Grid integration guarantee: a financial buffer to address renewable energy curtailment

The infrastructure, regulation, and policy for the
effective integration of renewable energy (RE) is,
increasingly, proving to be inadequate in India and
the world. It is symptomised by the curtailment or
backing down of RE generation. The curtailment of
RE generation results in the inefficient utilisation of
installed RE capacity and lower than expected returns
for developers and investors. The declining viability of
projects with the backdown could potentially result in
stressed assets for banks and, more importantly, equity
investors. But there is no de-risking mechanism. A new
and robust technical and regulatory paradigm is needed
for the integration of renewables is an urgent, interim
solution so that curtailment does not make existing and
upcoming projects unviable.
The proposed solution, a grid integration guarantee
(GIG), offers cover against tail-end curtailment risk
with market-reflective pricing. The use case has been
designed for the state of Gujarat, using data for solar
and wind generation spanning January 2015 to July 2017.
At different sites, the premiums for covering 100 per
cent of the tail-end curtailment risk varied between 6
per cent and 29 per cent, indicating that the severity of
curtailment risk is localised.