ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Deep Renewables Penetration and Tariff Shocks

Using a simple scenario analysis based on the latest data on the finances of the distribution utilities and the 20th Electric Power Survey of India, we calculate the possible tariff impact of the addition of around 420 GW of variable renewable energy from 2020–21 to 2031–32. The cost of evacuation of renewable power and battery costs emerges as major factors. We recommend higher union government expenditure to incentivise the creation of transmission infrastructure to facilitate renewables absorption by utilities and the reduction of grid integration and battery deployment costs.

Constituents of variable renewable energy (VRE) along with wind and solar energy capacity worldwide more than doubled between 2014 and 2019, from 365 gigawatts (GW) to 824 GW. According to the International Renewable Energy Agency (IRENA 2020), this growth was led by China (193%), the United States (US) (88%), India (177%), and Japan (170%), and was largely driven by subsidies in the form of feed-in-tariffs (FIT) and quotas, also known as renewables purchase obligations (RPO).

Political feasibility and social acceptability of the coal phase-out appear to be the main drivers of renewable penetration, scoring more than technical factors (Heinrichs et al 2017). However, higher VRE shares have raised concerns regarding the costs of integrating renewables into the grid and the impact on tariffs and regional equity. The ability of an economy to “carry” a maximum level of VRE commitments has also been highlighted (Cochran 2015). Thus, in Europe, the costs of grid integration could be quite high, around 25% of the VRE investment costs (Schaber and Steinke 2012). For instance, in Spain, the costs of renewables at ¤22 billion exceeded the benefits of ¤12.5–¤19.7 billion in 2013 (Kreuz and Musgens 2018). In the Netherlands, renewables expansion had a tariff impact of 17% (+/-15%) on retail electricity prices (Brouwer 2015). In Germany, over 2000–13, German consumers would have paid ¤336 billion at 2011 prices for renewable electricity with a market value of ¤136 billion (Winter and Schelesewsky 2019), even as German residential tariffs rose by 300% over the same period (Morey and Kirsch 2014). The southern region was favoured over the east, and the burden on the lowest income quintile was more than three times that of the highest. Thus, during 2000–17 in Germany, FIT caused per-household payments to rise from ¤81 to ¤261 and the total FIT burden increased from ¤2.8 billion to ¤9.2 billion. Similarly, under the FIT regime in Japan, low-income groups have had to pay thrice as much as the higher-income groups (Nagata 2018).

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Updated On : 16th Jan, 2024
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