Long-term technology strategies and policies for Indian power sector

Abstract

Power sector technology strategy issues in the long-term covers a wide spectrum of economic, technological, environmental, institutional and socio-political issues. The broad research objective is to assess technology strategies under alternate future scenarios and provide an assessment of future policies and measures for the Indian power sectors. Methodology: The methodological framework involves an integrated assessment of macro-economic, energy and environmental issues for policy analysis. The analysis spans the period 1995 to 2035. An integrated bottom-up modeling framework is used, with detailed representation of supply side and demand side technologies. Levelised cost analysis assesses individual generation technologies and changes in their relative competitiveness with fuel price variations, internalization of environmental costs and other parameters. Health impact assessment due to emissions from alternate generation technologies uses standard dispersion models and dose-response functions from existing Indian studies. A linear programming model that captures the regional diversity in availability of energy resource, energy prices and demand patterns is used for assessing the implications of grid integrations and regional co-operation. Result show that power generation capacity increases by 1.5 times in the next 10 years, doubles in the next twenty years and reaches 395 GW in 2035. Some specific insights provided from the research are: Technology mix: Baseline scenario: coal dominates in the long-term future generation capacity mix, but its use becomes more sustainable with clean coal technology penetration. Gas technologies penetrate fast in medium term (till 2020), mainly to meet peak load requirements. In this context, building of gas supply infrastructure is an important issue. Despite large hydro being competitive, socio-environmental constraints cause a decline in its capacity share. Among renewables, small hydro, cogeneration and biomass technologies are highly competitive and penetrate rapidly. For wind penetration, strengthening of local manufacturing of local manufacturing capabilities and push policies to promote investment in wind power projects enhance technology competitiveness. Solar technologies penetrate in the medium term due to capacity building through demonstration projects that enhance learning experiences, but long-term penetration will depend largely on international lowering of costs. Local environmental policy interventions: policy interventions for control of local pollutants lead to higher penetration of clean coal technologies and do not cause shifts in the energy mix. Coal consumption does not reduce, leading to little impact on carbon emissions. For control of local pollutants, a least cost option is to promote penetration of pollution control equipment suited to conventional coal technologies. Global environmental interventions: Global Green House Gas (GHG) agreements, which are likely to initiate setting up of a carbon market, can alter the competitive dynamics of power sector.in the medium and long term, supply side contribution increases due to significant shifts in technology mix. Gas and renewable technologies substitute coal in the medium term, while in the long term; there is high penetration of carbon-free technologies like large hydro and nuclear. A hedging strategy, therefore, is to keep the energy and technology mix diverse and flexible. Electricity cost: Baseline scenario: Electricity supply cost declines due to autonomous technological advancements and better management practices (load management) that lower peak to of peak cost ratio from 2.5 to less than 1.5 in next 35 years. Advanced technology penetration: Policies targeted at accelerated penetration of advanced technologies (compared to baseline) lead to substantial reduction in electricity generation cost in the long term. Penetration of these technologies will require removal of high initial investment barriers in the short-term. Demand side Management: Among demand side intervention, peak-shifting measures are more effective in reducing costs in the short term, but in the long-term energy conservation measures are more effective in lowering costs. Environmental Interventions: Local environmental policy interventions lead to very slight increase in electricity supply costs. On the other hand, Greenhouse Gas agreements initiating emission reduction in a global carbon markets, lead to more substantial rise in electricity costs, especially in the long-term. However, recycling of carbon revenue can bring down electricity costs. Therefore, climate change mitigation policies for the Indian power sector will have to be crafted for their own sake.

Investment: Baseline scenario: In the short-term (next 10 years), annual power sector investment requirement is about Rs.370 billion (in 1998-99 prices), which is more than 1.5 times present requirement. In the next twenty years, investment requirement almost doubles. But investment rises at a slower rate in the long-term (2020 to 2035) due to technological advancements, increasing at an annual average rate of 2 percent. Demand Side Management: Demand side management programmes cause significant lowering of generation capacity investment requirements in advanced and more costly demand side technologies. Environmental Interventions: Local pollution control measures causes about 15 percent rise in generation capacity investments. Global environmental interventions lower investment requirements for generation capacity due to advancements in both supply side and demand side technology stock, but require substantially higher investments in demand side technologies. Additional investments will be needed for fuel supply networks like gas pipelines. Emerging global instruments like Clean Development Mechanism under the Kyoto Protocol can bring in these additional investments for carbon mitigation. Outputs from the research have already contributed to ongoing literature and academic debates. There is an existing international publication and one invited paper for international publication is under review. Databases have been put up on websites. Research output provides policy guidelines and also benefits other players like investors, utilities and regulators in the power sector. The methodological framework including building of technology database and modeling is useful for academicians and researchers.