Introduction

In India, a significant debate is underway over whether Variable Renewable Energy (VRE) paired with storage can achieve lower costs than coal for electricity generation. Proponents of VRE argue that falling costs of solar and wind energy, coupled with advancements in battery storage technologies, make renewable energy increasingly competitive. Recent auctions conducted by SECI (Solar Energy Corporation of India) have showcased record-low tariffs for solar and wind projects, even when integrated with storage for round-the-clock supply. Additionally, VRE offers environmental benefits by reducing carbon emissions and aligning with India's international climate commitments. However, coal advocates emphasize that coal-based power plants remain the backbone of India's grid, providing reliable, dispatchable power at relatively low costs, particularly in regions with abundant domestic coal reserves.

2. As India transitions towards a sustainable energy future, the evaluation of electricity generation sources becomes increasingly complex. Critics of VRE highlight the high costs of storage systems, grid integration, and balancing, which can significantly rise. As coal plants benefit from existing infrastructure and economies of scale, many argue that they are more cost-effective for meeting India’s growing energy demand in the near term. This debate is intensifying as policymakers balance the economic, environmental, and reliability aspects of India's energy transition but the challenge gets compounded on which metrics to select for least cost resource adequacy?

In this context, standalone metrics like the Levelized Cost of Electricity (LCOE) is used as the key energy metrics which is defined as the cost per unit of electricity generated accounting for construction, operation, and maintenance over the asset's lifetime. LCOE Offers a baseline for comparing generation costs.

3. Limitations of LCOE

a. Excludes Grid Integration Costs: LCOE considers only the generation cost and ignores expenses for transmission, storage, and balancing required to maintain grid stability.

b. Ignores Variability and Intermittency: VRE sources like solar and wind are intermittent and require backup or storage to provide firm power, which LCOE does not factor in.

c. Overlooks Geographic and Temporal Mismatch: LCOE does not account for spatial or temporal variations in energy availability versus demand.

d. Fails to Reflect Total System Costs: As VRE penetration increases, additional costs such as ramping, reserve margins, and frequency stabilization grow significantly, which are missing from LCOE calculations.

4. However, in the context of rising VRE integration, LCOE may not be a key metrics, and the Levelized Full System Cost of Electricity (LFSCOE) provides a holistic perspective. LFSCOE incorporates the costs of integration, storage, transmission, and grid balancing, ensuring a comprehensive comparison of energy sources for firm, dispatchable power on a 24x7 basis.

 5. Why Levelized Full System Cost of Electricity (LFSCOE) Should Be Preferred Over LCOE

The Levelized Cost of Electricity (LCOE) has traditionally been a popular metric for comparing electricity generation technologies. However, it does not fully account for the real-world costs and operational complexities of integrating different power sources into an electricity grid. The Levelized Full System Cost of Electricity (LFSCOE) extends the LCOE by including all system-level costs incurred to make the power generated usable, reliable, and dispatchable on a 24x7 basis. These costs are particularly critical in the context of increasing Variable Renewable Energy (VRE) penetration, such as solar and wind.

6. Advantages of LFSCOE

a. Comprehensive Cost Representation: LFSCOE incorporates all the costs required to ensure firm, reliable, and dispatchable power at the point of consumption.

b. Reflects Real-World Integration Challenges: It factors in the complexities of integrating intermittent sources into the grid, including storage, backup capacity, and transmission upgrades.

c. Facilitates Better Policy Decisions: By providing a holistic view of costs, LFSCOE enables more informed planning, particularly in balancing sustainability with economic feasibility.

7. Components of LFSCOE

a. Generation Cost (LCOE): Base cost of building, operating, and maintaining a power plant.

b. Transmission and Distribution (T&D) Costs: Costs for expanding or upgrading transmission infrastructure to connect generation sources with load centers.

c. Grid Balancing Costs: Expenses incurred for maintaining grid stability, frequency regulation, and managing variability.

d. Storage Costs: Costs of deploying energy storage systems to buffer VRE variability and ensure supply meets demand consistently.

e. Backup or Reserve Capacity Costs: Costs of maintaining conventional power plants or other dispatchable sources as a reserve for times when VRE output is low.

f. Curtailment Costs: Costs arising from surplus VRE generation that cannot be utilized due to grid limitations or demand mismatch.

g. Environmental and Externality Costs: Costs associated with emissions, land use, and other environmental impacts, often reflected in policy incentives or penalties.

