We hope for a future where all our energy comes from Renewable sources. However, we believe that this future is further away than most people think. We explain why and advise managers of distribution companies, regulators and investors to exercise caution while increasing renewable capacity in electricity grids.

1. RENEWABLE
ENERGY
Not ready for
Primetime … yet
May 2018

2. NOTE: This InfoCapsule, focuses on Variable Renewable Energy (VRE) viz. Wind and Solar PV.
Unlike coal, gas and nuclear plants, VRE power plants generate electricity when the sun is shining or when wind is blowing not
when we want them to generate. Hydro Electric plants are renewable and we have some control on when they generate electricity.

3. In recent auctions, the price bids of
electricity from Variable Renewable
sources, match or are even lesser than
that from Fossil fuels.
SOURCE: http://www.livemint.com/Industry/sMC62YoWv4LybaPZnKivMM/Indias-wind-
power-tariff-falls-to-a-record-low-of-Rs264-pe.html
Renewable Energy
Cost falling

4. Renewable Energy
Low cost worldwide
Min
Rs/KWhr
Max
Rs/KWhr
Wind 2.0 3.9
Solar PV 3.0 3.4
Solar thin film 2.8 3.1
NOTE: Costs from different sources may not be strictly comparable as many assumptions
(about costs: capital, operating, fuel, days and hours a plant operates, taxes, etc) go into
these estimates. However, these numbers are very good for scale comparisons, especially if
the difference in electricity prices from different sources is significant.
SOURCE: Lazard’s Levelized cost of Energy Analysis Version 11.0, AskHow India calculations.

5. Renewable Energy
Better in many ways
SustainableCombats
climate change
Clean
Lowers import
bill
Easy to
maintain

6. If Variable Renewable Energy
is getting cheaper AND it is better in
many other ways,
Does it mean that India and the world
will soon become fully renewable?
Would all new power
capacity addition be
Variable Renewable
Energy?

7. And to understand Why, we first need to understand how electricity reaches
our homes, shops, factories and fields. We need to know more about
The Electricity Grid
NONot with the current VRE
(Variable Renewable
Energy) technologies.

8. An Electricity Grid is a collection of many Suppliers and Buyers.
Suppliers could be different power plants like Hydroelectric, Coal, Solar or Nuclear plants.
Buyers could be households, industry and agricultural users.
The Electricity Grid

9. Advantages
The Electricity Grid
Scale
More efficient
large plants can
be put up if they
serve many
customers.
Reliability
Unlike a grid, if one
plant is supplying
one customer then
she would not get any
electricity when the
plant is down for
maintenance.
Balancing
A grid takes advantage of the fact
that different customers require
power at different times. Thus,
the maximum capacity needed in
a grid is not the simple addition
of maximum demand of each
customer.

10. The Demand in an Electricity Grid varies through the day
In a heavily urbanised area for example, the maximum demand could happen
between 6 to 10 in the evening when people at home switch on their lights and
televisions, and shops and malls also have their air conditioning at maximum.
00:00 24:0012:0006:00 18:00
Max Demand
DemandMegawatts
Time of Day
➛
➛
Note: The demand curve is different for different days
and varies across seasons. It is also very different for
different regions. The curve shown is a simplified one.
The Electricity Grid

11. Supply must be instantaneous
When you switch on the light at home, the electricity
used is instantaneously generated by one of the
power plants in the grid.
If you increase your power consumption, power
plants have to instantaneously generate more power.
This is a property of electricity.
The Electricity Grid

12. 00:00 24:0012:0006:00 18:00
1000 MW
Max Demand
DemandMegawatts
Time of Day
➛
➛
Note: Calculating the generation capacity needed to
provide reliable 24 x 7 electricity in a grid is complex.
A 20% buffer is taken here for illustration.
1200 MW
20% Buffer
How much Generation Capacity would be needed in a Grid?
To provide reliable 24x7 electricity, the grid capacity should exceed the maximum demand.
In a simplified example, if maximum demand in a day is 1,000 MW, then the grid needs a
generation capacity of 1,200 MW (excess capacity caters to: i) scheduled maintenance and
ii) unscheduled breakdown)
The Electricity Grid

