Impact of Bundling Scheme on Solar Power Companies

The ministry of new and renewable energy (MNRE) has come out with a draft policy to tackle several problems associated with the renewable energy sector with the potential of big benefit for solar energy companies in India. Starting with intermittency, which is the Achilles heel of wind and solar power holding it back from a large scale uptake, the framework proposes to ‘bundle’ renewable energy along with thermal plants to achieve around-the-clock power supply. The scheme would solve the issue of low capacity utilization of renewable power plants and the associated infrastructure while also providing an opportunity for the distraught thermal plants to find buyers for their energy.

How Bundling Works

Bundling renewable with thermal power involves combining the government’s unallocated power quota produced at the National Thermal Power Corporation (NTPC) coal plants along with solar and wind power. The renewable power is purchased from the developers by the NTPC Vidyut Vyapar Nigam Limited to be combined with the coal-based power which is cheaper. The Central Electricity Regulation Commission (CERC) sets the price for this power and sells it at a lowered price to the distribution companies. The drop in the solar power price leads to cheaper power decreasing the impact on them while benefiting the solar developers at the same time as they would receive higher tariffs.

In phase 1, the bundled solar power cost was successfully lowered to INR 5/kWh and the ratio of solar to coal power was kept at 1:4. Under Phase 1, the total commissioned capacity was 718 MW, however, due to the inadequate coal production, the bundling faced a hurdle. In the second phase, a number of solar power plant companies in India were selected from various central schemes and the Viability Gap Funding (VGF) Scheme was introduced. The Solar Energy Corporation of India (SECI) which implemented the scheme set the goal to solve the intermittency and low capacity utilization problem associated with the solar plants. This also made them viable for state-owned power distribution companies.

In this scheme, the generator is needed to supply at least 51% of the total electricity generated through renewable sources, and the rest is supplied through thermal power plants. The generator will also have the option to choose the type of renewable power source or its mix including solar, wind, and even small hydro plants along with or without the use of an energy storage system. The tariffs for renewable energy are quoted through bidding as a composite single tariff for the bundled power. It would consist of 51% renewable energy, 30% for the fuel costs of the thermal plants and the rest would go for the fixed thermal tariff. The selection of a successful bidder is done through a transparent bidding process where the composite single tariff is to be the bidding parameter.

The Impact

Although bundling works similar to risk mitigation via pooling, the scheme is proposed at a time when distribution companies who are already cash-strapped are delaying payments to the renewable energy companies. The actual cost for renewable power turns out to be higher than what it is on the paper, as the sates under contract have to continue paying fixed rates to the thermal generators even when they are not being used to accommodate the renewable as pointed out by the Chief Minister of Andhra Pradesh in a letter to Prime Minister Narendra Modi.

It’s also important to know that the impact of the bundling can only be fully understood in conjunction with other schemes. One of the goals of the bundling scheme was to support grid-connected solar power generation by the use of solar panels in buildings both by the residential and commercial sectors.

With the goal of generating 100 gigawatts of solar power for industrial and domestic use by 2022, it is essential to establish the infrastructure and the technology to meet the goal by power companies. However, it cannot be done by solar farms alone, consider the 13,000 acre Pavgada Solar Park which is the largest of the solar plants in Karnataka and the second largest in the world. Although spread across 53 square kilometers, the plant’s total output is 2,050 megawatt or 2 gigawatts. Therefore, the commercial solar benefits are clear from the beginning in establishing rooftop PV systems for large-scale power generation.

The manufacturing of solar panels in India is still underdeveloped constituting only about 15% of the total. Facing stiff competition from the Chinese and Malaysian manufacturers, the Indian manufacturers still have to bear the burden of expensive machinery to push the quality to a global scale. However, with the capital subsidy offered by the government on rooftop solar installations, the commercial solar panels cost in India has steadily dropped making it affordable and attractive for many residential and commercial property owners. Although there are clear challenges in the form of technology receptivity and commercial solar monitoring, there is steady growth in the sector. This is also a positive trend for solar battery storage companies who can introduce more efficient and reliable storage technology for both residential and commercial complexes.

To sum it up, bundling will solve the irregularity problem with the renewable sources and throw a lifeline to the stressed thermal players in the market. It can be highly beneficial in the long run for solar power companies as there are clear benefits for businesses and consumers.

References:

https://www.financialexpress.com/economy/boost-to-renewable-energy-mnre-proposes-bundling-scheme/1812547/

https://homescape.solar/how-bundling-scheme-is-going-to-impact-solar-companies-in-india/

https://energy.economictimes.indiatimes.com/news/renewable/mnre-issues-draft-policy-for-round-the-clock-supply-of-bundled-renewable-power/73076019

https://powerline.net.in/2020/02/15/bundling-benefits/

https://in.finance.yahoo.com/news/renewable-energy-govt-proposed-bundling-172823522.html