Integrating Distributed Energy Resources for a Smooth Energy Transition

This blog post seeks to provide the highlights of the webinar discussion held on April 13, 2021, as part of the India Energy Transition Dialogues – a series convened by the Centre for Policy Research to explore different paths to meet India’s 21st-century energy goals. Each webinar in this bi-weekly series discussed different pathways proposed by thinktanks and research groups working on specific pieces of India’s energy transition puzzle. These discussions – by drawing on practical experiences and exploring the costs and opportunities associated with these approaches – seek to facilitate constructive engagement with government policies and interventions at the national and state levels.

Distributed Energy Resources (DER) are integral to India’s energy transition ambition and trajectory. Three policy mandates testify to this: a) 40 GW rooftop solar (RTS) as part of the 175 GW renewable energy (RE) generation capacity target for 2022; b) solarisation of irrigation pumps with an initial target of 30.8 GW decentralized solar capacity under PM-KUSUM; and c) an embryonic policy mandate for electric vehicles (EVs). Moreover, since 2016, RTS has been cost-competitive with grid tariffs.  Despite the policy mandates and economic incentives, after five years, India has achieved only 7 GW RTS capacity as of December 2020.

Drawing on the Australian experience with DER, Institute for Energy Economics and Financial Analysis (IEEFA) presented the importance of DER integration for energy transition and how India can leapfrog into a system where DER is central, planned for, and taken advantage of, driving deflation and sustainable energy for all. IEEFA’s analysis claims that India has the opportunity to plan for the combination of RTS with storage - both small-scale batteries and EVs – and suggests priorities to accelerate DER integration in India.  

DER integration is complex, with technical, regulatory, and market challenges. Technical integration required creating new technical standards that are vital for investors’ confidence. Simultaneously, good governance and enabling a regulatory ecosystem are critical to avoid the concerns that come with new technologies. This would entail regulatory integration (integrated planning to optimize benefits, ringfencing regulation) and market integration (updated utility business models, supporting power market provisions) with the overall DER strategy. Priorities areas where regulatory integration with DER may be fruitful include appliance energy efficiency, demand response, and innovation funding. In terms of market integration, the key concern is to ensure a consistent Return on Investment (ROI) for the investors and take steps to avoid rapid, unpredictable ups and downs in the ROI (termed the ‘solarcoaster’ in Australia). A final opportunity for market integration is the possibility of demand aggregation. However, given India’s current trajectory, IEEFA argues that there should not be a rush into aggregation and the other measures outlined should be prioritized.

The panelists highlighted that the grid charges in different markets and distributed grid costs are additional important factors for DER integration. Australia collects grid costs differently (daily charge) from India and other parts of the world. In India, where most of the distribution companies are financially stressed, it is essential to think about how to compensate the discoms appropriately to support DER deployment.

Several instruments for DER integration are deployed across India, and it is not yet clear which instrument will work in which state. However, it is important to see how these instruments are effectively used to incentivize DER in different states. For instance, a common challenge is the lack of incentives for the discoms to scale up DER. The key concern is the loss of cross-subsidy, as DERs would enable high-value consumers to migrate from the grid. A provision of a healthy trading margin for discoms on electricity from DERs and integrating DER with storage could help to accelerate its uptake.

Concurrent status and shared jurisdiction in the electricity sector have implications for DER vis-à-vis grid-scale RE. State-run discoms are not on the same page with the DER policies and targets set at the Centre. Net-metering does not benefit the discoms, rather it adds the burden of load balancing. Discoms need to be taken on board to identify the grid import and export tariff levels that would be feasible for them and politically viable.

Discussing the issues related to the political push required for DER to succeed at the state level, the panelists emphasized different options like storage (at multiple scales), finance, and political will to support instruments that could play a vital role in supporting DER deployment. Though current levels of DER do not make storage an urgent issue, the panelists claimed, scaling up would require storage capacity at all levels and in different forms. Acknowledging the heterogenous policy experiments across the states, the panelists called for coordination across the state and national policy approach towards DER. Political buy-in and support for a decentralized energy vision both at the national and state level will be critical for scaling up DER solutions.

The states need to support small consumers through better access to finance and enabling net-metering regulations for better uptake of DER in the segment. A current challenge is that financing norms currently are not catered to the small RTS consumers. However, there are other technical issues with small RTS such as their low capacity utilization, the scale being below the sizing adopted by equipment manufacturers, and loss, which reduce the project-level viability. Combined, these factors make large RTS more viable than small RTS projects.

Finally, commenting on the role of DER in ensuring justice and equity in the energy space, the panelists varied in their opinion. Some panelists argued that subsidizing DER for low-income consumers could be a long-term strategy to manage distributive pressures. Others expressed that the cross-subsidy regime is already attending to distributive pressures, and it is not something for the RTS to correct. RTS should be left to the market. The subsidy demands need to be funded by the government.

India Energy Transition Dialogues: Integrating Distributed Energy Resources for a Smooth Energy Transition | April 13, 2021

PANELLISTs

• Gabrielle Kuiper, DER Expert, Institute for Energy Economics and Financial Analysis (IEEFA)

• Vibhuti Garg, Energy Economist, Lead India, Institute for Energy Economics and Financial Analysis (IEEFA)

• Heymi Bahar, Lead Analyst, International Energy Agency (IEA)

• Shailendra Shukla, Ex-Chairman, Chhattisgarh State Power Companies; Ex-Chairman, Haryana Renewable Energy Development Agency; Ex-Director & CEO, Chhattisgarh State Renewable Energy Development Agency

• Mudit Jain, Head-Research, Tata Cleantech Capital Ltd.

Moderated by:

Ashwini K. Swain, Fellow, Centre for Policy Research

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(Environmentality is a collection of ideas, perspectives, and commentary by researchers at the Initiative on Climate, Energy and Environment, Centre for Policy Research, New Delhi. Views and opinions expressed in this blog are solely those of the authors. They do not represent institutional views.)