8. How and Why LFSCOE Increases with VRE Integration?

a. Variability and Intermittency: Solar and wind are inherently variable and cannot be dispatched on demand. As their share increases, the need for grid balancing and storage grows, escalating costs.

b. Overcapacity Requirements: To meet the same demand, a higher installed capacity of VRE is required because of their lower capacity factors. This increases capital and infrastructure costs.

c. Grid Upgrades: High VRE penetration necessitates significant investments in transmission lines, substations, and grid reinforcement to handle spatially distributed generation.

d. Storage and Backup Needs: The grid must compensate for periods of low or no VRE generation. This requires storage systems or firm backup sources (e.g., coal, gas, or hydro), raising LFSCOE.

e. Curtailment and Inefficiencies: Excess VRE generation during low-demand periods often leads to curtailment, wasting potential output and increasing overall costs.

f. Ancillary Services: Managing voltage, frequency, and reactive power becomes more complex with high VRE penetration, increasing operational costs.

g. Reduced Efficiency of Conventional Plants: Conventional power plants operated as backups run at suboptimal efficiency, leading to higher operational and maintenance costs.

9. (a) The major cost difference between Variable Renewable Energy (VRE) and traditional energy sources arises from grid balancing costs, high storage costs and backup capacity costs. Grid balancing costs refer to expenses incurred to maintain grid stability as supply and demand fluctuate, particularly with the integration of intermittent VRE sources like solar and wind. These costs include ancillary services such as frequency regulation, voltage stabilization, and reactive power management. The need to ramp up or down dispatchable generation to compensate for rapid changes in VRE output further adds to operational challenges and expenses. As VRE penetration grows, balancing costs escalate due to increased variability, necessitating investments in advanced forecasting tools, real-time control systems, and grid upgrades to ensure uninterrupted and stable electricity supply.

(b) Backup capacity costs are associated with maintaining dispatchable power sources to ensure reliability when VRE output is insufficient to meet demand. These include capital investments in backup generation facilities such as gas turbines, coal plants, or hydropower, as well as operational expenses for fuel, maintenance, and standby readiness. Backup systems are essential for handling extended periods of low VRE generation during cloudy days, windless nights, or seasonal variations. However, backup plants often operate at suboptimal efficiency due to their intermittent usage, leading to higher per-unit generation costs. As VRE integration increases, the demand for reliable backup capacity grows, driving up overall system costs.

(c) Storage costs, a significant component of VRE's total system costs, remain high compared to recent prices discovered in SECI's IV tranche of Firm Renewable Energy (FDRE) auctions with an 80% demand fulfilment ratio. Despite technological advancements and declining storage prices, these costs still represent a major hurdle to achieving cost parity with conventional energy sources.

10. Detailed and Comparative Calculations for LFSCOE at 20%, 40%, and 60% VRE Penetration

This document provides detailed calculations for the Levelized Full System Cost of Electricity (LFSCOE) at 20%, 40%, and 60% Variable Renewable Energy (VRE) penetration levels, assuming the same Levelized Cost of Electricity (LCOE) for solar and wind in 60:40 ratio across all scenarios. A comparative table is included for ease of reference.

a. Storage costs for solar energy are higher than for wind due to differences in their generation profiles and variability characteristics. Solar power generation is concentrated during daylight hours, leading to significant overgeneration in the afternoon and requiring large-scale storage systems to shift energy to evening and nighttime. This necessitates long-duration storage solutions, which are more expensive. In contrast, wind energy generates more evenly across the day and night, requiring shorter storage durations and reducing costs.

