The India Energy Decode
The coming of age of Indian States
Last month, India recorded its lowest ever rate for a solar plus battery storage project in a tender floated by Madhya Pradesh (MP). A unique project proposal which tailored the generation hours of the project as per the state’s needs, saw 14 bidders and a final winning bid of Rs 2.7 per unit.
After a long hiatus two states - Uttar Pradesh (UP) and Bihar recently floated tenders for procuring thermal power through long term power purchase agreements. The final price discovery was Rs 6.07/unit for Bihar. Adani Power will supply power from its upcoming 800 megawatt super critical thermal power unit in MP. In UP, Adani Power is setting up a new ultra critical thermal power plant of 1.5 Gw and will supply power to the state at Rs 5.38/unit.
Two contrasting developments show the two boats India is steering as it balances energy security with transition. It also points to a trend which might reshape the energy planning of the country for better.
Demand shocker
Power demand upsurge post Covid in 2023 caught everyone across the electricity sector by surprise. This demand is not led by the usual guzzlers - the commercial and industrial states/regions which are also the major RE capacity generators. The demand uptick is coming from non-industrial states, from residential cooling demand, incremental pressure from newly electrified rural households and their rising ownership of electrical equipment. This has pushed states to scout for more power supply at cheaper rates, which translates to a comeback of coal.
Over the last three years, several states have proposed new thermal power plants, as against the plan of the federal government to add more RE. This indicates a big departure from the energy policy planning hierarchy.
Since the Electricity Act, 2003 came into force, and opened floodgates for the private sector to invest in the power sector, the planning and investment has been federally driven. The federal government planned the ultra mega thermal power plants and large scale thermal power capacity addition. This led to it planning power transmission projects of the same scale. Further down the supply chain, it was the federal government which framed bailout schemes for the state owned power distribution companies (discoms). The ambitious plan to add renewable energy which started with a humble target of 20 Gw in 2012 to now 500 Gw planned by end of this decade was also the brainchild of the federal government.
During the last 10 years, gas and hydro power were almost abandoned, coal was put in the backburner, wind power slowed down as incentives disappeared, made a humble comeback and solar power took the centrestage - all thanks to the national government.
Mirroring supply with demand
The 500 Gw target and all the energy policy planning in recent years has shown impressive results. India’s aggressive pace of RE capacity addition has been on the back of this ambitious target. We recently declared achieving 50% of electricity generation coming from non-fossil fuel sources - a feat very few developing countries have achieved. But the rush to add RE capacity is now clogging the supply chain. What thermal power faced two decades back, RE is facing now. There is mismatch between generation and transmission, states are reluctant to purchase more RE and the discoms continue to be beleaguered.
The share of RE in overall supply remains in the range of 15-20%, despite a spike in capacity. Lack of supporting transmission and distribution infrastructure, financially crippled discoms not buying more RE and grid level challenges restrict the adoption of RE. Most of the states are wary of signing long term agreements for buying RE, leaving more than 50 Gw of projects languishing. Capacity addition plan with little or no focus on the needs of the most important stakeholder - states/discoms is the base of this mismatch.
While a lot of states are not in sync with the plans of the federal government, they are however building their own investment opportunities for the green energy sector. Some like MP are drawing unique tenders, while others such as Tamil Nadu and Andhra Pradesh are building a green manufacturing ecosystem.
The era of competitive federalism among states is in full glory now. And it might just bode well for RE. States are keen to get on the bandwagon of green energy but want to set the terms themselves. The Centre realising it has started pushing them to submit a ‘resource adequacy’ plan which would have state focused power procurement planning.
States want round the clock RE and are willing to experiment with the sources - solar + wind + storage or solar + thermal + storage, RE for fixed hours for commercial users, decentralised solar for agriculture segment, among others. Maharashtra for instance recently floated policies to offer cheap RE to industries especially data centres to invite them to set up shop in the state. Recent project announcements indicate that states are keen on energy storage - be it grid scale battery or pumped hydro or localised storage solutions.
States are weaving RE into their policies and not just energy transition but economic growth as well. A bottom up approach would help the Centre plan the demand-supply scenarios and investment strategies. And 500 Gw or not, a de-centralised approach where states decide the pace and quantity of energy transition, would also help reduce the mismatch across the power sector pipeline.
All eyes on the states now.
The India Energy Decode is a monthly round-up of India’s energy landscape