The cost of electricity
What India needs to do for reliability, security
and affordability of electric supply
R.B. Grover
The cost of electricity can be divided into
plant-level costs, grid-level costs, and other
costs. Plant-level costs consist of capital, op-
eration and maintenance, and fuelling cost.
Capital cost is reflected in the cost of genera-
tion by way of interest on debt and return on
equity. For nuclear power plants, capital cost
is high, but fuelling cost is low.
For coal-fired power plants,
capital cost is low, but fuelling
cost is high. The capital cost of
solar and wind is continuously
decreasing; fuelling cost is nil.
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Electricity reaches a con-
sumer through the grid. Laying
a grid needs significant invest-
ment. A distributor buys elec-
tricity from a generator, adds
transmission and distribution charges, a
charge to recover technical losses, operating
expenses, and his profit to determine the tar-
iff to be charged from a consumer. Since sev-
eral generators are connected to the grid, in-
teraction with the grid and grid-management
policies influence the working of a generator.
At present, electricity markets do not assign
any price to system effects, that is, to the
complex interactions among various gener-
ators connected to the grid.
In recent years, a large capacity based on
variable renewable energy (VRE) sources has
been connected to the grid. These sources
are intermittent, but get priority feed-in due
to nil fuelling cost. A grid manager must en-
sure that enough dispatchable generation ca-
pacity is connected to the grid to meet the
peak load in the evening when solar power is
not available. Dispatchable generation is
provided by baseload technologies like coal
and nuclear, and by large hydropower.
Grid-level costs have several components:
grid connection, grid extension and rein-
forcement, short-term balancing costs, and
long-term costs for maintaining adequate
back-up supply. VRE sources demand much
higher back-up, grid connection and rein-
forcement costs. This aspect needs attention
during policy formulation.
In December 2016, the Central Electricity
Authority issued a draft national electricity
plan (DNEP), which refers to system effect
and resulting system cost at several places.
The emphasis on VRE sources without
any investment in energy storage has conver-
ted daily load profile for dispatchable gener-
ating stations into a duck curve, that is,
with a reduced electricity load during the
day when solar is available and a rapid ramp
up in the evening. This lowers the capacity
factor of dispatchable generators. The DNEP
acknowledges technological and operational
challenges posed by the integration of VRE
into the grid. It highlights the loss of genera-
tion efficiency, high maintenance cost, and
higher emissions of combined cycle plants
due to cycling and ramping. It details grid in-
tegration cost of VRE in qualitative terms.
A recent report by the Department of En-
ergy, U.S., highlights another element that is
smoothening of transients in the grid by the
inertia of the rotating mass present in
thermal power plants, while solar plants
have no such feature.
System costs have been
quantified by the Nuclear En-
ergy Agency of the OECD and
differ across countries de-
pending on the extent of pres-
ence of sources like natural
gas. According to this quanti-
fication, system cost of VRE
sources is much higher than
nuclear and coal. True parity
of VRE sources will be
achieved only when the sum of generation
cost and system cost matches with that from
dispatchable sources.
Other costs
Other costs include those arising from the in-
fluence of electricity generation on health,
influence on existing generation capacity
due to adding new capacity, cost of acci-
dents, security of supplies and net energy
gain for society.
In the Economic Survey 2016-17 (Volume
2), an attempt has been made to estimate
grid-level costs and some other costs. The
survey uses the term social cost of carbon
to represent economic cost of greenhouse
gas emissions. It also adds health costs, costs
of intermittency, opportunity cost of land,
cost of government incentives and cost
arising from stranded assets. It, thus, in-
cludes not only system cost, but a significant
part of other costs as well. It estimates that
the total social cost of renewables was 11 per
kWh, around three times that of coal.
Conventional metrics like levellised cost
of electricity generation cannot be relied on
to compare intermittent and dispatchable
electric supply options. Indias electricity re-
quirements are enormous. It doesnt need a
technology versus technology debate, but a
policy framework that integrates all low-car-
bon energy technologies with coal in a man-
ner that ensures reliability and security of
electric supply along with affordability and
climate-resilient development.
R.B. Grover is Homi Bhabha Chair, Department of
Atomic Energy, and member, Atomic Energy
Commission