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Decarbonization of Indian Railways: Assessing Balancing Costs and Policy Risks

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Published: April, 2017

Complete decarbonization of the electricity demand of Indian Railways (IR) – transitioning from the current, largely fossil-fuel based energy mix to clean energy like solar and wind power – is likely to have multiple benefits. These include support in achieving India’s clean energy targets, enhancing India’s energy security, and reducing IR’s operational costs.

In our previous study, Decarbonization of Indian Railways (CPI, 2016), we assessed the economic viability of complete decarbonization of IR by 2030, and found that, for the traction segment, decarbonization would be approximately 24% cheaper compared with the business-as-usual pathway in terms of average annual cash outflows. We also found that, in order to implement decarbonization, there is a need for additional analysis on load balancing options for renewable energy. Because solar and wind power can be intermittent and variable, they will require load balancing, which requires use of technologies such as energy storage to ensure consistent supply of electricity that can meet the demand.

Specifically, costs at a day-to-day management level may vary due to load balancing issues. In order to examine this issue further, in this report, we have conducted a deeper study on the pathway to decarbonization in one state, Madhya Pradesh, which is important to IR as one of the top states for electricity consumption. We assessed the total cost of 100% decarbonization of IR’s traction electricity demand in Madhya Pradesh (MP), including the costs of generation and balancing, and compared that cost with the business-as-usual pathway.

Our analysis indicates that the cost of 100% decarbonization would be 26-28% cheaper than the business-as-usual pathway by 2030. These costs would reduce over time, from being 27-38% more expensive than the business-as-usual pathway in 2016-17 to being marginally more expensive (2-5%) in 2022. This is largely due to an anticipated continuous decrease in renewable energy costs. The business-as-usual pathway, which is the average power procurement cost of DISCOMs in India and reflects the country’s energy mix (dominated by fossil fuel-based energy), will be affected negatively due to the expected continuous increase in fossil fuel costs.

We also found that balancing costs will likely account for 5-8% of the total decarbonization costs in 2030, depending on the balancing technology chosen. These costs are bound to gradually reduce from 5-12% in 2016-17 and 5-9% in 2022 as balancing technology costs (specifically, of grid-scale batteries) are expected to reduce in the next 10-15 years due to advancement in battery storage technology.

Because of this, IR should aim to gradually ramp up the rate of decarbonization, accelerating from 2022, and achieve 100% decarbonization by 2030. By 2030, the cost savings of decarbonization compared to the business-as-usual pathway will become quite apparent. The more promising balancing technologies, such as grid-scale battery storage, are also expected to be commercially viable by 2030.

Balancing costs are minimized by using an optimal mix of largely wind power and some solar power. We found that there would be a significant reduction in balancing costs as a percentage of the total cost by using an optimal mix of wind and solar power. Under a scenario of decarbonization via all solar power, the balancing cost percentage of total costs increases to 63-78% from 5-8% in the wind and solar optimal mix scenario. Though the generation costs will be lower in an all solar scenario (due to lower per unit generation cost of solar power compared with wind power), the cost-effectiveness of solar power relies heavily on the availability of a large-volume, low-cost balancing option. This is because balancing electricity units as a proportion of total renewable electricity units generated increases from around 4% (or 0.4 million units daily) in a mixed wind and solar scenario to about 58% (or 6.2 million units daily) in an all solar scenario.

We recommend that IR adopt a wind and solar mix, given the low possibility of finding such a high-volume, low-cost balancing arrangement. The balancing need is low in a mixed wind and solar scenario as wind power’s generation profile is not only better correlated with demand, it is also complementary with solar power’s generation profile.

Costs of decarbonization under different balancing options

In terms of IR’s energy capacity requirement to meet its electricity demand, IR will require a total installed solar and wind capacity of approximately six times its demand, given the average capacity utilization factors (CUFs) of solar and wind, which are in the range of 18-19%. Further, we found that IR will require the installed wind capacity to be approximately eight times more than that of solar to keep the balancing need and costs low.

However, while planning for 100% decarbonization, IR should keep in mind the seasonality of wind power in India. Wind is seasonal in India. It can lead to -19% to +32% variation in the total capacity requirement during the worst case (October-December) and best case (May-September) scenarios to meet IR’s electricity demand. While keeping the capacity constant (at a base case), we found that the energy generated could vary from a shortfall of 23% to a surplus of 25% compared to the energy generated from the annual average CUF. This further indicates that IR might require a seasonal power banking arrangement in addition to intra-day power banking to manage the seasonality of wind. Although, it must be noted that the impact of seasonality can be accurately predicted only through a probabilistic simulation model.

Finally, IR must recognize the policy and regulatory risks of decarbonization and plan to mitigate them effectively. The top policy and regulatory risks that IR might face include a lack of states’ recognition of IR’s deemed transmission and distribution licensee status and the lack of a suitable power banking arrangement. Other potential risks are delay in implementation of a framework that enables the inter-state sale of renewable energy and delay in development of a national balancing market. Short-term measures, such as directly connecting to an inter-state transmission network to gain more operational freedom, and long-term measures, such as policy advocacy to drive the development of national/regional balancing markets, could be used to mitigate these risks.