Solar’s variability is more abrupt due to weather changes, requiring fast-response storage systems, which are costlier. Additionally, solar faces higher seasonal variations and curtailment risks during midday peak production, further increasing the need for extensive storage capacity. Wind energy, on the other hand, often complements solar by generating at night and during seasons when solar output is low, reducing reliance on storage.

As a result, storage costs for solar & wind escalate significantly with higher penetration levels, rising from ₹ 0.80/kWh at 20% penetration to ₹2.40/kWh at 60%. (detail calculations placed in para 12 to 14)

b. Grid Integration cost= Transmission Infrastructure+ ancillary services+ curtailment     management system balancing+ forecasting and scheduling + congestion management costs.

Solar has higher grid integration costs due to its midday generation profile, more abrupt variability, and higher curtailment risks compared to wind. Wind benefits from a steadier generation profile and better spatial distribution, requiring fewer additional grid upgrades and lower balancing costs.

c. Assumptions
1. Total electricity demand: 1,000 GWh/day or 365,000 GWh/year.
2. VRE shares:
  - 20% scenario: Total VRE generation = 73,000 GWh/year.
  - 40% scenario: Total VRE generation = 146,000 GWh/year.
  - 60% scenario: Total VRE generation = 219,000 GWh/year.
3. Breakdown of VRE: Solar = 60% of VRE, Wind = 40% of VRE.
4. LCOE for Solar: ₹2.5/kWh; Wind: ₹2.8/kWh.
5. Cost Parameters:
  - Storage costs: ₹4.0/kWh for solar (6 hours storage), ₹4.0/kWh for wind (4 hours of storage required) detailed costing at Annexure-A.

    - Grid integration costs:

     ₹0.8/kWh for solar, ₹0.5/kWh for wind (20% VRE);
    ₹1.2/kWh for solar, ₹0.8/kWh for wind (40% VRE);
    ₹1.5/kWh for solar, ₹1.0/kWh for wind (60% VRE).

  - Backup costs:

     ₹1.0/kWh for solar, ₹0.7/kWh for wind (20% VRE);
    ₹1.5/kWh for solar, ₹1.0/kWh for wind (40% VRE);
    ₹2.0/kWh for solar, ₹1.5/kWh for wind (60% VRE).

11. Storage Costs Increase with Higher VRE Penetration

As Variable Renewable Energy (VRE) penetration increases from 20% to 60%, the associated storage costs grow significantly. why storage costs increase with different VRE penetration is clarified below through detailed calculations for both solar and wind energy.

12. Reasons for Increasing Storage Costs

a. Greater Variability: At higher penetration levels, the mismatch between supply and demand increases, requiring larger storage capacities to buffer the variability of solar and wind generation.
b. Longer Duration Requirements: Higher VRE penetration means storage systems must provide energy over longer periods, especially during extended low-output conditions (e.g., cloudy days, windless periods, or seasonal lulls).
c. Marginal Cost of Additional Storage: The cost of adding incremental storage capacity rises disproportionately because the storage systems must handle increasingly rare but extreme events (e.g., long periods of low generation).
d. Overcapacity to Avoid Curtailment: To minimize curtailment of surplus VRE during peak production, higher penetration levels necessitate more storage to capture and utilize excess energy.

13.Storage Cost Calculations for Solar with changing VRE share

20% VRE:
- Solar Generation = 43,800 GWh/year
- Storage Needed = 20% × 43,800 = 8,760 GWh/year
- Storage Cost = 8,760 × ₹4.0 = ₹35,040 Crore/year
- Cost Per kWh = ₹35040 ÷ 43,800 = ₹0.8/kWh

40% VRE:
- Solar Generation = 87,600 GWh/year
- Storage Needed = 40% × 87,600 = 35,040 GWh/year
- Storage Cost = 35,040 × ₹4.0 = ₹1,40,160 Crore/year
- Cost Per kWh = ₹140,160 ÷ 87,600 = ₹1.6/kWh

