2010 – 2019: A Decade of Changes – The Indian Energy Sector Story

"......while you are reading this, other future dwellers are frustrated by the offerings that your industry is providing them, and they, too, are involved in submersive activities, in an effort to push your own industry a bit further into a more acceptable future. If only you could find them, then you too would have an edge into the next level of competition" – Eric Von Hippel, American Economist

Disturbing isn’t it? Let’s reflect over it! The world around effectively is telling us the same lines loud and clear. The summary being, if you don’t change the traditional ways of doing business, you no longer will remain a leader. The Indian energy sector story is a bright example of the same. Talking of which I thought why not pen down the transition that the Indian power sector went through over the last one decade.

Figure 1: The Changing pattern of Indian Grid (Generation fuel wise)

Looking back at the Indian power generation mix of 2010, renewables, which had a 10% share in generation then, today stands at 24%. By the end of 2020, Renewables is expected to cross the 100 GW mark. A decade back that was almost the thermal generation capacity of India (94 GW). There is a lot to appreciate about the transition that the Indian power sector went through in this decade. Renewables which was treated as a tax saving measure then and not a technology which could displace conventional generation has made conventional generators go back to their white boards.

Figure 2: The growing ratio (fuel wise)

Figure 2 shows the trend over the decade of how different fuel source capacities fared along the decade. Renewables growth deserves a special mention here, which saw rapid increase in capacity over the decade. The growth in generation from conventional sources which used to enjoy a growth rate of 6% YOY at the starting of the decade reduced to 3% by the end (overall increase along the decade being 1.2%). A detailed YOY growth trajectory of various fuel sources is well explained in figure 3, with the red line showing the overall annual growth along the decade.

Figure 3: The decade long trend in growths of Individual fuel sources

Figure 4: Falling trend of Tariffs for RE

Overall quality of power and grid has seen much improvement, along with improvements in power factors and better grid frequency management due to laying of strict regulations, policies and standards over time. When the decade started, India had an energy deficit of 10% and a peak deficit of 12%, today the numbers are 0.5% and 0.7% respectively. The reserve margins (backup) in the Grid has also kept increasing over time, today standing at 55%. In all these what has also kept increasing in the Grid is the spinning reserve(stand-by) which in 2011 was 50% and by the end of 2017 increased to 72% (The overall energy surplus and dominance of renewable growth has also resulted in the thermal plant PLFs falling from 70% even in the mid of the decade to 56% as on Nov 2019). This has primarily happened due to the rapid fall of solar and wind tariffs and implementation of must-run status. With the exclusion of Feed in tariff and inclusion of competitive bidding for Renewables, the sector saw a huge decline in per unit electricity cost. In 2011, solar tariffs were as high as INR 17.91/kWh, today its fallen to INR 2.85/kWh which is actually a slightly higher tariff than the lowest recorded tariff of INR 2.44/kWh in 2017 (86% decrease). Wind also saw moderate decrease in its tariffs, at the beginning of the decade when FiT was in place wind tariffs ranged between 4 to 5 INR/kWh, today they have come down to INR 2.87/kWh. The Government also realizing the importance of Renewables and in accordance to its commitment at Paris Agreement, set the ambitious target of 175 GW by 2022 in 2015. Prior to that schemes like Jawaharlal Nehru National Solar Mission (JNNSM) was set-up in 2010 to encourage solar adoption, both on and off grid.

