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Move towards differential time-of-day power tariffs: How would it impact consumers?

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Move towards differential time-of-day power tariffs: How would it impact consumers?

Context- The Centre has signalled a move towards rolling out differential time-based electricity tariffs, which would entail discounted prices during an eight-hour period during daytime and premium or surge pricing during the peak power consumption hours. The Union Power Ministry last week announced amendments to the Electricity (Rights of Consumers) Rules, 2020, and the changes included the introduction of time-of-day (ToD) tariff provisions.


Time-of-day tariff norms – the fine print

  • Under the ToD tariff system, the power tariff during “solar hours” — the duration of eight hours a day as specified by the respective State Electricity Regulatory Commission (SERC) — of the day shall be at least 20 per cent lower than the normal tariff.
  • On the other hand, tariffs during peak hours will be at least 20 per cent higher than the normal tariff for commercial and industrial consumers, and at least 10 per higher for other consumers.
  • “ToD tariff would be applicable for Commercial and Industrial consumers having Maximum demand of 10 KW and above, from 1st April, 2024 and for all other consumers except agricultural consumers, latest from 1st April, 2025. Time of Day tariff shall be made effective immediately after installation of smart meters, for the consumers with smart meters,” the Power Ministry said.
  • The amended rules prohibit the duration of peak power consumption hours to exceed the duration of the solar hours, which would be eight hours.
  • As per the government, most SERCs have already implemented ToD tariffs for large commercial and industrial categories of consumers, and with the installation of smart meters, ToD metering at the domestic consumer level will also be introduced.
  • Also, power distribution companies will be required to display on their websites the tariffs for each category of consumers, and in case of a change in rates, consumers will have to be notified at least a month in advance.

Potential benefits of ToD power tariffs

  • The TOD tariffs, which are separate tariffs for peak hours, solar hours, and normal hours, send price signals to consumers to manage their load according to the tariff. With awareness and effective utilisation of the ToD tariff mechanism, consumers can reduce their electricity bills. Since solar power is cheaper, the tariff during the solar hours will be less, so the consumer benefits.
  • During the non-solar hours, mostly thermal, hydel, and gas-based power is consumed, which is relatively costlier than solar power. Hence, tariffs during non-solar hours will be relatively higher, reflecting the higher cost of electricity.
  • As for peak power consumption hours, the government hopes to discourage consumers from placing excessive load on the grid with higher-than-normal tariffs.
  • If the load on the grid during peak consumption hours goes down, the requirement for additional investments in grid infrastructure for maintenance and upgradation also declines over the medium to long term.
  • The government also expects the ToD tariff structure to lead to better integration of renewable energy sources with the country’s electricity grid, which will hopefully expedite India’s energy transition.

For consumers

  • The move is expected to provide some flexibility to consumers to plan and optimise their electricity consumption so that the major share of their power use falls in the discount window.
  • Around 20 countries, including at least 17 European nations and the United States, have time-based power tariff structures in one form or another.
  • But the success of ToD tariffs, especially at the consumer level, is contingent on smart metering being implemented at the unit level, and users being made aware of how to optimise their consumption patterns to take advantage of the scheme, experts said.

Grid management tool

  • India needs to urgently work on developing viable energy storage options.
  • In India, which is the world’s third largest producer of renewable energy, nearly 40 per cent of installed electricity capacity comes from non-fossil fuel sources. This green push has resulted in a sharp 24 per cent reduction in the emission intensity of GDP between 2005 and 2016, but it has also thrown up challenges of a grid being increasingly powered by renewables.
  • Energy storage is needed alongside green energy sources to primarily balance out the variability in a renewable generation.
  • For procurers such as state-owned discoms, renewables are not always a viable option precisely due to these vagaries in the generation trends, which means they still have to depend on thermal or nuclear generation for meeting base load demand. Renewables bundled with a viable storage option help overcome this problem.
  • There are two alternatives being considered by the government now: hydrogen and hybrid generation models blended with off-stream pumped storage.

Constraints in integrating RE generation

  • The main challenge is the non-availability of natural gas to run gas turbines to complement the growing RE capacity in the generation mix. India’s vast fleet of coal-based power plants of 200 MW series is more than 25 years old, runs on old technology and does not promise robust reliability.
  • The country’s current installed generation capacity is around 410 GW (1 gigawatt is 1,000 megawatts) while the maximum demand is around 229 GW. Of the installed capacity, the total electric power installed capacity from non-fossil fuel-based energy resources was 179 GW, which is over 40 per cent of the total electric power installed capacity, primarily solar and wind.
  • To compensate for the intermittency, pumped-storage hydroelectric plants – where it stores energy in the form of the gravitational potential energy of water that is generally pumped from a lower elevation reservoir to a higher elevation reservoir when renewable power is available, which is then released to move a turbine to generate electricity when renewable generation is not available – is being seen as the most viable alternative.

Conclusion- Time of Day tariffs can help grid managers and policy planners tide over these problems in Renewable Energy integration till the time storage issues of Energy are tangibly addressed .

Syllabus- GS-3; Energy

Source- Indian Express

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