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Cost of oil-based decentralized power generation in India: Scope for SPV technology
SolarEnergy
Pergamon
PII: SOO38-092X(96) 0008943
Vol. 57, No. 3, pp. 231-231, 1996 Copyright 0 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0038-092X/96 $15.00+0.00
COST OF OIL-BASED DECENTRALIZED POWER GENERATION INDIA: SCOPE FOR SPV TECHNOLOGY
IN
JOYASHREE ROY? and SOMA GUPTA Department of Economics, Jadavpur University, Calcutta 700 032, India (Received 12 June 1995; revised version accepted 18 April 1996) (Communicated
by Ari Rabl)
Abstract-In India growth of oil-based decentralized (backup and non-backup) power-generating systems is an outcome of the increasing demand for power with security in supply from the consumers. Given the projections on demand for and supply of power through the centralized grid, growth of these systems is bound to be on the rise. The present study, based on primary data collected from a field survey, builds up a database for this decentralized power-generating sector to assess its role in the context of the Indian economy. Cost calculations and on-the-spot measurements of sound pollution and a standard estimate of air pollution from conventional oil-based power generators bring out clearly the problems of the existing systems. It has been shown that if pollution abatement costs and the scarcity value of diesel are included in cost calculation for widely used conventional diesel-based decentralized systems, along with standard accounting costs, then solar photovoltaic (SPV) technologies may be an ideal alternative to conventional oil-based systems in the decentralized power-generating sector. However, to encourage existing private entrepreneurs to go for this new technology, government intervention is necessary in a number of ways. Copyright 0 1996 Elsevier Science Ltd.
1. INTRODUCTION
Historically, the Indian power sector is identified with a notion of large-scale power generation under the auspices of central and state governments and widespread transmission and distribution network solely controlled by the Government. The Indian Government has given increasing weight to the power sector in each succeeding Five Year Plan. Despite all these efforts the Government has failed to achieve the desired quantitative and qualitative standard for the power sector. Quantitatively, only 27% of rural households have been electrified. Qualitatively, the persistent shortage of power has led to a situation of unreliability in the power supply. In recent years, the Government of India has tried to introduce new strategies in the field of scale of operation, ownership pattern and distribution network. Small- and mediumscale generation, as well as large-scale generation, under private and joint sector participation are encouraged. In particular, for rural areas, considerable importance is given to decentralized power generation systems based on “new and renewable” systems. In the context of the urban sector the Ministry for New Energy Sources is trying to introduce solar photovoltaic (SPV) energy as the special-purpose decentralized form of power-generating units to meet TAuthor
to whom correspondence
should
be addressed.
peak demand. With the present shift in the policy emphasis towards decentralized generation and private entrepreneurship in power generation, it is necessary to probe into the working of the existing decentralized systems to identify the pros and cons. In the present study we present a cost analysis of the existing oil-based decentralized powergenerating units and their links with the environment to understand the scope for renewable energy, like solar energy, in this context. 2.
DATA
In the absence of any secondary data source, the present work has built up a database from primary data collected through a field survey. We surveyed an exhaustive cross-section of 44 decentralized power-generating units from the Calcutta Urban Agglomeration, serving the backup and non-backup power demand of 2388 consumers (domestic and commercial) from 10 clusters or localities. The Calcutta Urban Agglomeration provided an ideal field for the survey as it has experienced a mushrooming growth of decentralized backup as well as non-backup power supply systems over these years. Moreover, the Calcutta Urban Agglomeration, with a population of 11 021 918 (1991 Census of India), holds the 2nd and 10th positions among the largest mega cities in India and the world, respectively. As the state capital
J. Roy and S. Gupta
232
the primary determining factors for scale of capacity utilization factor, etc. operation, (Table 1).
of West Bengal (the most densely populated state in India, 767 persons per km’), Calcutta enjoys the priority in all developmental activities. Nevertheless, its problem of overcrowding, a supply shortage in all types of infrastructural facilities, including energy resources, and with the highest level of pollution in India, reflect the gravity and uniqueness of the situation.
4. COST
Consumers with or without an authorized supply of power from the grid consume backup and non-backup power, respectively, to meet their lighting and space-cooling demand against a payment of service charge which is directly proportional to the generation cost. We have estimated the generation cost per unit of power to identify the least-cost option. For calculation of generation cost we considered the accounting costs that were actually incurred by the owners. Thus, it excluded the cost of environmental pollution that imposes a social cost which is not usually internalized for the producing firm. The aggregate unit accounting cost of generating power (C,) (Table 1) has been estimated via eqn(1):
3. FEATURES
We observed a heterogeneity in capacity utilization factor, fuel use pattern, ownership pattern and scale of operation for decentralized power generation. Three types of private ownership are prevalent: (1) entrepreneurial (owned by a single firm who sells power to multiple consumers with profit motive (E)); (2) co-operatives (owned and used by the members of a co-operative without any profit motive (C)); and (3) single consumer (owned and used by single consumer for self consumption (SC)). The scale of operation varied within the range of 6.5-200 kVa. The prevalent technologies for generating such power are based on diesel/petrol/kerosene. Generating units up to the size of 2 kVa are all petrol/kerosene users while those above 2 kVa are diesel-based units. Machine wise, the capacity utilization rate was calculated? for different machine types as an indicator of efficiency in resource use. A lowcapacity utilization factor implied the presence of idle capacity in the system. Capacity utilization factor ranged from 0.14 to 0.983. We found that it is the ownership pattern and mode of generation (backup or non-backup) which are
c,=c,icr+c,i-c,
Table 1. Selected techno-economic Market
Ownership pattern/ mode of generation Entrepreneurial Single consumer
3.5-8.0 0.65-2.0
0.55 0.46
40-200 4.5-7.5
0.343 0.836
diesel diesel/ petrol/ kerosine diesel diesel diesel
0.529 0.584
diesel diesel
Co-operative Domestic Commercial Mode of generation Backup Non-backup
Capacity utilization factor
Fuel in use
(1)
where capital cost = C,, fuel cost =CD labour cost = Ci and operation and maintenance cost = C,. All these components have been estimated using eqns (Al)-(A4) in Appendix A. Per unit generation costs varied widely across ownership pattern and mode of generation. Although cost varied with scale of operation we could not establish a one-to-one correspondence. Primarily, the mode of generation and ownership pattern were responsible for variation in cost. Judged by the least-cost option, some ownership patterns coincided more with the least-cost option than others. Co-operative ownership provided the least-cost option in the case of backup generation (as low as 3.81 Rupees/kWh). However, in the case of non-
TMachine-wise detailed estimates, for 44 machines, of the various parameters are available from the authors.