Figure 5: Growth of Renewables over the decade

Policies like Green Corridor, Must-Run status and for some states relaxation from T&D Charges encouraged more RE installation in the grid which saw peaks in 2016-17 with total 14.4 GW installation in a single year. There has been a lot of technological improvements too that wind and solar has witnessed over the decade. From efficiency improvements to better technological updates, the RE industry has always been updating itself through the decade to remain sustainable. Overtime to cater renewables, the DISCOMs has to curtail conventional generators, this reflected in reduction of utilization factors of conventional power plants from 78% (2009) to 60% (2018). It was at the same time that India also faced scarcity of domestic gas availability. Depletion of supplying capacity of the KG basin and other gas sources like CAIRN, forced gas IPPs to buy imported gas which raised the per unit cost of power generation. Thus, over time, their utilization factors have been a sharp decline, which has led to many such stations being either run as peaking plants today or completely shut down. Coal supply and demand has also been an issue with coal allocation to new plants not matching to their demands. The issue has to some extent been solved but there is a lot more to be addressed here. Amidst all this, while renewable has been penetrating into the Grid and slowly conventional power sources is making way for the same, the Grid also increased in its variability and slow reduction of inertia which was provided by the reliable conventional sources. Renewables by the virtue of it is variable in nature, this brings about huge dynamics for the grid, which is faced with increased ramping rates in early morning and late evening hours due to availability of solar only in day hours.

Today India boosts of 34 GW of solar of which around 31 GW is ground mounted. That means considering an average capacity factor of 20% in good solar months we are talking of around 7 GWh of energy This while sounds very motivating, also brings a unique challenge. At around 6pm in the evening when the energy demand actually peaks, solar generation plummets. Thus, it’s a condition of supply demand mismatch. This brings a condition where the DISCOMS will need to pump in an equivalent amount of power to the grid in a small interval of time. Thermal plants are not designed for such operations, gas plants can take care of the same but as on date suffer from non-availability of low-cost fuel. Thus; there is requirement of a buffer who can accommodate this deficit. The story is true in early morning hours too.

Government realized that with acceleration of renewable growth it’s imperative to make renewables responsible. The Government therefore came out with forecasting and scheduling regulations for renewables and strict penalties were announced for deviation beyond permissible limits. This has made it challenging for renewables as till date the forecasting software’s and methods deployed have not yet gained a very accurate prediction zone. The accuracies are better for solar which is less variable as a resource while they falter for wind which is more random.

Figure 6: Indian Clean Energy Policy Roadmap

Energy Storage has been one section in the energy value chain which got increasing prominence along with renewables in this decade. Industry realized that with the decentralization of power sector and increasing ingress of renewables, there is necessity of a buffer in the grid to attain energy security. At the beginning part of the decade storage was seen as a good to have option but often considered very futuristic due to its high cost. Work on this area slowly started with Ministry of Power organizing a taskforce on Renewable Integration in 2013 and MERC initiating a working group to discuss on storage, microgrids and renewable integration. In 2014, MNRE formed a standing committee on energy usage and hybrids which also included discussion on storage potential. By 2017, BIS initiated a committee to create standards on energy storage in India and 2018 saw MNRE create an expert committee to work on formation of a National Energy Storage Mission Document.

Figure 7: Battery Price Trend

The cost of storage over time has fallen 85%, what started off at more than a 1000 $/kWh in 2010, is today in the range of 150-170 $/kWh. What made this exponential decrease in price happen is the rapid technological improvement that happened for storage. Not only lithium ion but also other technologies like redox flow, fuel cells, compressed air, pumped hydro, all saw marked improvement in efficiency, cycle life and price when compared to the beginning of the decade. Battery chemistries itself saw massive improvements over the decade, with the most radical improvements coming towards the end of the decade.

Installation wise, India had its first grid level storage deployment by AES at the TATA Power Rohini Sub-Station in Delhi. The project executed by Fluence, marked the first storage project of 10 MWh. Over the last 2 years, SECI took the lead to release many tenders targeted towards stationary deployment of batteries. Many of these tenders got cancelled due to high capital cost of storage but a few did take off. In 2019, alone there were 28 tenders released. Today India has around 14 MWh of storage projects deployed with many more in pipeline. Industry is optimistic that with the decreasing cost of storage, such projects will only become more viable in the days ahead. NITI Aayog has been working on the Gigafactory plan for set-up of indigenous manufacturing of batteries in India. The same has already been forwarded for cabinet approval. The plan projects a 50 GWh potential for manufacturing in India by 2025.

Figure 9: Tenders released by various Authorities on Storage (2019)

One area where battery deployment got a major push is vehicle electrification. India has been susceptible to dynamics of petrol/ diesel prices and also pollution has been a rising concern across many cities in India.

