Time to prioritise energy storage

UPSC Syllabus Topic: GS Paper 3-Infrastructure ( Energy)

Introduction

Recently, Andhra Pradesh Chief Minister N. Chandrababu Naidu announced lower electricity charges. He credited power swapping and tighter system management. This sparked a wider debate. Swapping helps in the short term, but a rising renewable share needs energy banking and storage so surplus power is not wasted and demand peaks are met without expensive market buys. Time to prioritise energy storage.

Concept of Power swapping

1. Power swapping means two States or utilities agree to use each other’s power so supply and demand stay balanced.
2. At an inter-State generating station (ISGS), each State has an allotted share (its entitlement).
3. When one State’s demand is low, another State facing higher demand can use that share for a period.
4. The buying State pays a fixed reservation fee (capacity charge) for the borrowed ISGS share and the per-unit energy charge for what it uses. The relieving State doesn’t pay the reservation fee on capacity it isn’t using. This way, both sides cut costs and manage demand better.

Benefits of Power swapping

1. Both sides can lower near-term costs. The buying State avoids expensive market power during peaks. The relieving State saves capacity charges on idle allocation.
2. Consumers gain when peak-time purchases are curbed. Efficient system management over months can translate into lower tariffs.

Limits of Power swapping

1. Uneconomical: Inter-State transmission charges and losses can erode savings. This makes some swaps uneconomical.
2. Swapping is not a structural fix. Better power-purchase planning and a balanced thermal-hydel-RE mix are still needed. Swapping works better when paired with energy banking.

Concept of Energy banking

1. Energy banking is electricity-for-electricity. Surplus renewable energy is injected into the grid when generation exceeds demand and is drawn later when required.
   2. It is vital for open-access commercial and industrial users. Discoms provide banking for a charge, in kind or cash.

Advantages of Energy banking

1. It smooths variability and supports grid security. Discoms can use banked power when their own generation dips.
2. Energy cost savings. By banking during surplus periods and withdrawing in high-tariff periods, companies can reduce overall costs.
3. Seasonal matching matters for renewables. Banking stores credits from surplus periods and returns them later, helping Commercial and Industrial users and discoms manage variability and costs.

Limits of Energy banking

1. Discoms face cost mismatches. Banked RE is injected when system costs are low (e.g., monsoon wind or midday solar) but drawn during expensive peaks (e.g., summer evenings). This price–time gap strains finances. Some cases also allege capacity oversizing by developers relative to stated drawal.
2. State-specific regulations vary widely. Discoms operating in multiple States struggle to harmonise strategies due to differing policies, charges, and settlement periods.
3. Banking charges and technical losses can reduce financial viability. Transmission and distribution losses further erode benefits.
4. Limited banking periods in some States make it hard to fully utilise banked energy, causing lapses and financial loss.

Government initiatives

1. Target: 50% cumulative installed capacity from non-fossil resources by 2030. Faster solar and wind additions increase the need for banking and storage to match supply with demand.
2. Green Energy Open Access Rules, 2022: The central rules recognise banking for renewable open-access users. They allow banking at least monthly on payment of charges and permit at least 30% of monthly consumption as banked energy.
3. State Electricity Regulatory Commissions define banking charges, periods, and settlement. Provisions differ widely across States.

Way forward

1. Build storage at scale:
   • The share of renewables in electricity generation is expected to rise to over 35% by 2030 from 22% in FY2025. ICRA estimates about 50 GW of storage with 5–6 hours by 2030.
   • This need can be met through a mix of battery energy storage systems and pumped hydro projects.
   • Such storage lets Distribution Companies (DISCOMs) store surplus renewable power and serve the peak when renewable output is low.
2. Match procurement with demand:
   Make prudent power-purchase decisions across thermal, hydel, and renewables to match a fluctuating demand curve with the available power mix. This approach avoids chronic surplus or deficit and reduces exposure to expensive market purchases.
3. Create a uniform, data-driven energy banking framework:
   • The Central Electricity Authority (CEA) should lead financial and scientific studies to measure real costs and grid impacts.
   • Based on these studies, adopt one common method to calculate banking charges across all States and enable transparent price discovery so costs and responsibilities are allocated fairly among renewable developers, DISCOMs, and consumers.
4. Enable trade capacity: Enable capacity trading quickly so generators can sell unused contracted capacity to others, keeping plants and transmission lines productively used, lowering system costs, and improving reliability.
5. Ensure regulatory certainty: Do not change rules retroactively. Align banking periods with seasonal patterns, and harmonise State regulations to support renewable open access (buyers taking power directly from generators).

Conclusion

Energy Swapping cuts immediate costs, but it is not a full solution. Energy banking and scalable storage are essential to manage variability, protect discom finances, and keep tariffs stable. Data-based rules and capacity trading will support a reliable, affordable transition to clean power.

Question for practice:

Discuss how power swapping and energy banking differ in concept, benefits, and limits, and explain the key steps needed on storage and regulation to make renewables reliable and affordable.

Source: Businessline