Installed capacity (range) (kVa)
ANALYSIS
Power generated (%)
parameter
estimates
share Consumers served (%)
33.23 1.97
23.66 1.88
64.79
74.46
Per unit generation Aggregate
cost (Rupees/kWh)
Capital
Labour
Fuel
O&M
10.26 27.63
2.67 20.28
5.48 -
1.66 4.37
0.45 2.98
3.81 8.01
0.99 4.79
0.61 0.99
2.03 1.88
0.18 0.41
14.71 9.94
SPV technology in India
233
160 150 140 130 s g
120 110
2
100
g s
9o 80
$
::
ii z
50 40 30 20 10 0
i
917
27
Capacity in kW Oil technology
SPV technology
Fig. 1. Required initial capital investment in thousand Rupees per kW.
backup generation, the average cost of generation for the entrepreneurs were the lowest: 9.617 Rupees/kWh. The higher cost of backup power is a reflection of the lower capacity utilization. Therefore, economically, non-backup systems are more efficient than backup systems. Hence, if expansion of decentralized generation is desired then the non-backup mode needs to be given a higher weight. Such a sector can also take advantage of the entrepreneurial firm. Despite the heterogeneity and superiority of one over the other, one redeeming feature is that, reasons apart, the growth of this sector has led to a high cost situation. From the point of view of accounting costs only, we find that on average, the economy is incurring a cost of approximately 15 Rupees to generate one unit of backup power and 10 Rupees for the generation of non-backup power against a generation cost of 2 Rupees per unit (4 Rupees per unitdelivered cost, i.e. if T&D costs are included) for regular power from the grid. The latter generation cost, as reported by the government sector public utilities, is not a reflection of the actual cost, as it is based on the subsidised fuel
prices. It would be a good piece of research to calculate the real generation cost for grid power in India today, but this is outside the purview of this paper. 5. ENVIRONMENTAL POLLUTION SCOPE FOR SPVS
AND
On-the-spot measurements of sound pollution and standard estimates of air pollution have shown that, given the non-intervention regime in which they operate, the decentralized powergenerating systems are producing sound pollution beyond acceptable limits: 70-140 dB, in otherwise “quiet zones”. Also, being fossil fuel based, pollutants emitted by the generators are the same as stationary automobiles. The surveyed sample of generators, on average, consumed 260 1 diesel per day. So, going by the standard emission chart (Butler, 1979) the total quantity of pollutants emitted per day by the surveyed generators is given in Table 2. These calculations show that the decentralized generators contribute to an additional daily concentration of pollutants in the air of an already
234
J. Roy and S. Gupta Table 2. Pollution
Particulates
CO
statistics
NO2
SO,
HC
BSOM
Emission from decentralised power generation in Calcutta (g/h for 1 kW power generationy\
0.234
19.067
2.34
0.217
1.95
Average concentration in Calcutta air in 1994 winter (ug/m3)b
1321
NA
160
106
NA
80
80
NA
60
60
120
Prescribed
standard
WHO standard (annual average) Indian standard (annual average)
for ambient 75
NA
140
8-h, average (Set by Central
air (ug/m3)
2.0 Pollution
‘Authors’ estimates. bSchool of Environmental
Control
Board,
India)
Studies, Jadavpur
University.