The condition that Delhi is going through is proof enough of the same. Thus, Electric vehicles comes as a nice alternative which is both cleaner and more economic on the longer run. In India, the first movers came in forms of 2 and 3 wheelers, which anyways make up the maximum of the automotive market. E-buses though less in number as on date have been seen increasingly in number on Indian roads.

Figure 11: Projected Sales (2018-2026)

The growth has started to take off and a lot of activities were witnessed in the last two years. With stricter pollution norms and introduction of BS-VI for ICEs, its being expected that the price differential between an ICE and EV will be slowly narrowing down, credit also goes here to the falling battery prices with improvements in technologies and sales. This added with policy incentives and regulatory pushes, India is seen as a market with high potentials for EVs.

Figure 12: Indian States with EV Policies

The Indian Government also pushed for the vision of 25% of all new vehicles as EV by 2030. GST reduction for batteries being used in EVs and also tax incentives on buying electric vehicles have been welcome steps by the Government. Over and above that the launch for FAME I in 2015 and thereafter FAME II in 2019 also increased investor interests. The FAME II outlays a budget of INR 10,000 crore phased over 2019 to 2022 with the key objective to electrify public and shared transport. A total of 10 lakh E2W, 5 lakh E3W, 35000 E4W, 20000 4W (strong hybrid) and 7090 e-buses will be a part of this program. The focus is also to promote domestic production so that India becomes a manufacturing hub and remains self-reliant going forward. The Government also made charging of EVs a delicensed activity which means that anyone can go ahead to install an EV Charger. These steps have been ably backed up with many State Governments coming up with their own EV policies and charging tariffs. IESA projects that the market can grow at a CAGR of 36% between 2018 and 2026. The market is projected to increase at a faster pace after 2023-24 when cost parity is expected to be achieved between an ICE and an EV.The point to appreciate here is, though there are complains of the transition and steps being taken often being delayed and non-confirmative, the transition has come a long way, who would have imagined that this change will happen in so fast a timespan. When we look at the automobile industry today, we see so many ICE manufacturers now coming up with EV models which shows clearly that EV is the next big thing. The recent models being launched by TATA, MG Motors, Hyundai KONA, Ather also showcases the fact that if the product is correct and has the benefits which consumers look for, it’s not difficult to attract customers. The interests that these vehicles have experienced on launch shows that customers are ready to pay the premium if they are given a quality product. Often one reason given for low sale and interest for EV is its high cost and range anxiety along with lack of charging infrastructure but with the technologies getting better every-day and more players entering the market, this market is sure to grow. One technology which also started getting prominence towards the end of the decade is Hydrogen. Who knows in the next one-decade hydrogen will have its own market share in the transportation sector?

What has been very interesting to notice in this decade is the pace at which technological advancements have taken place. Gone are the days when technologies would take a long steady path to develop a market share and then enjoy a long growth phase. Today’s technologies are changing every day, they get updated, disrupted, modified and even replaced very fast, thus it’s very important for the technologies of today to remain relevant each day, therefore necessitating the importance of R&D. This decade has taught us this lesson very well. It has also taught us that to remain sustainable we need to stop our reliance on imports. Indigenous manufacturing has been a talking subject throughout this decade. We have seen how due to our reliance on imported solar panels, the solar industry which was ramping ahead slowed down towards the end of the decade due to imposition of import duties and fluctuation of the Indian rupee against USD. The Government has realized this fact and thus appropriate measures are being taken to see that we do not face the same challenge for storage. Our own analysis shows that storage will see huge potential in areas like telecom which has already started its transition from diesel generators to batteries, to UPS and integration with renewables.

So, overall this decade will always be remembered as a decade in which the energy sector truly transformed. It changed many myths and misconceptions and also made even the toughest critic of change realize the importance of change. Yes, there have been hiccups, there has been investor issues due to lack of policy clarities and indecisiveness of Government commitments, 2019 specially have been a dampener where Renewables saw a decline in installation and growth, but overall this decade has been an eye opener and has set up the stage for a very promising decade that is knocking at our door. I will conclude by referring to the quote I started the article with, and the good news is India has well understood the same and acting towards it.

What are you waiting for?