as for balancing requirements. 

Battery storage, both at supply (bulk) and demand side is a technically viable solution for most of the above challenges. However, higher capital cost and technical issues remain a concern.

The drivers of new energy sector are fundamentally different from the ones that have shaped the way the sector has evolved over time. The challenges indicated above will necessitate innovations in off-grid solar and wind generation, electric vehicles (EVs), battery storage, etc., more accessible and affordable.

Digitisation of the sector through smart meters and smart grids, Artificial Intelligence, big data analytics, blockchain and the Internet of Things, will enable real time to optimise supply and demand disruptions to traditional business models. The energy system will therefore be fundamentally different to that of today requiring new innovative policies and regulations, financing and business models.

 Traditional ways of managing utilities and grids, systems and controls will be disrupted, with risks and opportunities mounting. Managing such significant, interdependent changes will demand flexibility from energy companies as they adjust to the new normal. The energy transitions will be a major challenge for developing counties like India which needs to double its installed capacity to 700 GW in the next decade.

The challenge of fuel substitution (from coal to gas) coupled with integrating renewables and EVs, is likely to constrain the stated policy vision of providing affordable energy to consumers. There is a need for innovative ways of shaping the transitions that could:

(a) Scale up integration of renewable energy in the grid;

(b) Provide sustainable energy to power the growth in rural areas;

(c) Include energy efficiency along with renewables to optimise demand;

(d) Seamlessly integrate energy storage to enable grid services, demand response and a host of other services for a sustainable, digitised and smart grid.

Convergence: One such innovative concept is what we call Convergence which is a unique concept that brings together the supply side and demand side efficiency under one platform and uses the instrument of Power Purchase Agreement (PPA) to deliver an optimised decentralised solution for DISCOMs. The concept allows host of efficient services to be delivered to rural areas like efficient lighting (domestic and public), replacement of pumps with energy efficient ones for farmers, electric cooking, efficient fans, etc.

The value of the equipment/services is added to the decentralised solar PPA and the same is delivered free of cost to rural areas enabling clean, efficient, reliable energy at costs to DISCOMs that is almost 50 per cent of their current cost of delivery of electricity in these areas. Another aspect of the concept is to usher in new policies and regulations that enable multiple revenue streams on a same asset class, much in the same manner conceptually as the time honoured PPA being ‘enlarged’ to provide energy efficiency. The concept is illustrated below:

As the figure illustrates, regulations that allow multiple revenue streams from the same investment could have the effect of making all the services affordable and create a virtuous cycle where the capital costs will go down making private investments more attractive. The services include energy arbitrage and charging which are necessary for integration of renewables as well as for promoting e-mobility at affordable costs which, as noted earlier, on standalone basis do not make commercial prudence. 

To put this in perspective, at current cost of batteries (Lithium Ion) of $320/ KWh (including balance of plant), the cost of storage works out to Rs5.5/ KWh to provide a reasonable return to any investor over the life of battery. This is simply unviable as even the cheapest solar power of Rs2.44/ KWh would become Rs8/ KWh which is not commercially viable. However, as the figure illustrates, if regulations could enable three revenue streams on the same battery, the cost of storage would decline to Rs1.8 (and so will the other services cost) and everything becomes viable. One does not need to wait for battery costs to decline to scale up its implementation.

Convergence of Policies and Regulations are the key drivers for this transition to be sustainable, scalable and affordable in our quest for a decarbonised world. This will also stimulate private investment in the sector. Digitisation will help in real time operations and flexibility that is the new normal for the new energy. These regulations could convert the challenges and vulnerabilities into opportunities and value additions as summarised below:

Getting to a democratised energy market, or just getting some of its elements off the ground will require at least a few major changes:

i) More renewables: Increased use of renewables at a commercial a residential level, increased energy storage and more demand side management.

ii) Data science: What are the usage patterns? When and where will there be capacity, and how much? Data on demand volumes and patterns at a granular level for each usage types would be needed along with procurement mechanisms through connected systems, smart-meters and behind-the-meter solutions with the right incentives. If the consumer is allowed to choose and switch suppliers (have a base, bulk and peak supplier) without restrictions or lock in periods, the consumer can shift between the different suppliers based on expected significant load pattern changes and prices offered, thereby creating a flatter load curve for DISCOMS and revenue models for competitive generators and aggregators. For example, the consumer can have one supplier for its base load, say, a state DISCOM, a competitive supplier for peak loads (say, a supplier who also undertakes DR aggregation with the consumers) and an agreement with a bulk load supplier for occasional high consumption expectations (can be like a subscription with a large generator with minimum load requirements when called).

iii) Procurement methods: The development of a technology agnostic market where the flexibility and demand response services can be priced and procured in a free, fair and competitive manner.

iv) Transparent and secure trading system: Blockchain technology can be utilised where every smart-meter can enter demand reduction data into the shared ledger, the same secured data can be used to issuance of ESCerts and sale of this Megawatt Capacity.

v) And finally, supporting policy and regulation to facilitate the functioning and growth of markets and reduce the entry barriers.

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