overcrowded city that has crossed, in all respects, the safety standard of air pollution (Table 2). Thus, both from cost consideration and externalities, the oil-based generators need to be replaced. Given the state of the art of decentralized generation technically, we can consider SPV technology as a feasible alternative to existing oil-based units. SPV technology would eliminate the external effects by not adding to air pollution and sound pollution. Another advantage from society’s point of view is that the new renewable technology would be able to conserve oil, a scarce fuel. Despite these advantages, whether the new renewable technology would replace the conventional oil-based units through market forces, depends on their cost competitiveness with the conventional ones. So, to understand the scope for new technology on cost consideration, it would be correct to compare with the conventional technology by appropriately accounting for externalities like environmental impact and the scarcity value of fuel. Our estimates for cost of generation from oilbased decentralized units in Table 1 and in scenario I of Table 3 do not account for environmental pollution and scarcity value of oil. In Table 3 we revise our cost estimates in the following ways: (1) We add to the accounting cost per unit generation (scenario I, Table 1) the pollution abatement costs that are actually borne by
the owners of the power units surveyed, i.e.: (i) Information on sound pollution and its abatement cost has been obtained directly from a field survey. Two categories of ownership (consumer ownership, co-operatives serving residential buildings) of oil-based generators have adopted some measures towards the abatement of sound pollution through extra investment in silencer installation. A few entrepreneurial types of ownership have also adopted the similar measures; (ii) Adoption of air pollution abatement technology has been observed for domestic co-operatives. The measure has been adopted in the form of investment on installation of longer exhaust pipes. Since the investment in longer exhaust pipes and silencers is similar to capital investment, but meant for pollution abatement, we have calculated the pollution abatement cost using the same methodology as capital cost calculation and have revised the generation cost (scenario II, Table 3) accordingly. (2) We have also incorporated into the environmental cost calculation under (l), the costs that one would incur for complete emission control of SO, and NO2 by improved technology. Although this has not yet been adopted by the surveyed units, we have included it under the assumption that, presumably, when the government is looking hard at environmental problems, this will provide some rule for internalization of these externalities by way of imposition of tax equivalent to waste treatment/ abatement costs. This has been estimated to be 15% of the generation cost (The World Bank, 1992). Thus, we have arrived at the per unit generation cost under scenario III in Table 3. B;ut all the above abatement measures do not reflc:ct the total emission control as it does not chec:k the emission of other noxious wastes. Her ice, the cost estimates we obtain here are actslally an underestimation of the total cost that t will be incurred for complete elimination of arir pollution if at all possible. (iii) Fuel cost has been revised by calculating the annual value of flael over the lifetime of the oil-based generating sets. This we have done to take into account the exhaustible nature of the fuel used in convention Ial generating units. In the Indian market, the price of oil and oil products has been rising evei: since 1973. The producer as well as the
SPV technology in India
235
Table 3. Revised cost estimates for oil-based technology Cluster code
I II II IV V VI VI VII IX X
Per unit generation cost (Rupees/kWh) Scenario I
Scenario II
Scenario III
Scenario IV
Scenario V
10.29 6.55 6.17 27.67 15.45 7.11 4.90 4.45 3.35 3.18
10.45 6.69 6.39 27.78 15.80 7.13 5.01 4.60 3.50 3.33
11.99 7.68 7.32 31.93 18.14 8.35 5.74 5.27 4.00 3.81
12.56 8.41 8.35 33.78 17.70 12.11 8.32 7.36 6.53 6.71
13.14 8.82 8.71 34.08 17.75 12.51 10.46 8.33 7.59 8.93
Scenario I: accounting cost excluding pollution abatement cost and scarcity value of oil (i.e. 0% hike in future oil price). Scenario II: accounting cost +sound and air pollution abatement cost actually incurred, excluding scarcity value of oil (0% hike in future oil price). Scenario III: accounting cost+air and sound pollution abatement cost excluding scarcity value of oil (0% hike in future oil price). Scenario IV: accounting cost +scarcity value of oil (future annual hike at 2%) excluding pollution abatement cost. Scenario V: accounting cost i-scarcity value of oil (future annual hike at 4%) excluding pollution abatement cost.
consumers of decentralized power are very much aware of the crisis situation in the domestic oil product market. Thus, while investing in oilbased decentralized power generators, they prefer to take a forward-looking view about the oil price. Thus, we have re-estimated the per unit cost of generation for oil-based units, including the scarcity value of diesel. For this matter, we assume that through the lifetime of the oil-based machines, the price of fuel is not going to stay at its present level (Table 4), as we have done for estimating costs under scenario I in Table 3 (costs with a 0% hike in oil product price in the future). Assuming that the rising price situation is a reflection of the scarcity value of oil (Fisher, 1981) we have developed two alternative scenarios, IV and V (Table 3), using 2 and 4% changes in the real domestic Table 4. Key parameters Annual solar radiation on PV panels 600 kWh (per 0.4 mZ) PV panel area 0.4 mz Panel performance 30 w, Lifetime of PV panel 20 years Discount rate=interest rate 10% Price of oil products (Rupees/I) in Indian domestic market as of January 1995: (a) kerosene (free market) 7-8 7 (b) diesel (controlled market) (c) petrol (controlled market) 17 Assumed escalation rate of future oil 0, 2, 4% (annually) price Life of diesel generators 10 years Rupee/dollar conversion factor as of January 1996 1 Dollar = 36 Rupees
price of diesel in the future. Accordingly, we find that the per unit generation cost goes up enormously (Table 3, scenarios IV and V). The estimates in Table 3 are given for each of the 10 clusters (see Appendix B). Each cluster provided exclusive sites for installation of SPV units. Our observation is that even at the present level of cost in India ( lo-12 Rupees) power from SPV technology is cost competitive with fossil-fuel-based technology in almost 50% of the clusters. We find that for some of the clusters the SPV technology is competitive even if only accounting costs are compared, whereas, for some others, it becomes competitive only if pollution abatement and/or scarcity value of oil is considered. However, despite this competitive cost structure we could not find any single SPV installation under private ownership. This we feel is due to the very high initial investment needed for installing SPVs (Fig. 1; Table 5) and lack of information about the new technology. From our field survey we found that none of the decentralized power generator owners have knowledge about SPV technology as an alternative technology for decentralized power generation. In this respect we feel that the Government has a concrete role to play in dissemination of information and providing the appropriate institutional framework through policy formulation. 6. CONCLUDING
REMARKS
Fossil fuel-based generators need replacement on conservation, cost and environmental consid-
J. Roy and S. Gupta
236
Table 5. Required initial investment (in Rupees at current prices) Capacity (kVa)
Oil-based technology
SPV technology
2 3 4.5 5 I 9.1 21 52 125 200
2oooo 22 000 18000 25 000 35ooo 82 000 9oooo 192 000 2ooooo 3ooooo
3ooooo 45oooo 615000 75oooo 105 oooo 145 5ooo 412 5000 780 0000 1875 0000 3ooooooo
BMarket price.
