INDIA: Renewable Energy Grid Integration Support to POSOCO: Addressing Commercial and Market Development Issues

Scaling up renewable energy and reducing greenhouse gas emissions are priorities for the Indian government, which plans to install 175 gigawatts of installed renewable energy capacity by 2022. But increasing renewable energy generation—which tends to be highly variable—is no easy task. Designing the necessary support structures and market mechanisms requires a thorough understanding of technical, regulatory, and market policy issues.

The India Renewable Energy Program, a World Bank project, aims to support the significant scale-up of renewable energy in India to address this challenge. It works with the state-owned Power System Operation Corporation (POSOCO), the national grid operator, to integrate renewable energy into the Indian power system.

A PPIAF-funded activity assisted POSOCO and other market players in conducting technical, regulatory, and market studies and provided recommendations to the Ministry of Power. A joint PPIAF-ESMAP activity is supporting POSOCO and other market players in establishing the technical, regulatory, and market conditions necessary to make this transition. PPIAF assistance focuses on removing commercial constraints around power purchase agreements that prohibit renewable energy investment and facilitating options for power market design to facilitate variable renewable energy integration.

The activity facilitated the implementation of new market mechanisms and support structures, including tools and a proposed integration of market management systems with POSOCO’s existing energy management systems. A roadmap for deepening the wholesale power market in India was produced and disseminated to all key stakeholders, including the Ministry of Power, POSOCO, and the Central Electricity Regulatory Commission. The roadmap included bringing renewable and thermal energy contracts to the market in a phased approach, thus clarifying market rules for private sector participants.

An early outcome of the activity was the creation of guidelines that the Central Transmission Authority issues to new private renewable energy generators when seeking connectivity. Scaling up renewable energy will improve India’s power stability and, in the long term, enable it to significantly reduce the amount of power generated by coal power plants. Enhanced system security will also contribute to the resilience of the power system, which will better prepare it for potential climate impacts.

The activity improved the technical strength of POSOCO. Capacity building helped POSOCO officials understand and use models for optimizing power dispatch with a significant amount of renewable energy generation—up to 10 percent above the “business-as-usual” scenario. Implementing PPIAF’s recommendations can also potentially save on costs. A model developed by POSOCO and the World Bank team estimates savings of 1.3 percent—around $135 million annually—from optimized dispatch. The model has also been expanded to include hydropower, which will increase the savings. Further savings may be realized with improvements to power purchase agreements (PPAs) and market rules.

“Recognizing how challenging it is to push through institutional and policy changes in large systems such as India, this [activity] may help draw valuable lessons for the overall power market agenda globally,” said Mirlan Aldayarov, a Senior Energy Specialist at the World Bank. “This includes the specifics of how to deal with sub-optimally designed PPAs and bringing them to market.”