60% VRE:
- Solar Generation = 131,400 GWh/year
- Storage Needed = 60% × 131,400 = 78,840 GWh/year
- Storage Cost = 78,840 × ₹4.0 = ₹315,360 Crore/year
- Cost Per kWh = ₹315360 ÷ 131,400 = ₹2.4/kWh

14.Storage Cost Calculations for Wind with changing VRE Share

20% VRE:
- Wind Generation = 29,200 GWh/year
- Storage Needed = 20% × 29,200 = 5,840 GWh/year
- Storage Cost = 5,840 × ₹4 = ₹23,360 Crore/year
- Cost Per kWh = ₹23,360 ÷ 29,200 = ₹0.80/kWh

40% VRE:
- Wind Generation = 58,400 GWh/year
- Storage Needed = 40% × 58,400 = 23,360 GWh/year
- Storage Cost = 23,360 × ₹4 = ₹93,440 Crore/year
- Cost Per kWh = ₹93,440 ÷ 58,400 = ₹1.6/kWh

60% VRE:
- Wind Generation = 87,600 GWh/year
- Storage Needed = 60% × 87,600 = 52,560 GWh/year
- Storage Cost = 52,560 × ₹4.0 = ₹210,240 Crore/year
- Cost Per kWh = ₹210,240 ÷ 87,600 = ₹2.4/kWh

15. Storage costs increase with higher VRE penetration due to the need for greater capacity to handle variability and meet longer-duration requirements. For solar & wind both, storage costs rise from ₹0.8/kWh at 20% penetration to ₹2.40/kWh at 60%. This exponential rise highlights the challenges of integrating high shares of VRE into the grid and underscores the importance of technological advancements to reduce storage costs.

16. Analysis of LFSCOE with VRE Penetration

The analysis of the Levelized Full System Cost of Electricity (LFSCOE) for variable renewable energy (VRE) penetration levels, assuming a solar-to-wind ratio of 60:40, reveals critical cost dynamics. As VRE penetration rises from 20% to 60%, total electricity generation increases, with corresponding costs escalating. Solar energy incurs a higher cost share due to its 60% contribution in the mix, and storage and integration costs grow substantially with higher penetration levels.
The LFSCOE of 60:40 Solar Wind VRE increases from ₹5.22/kWh at 20% VRE to ₹8.52/kWh at 60% VRE, driven by the rising costs of energy storage, grid integration, and backup power systems. These trends highlight the necessity for a balanced strategy in renewable energy deployment. To manage costs effectively, a focus on optimizing storage technologies, enhancing grid flexibility, and implementing demand-side management is essential as VRE penetration increases.

17. Challenges and Cost Comparisons among Energy Sources

Incorporating higher levels of variable renewable energy (VRE) significantly increases clean energy generation but also leads to steep rises in system costs, particularly for storage, grid integration, and backup systems. The cost dynamics between coal, solar, and wind underscore the complexities of the energy transition:

a) Coal: With a relatively stable Total LFSCOE of ₹5.80/kWh, coal remains cost-competitive due to the absence of storage and backup requirements. However, it incurs significant environmental costs estimated at ₹1.0/kWh.

b) Solar and Wind: While solar and wind have low generation costs—₹2.50/kWh for solar and ₹2.80/kWh for wind—these escalate substantially with higher penetration levels. At 60% penetration, the Total LFSCOE reaches ₹8.4/kWh for solar and ₹7.7/kWh for wind, exceeding coal costs and highlighting the challenges of maintaining reliability at higher renewable shares.

Renewables like solar and wind exhibit economic advantages at lower penetration levels due to their low generation costs. However, the rising expenses associated with storage and grid integration make high VRE penetration economically challenging. Conversely, coal maintains stable operational costs but is less appealing due to its environmental impact. This underscores the need to balance costs by improving storage technologies and grid infrastructure to enable economically viable VRE adoption at higher penetration levels.