APPENDIX A For calculation of production costs, the energy cost from a given power system was divided into two categories: capital costs and operational costs. Capital cost included investment and interest charges. For estimating the part of the unit cost attributable to capital investment we have adopted the following procedure (Culp, 1979). Let the original cost of the power generator be A Rupees, AT is the total worth of the investment at the end of the operating period (r,,) or lifetime of the machine: &=A(1
erations. Left to the prevailing market forces (which do not allow for pricing of waste produced by any firm) conventional technologies are going to stay in the market. Moreover, in most of the surveyed cases, the relatively higher initial investment for SPV technology will act as a negative force in its adoption. It is therefore necessary to make some deliberate policy changes to make the alternative technology competitive. This may be done by way of introduction of “User Cost” proportional to waste production or the imposition of tax to enhance artificially the initial capital investment on the conventional fuel-based technologies or by way of issuing pollution clearance certificate, etc. Which policy option should be adopted needs to be carefully decided upon. But, unambiguously, there is a need for an awareness programme for the users of these new technologies. It is, thus, felt that although the decentralized generation under private ownership using the new renewable source is desirable, further Government intervention in the form of policies and correction of market distortion is necessary. Acknowledgements-We acknowledge with thanks the anonymous referees for their valuable comments and suggestions. We also thank the faculty of the School of Energy Studies and the School of Environmental Studies, -jadavpur University, for valuable discussion and information.
REFERENCES Butler D. J. (1979) Air Pollution Chemistry. Academic Press, London. Gulp A. W. Jr. (1979) Principles of Energy Coversion. McGraw-Hill %ogal&ha, Tbkyo. _ -_ Fisher A. C. (1981) Resources and Environment Economics. 1st Edn. dambhdge University Press, Cambridge. The World Bank (1992) World Development Report 1992. Development and the Environment. Oxford University Press, Oxford.
+i)‘op
(Al)
where i is rate of interest (10% for the present calculations), S is the power payment that the producer gets in equal increments over the operating period. AT must equal the total sum accumulated by investing S at a yearly interest rate of i (10% for the present calculations), i.e. by annuity relationship: A = (l+i)‘op--1 T
s
i
(A21
Using eqns (Al ) and (A2), S has been calculated. Then S was divided by amount of energy (E,) produced annually to determine the unit cost of energy (Rupees/kWh) attributable to capital investment. Thus, capital cost per kWh = C, = S/E,. Operational power costs include expenses incurred by the producer during operation of the plant, including wages, fuel costs and maintenance. As the generating units under study are not taxed so tax payable does not enter into the calculations. A.1. Fuel cost
From the market price (Rupees/l) of fuel used, the average unit power cost associated with the fuel was calculated from the following formula: Cr = fuel unit power cost (Rupees/kWh)
=p
0.1111x 1
(A3)
where x is the fuel price in Rupee/l, q is the overall thermal efficiency of the backup and non-backup power generators, which is 33% for the present study.
SPV technology in India
A.2. Labour cost We find that it requires one individual to operate each of the generating systems. For the systems where there is hired labour (except for the systems with consumer ownership), the working hours are 5 h and labour cost has been calculated using the formula: CI = labour unit power cost = p
NW maxx LF
(A4)
where N is number of people working at the plant, W is yearly wage payment in Rupees, P max is the maximum electrical power output of the plant and LF is load factor.
231
of the Calcutta Urban Agglomeration. Selected parameters relevant for the clusters are given in Table Bl. Each cluster refers to either a multistoried residential complex or a supermarket complex with many trading units under one roof. Therefore, each cluster can be thought of being served by separate SPV units, panels mounted on the roof tops. We have considered whether the time dependence of the energy utilizing task (space cooling and lighting), to the time-varying supply of energy from the solar energy source matches or not. Since in all the clusters peak demand persists during those hours (6-10 p.m.) when the sun is not shining, solar energy must be stored.
