Umair Gaines
The concept of banking electricity, also known as energy banking, was introduced by the state of Tamil Nadu in 1986 to promote captive wind energy projects. It involves storing excess energy generated and withdrawing it whenever needed, similar to how money is deposited and withdrawn from a bank account. This system aims to prevent revenue loss for generators by avoiding surplus energy going to waste. The term 'banking of electricity' also refers to the inter-state exchange of electricity between grid-connected entities on mutually agreed terms.
Banking of Electricity
| Characteristics | Values |
|---|---|
| Definition | The concept of banking electricity is analogous to depositing money in a bank and withdrawing it whenever required. |
| Objective | To save and store excess electricity generated but not consumed. |
| Functioning | The generator can bank the energy with (or supply it to) the electricity distribution company (discom), which in turn supplies it to its consumers at an applicable tariff. |
| Applicability | Applicable to renewable energy sources such as wind and solar projects. |
| Charges | Banking charges are levied upon the renewable energy (RE) generator for the energy banked and are paid to the discom. These charges are determined by state electricity regulatory commissions and are typically paid in kind or cash, depending on state regulations. |
| Period | The banking period refers to the settlement period for energy banked with the discom. |
| Introduction | Introduced by the state of Tamil Nadu in 1986 to promote wind energy generation. |
| Regulatory Body | The Electricity Act of 2003 is the primary statute governing energy laws in India. |
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What You'll Learn
Renewable energy banking
The concept of "banking" in the context of electricity refers to the storage and withdrawal of excess energy generated during periods of low consumer demand. This process is similar to depositing money in a savings account and then withdrawing it when needed. The state of Tamil Nadu in India first introduced electricity banking in 1986 to promote wind energy generation and ensure the commercial viability of wind projects.
In the context of investment banking, renewable energy banking involves advising companies in the renewable energy sector on financial matters, mergers and acquisitions, capital raising, and risk management. Investment banks help companies in the solar, wind, biofuel, storage, battery, smart grid, electric vehicle, hydrogen, hydroelectric, and carbon capture industries navigate the challenges of transitioning to a low-carbon future.
The renewable energy sector offers diverse deal activity for investment banks, including asset acquisitions, equity offerings, and initial public offerings (IPOs). However, it is highly dependent on government policies and macro-economic conditions. Investment banking in this sector requires a generalist technical skill set and a good understanding of the renewable energy industry, including knowledge of solar and wind assets, batteries, and power storage.
Overall, renewable energy banking plays a crucial role in promoting the development and utilization of renewable energy sources, helping to balance energy supply and demand, and facilitating the transition to a more sustainable and low-carbon energy future.
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Energy generation and storage
The Appellate Tribunal for Electricity (APTEL) defines energy banking as analogous to a savings account. A customer deposits money, which the bank lends to others at an interest rate, and the customer can withdraw it at their convenience. Similarly, a wind or solar project may produce excess energy when consumer demand is low. Instead of losing this surplus energy, the generator can "bank" it with the electricity distribution company (discom), which then supplies it to consumers at the applicable tariff. This mechanism ensures the efficient use of renewable energy sources and prevents revenue loss for generators.
The process of energy banking involves storing the excess energy generated in a suitable form for later use. This can be done through various methods, such as pumped hydro storage, compressed air energy storage, or battery storage systems. By banking energy, generators can smooth out the intermittent nature of renewable energy production and match it with consumer demand. This reduces waste and improves the overall stability of the electrical grid.
Energy banking also has financial implications. The licensee or banker of electrical energy earns interest on the banked energy, similar to how commercial banks operate. Banking charges are levied on the renewable energy generator for the stored energy and are typically paid to the discom according to state regulations. These charges help cover the costs of energy storage and distribution.
The development of energy banking systems is essential to meet sustainability goals and international commitments, such as the United Nations Sustainable Development Goal 7 and the Paris Agreement. By encouraging the utilisation of renewable energy sources, energy banking can contribute to a more sustainable and resilient energy landscape. However, the implementation of energy banking also faces challenges, including the need for focused legislative and executive efforts to address issues related to grid connectivity and the integration of renewable energy sources.