18. Key Takeaways for Renewable Energy Deployment

The findings highlight the need for a holistic approach to VRE adoption. A well-balanced energy strategy should focus on advancing storage technologies by developing cost-effective and efficient energy storage solutions, enhancing grid flexibility through improved infrastructure to manage variability and ensure reliability, and promoting demand-side management with measures to optimize energy use and reduce peak demand pressures. Such a comprehensive approach is crucial to mitigating cost escalations and ensuring the sustainable growth of renewable energy in the energy mix.

The analysis further indicates that renewables are cost-effective primarily at moderate levels of integration. As the share of VRE in the grid increases, their appeal as a firm and dispatchable generation source diminishes due to rising costs. This underscores the critical need for technological advancements in storage, grid integration, and balancing solutions to lower system-level costs and achieve cost parity with coal at higher levels of renewable penetration.

 While LCOE provides a simplified comparison of generation costs, it fails to capture the systemic challenges of integrating electricity into the grid. LFSCOE fills this gap by accounting for all costs required to deliver reliable, dispatchable power. As VRE penetration rises, LFSCOE becomes critical for evaluating the true economic and operational implications of different energy sources. By emphasizing LFSCOE over LCOE, informed decisions to balance affordability, reliability, and sustainability in India's energy transition can be made by stake-holders.

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Annexure- A

Calculation of Storage Costs for Solar and Wind

Following is how storage costs for solar (₹4.0/kWh) and wind (₹4.0/kWh) has been calculated, considering factors such as capital costs, operational expenses, efficiency losses, and storage duration requirements.

Assumptions

1. Grid Scale BESS Cost: =$ 150 per KWh= ₹150*86= ₹1.29 Crore/MWh for lithium-ion storage.
2. Round-trip Efficiency: 90% (10% energy loss during charging/discharging).
3. System Lifetime: 15 years.
4. Discount Rate: 6% (used to annualize costs).
5. Storage Duration: Solar requires 6-8 hours; Wind requires 4-6 hours.

Storage Cost Calculation for Solar (₹4.0/kWh)

1. Energy Stored Per Day:
  - Assume a 1 MW system with 6 hours of storage.
  - Energy stored = 1 MW × 6 hours = 6 MWh/day.
2. Total Capital Cost:
  - Cost of storage = 6 MWh × ₹1.29 Crore/MWh = ₹7.74 Crore.
3. Annualized Cost:
  - Annualization factor = 0.1057 (calculated for a 15-year system at 6% discount rate).
  - Annualized cost = ₹7.74 Crore × 0.1057 = ₹0.8181 Crore/year.
4. Efficiency Loss:
  - Efficiency loss = 10% × 6 MWh/day = 0.6 MWh/day.
  - Additional cost = 0.6 MWh/day × 365 days × ₹2.5 (solar LCOE) = ₹5.475 Lakh/year.
5. Total Cost Per Year:
  - Total cost = ₹0.8181 Crore + ₹0.05475 Crore = ₹0.87285 Crore/year.
6. Cost Per kWh:
  - Total energy stored annually = 6 MWh/day × 365 days = 2,190 MWh/year.
  - Cost per kWh = ₹0.87285 Crore/year ÷ 2,190 MWh/year = ₹3.98/kWh ~₹4/KWh

Storage Cost Calculation for Wind (₹4/kWh)

1. Energy Stored Per Day:
  - Assume a 1 MW system with 4 hours of storage.
  - Energy stored = 1 MW × 4 hours = 4 MWh/day.
2. Total Capital Cost:
  - Cost of storage = 4 MWh × ₹1.29 Crore/MWh = ₹5.16 Crore.
3. Annualized Cost:
  - Annualization factor = 0.1057 (calculated for a 15-year system at 6% discount rate).
  - Annualized cost = ₹5.16 Crore × 0.1057 = ₹0.5454 Crore/year.
4. Efficiency Loss:
  - Efficiency loss = 10% × 4 MWh/day = 0.4 MWh/day.
  - Additional cost = 0.4 MWh/day × 365 days × ₹2.8 (wind LCOE) = ₹4.088 Lakh/year.
5. Total Cost Per Year:
  - Total cost = ₹0.5454 Crore + ₹0.04088 Crore = ₹0.5863 Crore/year.
6. Cost Per kWh:
  - Total energy stored annually = 4 MWh/day × 365 days = 1,460 MWh/year.
  - Cost per kWh = ₹0.5863 Crore/year ÷ 1,460 MWh/year = ₹4.02/kWh~₹4/kWh

