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Time of day pricing strategy of electricity

We have essentially lost our economic sovereignty in the 70 years since Independence. We have become dependent on imports for phosphate fertilizers, and sources of energy—fuel oil, coal and uranium. All three are required for the generation of electricity. It is necessary that we generate electricity for meeting our requirements with our own sources if we have to safeguard our economic independence.  The Government is clueless. The main effort is towards ensuring more imports of coal, oil and uranium. Needless to say, more imports mean less economic independence.

However, the Government is taking the welcome step of increasing the generation of solar power, the cost of which has come down to an unbelievable low rate of Rs 2.44 per unit recently at a solar plant in Rajasthan. A tariff of Rs 3 per unit has now become common for solar plants in the country. This is less than one half of the price of all other major sources of electricity—thermal, hydro and nuclear—the cost of generation of which is in the range of Rs 6 to Rs 10 per unit.  The difficulty with solar power is that it is generated only during the day when the sun is shining. On the other hand, the demand for electricity is greatest during the morning and evening.

Till now the major sources of electricity were thermal, nuclear and hydro. Of these thermal and nuclear cannot be switched on and off easily. Both these sources of electricity require heating up the boilers for making steam. Then electric turbines are run with the steam. It is not possible to heat up and cool down the boilers quickly. Once heated up the boilers have to be kept running. Thus these sources of electricity are called “base load” stations. These sources produce electricity uninterruptedly 24×7. The electricity produced by these sources is good for meeting demands that continue throughout the 24 hours. These sources are not good for meeting “peaking demand” that spikes in the mornings and evenings. Thus energy strategists recommend a mixture of thermal and hydro power.

Hydro power has the great advantage that it can be switched on and off at the press of a button. Water is stored in a reservoir behind the dam. The State Electricity Boards inform the generating company at what time to switch on generation of power and at what time to switch off. A combination of thermal and hydropower therefore meets the demands of electricity reasonably. Hydropower can be switched on during the mornings and evenings when the demand for electricity peaks.

All three of these sources of electricity have problems though. We have coal only to meet our requirements for the next 150 years approximately. We are already importing large amounts of coal. We also do not have reserves of uranium and have to import this raw material for the generation of nuclear power. The cost of both thermal and nuclear is more than Rs 6 per unit. The challenge before us is to use the cheaper solar power instead.

The difficulty with the combination of solar and hydro is that the environmental impacts of hydropower are huge. These plants block the path of the river. They obstruct the flow of sediments downstream and the migration of fish upstream. The sediments rebuild our coasts. The sea has a natural hunger for sediments. It begins to eat into our sea beaches when it does not get adequate supply of sediments from the rivers. Thus the island of Ganga Sagar in West Bengal is fast eroding. The obstruction of upstream migration of fishes leads to loss of fisheries and hits at the livelihood of our fishermen. The famed Hilsa fish, for example, was available up to Allahabad previously. Now it is only available downstream of Farakka Barrage because the migration has been obstructed. Hydropower also damages the spiritual qualities of river water. The spiritual charges brought by the Ganga from Kedarnath and Badrinath, for example, are destroyed when the water strikes the blades of hydropower turbines at the Srinagar Hydropower Project.

The way out of this impasse is to build pump-storage projects. There is only one reservoir upstream of the dam in a normal hydropower project. Electricity is generated as the water flows from upstream to the downstream in the river. Two reservoirs are made in a pump-storage project. Water is pumped from the lower reservoir to the higher reservoir when electricity is available aplenty. Then the water is released from the higher reservoir through the turbines into the lower reservoir and electricity is generated whenever required.  It is like the oil used for Shirodhara in Ayurvedic treatments. The oil is taken from the lower pot and put back into the upper pot. S D Dubey, chairman of Central Electricity Authority has said that converting the normal hydropower plant to a pump-storage plant will cost an additional 30-40 paise per unit. This conversion entails building an additional reservoir at the lower elevation. Pumps are installed to lift the water from the lower- to the higher reservoir.  The turbines installed for the normal hydropower plant are used for the generation of electricity from the pump storage scheme hence the additional cost is low. This arrangement helps convert base power into peaking power but does not rid us of the environmental impacts of hydropower plants because the pump-storage projects are also built across the rivers.

An alternative would be to set up standalone pump storage power plants outside the path of the river. The cost of hydropower at present is about Rs 6 per unit. These power plants produce 80 percent of the power during the monsoons and work at about 20 percent capacity during the lean periods. I reckon the cost of standalone pump storage project would be about Rs 3 per unit because it would be running at full capacity throughout the year. The cost of peaking power would be about Rs 6 per unit—Rs 3 for generation from the solar plant and Rs 3 for the conversion into peaking power at the pump storage project. This combination will therefore provide peaking electricity to us at about Rs 6 per unit which is at par with the thermal and nuclear plants.

The solution to our power woes is to go for a combination of solar and standalone pump storage projects; and simultaneously implement time of the day pricing. That will provide us base solar power at Rs 3 and peaking power at Rs 6 per unit and also free our rivers from the curse of hydropower. We will then become less dependent on imports and become independent in the true sense of the word.

The author was formerly Professor of Economics at IIM Bangalore.

This post was syndicated from Free Press Journal. Click here to read the full text on the original website.

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