13. IF we want to provide people 24x7 electricity, then
Capacity (should) = Max Demand + Buffer
and none of this can be Variable Renewable.
If the 200 MW buffer in our example is
Solar Photo Voltaic, it would not be
available in the evening. On an evening,
even if a single 100 MW non renewable
breaks down or has to shut for repairs –
only 900 MW will be available for a
demand of 1000 MW. Many people
would not get electricity that evening.
How much Generation Capacity would be needed in a Grid?
The Electricity Grid
No Sun
Zero MW
No Power

14. So any Variable Renewable
Energy added to the Grid
will be excess capacity, and it
will come with excess capacity
creation cost. This Capital Cost
of excess capacity has to be
borne either by the Government
or the Customers.
1) This Capital Cost should be included in what we are calling
Hidden Cost of Renewables.
Capital Cost however is not the only hidden cost.

15. 2) Variable Renewable Energy tariffs quoted in
headlines are significantly low because of tax
rebates. By contrast, a very high component of
Coal prices is government levies and taxes.
A narrow view of just ‘price’, does not account
for this not-level playing field. Thus Tax
Foregone is the 2nd Hidden Cost of Renewable.
3) Furthermore, VRE power plants switch on
and off on the basis of external factors (sunlight
and wind) - not on basis of demand, making the
grid unstable. So Grid stabilisation Technical
Costs, are the 3rd Hidden Cost of Renewable.
Hidden Cost of Renewables
1) Capital Cost 2) Tax Foregone 3) Technical Cost

16. Can we reduce the hidden costs?
00:00 24:0012:0006:00 18:00
DemandMegawatts
Time of Day
➛
➛
To efficiently add Renewables to the Grid, we could
1) STORE ENERGY during the late night / early morning slack, and
2) SHIFT DEMAND from the late evening peak
1 STORE
ENERGY
2 SHIFT
DEMAND

17. Reducing hidden costs: 1. Energy Storage
Energy storage comes in 2 main categories: 1) Physical and 2) Chemical
1. Physical storage, could be Pump
Storage plants where energy is
stored by pumping water from a low
level to a higher level reservoir when
demand is low (or when excess
Renewable Energy is available) and
using this water to again generate
electricity at peak demand.
NOTE: Compressed air storage is another physical storage option. The
energy is stored by compressing air in an underground storage cavern.
Only 440MW of installations exist around the world.NOTE: 5 of 9 Pump storage plants in India,
function with a total capacity of 2600 MW.
PUMP
STORAGE
Generation

18. In 2) Chemical Storage, 2a) Flow Batteries and 2b) Lithium Iron Batteries are
the 2 best types of batteries for high quantity electricity storage.
But Chemical Storage has significant associated challenges:
i) Immaturity of technology:
Battery storage is not yet a mature
technology and hence the total
batteries connected to the grid, across
the globe is low.
We need batteries that can be
installed at large scale on the grid.
ii) High Storage Costs:
Rs / KWH Min Max
Compressed Air 7.5 9.1
Pumped Hydro 9.9 12.9
Lead Acid 17.4 36.5
Lithium Iron 27.6 60.6
Flow (V) 2017 12.0 22.0
Lithium Iron 2017 17.0 22.0
Reducing hidden costs: 1. Energy Storage
NOTE: Storage Cost assumes cost of capital, funding, storage efficiency options, etc - so, estimates are more to share the scale of Storage Costs.
Source: LAZARD’S LEVELIZED COST OF STORAGE ANALYSIS—VERSION 3.0, AskHow India calculations

19. But the biggest problem in storage is that it is good for storing
demand variation over small time period. For longer periods,
the capacity required is humongous.
Reducing hidden costs: 1. Energy Storage
Similarly, storing solar energy for use
in rainy season calls for storage
capacities that are very large and
hence very expensive.
ANALOGY: The Water Dept announces a disruption in your
home’s running water supply. You prepare for 2 hrs
with 2 buckets, for 2 days with 2 drums, but …
for 2 months, You need a small lake!

