Union Budget 2023: Mainstreaming flexible and resilient grids

2023 is going to be a critical year for India, with the country taking up the G-20 presidency and this being the penultimate year for the next general elections. Thus, a slew of economic reforms could be expected.

In the electricity sector, there have been several hits and misses in the past but the Indian growth story remains strong. The sector bounced back rather quickly post-Covid, particularly in terms of electricity demand that registered the highest ever daily peak of 212.6 GW in June’22, up 9% from the prior year and up 16% from pre-COVID-19 levels. The sharp increase in demand is a testimony to our growing economy as well as an indication of rising temperatures and climate change.

To combat climate change, India has pledged to increase its non-fossil fuel-based installed capacity to 500 GW by 2030 and achieve net-zero emissions by 2070. The flipside to clean energy (esp. wind and solar) is that it’s intermittent and variable, unlike conventional supply sources based on coal, natural gas, nuclear and hydro, etc. Thus, as we work towards our decarbonization goals, we increasingly need resources and mechanisms to balance the intermittency in the electricity supply.

The patterns are changing on the demand side as well. Our peak demand (Megawatts) is outpacing our energy demand (Megawatt Hours), creating the need for a physical upgrade in generation and network capacity to meet demand only for short periods. Further, there is an ingress of distributed resources such as solar rooftops that can inject power back into the grid, electrification of transport and associated charging infrastructure, electrification of heating, etc., all of which is increasing the variability in electricity demand.

This is a double whammy, necessitating power systems to be more flexible and capable of producing a quick and calibrated response to changes in demand and supply. A range of flexibility sources are available, such as (i) demand side flexibility e.g., Demand Response (DR) and Time of Use (ToU) tariffs to nudge consumers to modulate demand in response to price signals, (ii) flexible generation, involving hybrid RE + energy storage, synthetic inertia by instant power injection through energy storage, retrofitting coal-fired plants for cycling duty etc. (iii) operational flexibility involving better RE forecasting, joint market operation of energy storage (in day-ahead and real-time markets), improved scheduling and dispatch practices, etc. Sector coupling is also becoming increasingly important for decarbonization and flexibility, as it helps convert surplus clean energy into heat and gas (hydrogen, ammonia, etc.) and vice-versa.

Power system flexibility also requires robust, interconnected, and smart transmission and distribution networks. This enables better visibility and control over loads and resources, better forecasting of network constraints, and deployment of a portfolio of resources to balance demand and supply.

However, power system or grid flexibility is a complex, interconnected space that spans technologies, markets, and sectors. For instance, energy storage is a common technology that can be deployed on the demand side, supply side, and networks to provide flexibility. Battery Energy Storage Systems (BESS) and Pumped Hydro Storage (PHS) are two of the techno-commercially feasible and versatile storage media. Hydrogen is gradually coming into focus and there are other more exotic concepts like flywheels, gravity storage, and supercapacitors.

From a market enablement perspective, we require harmonized grid codes, standards, and practices to integrate new technologies with existing grids; policies and regulations to enable participation of emerging technologies and innovative business models, say ‘Storage as a Service’ or ‘Demand Response’ to participate in the energy and balancing markets. Incentives are needed to pilot and subsidize such new models and technologies to achieve commercial scale, in the same way we did with solar and wind a decade ago. Similarly, harmonization of policies is required among different sectors such as power, oil & gas, transport, renewable, metals & mining, manufacturing, etc. to create synergies and enable broad-spectrum technologies like batteries and hydrogen to thrive.

Last, but not least, power systems face a multitude of external threats which have a large potential to disrupt our interconnected grids and inflict heavy socio-economic damages. Such threats could be Natural (floods, cyclones, landslides.), Human Induced (cybercrimes, terrorist attacks, riots, etc.), Technological (equipment failure, software, and hardware failure, malware, etc.), and Health Emergencies (e.g., Covid-19, Swine Flu, Ebola).

Along with flexibility, grids also need to be resilient, i.e., capable of anticipating, preparing, absorbing, mitigating, and recovering from such events in a timely and efficient manner. This requires technological interventions as well as business/sector-level protocols and planning to respond to threats.

While the current policy regime supports the adoption of flexible resources like batteries, grid flexibility and resilience require more focus and a range of calibrated efforts, including due acknowledgment as a sector priority and robust planning at the central and state level. The upcoming union budget provides an opportunity for the government to develop flexible and resilient grids. Some of the desired measures are indicated below:

• Innovation Fund: There are numerous promising technologies and business model variants that could be deployed to provide flexibility. A government-financed innovation fund could help with the demonstration and mainstreaming of these models and technologies.
• Level playing field: Energy and balancing markets should be gradually opened to demonstrated technologies and models for participation. Further, these must be incentivized through tax breaks and viability gap funding, etc. to create a level playing field. Reliability costs could be levied on variable resources and bulk loads, to finance such incentives.
• Differential pricing: Energy storage resources act as both consumers (charging mode) and generators (discharging mode). However, currently, resources like pumped hydro storage are treated as generators only. Thus, a differential pricing mechanism is required for energy storage, which could price the reliability services differently and help in the recovery of high capital costs for such projects.
• Network asset monetization: Transmission and distribution network asset development lags the generation capacity addition, which affects power evacuation, flexible operations, and reliable supply. The last union budget stressed asset monetization through asset sales, which needs to be scaled up further. Apart from this, there is a need to explore other options such as line leasing for telecommunications and land monetization. Such value capture would support both network expansion and modernization.
• Leveraging digital: There is a great impetus on deploying Smart Meters under the flagship scheme RDSS to curtail utility losses by improving commercial operations. However, Smart Meters capture important consumption data that can be leveraged for demand-side flexibility and improved demand forecasting. Utilities must be encouraged to leverage digital technologies to improve services and enhance reliability. Opportunities for data monetization could also be explored to offset the cost of technology adoption.
• Grid security and resilience frameworks– There is an urgent need to create and adopt resilience frameworks for climate-proofing critical assets, improve asset-management practices, mitigate cyber threats, and even prepare for black-swan events such as COVID-19. Government initiatives and investments must embed resilience planning and actions in flagship initiatives such as RDSS.

Flexibility and resilience are critical for the clean energy transition. This is also an opportunity to create a more reliable and efficient power sector that could propel our growing economy and buttress the aspirations of our upwardly mobile citizens.