A.3. Operation and maintenance cost co=
Table Bl. Selected parameters
-$
(A5)
kWh
where A,, is the total cost annually borne by the supplier for the maintenance of the machine and Akwh is total kilowatt hours generated annually. APPENDIX
B
B.l. Clusters The clusters are 10 discrete commercial/ residential complexes situated in different parts
Cluster code 01 02 03 04 05 06 07 08 09 10
Load connected to oil-based generators (kW) 4.14 3.42 2.06 11.02 24.03 44.52 41.25 14.40 28.88 66.00
Relevant area 975.48 m2 0.5 km 2601.28 m2 1950.96 mz 520.26 m* 1.00 km 278.71 m2 371.61 m2 278.61 m2 557.42 m2
Pergamon
PII: SOO38-092X(96) 0008943
Vol. 57, No. 3, pp. 231-231, 1996 Copyright 0 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0038-092X/96 $15.00+0.00
COST OF OIL-BASED DECENTRALIZED POWER GENERATION INDIA: SCOPE FOR SPV TECHNOLOGY
IN
JOYASHREE ROY? and SOMA GUPTA Department of Economics, Jadavpur University, Calcutta 700 032, India (Received 12 June 1995; revised version accepted 18 April 1996) (Communicated
by Ari Rabl)
Abstract-In India growth of oil-based decentralized (backup and non-backup) power-generating systems is an outcome of the increasing demand for power with security in supply from the consumers. Given the projections on demand for and supply of power through the centralized grid, growth of these systems is bound to be on the rise. The present study, based on primary data collected from a field survey, builds up a database for this decentralized power-generating sector to assess its role in the context of the Indian economy. Cost calculations and on-the-spot measurements of sound pollution and a standard estimate of air pollution from conventional oil-based power generators bring out clearly the problems of the existing systems. It has been shown that if pollution abatement costs and the scarcity value of diesel are included in cost calculation for widely used conventional diesel-based decentralized systems, along with standard accounting costs, then solar photovoltaic (SPV) technologies may be an ideal alternative to conventional oil-based systems in the decentralized power-generating sector. However, to encourage existing private entrepreneurs to go for this new technology, government intervention is necessary in a number of ways. Copyright 0 1996 Elsevier Science Ltd.
1. INTRODUCTION
Historically, the Indian power sector is identified with a notion of large-scale power generation under the auspices of central and state governments and widespread transmission and distribution network solely controlled by the Government. The Indian Government has given increasing weight to the power sector in each succeeding Five Year Plan. Despite all these efforts the Government has failed to achieve the desired quantitative and qualitative standard for the power sector. Quantitatively, only 27% of rural households have been electrified. Qualitatively, the persistent shortage of power has led to a situation of unreliability in the power supply. In recent years, the Government of India has tried to introduce new strategies in the field of scale of operation, ownership pattern and distribution network. Small- and mediumscale generation, as well as large-scale generation, under private and joint sector participation are encouraged. In particular, for rural areas, considerable importance is given to decentralized power generation systems based on “new and renewable” systems. In the context of the urban sector the Ministry for New Energy Sources is trying to introduce solar photovoltaic (SPV) energy as the special-purpose decentralized form of power-generating units to meet TAuthor
to whom correspondence
should
be addressed.
peak demand. With the present shift in the policy emphasis towards decentralized generation and private entrepreneurship in power generation, it is necessary to probe into the working of the existing decentralized systems to identify the pros and cons. In the present study we present a cost analysis of the existing oil-based decentralized powergenerating units and their links with the environment to understand the scope for renewable energy, like solar energy, in this context. 2.
DATA
In the absence of any secondary data source, the present work has built up a database from primary data collected through a field survey. We surveyed an exhaustive cross-section of 44 decentralized power-generating units from the Calcutta Urban Agglomeration, serving the backup and non-backup power demand of 2388 consumers (domestic and commercial) from 10 clusters or localities. The Calcutta Urban Agglomeration provided an ideal field for the survey as it has experienced a mushrooming growth of decentralized backup as well as non-backup power supply systems over these years. Moreover, the Calcutta Urban Agglomeration, with a population of 11 021 918 (1991 Census of India), holds the 2nd and 10th positions among the largest mega cities in India and the world, respectively. As the state capital
J. Roy and S. Gupta
232
the primary determining factors for scale of capacity utilization factor, etc. operation, (Table 1).
of West Bengal (the most densely populated state in India, 767 persons per km’), Calcutta enjoys the priority in all developmental activities. Nevertheless, its problem of overcrowding, a supply shortage in all types of infrastructural facilities, including energy resources, and with the highest level of pollution in India, reflect the gravity and uniqueness of the situation.
4. COST
Consumers with or without an authorized supply of power from the grid consume backup and non-backup power, respectively, to meet their lighting and space-cooling demand against a payment of service charge which is directly proportional to the generation cost. We have estimated the generation cost per unit of power to identify the least-cost option. For calculation of generation cost we considered the accounting costs that were actually incurred by the owners. Thus, it excluded the cost of environmental pollution that imposes a social cost which is not usually internalized for the producing firm. The aggregate unit accounting cost of generating power (C,) (Table 1) has been estimated via eqn(1):
3. FEATURES
We observed a heterogeneity in capacity utilization factor, fuel use pattern, ownership pattern and scale of operation for decentralized power generation. Three types of private ownership are prevalent: (1) entrepreneurial (owned by a single firm who sells power to multiple consumers with profit motive (E)); (2) co-operatives (owned and used by the members of a co-operative without any profit motive (C)); and (3) single consumer (owned and used by single consumer for self consumption (SC)). The scale of operation varied within the range of 6.5-200 kVa. The prevalent technologies for generating such power are based on diesel/petrol/kerosene. Generating units up to the size of 2 kVa are all petrol/kerosene users while those above 2 kVa are diesel-based units. Machine wise, the capacity utilization rate was calculated? for different machine types as an indicator of efficiency in resource use. A lowcapacity utilization factor implied the presence of idle capacity in the system. Capacity utilization factor ranged from 0.14 to 0.983. We found that it is the ownership pattern and mode of generation (backup or non-backup) which are
c,=c,icr+c,i-c,
Table 1. Selected techno-economic Market
Ownership pattern/ mode of generation Entrepreneurial Single consumer
3.5-8.0 0.65-2.0
0.55 0.46
40-200 4.5-7.5
0.343 0.836
diesel diesel/ petrol/ kerosine diesel diesel diesel
0.529 0.584
diesel diesel
Co-operative Domestic Commercial Mode of generation Backup Non-backup
Capacity utilization factor
Fuel in use
(1)
where capital cost = C,, fuel cost =CD labour cost = Ci and operation and maintenance cost = C,. All these components have been estimated using eqns (Al)-(A4) in Appendix A. Per unit generation costs varied widely across ownership pattern and mode of generation. Although cost varied with scale of operation we could not establish a one-to-one correspondence. Primarily, the mode of generation and ownership pattern were responsible for variation in cost. Judged by the least-cost option, some ownership patterns coincided more with the least-cost option than others. Co-operative ownership provided the least-cost option in the case of backup generation (as low as 3.81 Rupees/kWh). However, in the case of non-
TMachine-wise detailed estimates, for 44 machines, of the various parameters are available from the authors.