20. Reducing hidden costs: 2. Shift Demand
Some grids in developed countries
charge customers different prices,
depending on time of the day. Thus,
electricity is cheaper at times of excess
supply. The idea is to shift demand
from high to low demand time.
However, some demand cannot be shifted. For
instance, people will not switch on lights in the
afternoon instead of night just because it is
cheaper. Also, Suppliers need the ability to record
consumption at different times i.e. have ‘time of
the day’, smart metering.

21. Reducing hidden costs: 2. Shift Demand
Widespread time-of-day, smart metering may be
difficult in India, when 100% metering is still a
goal. In rural Uttar Pradesh for example, less than
3% of consumption is metered.
However, there are viable options – e.g. farmers who use water pumps,
could use solar energy as they can time the pumping during day and would
not require this facility in monsoon.
Other option is to not supply villages and small
cities with electricity during peak demand hours.
However, this is not an ethical option and is
becoming increasingly difficult politically.
Smart
Metering
Metering
Source: http://www.business-standard.com/article/economy-policy/milestone-crossed-govt-meets-electrification-target-of-18-000-villages-118043000022_1.html

22. Reducing hidden costs: 3. Supply options
Hydro and Gas power plants are also good fit
with VRE commercially. This is because most
hydro power plants in India do not work 24 hours
(except in monsoon) and because gas power
plants are cheaper. The gas price and availability
is however a concern.
If a grid has a lot of Hydro and or Gas based
generation capacity, then its stability can be better
managed as these plants can be switched on and
off more easily.
HYDRO GAS

23. Hidden cost of VRE
Hidden cost of VRE: Who pays? Customers? Government?
Hidden Cost of
Renewables
Source: https://www.cleanenergywire.org/news/debate-financing-renewables-new-ways-gathers-pace-germany, AskHow India calculations.
If Customers bear cost: Price of electricity goes up
German households are estimated to pay Rs 5.51/KWh
as Renewable Surcharge in a total of Rs 23.35/KWh.

24. Hidden cost of VRE
Who pays for the Hidden cost of VRE?
IF Government bears cost
Subsidies for renewable energy means less spend
by government for army, roads, schools, police,
hospitals, farmers, etc.

25. Cost of electricity THE ISSUE in India
The big issue in electricity sector in India is:
Customers pay less than the cost of electricity.
This is because: 1. Lots of electricity is lost (including in theft).
2. The cost of generation has risen sharply.
3. Many customers segments pay very low tariff at least partly because
electricity is unaffordable.
In this scenario, we need to add VRE cautiously:
- after studying the grid in detail and fully mapping the
demand characteristics and the supply options.
- so that the hidden costs do not surprise us in future.

26. Renewable Energy Adoption
Tradeoff: (Known + Hidden Costs of VRE) versus (VRE Benefits)
As a society we can still decide to invest in VRE even
when all hidden costs are taken into account.
But, Decision makers should make this decision
consciously and not on basis of headline tariff.

27. DECISION MAKERS CHEAT SHEET
1. How much Energy Storage capacity does your Grid have?
HIGH LOW
2. How flexible is your Grid’s Energy demand across time of day?
HIGH LOW
3. How much do Hydro + Gas compose of your Grid’s total power?
HIGH LOW
4. The amount of investment your grid will require to maintain
stability with significant VRE addition?
HIGH LOW
Renewable Energy Adoption
RENEWABLE
ADOPTION
POSSIBLE
RENEWABLE
ADOPTION
DIFFICULT
4 HIGHs 4 LOWs