Despite the necessity of time-based pricing for peak electricity demand, it's not standard in India amid declining load and rising diversity factors
A distinguishing characteristic of the demand for electricity is the timing or peak load nature of the demand. Electricity demand functions cannot thus be parameterised simply using prices and quantities, but must also include time. Since electric power is not easily stored, temporal variations in system load (instantaneous demand for kilowatts of electric power) means that capital (generation assets) is often idle, which creates cost minimisation problems and optimal pricing problems. If economic principles are followed, the distribution of a customer's demand for electricity throughout the day (or other time periods such as months or seasons) should influence the amount that the customer pays to the electricity distribution company (Discom). However, this is not the norm in tariff setting in India. The declining trend in load factor and increasing trend in diversity factor of the Indian power system make the case for tariff setting on the basis of economic principles stronger.
The load factor is a useful indicator for describing the consumption characteristics of electricity over a period. It is expressed as the ratio of average electricity demand to peak electricity demand and is always less than one. A high load factor (when the average demand is closer to peak demand) indicates consistent and predictable electricity consumption, which is better for Discoms. A low load factor indicates high demand on the grid for shorter periods of time. This increases investment in capacity and the cost of supplying electricity.
The declining trend in load factor and increasing trend in diversity factor of the Indian power system make the case for tariff setting on the basis of economic principles stronger.
The diversity factor is the ratio of the sum of the maximum demand of the various subdivisions of the system (state or regional level in the case of India) to its connected load. This factor gives the time diversification of the load and is used to decide the installation of sufficient generating and transmission capacity. If all the demand for electricity came at the same time, (when diversity factor is one), the total installed capacity required would be much more. But not all demand comes at the same time and the factor is much higher than one, especially for domestic loads. In April 2023 the diversity factor for the Indian grid was 1.054 compared to 1.03 in April 2018.
According to an analysis of daily, monthly, and annual load factors using 5-minute instantaneous Supervisory Control and Data Acquisition (SCADA) data over the last twelve years (January 2009 to December 2020) by Power System Operation Corporation Limited (POSOCO), the all-India annual load factor remained in the narrow range of 83-86 percent in the last 12 years while the daily all India diversity factor of maximum demand was increasing.
The high load factor was attributed by POSOCO to demand side management in different States, the synchronous interconnection of regional grids to form the national grid for sharing of generation capacity, rapid augmentation in transmission capacity and transfer capability to facilitate exploitation of diversity in the state and regional power system. In addition, the fact that the rate of growth of energy and peak demand has been around the same also contributed to high load factors.
Other findings of the analysis are that maximum demand is increasing at a faster rate than the average demand and minimum demand. All India daily load factor was above 90 percent for 70 percent of the time, however, in 2019 & 2020, it was above 90 percent only 60 percent of the time. The analysis also found that the daily all-India load factor was gradually decreasing. POSOCO attributed this to a significant reduction in the peak and energy shortage consequent to rapid augmentation in the conventional as well as new and renewable energy (RE) generation capacity in the grid.
All India daily load factor was above 90 percent for 70 percent of the time, however, in 2019 & 2020, it was above 90 percent only 60 percent of the time.
The data showed that the annual load factor for the northern region fell from 79 percent in 2009 to 63 percent in 2020. Variation in the daily load factor of the northern region between summer and winter was about 5-6 percent, which indicated a higher proportion of weather-sensitive and agricultural load within the region. The annual load factor of the western region reduced from 80 percent in 2009 to 72 percent in 2020. Variation in daily load factor between seasons was about 8-10 percent. The annual load factor of the southern region was between 69-84 percent. The variation in daily load factor between seasons was about 4-5 percent. Variation in load factor is more prominent in the southern region compared to other regions, and it demonstrated a decreasing trend over the last three years.
The annual load factor of the eastern region remained steady between 68 and 77 percent , and seasonal variation in daily load factor was about 7-9 percent. The annual load factor of the north-eastern region varied between 59-64 percent, and the variation in daily load factor was about 8-10 percent. Daily Load factor hit maximum in July-August. Most of the states showed a decreasing trend in load factor except Kerala, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal. There was minimal impact of seasonality on the load factor pattern of Jharkhand. In April, May, June, July and August, the load factor was relatively higher than in the months of January, February, October, November and December.
The declining trend in the load factor in the Indian power system points towards the need for investments in flexible resources and energy storage technologies.
System load and diversity factors affect the overall economics of the power system. While evaluating different policy trajectories, policymakers and regulators prefer the trajectory that increases the load and diversity factors to reduce the cost of supply and increase utilization of assets. The declining trend in the load factor in the Indian power system points towards the need for investments in flexible resources and energy storage technologies. It also underscores the need for regulatory interventions through market design (intra-day market, ancillary services) and tariff design (peaking tariff, peak hour capacity availability). Policies that encourage transnational interconnections to defer capital expenditure and increase load factor by exploiting regional diversity are also relevant. Demand elasticity could be enhanced by encouraging measures like demand response, demand side management and staggering of supply hours to bulk consumers. A higher diversity factor can be obtained by giving incentives to certain user categories (such as farmers and some industries) to use electricity during the night or light-load periods. Discoms can also use the time of the day (TOD) pricing of electricity supplied to consumers. Using daylight saving, staggering the office timings, and having a two-part tariff in which the consumer must pay an amount dependent on the maximum demand he makes, plus a charge for each kilowatt hour (unit) of energy consumed are methods commonly used to increase the diversity factor. The electrification of transportation and domestic cooking could also have a positive impact on the load factor. Enabling mechanisms to assess and harness the reserves available within the existing capacity could be considered.
The data from POSOCO also reveals that ramping has been increasing day by day during peak hours with difference in maximum and minimum demand of the order of 65 GW (gigawatt). Peak demand growth is surpassing the energy consumption growth possibly because of agriculture load shifting and rural electrification. In view of anticipated high ramping in the future due to higher peaks, it is envisaged that containing ramp during peak hours would be a challenge to keep all India frequency with in Indian electricity grid code (IEGC) band. This means that flexible ramp reserve requirement during morning and evening peak is more critical than base load requirement. High RE penetration and variability is also affecting the demand load factor profile significantly. In this environment, it is imperative that increasing diversity factor in the electricity system is leveraged to limit the effect of decreasing load factors on electricity tariff.
Source: GRID-INDIA
Lydia Powell is a Distinguished Fellow at the Observer Research Foundation.
Akhilesh Sati is a Program Manager at the Observer Research Foundation.
Vinod Kumar Tomar is a Assistant Manager at the Observer Research Foundation.
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