Installed capacity (range) (kVa)
ANALYSIS
Power generated (%)
parameter
estimates
share Consumers served (%)
33.23 1.97
23.66 1.88
64.79
74.46
Per unit generation Aggregate
cost (Rupees/kWh)
Capital
Labour
Fuel
O&M
10.26 27.63
2.67 20.28
5.48 -
1.66 4.37
0.45 2.98
3.81 8.01
0.99 4.79
0.61 0.99
2.03 1.88
0.18 0.41
14.71 9.94
SPV technology in India
233
160 150 140 130 s g
120 110
2
100
g s
9o 80
$
::
ii z
50 40 30 20 10 0
i
917
27
Capacity in kW Oil technology
SPV technology
Fig. 1. Required initial capital investment in thousand Rupees per kW.
backup generation, the average cost of generation for the entrepreneurs were the lowest: 9.617 Rupees/kWh. The higher cost of backup power is a reflection of the lower capacity utilization. Therefore, economically, non-backup systems are more efficient than backup systems. Hence, if expansion of decentralized generation is desired then the non-backup mode needs to be given a higher weight. Such a sector can also take advantage of the entrepreneurial firm. Despite the heterogeneity and superiority of one over the other, one redeeming feature is that, reasons apart, the growth of this sector has led to a high cost situation. From the point of view of accounting costs only, we find that on average, the economy is incurring a cost of approximately 15 Rupees to generate one unit of backup power and 10 Rupees for the generation of non-backup power against a generation cost of 2 Rupees per unit (4 Rupees per unitdelivered cost, i.e. if T&D costs are included) for regular power from the grid. The latter generation cost, as reported by the government sector public utilities, is not a reflection of the actual cost, as it is based on the subsidised fuel
prices. It would be a good piece of research to calculate the real generation cost for grid power in India today, but this is outside the purview of this paper. 5. ENVIRONMENTAL POLLUTION SCOPE FOR SPVS
AND
On-the-spot measurements of sound pollution and standard estimates of air pollution have shown that, given the non-intervention regime in which they operate, the decentralized powergenerating systems are producing sound pollution beyond acceptable limits: 70-140 dB, in otherwise “quiet zones”. Also, being fossil fuel based, pollutants emitted by the generators are the same as stationary automobiles. The surveyed sample of generators, on average, consumed 260 1 diesel per day. So, going by the standard emission chart (Butler, 1979) the total quantity of pollutants emitted per day by the surveyed generators is given in Table 2. These calculations show that the decentralized generators contribute to an additional daily concentration of pollutants in the air of an already
234
J. Roy and S. Gupta Table 2. Pollution
Particulates
CO
statistics
NO2
SO,
HC
BSOM
Emission from decentralised power generation in Calcutta (g/h for 1 kW power generationy\
0.234
19.067
2.34
0.217
1.95
Average concentration in Calcutta air in 1994 winter (ug/m3)b
1321
NA
160
106
NA
80
80
NA
60
60
120
Prescribed
standard
WHO standard (annual average) Indian standard (annual average)
for ambient 75
NA
140
8-h, average (Set by Central
air (ug/m3)
2.0 Pollution
‘Authors’ estimates. bSchool of Environmental
Control
Board,
India)
Studies, Jadavpur
University.
