Heat wave triggers peak power demand, prompts long-term shift to renewables in India: IEEFA

The heat wave in North India, with temperatures approaching 50 degrees Celsius in some regions, is driving peak power demand. According to a new briefing report from the Institute for Energy Economics and Financial Analysis (IEEFA), this may lead to a long-term decrease in India’s reliance on gas-based power during the intense summer months.

The report finds that gas-based power is a costly option in the short term without higher allocation of domestic gas or the option of blending imported liquefied natural gas (LNG) with locally produced fuel to the electricity generating units. In the medium term, energy storage options are likely to attain commercial viability and round-the-clock renewable energy capacity will likely increase, further reducing the cost competitiveness of gas-based electricity.

“Gas-based power plants have a limited role in meeting peak demand, even in the short term. Their role is likely to diminish in the coming years with the government looking at innovative tendering to ensure round-the-clock availability of renewable energy to facilitate grid integration and enable higher capacity utilisation of renewable energy,” notes the report’s author, Purva Jain, who is the Energy Specialist for Gas & International Advocacy at IEEFA.

She mentions that in the medium to long term, the increase in the commercial viability of battery storage and the availability of pumped storage will help eliminate the use of gas.

Grid-scale Energy Storage Systems (ESS) tenders, including pumped hydro storage and firm and dispatchable renewable energy (FDRE) to ensure 24x7 supply, are already helping overcome the variable nature of solar and wind power. Their capacity is likely to increase in the coming years. A previous report by IEEFA and JMK Research states that FDRE tenders dictated the recent surge of the “renewable + ESS” tender segment, with FDRE accounting for 17% of the more than 69 gigawatts (GW) of renewable energy tenders issued in the FY24, easily exceeding the government’s target of 50 GW.

“To meet the immediate peak power demand, the government is ensuring that all available plants, including gas-based power plants that have either been underutilised or non-operational due to fuel constraints, are made operational,” says Jain.

According to IEEFA’s cost analysis even in the short term, using gas-based power to meet peak demand requires allocating a higher amount of domestic gas, with flexibility on the minimum guarantee obligation (MGO) on gas offtake to make it cost-effective.

“If the prices of short-term traded power, power from domestic gas and that from imported LNG for April 2023 are compared, it would be clear that there is a strong case for allocating a limited amount of domestic gas for partially operating gas-based power capacity to cater to peak demand and ancillary services,” says Jain.

“Even partial allocation of domestic gas can help lower tariffs. The tariffs can come down to Rs 5.83 per unit by increasing the allocation of domestic gas to allow 50% blending with LNG, compared to Rs 13.70 per unit, which emerged as the lowest bid for gas-based power supply using LNG in April 2023,” she adds.

However, emerging trends indicate that peak demand hours are shifting to the daytime, when solar energy can play a more prominent role. Peak demand is also shifting to the months when wind power is more widely available.

“Therefore, while imported coal and gas-based power can help the government mitigate a power crisis in the short-term, solar, wind and storage are more viable options in the coming years,” says Jain.