Grid investment needs to match enormous growth in renewable energy investment: IEEFA

With the government successfully electrifying 99% of all houses in India under the Saubhagya scheme, there is an urgent need for a hefty investment in grid transmission infrastructure to keep pace with growing low-cost renewable capacity so that new households can actually afford to buy electricity.

A new IEEFA briefing note, “India’s Grid Transmission Infrastructure Needs Further Modernisation, Urgently,” finds investment of US$60-80bn over the next five years is required to address the continued structural growth in demand coupled with operational limitations of India’s national transmission grid.

Co-author Tim Buckley, Director of Energy Finance Studies IEEFA Australasia, said the flow-on effect of mass electrification, coupled with the accelerated deployment of renewable energy, is the increase in demand for inter-regional transmission lines and the need for capacity enhancement of power evacuation infrastructure.

“The need for inter-regional grid connectivity will increase with growth in the demand for power in economically poor regions, particularly as India’s economy is foreseeably set to grow at 7-8% per annum over the coming decade,” said Buckley.

The briefing paper notes that India has to date very successfully expanded its transmission network capacity at a compound average growth rate (CAGR) of 12% over the five years from March 2013 to March 2018 (in terms of Mega Volt Ampere (MVA)). With regard to circuit kilometres (ckm), the transmission lines expanded at a CAGR of 7% from 274,588 ckm to 390,970 ckm by the end of March 2018.

“This rate of growth needs to be maintained, or even accelerated to accommodate the rapid modernisation and expansion of India’s electricity sector capacity, a core underpinning of sustained economic growth,” said Buckley.

IEEFA notes that expanded national and then progressively international grid interconnectivity will help reduce existing and developing congestion zones.

A greater emphasis on faster ramping, flexible generation combined with a nationally enhanced grid system will be key to diversifying away from India’s growing over-reliance on expensive imports of high-emission fossil fuels.

“Greater deployment of renewable energy is a key enhancement of Indian energy security,” said Buckley. “Given the best renewable energy resources are predominantly located in just eight states including Rajasthan, Jammu & Kashmir, Gujarat, Karnataka, Madhya Pradesh, Tamil Nadu, Maharashtra and Andhra Pradesh, inter-regional transmission capacity for transmitting power from energy surplus states to deficit states will also be needed, as well as better load balancing capacity.”

The simultaneous digitalisation of the grid is equally important to provide greater transparency across the value chain in terms of building an intelligent system that better incorporates asset monitoring, consumer behaviour and demand loads.

“Despite the enormous progress achieved over the last decade in reducing costs and upscaling capacity, coupled with ambitious renewable energy targets, India’s renewable energy investment ambitions are stalling,” said co-author Kashish Shah, IEEFA research associate.

“While wind power is now the low-cost source of new supply, commissioning has slowed over the last two years, in large part due to the structural limitations in India’s national transmission grid, but also due to the concentration of the best wind sites in just Gujarat and Tamil Nadu.

“More recently, solar installs have likewise stalled even as tariffs have been maintained at internationally low rates of around Rs2.70-2.80/kilowatt hour (kWh), albeit up from the record low of Rs2.44/kWh post the module import duty impost. India must urgently build out and modernise the national transmission grid to absorb the greater reliance on India’s huge potential domestic resources of low cost, but variable, renewable energy,” said Shah.

IEEFA notes the likely benefits to India of expanded competition in the grid transmission sector includes the rise of private companies led by Adani Transmission and Sterlite Power becoming increasingly competitive against the very well capitalised and proven incumbent, the majority state owned Power Grid Corporation of India.

Greater competitive tension and wider access to capital markets should both serve India well in accessing the $10-20bn annual transmission and distribution investment required.

“Renewable energy infrastructure has provided India with a much-needed deflationary opportunity to both rapidly expand and diversify the electricity system by leveraging domestic, sustainable resources, thereby improving energy security,” said Buckley.

“With renewable energy now clearly India’s low-cost source of new energy supply, the challenge now for India’s electricity market is grid integration of large amounts of variable renewable energy while minimising integration cost. A robust, digitally integrated grid network expansion is key to integrating renewables into the system as quickly as possible.”

Read the Briefing Note: India’s Grid Transmission Infrastructure Needs Further Modernisation, Urgently: Growth in Renewable Energy Investment Slowing Due to Grid Limitations