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 Annexure- B

LFSCOE for 20%% VRE with Solar: Wind= 60:40

Solar Costs:
- Generation cost: 43800 GWh × ₹2.5 = ₹109.5 Crore/year
- Storage cost: 20% × 43800 GWh × ₹4.0 = ₹35.04 Crore/year
- Grid integration cost: 43800 GWh × ₹0.8 = ₹35.0 Crore/year
- Backup cost: 43800 GWh × ₹1.0 = ₹43.8 Crore/year
Total Solar Cost = ₹223.34 Crore/year

Wind Costs:
- Generation cost: 29200 GWh × ₹2.8 = ₹81.8 Crore/year
- Storage cost: 20% × 29200 GWh × ₹4 = ₹23.36 Crore/year
- Grid integration cost: 29200 GWh × ₹0.8 = ₹23.4 Crore/year
- Backup cost: 29200 GWh × ₹1.0 = ₹29.2 Crore/year
Total Wind Cost = ₹157.76 Crore/year

Total Costs for 20%% VRE:
- Total VRE cost = ₹381.1 Crore/year
- Total VRE generation = 73000 GWh/year
LFSCOE = Total Cost ÷ Total Generation = ₹5.22/kWh

LFSCOE for 40%% VRE

Solar Costs:
- Generation cost: 87600 GWh × ₹2.5 = ₹219.0 Crore/year
- Storage cost: 40% × 87600 GWh × ₹4.0 = ₹140.16 Crore/year
- Grid integration cost: 87600 GWh × ₹1.2 = ₹105.1 Crore/year
- Backup cost: 87600 GWh × ₹1.5 = ₹131.4 Crore/year
Total Solar Cost = ₹595.66 Crore/year

Wind Costs:
- Generation cost: 58400 GWh × ₹2.8 = ₹163.5 Crore/year
- Storage cost: 40% × 58400 GWh × ₹3.5 = ₹93.44 Crore/year
- Grid integration cost: 58400 GWh × ₹1.2 = ₹70.1 Crore/year
- Backup cost: 58400 GWh × ₹1.5 = ₹87.6 Crore/year
Total Wind Cost = ₹416.64 Crore/year

Total Costs for 40%% VRE:
- Total VRE cost = ₹1010.3 Crore/year
- Total VRE generation = 146000 GWh/year
LFSCOE = Total Cost ÷ Total Generation = ₹6.92/kWh

LFSCOE for 60%% VRE

Solar Costs:
- Generation cost: 131400 GWh × ₹2.5 = ₹328.5 Crore/year
- Storage cost: 60% × 131400 GWh × ₹4.0 = ₹315.36 Crore/year
- Grid integration cost: 131400 GWh × ₹1.5 = ₹197.1 Crore/year
- Backup cost: 131400 GWh × ₹2.0 = ₹262.8 Crore/year
Total Solar Cost = ₹1103.76 Crore/year

Wind Costs:
- Generation cost: 87600 GWh × ₹2.8 = ₹245.3 Crore/year
- Storage cost: 60% × 87600 GWh × ₹4 = ₹210.24.0 Crore/year
- Grid integration cost: 87600 GWh × ₹1.5 = ₹131.4 Crore/year
- Backup cost: 87600 GWh × ₹2.0 = ₹175.2 Crore/year
Total Wind Cost = ₹762.14 Crore/year

Total Costs for 60%% VRE:
- Total VRE cost = ₹1918.4 Crore/year
- Total VRE generation = 219000 GWh/year
LFSCOE = Total Cost ÷ Total Generation = ₹8.52/kWh

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