We need to find a viable alternative to power purchase agreements which is a win for everyone. We are working on solutions, says Rajeev Srivastava, MD and CEO, IEX.
Mumbai (Natural Energy News): During the initial months of the nationwide lockout, many states turned to exchange-traded power to reduce their procurement costs and considered platforms such as the Indian Energy Exchange (IEX) to be a source of affordable power. IEX managing director and CEO Rajiv Srivastava said in an interview that the energy sector will have less emphasis on long-term power contracts, and more on reducing costs and enhancing consumer choices. Edited excerpts:
Electricity demand crashed in the early months of lockdown and has fluctuated considerably since then. How has IEX dealt with this?
We saw a huge drop in national electricity demand in March and April, and then a rebound in May. In June, we have recovered 90% of pre-Covid demand.
What we have done at IEX is to support utilities to ensure an uninterrupted power supply. We automated 100% of our remote operations and invested in platform technology to cope with demand flexibility. In fact, states like Andhra Pradesh, Maharashtra, Gujarat, and Telangana took advantage of the exchange for low-cost electricity, further increasing their financial acidity.
We launched the real-time market in June, which allows you to trade energy during short delivery times.
We invested Rs 3 crores of software for these two months; We are making huge investments for the future.
Our greatest learning during this period was in the people's domain and our operating model. People, or human capital, are our greatest asset. Working from home without any supervision puts heavy accountability on our people, but they have continued to give their best.
Should the government make more efforts to support the energy sector? Will discom 90,000 crore loan package be sufficient for distribution companies (discoms)?
This is a short term solution. In March-May, overall realizations for discoms declined significantly and their most remuneration customers, industrial and commercial users, disappeared, breaking their financial value chain.
The liquidity injection of Relief 90,000 crore is a welcome relief, but it is a short-term measure. The long term problem is the economic model of electricity generation, transmission and distribution.
We have built a 25-year rigid contract for the power supply chain. In order to benefit from new technology and change in the energy mix, we need to move towards more flexible governance.
Should Long Term Power Purchase Agreements (PPAs) Be Done With?
I think so. But, this is a simplified statement. PPAs are so entrenched in the entire financial modeling of the power sector, we need to find viable alternatives that are a win-win for everyone. We are working on a solution to get such a model.
In addition, sectoral efficiency and a regulatory framework to reduce losses in transmission and distribution, which supports more market-wide open sectors, like IT, telecom.
Could this happen soon, especially at a time when India's gross domestic product (GDP) is contracting?
You can face your problems or make far-reaching changes, and I think the government is thinking of the latter. For example, a large part of the idea is how renewables should be brought into integration and hybridization of power. The government is talking about becoming self-sufficient in coal; We have coal reserves, so there is no need to import coal for us. The government is also looking at how to make the market more efficient.
These are things that they are working on an immediate basis.
With the PPA away and weakening the PPA regime, we will get there, but it will take longer.
You are celebrating the 12th anniversary of IEX. In the next decade, how do you change India's energy mix and how will IEX deal with these changes?
We expect a mega change in the way India creates, distributes and consumes electricity. If you look globally, there is a trend of four DS-decarbonization, decentralization, digitization and democratization. It is defining the energy shift.
The government is now thinking about decarbonization that we have an emphasis on renewable versus fossil fuel-based generation.
In the next 8-10 years, we will flip from 65% conventional energy to 65% renewable energy today. This change will also lead to decentralization because unlike traditional coal plants, renewable energy is decentralized and manufactured close to the consumption population, so a different architecture is needed in transmission and distribution.
This means that there will be a lot of emphasis on intelligent control systems, virtual power plants, Internet-enabled applications, smart grid technology, etc. This will be driven by cost optimization and consumer choice.
Intelligent control systems can allow consumers to determine their electricity provider and the form of energy they wish. We are going to see energy as a service.
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