Adapting to a Surplus Power Market
Power News Commentary: January – February 2017
India
One of the recommendations by a committee set up by the government to address the surplus situation in the power market has recommended the reduction in power tariff for major consumers. This is a step in the right direction as the industry which is a major consumer of power has been paying above average prices for power at the expense of its competitiveness to cross subsidise the household and agricultural segment.
The Indian power sector is also reported to be taking advantage of the glut in the power market to phase out old inefficient power plants. NTPC is said to have decided to shut down old polluting power plants of 11 GW capacity and replace those with new ones which are highly efficient.
On the other hand with the tax holiday for infrastructure projects including power projects coming to an end in FY17 power prices are expected to increase by Rs 0.05-0.10/kWh in FY18. According to industry experts this is expected to affect even solar power tariffs. However this may not be a significant problem in an environment of surplus power and low power tariffs.
In a move that would probably increase efficiency in lighting and in the process offer an incentive to increase power consumption, the government is said to have decided to phase out incandescent bulbs by 2020, starting with high voltage lamps. Incandescent lamps consume 80 percent more electricity than LED lamps, but are widely used in middle class and poor households because they cost much less. A 60 watt incandescent lamp costs Rs 10 while an LED lamp of the same power can be ten times more expensive without subsidies. The government expects to save 8.5 million kWh electricity consumption every day or 15,000 tonnes of CO2 by replacing 770 million conventional bulbs and CFLs as well as 35 million street lights with LEDs over three years. One can only hope that increase in efficiency does not result in increase in consumption as Jevons predicted in 1865 in the context of coal. The CEA observed that India lost 15 BU of power generation in the quarter ended December due to shortage of natural gas. This was said to be more than 5 percent of the planned quarterly power production of 295 BU from conventional sources. Apparently the government had allotted gas supply of 9,527 MMSCMD to gas-based projects for the three months period ended December but supply stood at a mere 2,609 MMSCMD or 28 percent. While the biggest losses are reported to be for Torrent, a private power generator, NTPC’s Ratnagiri is also said to have suffered losses. It is important to note here that the shortage is only for ultra-cheap domestic gas and not internationally traded gas which is available and can be secured through India’s LNG terminals. The problem for gas based power generators is to find buyers for expensive power generated if they use imported LNG.
Uttar Pradesh was in the news not just in the context of the elections but in the context of being the only state that is yet to sign up to an agreement with the Centre for 24×7 Power supply as part of the UDAY scheme. It would be interesting to see how the Indian federal system that has devolved power over the power sector to the State will accommodate the scheme which is primarily driven by the federal Government.
Finally a ‘Chinese are coming’ story was also spotted in the press. The Indian power equipment manufacturers have reportedly raised alarm over vulnerability of the country’s transmission networks to hacking as Chinese companies make steady inroads into SCADA systems being added to smarten up city grids. SCADA is a computer-based industrial automation control system that practically makes factories and utilities run on their own. In an electrical system, SCADA maintains balance between demand and supply in the grid. Though the Indian power sector has always been weary of the entry of Chinese companies into the Indian power sector this time the worry is reported to be strategic rather than mere business concern.
Rest of the World
The Canadian underwater energy storage company Hydrostor is said to be interested in the $1 billion of contracts to replace decommissioned US peak power plants in the next two or three years. These peaking power plants are turned on only when demand is highest, are a critical but expensive element of the electricity grid. Hydrostor and its engineering partner AECOM are reportedly targeting coal-powered facilities of at least 100 MW across the US that either shut down in 2016 or will shut in 2017. Hydrostor buys off-peak electricity to compress air it stores underwater in balloon-type accumulators. It then reverses the process to generate power and feed it back into the grid when demand is high. Hydrostor is expected to compete for the attention of utilities against battery companies and new, more efficient gas-powered facilities.
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