India ranks 3rd in electricity production and consumption, after China and the United States. The Government of India’s target to install 175 GW of renewable energy by 2022, is an important step to ensure India’s energy security and develop a clean and sustainable source of energy for the coming years. Moreover, India has witnessed an exponential growth in wind and solar capacity additions in the last 5 years compared to the worldwide growth.
But what has been Fueling India’s Growth?
How is Electricity commonly Traded in India?
Electricity trading means purchasing and selling power between participants in the energy industry. The conventional way of electricity trading involves, trading in bulk quantities between Energy Generators and Distribution Companies (DISCOMs) who then sell it to the end consumers.
There are two ways in which this is done:
- Long-term contracts: Theses are bilaterally traded between electricity generators and DISCOMs through Power Purchase Agreements (PPA) and account for 88% of all electricity procured during FY19.
- Short-term contracts: These power trading contracts have a duration of less than 1 year. They are done through Indian Energy Exchange Ltd (IEX) and Power Exchange India Ltd (PXIL) that includes day-ahead auctions and intraday market. These contracts account for 12% of all electricity procured in FY19. These are preferred over long-term PPAs as they help DISCOMs meet sudden surges in demand.
India’s ailing state distribution utilities are under pressure to improve their finances and are reluctant to lock themselves into long-term contracts which can run for decades. In November’19, P.K. Pujari, the chairperson at the Central Electricity Regulatory Commission, claimed that the share of electricity transactions executed through long-term deals may decline from the current 92% to 50-60% in about six years.
Emerging Trends in India
Rise of Renewable Energy Sources (RES)
- The Energy and Resources Institute (TERI) projects the cost of wind and solar to decline and be between ₹2.3-2.6 per Kilowatt-hour (kWh) and Rs 1.9-2.3 per kWh respectively by 2030.
- Declining costs of solar and wind energy generation will lead to greater adoption and utilization of RES at smaller scale installations like solar rooftop panels.
Rise of Private Sector in Electricity Generation
- Due to the rise of private investment in electricity generation, energy and peak shortages have declined from 11.1% and 11.9% in FY09 to about 0.6% and 0.8% in FY19 respectively.
- With the growth in rooftop solar capacity by households, companies and the Government, there exists a need to connect these sources to the electricity grid and sell the extra energy generated.
What is Net Meter concept in India?
Net metering is a mechanism that allows consumers who generate their own electricity to export it back to the grid at a specified tariff.
The key objective of policymakers in introducing this policy was to promote the use of RE and reduce infrastructure costs.
Impact of Net Metering
- The Net metering facility is being utilized by high-end consumers and therefore, a decrease in demand can put pressure on the utility company and weaken its ability of providing electricity to some consumers at subsidized rates.
- Conventional grids are not designed for rooftop RE systems and make it difficult for utilities to monitor stability of the grid.
Moreover, 360.81 MW of Solar Rooftop Projects have been sanctioned by MNRE and 54.187 MW commissioned.
Emerging Peer to Peer (P2P)/Retail Trading
Greater utilization of renewable energy and net metering has given way for P2P/Retail trading.
Trials are being conducted in USA, Australia, Germany, Netherlands and the United Kingdom. In the U.S., the microgrid provider TransActive Grid (TAG) is piloting P2P energy exchange using blockchain, which would allow for a direct energy sell between consumers.
In India, electricity distributer BSES Rajdhani Power Limited (BRPL) partnered with Power Ledger, a worldwide leader in blockchain-based renewable energy trading, to put in a large-scale P2P energy trading trial in Delhi, India.
Why should India evolve to P2P trading?
- Provides smaller generators and consumers with a market to buy and sell.
- P2P trading can fix flaws related to accounting of solar power generation and billing issues in net meter policy.
- By providing a market P2P can free consumers from price control by DISCOMs.
- P2P can be consumer friendly and more suitable for evolving technologies and business models.
P2P trading allows consumers to monetize their rooftop solar assets by selling extra power generated to others in the same way you might rent out your spare room or car. European Union (EU) is at the forefront of regulatory efforts to open the door to P2P trading. In the past year, the EU has passed directives mandating that all member states smooth the way for P2P energy trading by 2021.
To implement P2P trading, India must first overcome infrastructure and regulatory challenges. We can expect the first move from distribution companies and adoption after successful trials by 2022.
Contributor: Vishesh Gupta
Research Desk | Leveraged Growth
I am a commerce graduate from Modern college (Mumbai University), and currently pursuing CFA level 3 from CFAI, USA. I have an entrepreneurial spirit and believe in leaving no stone unturned to solve a problem by using my creative, analytical and outside the box thinking. A voracious reader and one of my favorite books is “Blitzscaling“ by Reid Hoffman a serial entrepreneur. I am a trustworthy, honest and humble person and believe in learning and improving myself and the people around me. Some of my passionate interests are F1 Racing (Formula One), History and Music.