overcrowded city that has crossed, in all respects, the safety standard of air pollution (Table 2). Thus, both from cost consideration and externalities, the oil-based generators need to be replaced. Given the state of the art of decentralized generation technically, we can consider SPV technology as a feasible alternative to existing oil-based units. SPV technology would eliminate the external effects by not adding to air pollution and sound pollution. Another advantage from society’s point of view is that the new renewable technology would be able to conserve oil, a scarce fuel. Despite these advantages, whether the new renewable technology would replace the conventional oil-based units through market forces, depends on their cost competitiveness with the conventional ones. So, to understand the scope for new technology on cost consideration, it would be correct to compare with the conventional technology by appropriately accounting for externalities like environmental impact and the scarcity value of fuel. Our estimates for cost of generation from oilbased decentralized units in Table 1 and in scenario I of Table 3 do not account for environmental pollution and scarcity value of oil. In Table 3 we revise our cost estimates in the following ways: (1) We add to the accounting cost per unit generation (scenario I, Table 1) the pollution abatement costs that are actually borne by
the owners of the power units surveyed, i.e.: (i) Information on sound pollution and its abatement cost has been obtained directly from a field survey. Two categories of ownership (consumer ownership, co-operatives serving residential buildings) of oil-based generators have adopted some measures towards the abatement of sound pollution through extra investment in silencer installation. A few entrepreneurial types of ownership have also adopted the similar measures; (ii) Adoption of air pollution abatement technology has been observed for domestic co-operatives. The measure has been adopted in the form of investment on installation of longer exhaust pipes. Since the investment in longer exhaust pipes and silencers is similar to capital investment, but meant for pollution abatement, we have calculated the pollution abatement cost using the same methodology as capital cost calculation and have revised the generation cost (scenario II, Table 3) accordingly. (2) We have also incorporated into the environmental cost calculation under (l), the costs that one would incur for complete emission control of SO, and NO2 by improved technology. Although this has not yet been adopted by the surveyed units, we have included it under the assumption that, presumably, when the government is looking hard at environmental problems, this will provide some rule for internalization of these externalities by way of imposition of tax equivalent to waste treatment/ abatement costs. This has been estimated to be 15% of the generation cost (The World Bank, 1992). Thus, we have arrived at the per unit generation cost under scenario III in Table 3. B;ut all the above abatement measures do not reflc:ct the total emission control as it does not chec:k the emission of other noxious wastes. Her ice, the cost estimates we obtain here are actslally an underestimation of the total cost that t will be incurred for complete elimination of arir pollution if at all possible. (iii) Fuel cost has been revised by calculating the annual value of flael over the lifetime of the oil-based generating sets. This we have done to take into account the exhaustible nature of the fuel used in convention Ial generating units. In the Indian market, the price of oil and oil products has been rising evei: since 1973. The producer as well as the
SPV technology in India
235
Table 3. Revised cost estimates for oil-based technology Cluster code
I II II IV V VI VI VII IX X
Per unit generation cost (Rupees/kWh) Scenario I
Scenario II
Scenario III
Scenario IV
Scenario V
10.29 6.55 6.17 27.67 15.45 7.11 4.90 4.45 3.35 3.18
10.45 6.69 6.39 27.78 15.80 7.13 5.01 4.60 3.50 3.33
11.99 7.68 7.32 31.93 18.14 8.35 5.74 5.27 4.00 3.81
12.56 8.41 8.35 33.78 17.70 12.11 8.32 7.36 6.53 6.71
13.14 8.82 8.71 34.08 17.75 12.51 10.46 8.33 7.59 8.93
Scenario I: accounting cost excluding pollution abatement cost and scarcity value of oil (i.e. 0% hike in future oil price). Scenario II: accounting cost +sound and air pollution abatement cost actually incurred, excluding scarcity value of oil (0% hike in future oil price). Scenario III: accounting cost+air and sound pollution abatement cost excluding scarcity value of oil (0% hike in future oil price). Scenario IV: accounting cost +scarcity value of oil (future annual hike at 2%) excluding pollution abatement cost. Scenario V: accounting cost i-scarcity value of oil (future annual hike at 4%) excluding pollution abatement cost.
consumers of decentralized power are very much aware of the crisis situation in the domestic oil product market. Thus, while investing in oilbased decentralized power generators, they prefer to take a forward-looking view about the oil price. Thus, we have re-estimated the per unit cost of generation for oil-based units, including the scarcity value of diesel. For this matter, we assume that through the lifetime of the oil-based machines, the price of fuel is not going to stay at its present level (Table 4), as we have done for estimating costs under scenario I in Table 3 (costs with a 0% hike in oil product price in the future). Assuming that the rising price situation is a reflection of the scarcity value of oil (Fisher, 1981) we have developed two alternative scenarios, IV and V (Table 3), using 2 and 4% changes in the real domestic Table 4. Key parameters Annual solar radiation on PV panels 600 kWh (per 0.4 mZ) PV panel area 0.4 mz Panel performance 30 w, Lifetime of PV panel 20 years Discount rate=interest rate 10% Price of oil products (Rupees/I) in Indian domestic market as of January 1995: (a) kerosene (free market) 7-8 7 (b) diesel (controlled market) (c) petrol (controlled market) 17 Assumed escalation rate of future oil 0, 2, 4% (annually) price Life of diesel generators 10 years Rupee/dollar conversion factor as of January 1996 1 Dollar = 36 Rupees
price of diesel in the future. Accordingly, we find that the per unit generation cost goes up enormously (Table 3, scenarios IV and V). The estimates in Table 3 are given for each of the 10 clusters (see Appendix B). Each cluster provided exclusive sites for installation of SPV units. Our observation is that even at the present level of cost in India ( lo-12 Rupees) power from SPV technology is cost competitive with fossil-fuel-based technology in almost 50% of the clusters. We find that for some of the clusters the SPV technology is competitive even if only accounting costs are compared, whereas, for some others, it becomes competitive only if pollution abatement and/or scarcity value of oil is considered. However, despite this competitive cost structure we could not find any single SPV installation under private ownership. This we feel is due to the very high initial investment needed for installing SPVs (Fig. 1; Table 5) and lack of information about the new technology. From our field survey we found that none of the decentralized power generator owners have knowledge about SPV technology as an alternative technology for decentralized power generation. In this respect we feel that the Government has a concrete role to play in dissemination of information and providing the appropriate institutional framework through policy formulation. 6. CONCLUDING
REMARKS
Fossil fuel-based generators need replacement on conservation, cost and environmental consid-
J. Roy and S. Gupta
236
Table 5. Required initial investment (in Rupees at current prices) Capacity (kVa)
Oil-based technology
SPV technology
2 3 4.5 5 I 9.1 21 52 125 200
2oooo 22 000 18000 25 000 35ooo 82 000 9oooo 192 000 2ooooo 3ooooo
3ooooo 45oooo 615000 75oooo 105 oooo 145 5ooo 412 5000 780 0000 1875 0000 3ooooooo
BMarket price.
