Cost of avoided carbon: Optimizing power supply in southern India

Highlights: • Paper evaluates impact of RE policies on energy cost for Southern India. • Additional cost due to RE deployment ranges from $200 to $350 million/year. • Cost of avoided carbon ranges from $1.9/tCO2 to $4.5/tCO2 across states. • Significant sub-optimality currently in the system that increases costs. • Interregional transfer of excess RE a possible solution to reduce financial burden. Southern India houses over 49% of the total renewable energy capacity in India. This paper analyses the power supply situation in this region for year 2018 to evaluate the impact of renewable energy policies on energy costs and the resulting cost of avoided carbon. An optimisation model is built using GAMS. Model results show that the cost of absorbing renewable energy due to the "must run" policy for solar and wind energy plants ranges from $1.9/tCO2 to $4.5/tCO2 across states in the region, over and above the carbon tax of $5/tCO2 levied on all electricity consumers in India through the coal cess. 'Must run' status implies that the evacuation of power from solar and wind power plants should not be curtailed for factors other than grid or equipment safety. The total additional cost due this policy ranges from $200 to $350 million/year. Inter-regional transfer of renewable energy after meeting the mandated renewable purchase obligations in the region, is suggested as one possible route to reduce the financial burden on distribution utilities. This would reduce the unit cost of energy by about 1–7% across the states. Validating the model results against actual data for the year 2018 suggests that regulatory constraints and policy interventions have reduced the solution space for reasonable cost-based optimisation in Southern India.