Renewable *energy* is cheaper. Now what about capacity?

It has been frequently written that the cost of Renewable Energy (particularly wind and solar) is cheaper than fossil fuels, but coal is still required to keep the lights on. In countries such as India, the discussion around capacity and energy are often mixed together, which makes it difficult to extract the two.

In previous posts, I looked at the levelized cost of hybrid plants against fossil fuels and shown that RE + storage is in fact cheaper than coal in the short-medium term. However, I wanted to create a post dedicated solely to capacity. That is, if a DISCOM were to buy its energy from RE (or the market, or surplus from neighbours, etc. Under MBED, DISCOMs should be purchasing the lowest cost energy from wherever it is available), what would be the cheapest source of capacity? I should note that this reflects the resource planning process in my home province of Manitoba, where separate plans are made to ensure adequacy of both capacity and energy-though of course most resources provide both.

One immediate result is that despite what people may say, coal is not a particularly cheap capacity resource at 8.4 Cr/MW. In fact, while researching this article, I looked at the 29 coal plants constructed between 2017 and 2021 and they were beset with fires, environmental issues, farmer protests over land expropriation, cost overruns and ultimately consumers paying far more for power (often in excess of Rs. 5-6). In fact, there was only one plant that came in below 6 Cr/MW (Wanakbori 8, which was an extension to an existing plant). In short, the money spent on building coal plants in the last 5 years has been more or less a complete waste, and it is imperative that all projects under construction/permitting are immediately canceled.

So What should be built instead?

The most obvious choice is demand response, which has received relatively scant attention in India. As the amount of RE increases, there is plenty of surplus energy at most times of the year, so the number of hours capacity resources are required is quite low (3.49% with a modest 550 GW of RE by 2030, according to this CSEP study, page 23). For Demand Response 1, I have assumed a payment of Rs. 15/kWh to Industrial or commercial (or retail aggregators) to reduce demand for these peak hours. I should note that agriculture load shifting and time of day pricing can and should be done on top of this, but this is more a matter of politics/incentives than a technical/economic challenge per se. They would however, reduce the need for new demand resources. For Demand Response 2, I have assumed a flat discount of Rs 0.25/kWh for *all* units to users who voluntarily reduce their demand when required. I should note in Manitoba we use a combination of both methods. Given the prevalence of back-up generation in India, either approach should be viable, for a cost of 1.5-2.1 Crore/MW.?

Hydropower is also attractive where it can be built environmentally, as the capital cost is comparable to coal (9.8 Cr/MW vs. 8.4 Cr/MW), though of course with hydro the "fuel" is virtually free, vs. costly for coal. Where hydropower cannot be built, battery storage is the last "green" option, though should be a last resort for now, as it is relatively expensive (~9 Cr/MW), and does need to pay for its fuel (surplus wind/solar). As battery storage costs continue to fall, this will become a more viable option, and emerging battery technologies (eg. iron air, sodium ion, vanadium redox) may provide cheaper longer-duration options.

Two other options which are rarely discussed are biodiesel and Open Cycle Gas Turbines (ideally powered with biogas). While both options are much higher on a per kWh basis (Rs. 10-15+), remember that if India builds out wind and solar as it should, it only needs capacity resources for 300-400 hours/year. Therefore, it makes sense to build low capex but high opex resources like these. When I worked for a DISCOM in Manitoba we had two open cycle gas turbines which were at least 5x the average cost to run, but they were available for emergencies (typically less than a couple hundred hours per year). However, to uncover this result, Indian DISCOMs must plan for capacity and energy separately.

Finally, while nuclear may have made sense in the past, projections for future plants make it far more expensive as a capacity resource than alternatives, so I would consider nuclear to be strictly dominated by hydropower from a cost and environmental perspective. Similarly, CCGTs are as expensive as hydropower, but with a much higher fuel (and environmental) cost.

In short, coal is not only a more expensive energy resource, it is far from the most ideal capacity resource as well. Better sources of capacity are:

• Demand Response
• Hydropower (incl. Pumped Hydro)
• (Bio)-Diesel or Biomass
• (Bio)-Gas (particularly open cycle)
• Battery storage
• (In the long-term) Other forms of storage (Redox flow batteries, thermal storage, Green Hydrogen, etc.)

Comments on the Quality/Value of Capacity

Thus far, I have discussed all capacity resources as though the value of each MW is equal. However, certain resources like battery storage and hydropower can provide fast response and are therefore suitable for primary reserves as well as renewables balancing. In a high renewables world, battery or pumped storage should arguably count double as say a 100 MW battery can go from -100 MW during high RE periods to +100 MW during low RE periods, a range of 200 MW.

In contrast, coal (particularly supercritical coal) and nuclear are notoriously inflexible. In addition to slower ramp rates, there is an enormous efficiency and maintenance penalty to turning them off and on. Therefore, not only are coal/nuclear relatively expensive capacity resources, but their value per MW is lower.

Other capacity resources like demand response and biodiesel are probably somewhere in the middle-their response times would not be as fast as hydro or battery storage, but unlike coal and nuclear they can be easily turned on to meet peak load and off in times of surplus.

Full sources and calculations on my blog here:

https://energywithalex.wordpress.com/2022/01/17/renewable-energy-is-cheaper-now-what-about-capacity/