Storage capacities and renewable energy grids to revive the power market

The share of the electricity trading market is expected to increase by USD 99.46 million from 2021 to 2026 at an accelerating CAGR of 6.3 percent. The power sector in India is undergoing a major transformation, with drastic changes expected in the market structures, supply mix, and consumption patterns.
According to a report published by Auctus Advisors, several of these changes are influenced by happenings in the global energy markets: a focus on renewables owing to concerns about climate change and supported by drastic cost reduction; an increased proliferation of electric vehicles driven by a gradual improvement in electric storage; and technological advancements in grid management and power generation systems.
Financial performance of power finance
With the country coming out of COVID-19 and rapid recovery in economic activities, the power demand went up substantially during the year, leading to the highest peak demand in the country of 211 GW, recorded in June 2022 was met successfully.
Prabajit Kumar Sarkar, MD and CEO of PXIL, stated that the last few years had burdened power generation companies with massive financial overdue from DISCOMs.In 2022, the cumulative average of pending dues was approximately Rs. 1.21 lakh crores. However, the Power Ministry’s implementation of the Late Payment Surcharge and Related Rules in 2022 has led to a decent reduction in the overdue amount by almost 50 percent to 0.62 lakh crores by January 2023.
Agreeing with the above discussion, Akhilesh Awasthy, COO of Hindustan Power Exchange, detailed further, saying that, along with implementing policies to reduce the DISCOMs’ pending overdue bills, 2022 was a pretty challenging year. Especially during the power outage that occurred in April-May 2022. It has affected the power trading scale and its performance, and the results are visible in power exchange transactions with the tariff fluctuation that is relatively below the graph.
Trends in the power trading business
There is a strong push to utilise the power exchange platform using contracts of various tenures and segments. The draught NEC policy already emphasises increasing total power consumption by 25 percent.
“Even purchasing power through power exchanges through all forms of contracts, including DAM, RTM, and TAM has reached 7.7 percent of the total electricity consumption.” “This development has mostly been driven by transparency in power price and a payment system,” Sarkar adds.
Adding details to the said developments, Awasthy speaks of the resumption of ESCert Trading. Even the discussion to intensify the carbon market, with BEE proposing a carbon trading mechanism through its draught papers, adds impetus. “These developments increase the likelihood that ESCerts and carbon credits will become more significant in the coming days.”
Opportunities and challenges impacting the power sector
Increasing the incorporation of renewable energy in the power sector adds impetus to integrating renewable energy into the grid. “This integration would need adequate systems to meet the varying demand.” “Hence, we should focus on a capacity market to address these requirements,” Awasthy emphasises. Even distribution utilities’ financial health and high-aggregate technical losses remain challenging.
On the other hand, Sarkar explains that the renewable energy sector allows India to aspire for energy independence. Therefore, we need to pursue it with a single-minded purpose.
Sarkar further suggests that using renewable energy, energy carriers, and storage solutions, as well as increased use of electric vehicles, would help achieve nationally determined goals of sustainability and environmental friendliness.
“Additionally, fuel supply management for generating plants and access to markets for the transaction of power would play a crucial role in ensuring that the increasing demands of a growing economy are met without much volatility,” explains Sarkar.
This would require a combination of efforts across the spectrum, including improvements to the tariff setting process to reflect the actual cost of power; mechanisms to improve AT&C losses with specific improvements in metering, billing, and collection; access to a vibrant power market to meet their short- and long-term power requirements; CAPEX in their power networks; and systems to improve technical parameters and reduce technical losses, etc.
Stabilising the power sector’s financial performance
The financial concerns of DISCOMs have already crippled the power sector’s entire value chain. Furthermore, there is competition among the state DISCOMs, especially for industrial power, with restrictions on increases to compensate for subsidies in other segments.
The government’s Revamped Distribution Sector Scheme (RDSS) is a reform-based, result-linked scheme aiming to reduce AT&C losses. “A comprehensive investigation reveals that several concerns and challenges plague the distribution sector.” “Power purchase planning by these DISCOMs will require considerable thought since it accounts for 75 to 80 percent of the cost,” Awasthy elucidates.
Sarkar goes on to discuss the other major highlights.” A significant highlight of 2022 in terms of bringing financial discipline among power utilities is the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (the “LPS Rules”). “The objective of these rules is to provide a mechanism for the settlement of outstanding dues of GENCOs, TRANSCOs, and electricity traders.” A delay in payment leads to an increase in LPS rates, and the state can be penalised if the delay is beyond 75 days.
viable solutions to bridge the gap
In terms of financial assistance, in addition to the existing framework and policies, it would be important to provide DISCOMs with dedicated working capital support for transactions conducted on power exchanges. This will deliver financial discipline, and power generators will be paid on time for their supplies.
Considering this, Sarkar further suggests, “It is also important to plan for transitional finance of renewable energy projects and new technologies through market-based procedures, where transactions can be performed on power exchanges at market pricing, and an additional incentive can be offered to power generators based on the technology.”
Awasthy uses this occasion to explore renewable energy and its requirements. “The government is in a transition period and is considering switching to low-cost energy sources.” The government intends to expand green hydrogen efforts further, and similar PLI schemes may be required to promote green hydrogen energy sources. “Awasthy concludes.
In the Indian context, many strategies can be deployed concurrently to meet the balancing need. While learning from other markets is beneficial, relevance for India must be evaluated in terms of cost and ease of implementation, especially given the current state of the power industry.