Context

Ministry of new and renewable energy (MNRE) has proposed ‘bundling’ scheme to boost to renewable energy.

About

• MNRE 'bundling scheme': In order to boost the renewable energy sector, MNRE has come out with the draft framework for a scheme to supply round-the-clock (RTC) power from wind and solar plants.

• The scheme proposes to sell renewable energy and thermal power together in a ‘bundle’ so that buyers can get the assurance of receiving firm uninterrupted electricity supply.
• Objective: The scheme aims at addressing issues of intermittency, limited hours of supply and low capacity utilisation at renewable power plants, and make them more attractive for state-owned power distribution companies (discoms).
• Working of the scheme: MNRE has proposed that a government authorised intermediary agency would carry out auctions where power sellers can quote single composite tariffs for renewable energy-based power, combined with one single thermal fuel source (coal or gas).
  • The intermediary agency would then sell the power to discoms.
• Energy structure in India: Approximately, 70 per cent of India’s power requirements are coal-based. The higher cost of thermal power is attributed to rising in the cost of coal imports and no significant capacity addition. Solar and wind tariffs are cheaper than the cost of thermal power.

Details of bundling scheme

• Renewable energy supply: The generator is required to supply at least 51% of electricity sold under this scheme from renewable sources.

• Renewable power may include a combination of solar, wind, small hydro with or without any energy storage system.
• The renewable energy component bought under this scheme shall be eligible for complying with renewable purchase obligation (RPO) norms.
• Composite tariff: The composite tariff would consist of 51% renewable energy tariff, 30% thermal fuel cost and the remaining would account for the fixed thermal tariff. 
  • The proportion of thermal tariff shall be adjusted to cover the possible changes in coal or gas prices, as per the index to be notified by the regulatory commission. 
• Responsibility with power generator: Power generator will be responsible for supplying the composite power, hence, discoms will no more have to integrate renewable power into the grid. 

Need for bundling scheme

• Erratic supply of renewable sources:  Over time, the de-risking of the renewable energy sector, coupled with the advancement of technologies, resulted in bringing down renewable energy tariffs. But a drawback that goes against renewable energy is its intermittency when the sun doesn’t shine or the wind doesn’t blow. This makes it difficult for discoms to maintain a stable and steady flow of power, especially in case of large projects where they have to balance power to maintain grid stability and meet requirements even when renewable energy is not available.

• Reverse bundling, wherein high-cost thermal power is bundled with cheaper renewable energy to provide round-the-clock power supply to discoms solves this problem. 

• Reduce additional burden for discoms: Even as the cost of renewable energy capacity decreased, discoms continued to buy thermal power (under contractual obligation) which accentuated their problem as coal got costlier. Government is now attempting to do “reverse bundling”, which involves adding more renewable energy to the energy mix.
  • The scheme will bring down power buying costs for state discoms. 
• Reduce the burden on thermal assets: The scheme will provide relief to bankers as it would provide an opportunity for stressed thermal assets to find buyers for their power, which are stranded due to lack of power purchase agreements (PPAs).
  • It will thereby reduce the quantum of non-performing assets.
  • It will also help with the utilisation of untied thermal power capacity. 

Way forward and Policy suggestion

Creation of a renewable energy database will serve both policymakers and developers. For the former, it can be an early-warning mechanism, allowing them to make targeted, timely and effective evidence-based interventions. For the latter, it can be a valuable tool to source capital at scale on favourable terms as a result of increased transparency.