APPENDIX A For calculation of production costs, the energy cost from a given power system was divided into two categories: capital costs and operational costs. Capital cost included investment and interest charges. For estimating the part of the unit cost attributable to capital investment we have adopted the following procedure (Culp, 1979). Let the original cost of the power generator be A Rupees, AT is the total worth of the investment at the end of the operating period (r,,) or lifetime of the machine: &=A(1
erations. Left to the prevailing market forces (which do not allow for pricing of waste produced by any firm) conventional technologies are going to stay in the market. Moreover, in most of the surveyed cases, the relatively higher initial investment for SPV technology will act as a negative force in its adoption. It is therefore necessary to make some deliberate policy changes to make the alternative technology competitive. This may be done by way of introduction of “User Cost” proportional to waste production or the imposition of tax to enhance artificially the initial capital investment on the conventional fuel-based technologies or by way of issuing pollution clearance certificate, etc. Which policy option should be adopted needs to be carefully decided upon. But, unambiguously, there is a need for an awareness programme for the users of these new technologies. It is, thus, felt that although the decentralized generation under private ownership using the new renewable source is desirable, further Government intervention in the form of policies and correction of market distortion is necessary. Acknowledgements-We acknowledge with thanks the anonymous referees for their valuable comments and suggestions. We also thank the faculty of the School of Energy Studies and the School of Environmental Studies, -jadavpur University, for valuable discussion and information.
REFERENCES Butler D. J. (1979) Air Pollution Chemistry. Academic Press, London. Gulp A. W. Jr. (1979) Principles of Energy Coversion. McGraw-Hill %ogal&ha, Tbkyo. _ -_ Fisher A. C. (1981) Resources and Environment Economics. 1st Edn. dambhdge University Press, Cambridge. The World Bank (1992) World Development Report 1992. Development and the Environment. Oxford University Press, Oxford.
+i)‘op
(Al)
where i is rate of interest (10% for the present calculations), S is the power payment that the producer gets in equal increments over the operating period. AT must equal the total sum accumulated by investing S at a yearly interest rate of i (10% for the present calculations), i.e. by annuity relationship: A = (l+i)‘op--1 T
s
i
(A21
Using eqns (Al ) and (A2), S has been calculated. Then S was divided by amount of energy (E,) produced annually to determine the unit cost of energy (Rupees/kWh) attributable to capital investment. Thus, capital cost per kWh = C, = S/E,. Operational power costs include expenses incurred by the producer during operation of the plant, including wages, fuel costs and maintenance. As the generating units under study are not taxed so tax payable does not enter into the calculations. A.1. Fuel cost
From the market price (Rupees/l) of fuel used, the average unit power cost associated with the fuel was calculated from the following formula: Cr = fuel unit power cost (Rupees/kWh)
=p
0.1111x 1
(A3)
where x is the fuel price in Rupee/l, q is the overall thermal efficiency of the backup and non-backup power generators, which is 33% for the present study.
SPV technology in India
A.2. Labour cost We find that it requires one individual to operate each of the generating systems. For the systems where there is hired labour (except for the systems with consumer ownership), the working hours are 5 h and labour cost has been calculated using the formula: CI = labour unit power cost = p
NW maxx LF
(A4)
where N is number of people working at the plant, W is yearly wage payment in Rupees, P max is the maximum electrical power output of the plant and LF is load factor.
231
of the Calcutta Urban Agglomeration. Selected parameters relevant for the clusters are given in Table Bl. Each cluster refers to either a multistoried residential complex or a supermarket complex with many trading units under one roof. Therefore, each cluster can be thought of being served by separate SPV units, panels mounted on the roof tops. We have considered whether the time dependence of the energy utilizing task (space cooling and lighting), to the time-varying supply of energy from the solar energy source matches or not. Since in all the clusters peak demand persists during those hours (6-10 p.m.) when the sun is not shining, solar energy must be stored.
A.3. Operation and maintenance cost co=
Table Bl. Selected parameters
-$
(A5)
kWh
where A,, is the total cost annually borne by the supplier for the maintenance of the machine and Akwh is total kilowatt hours generated annually. APPENDIX
B
B.l. Clusters The clusters are 10 discrete commercial/ residential complexes situated in different parts
Cluster code 01 02 03 04 05 06 07 08 09 10
Load connected to oil-based generators (kW) 4.14 3.42 2.06 11.02 24.03 44.52 41.25 14.40 28.88 66.00
Relevant area 975.48 m2 0.5 km 2601.28 m2 1950.96 mz 520.26 m* 1.00 km 278.71 m2 371.61 m2 278.61 m2 557.42 m2