Record electricity consumption isn’t perhaps something that will come to most readers’ minds as the highlight of 2023. And yet, on 1 September, the demand for electricity was the highest ever at 240 GW. If we had abundant supplies of coal and didn’t care about climate transition or had mechanisms to use renewable sources, high demand wouldn’t be something to write about.
However, it is evident that keeping up with such demand is already a challenge. The Union government mandated all power plants running on imported coal to operate at full capacity until June 2024. And in October the Karnataka government required all private power generators to sell electricity to the state utility.
Policy decisions should be made with the expectation that demand will continue to rise in 2024 so that we avoid situations like those in 2023. For example, the share of renewables will increase over time. A policy of “surge-pricing” in electricity would allocate demand and also incentivise the development of storage technology.
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The potential for storage
One of the disadvantages of solar electricity is that it is unavailable at nighttime. The obvious next step is to develop storage solutions to store electricity for use at night. How much will this cost?
Let us first look at the time-of-day pattern of insolation and consumption. For simplicity, assume the sun shines at a fixed rate for 10 hours a day from 8 am to 6 pm. After the sun goes down, humans stay awake for five more hours. So, we want storage to extend the solar energy until 11 pm.
Let’s start with one solar panel that makes 1,000 watts (i.e. pushes out 1,000 joules per second). Let’s assume that we sell 665 W every hour and store 335 W. Over 10 hours, the stored energy is 3,350 Wh. We will use this up in the last five hours, i.e. deliver 670 W per hour. We will assume that there are no losses at the battery. This delivers the illusion of a combined SPV+ storage facility that delivers 665-670 W for 15 hours per day.
The first cost of this system is that of the solar panel itself. We require a panel that generates 1,000 W. The price of a 10 kilowatt (kW) panel is $28,500. This gives us a price of $2.85 per W. Therefore, our panel of 1,000 W capacity will cost $2,850.
The second cost in this system is that of storage using lithium-ion batteries. We need 3,350 Wh of battery storage. The price is approximately $139 per kWh. We require 3.35 kWh, which gives us a cost of $466.
Our total cost for this 15-hour solar-powered electricity is $2,850 + $466 = $3,316.
Price volatility and storage
Can the price of electricity be brought down further? The solution is to allow prices to reflect the availability of electricity. Surge pricing is not new to customers. When fewer taxis are available, we see a rise in their prices. When the onion crop fails, we see a rise in the price of onions. With surge pricing in the world of solar power, the price of electricity will be lower in the daytime and higher in the nighttime. Here is how the cost would work out.
At an extreme, let’s assume that we don’t store electricity at all, and there is no electricity available after 6 pm. A world that consumes 665 W during the day with no storage costs us $1,895. These are useful numbers—a world without storage costs us $1,895, while a world with storage costs us $3,316. Thus, we get a 75 per cent increase in the cost of electricity because we require storage.
In reality, we will not inhabit a world without electricity consumption after 6 pm. We may require more electricity during the day because more activity has shifted to when solar power is available. If all activity is shifted to the daytime, and we consume 800 W instead of 665 W, the cost increases to $2,280 (from $1,895). If we were to add a limited storage capacity of 200 W per hour for the five hours at night, we would add a storage cost of $139. Our total cost would then be $2,419 ($2,280 + $139). A world with an equal amount of electricity supply through the 15 hours is still 37 per cent more expensive than a world where electricity prices fluctuate, and power consumption adjusts so that less is required when electricity is expensive.
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Cost-effective solutions
Discussions at the 14th Emerging Markets Conference earlier this month focused on the importance of storage technology to make solar power more accessible. These back-of-the-envelope calculations provide us with one key additional insight. Given the high cost of storage, a consistent level of electricity into the night involves a very high escalation of cost. The use of a price system might offer a better solution.
In such a system, the price of electricity will go up in the evening. Consequently, people will pull back on their requirements, and the costs will be lower. Electricity policy should focus on bringing about demand-side adjustments through electricity price fluctuations. This will also incentivise investments in storage technologies.
Renuka Sane is research director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Views are personal.
(Edited by Asavari Singh)