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Energy exchange between grid-connected entities
The concept of banking electricity was introduced by the Tamil Nadu Electricity Board in 1986 to encourage the generation of wind energy. It is similar to depositing money in a bank and withdrawing it whenever required. The idea is to save and store the excess electricity generated but not consumed. This excess energy can be deposited in a 'bank' and used when electricity production is insufficient.
The Appellate Tribunal for Electricity (APTEL) explains that banking of electricity is analogous to a savings account in a financial bank. A customer deposits money in a bank's savings account, which the bank lends to other customers at an interest rate. The customer can withdraw the money from the bank at their convenience. Similarly, a captive or third-party open-access wind (or solar) project may generate excess energy during times of low consumer load. The generator can bank the energy with (or supply it to) the electricity distribution company (discom), which then supplies it to its consumers at an applicable tariff.
The concept of banking electricity is essential to enable the commercial viability of wind projects. The quantum of wind energy generated varies during the day and season to season, often not matching the load profile of the consumer. This results in surplus energy, which, if not consumed instantly, would be lost, leading to a revenue loss for the generator.
The term 'banking of electricity' includes transactions for the interstate exchange of electricity between two grid-connected entities, either directly or through a Trading Licensee. It involves the exchange of electricity for electricity between two grid-connected entities, directly or indirectly, on mutually agreed terms.
The Electricity Act mandates state electricity regulatory commissions (ERCs) to promote cogeneration and the generation of electricity from renewable sources by providing suitable measures for grid connectivity and the sale of electricity to any entity. It specifies that a percentage of the total consumption of electricity in an area should be from a distribution licensee for the purchase of electricity from renewable sources.
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The role of Electricity Regulation Commissions
The concept of banking electricity involves storing excess energy generated for use at a later time, much like how money is deposited in a bank savings account and withdrawn when needed. This concept was introduced in Tamil Nadu, India, in 1986 to promote wind energy generation and has since been adopted by other states with a surplus of energy production.
In India, the Central Electricity Regulatory Commission (CERC) is a key player in the regulation of the electricity sector. The CERC issues regulations and amendments that govern various aspects of the electricity market, including connectivity, cross-border trade, and the appointment of consultants. The CERC also oversees the payment of fees and surcharges, mandating that they are made through the online Payment Gateway per the CERC (Payment of Fees) Regulations, 2022 (Third Amendment).
At the federal level in India, the Federal Energy Regulatory Commission (FERC) serves as the economic regulator for the interstate transmission of electricity. The FERC regulates wholesale electricity transactions, sets reliability standards for the bulk power system, and licenses hydroelectric projects. It ensures that wholesale rates are "just and reasonable" and not "unduly discriminatory or preferential." The FERC's decisions can impact the environment, influencing which power plants are constructed.
State Electricity Regulatory Commissions (SERCs) also play a vital role in the banking of electricity. They are responsible for determining banking charges levied on renewable energy generators for the energy banked. These charges are typically paid in kind or cash, depending on the state's regulations. SERCs also oversee the settlement period for energy banked with the distribution company.
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Energy banking charges
The concept of banking electricity, or energy banking, was introduced by the state of Tamil Nadu in 1986 to promote captive wind energy projects. It is a short-term alternative that encourages the generation of renewable energy. The process involves storing excess energy generated and withdrawing it whenever needed, similar to how a customer would deposit and withdraw money from a savings bank account.
The term 'energy banking' refers to an arrangement where surplus power generated in a particular period is fed into the grid, or 'banked'. This banked energy is then supplied back to the grid during periods of low renewable energy generation. The generator can bank the energy with an electricity distribution company (discom), which then supplies it to its consumers at an applicable tariff.
While the concept of energy banking is simple and understandable, the costs and charges associated with it are more complex. There are various 'banking charges' levied upon the renewable energy (RE) generator for the energy banked. These charges are paid to the discom and are determined by state electricity regulatory commissions. The RE OA Rules recognise the importance of banking and make provisions to ensure the banking facility for RE open-access consumers. One of the rules states that:
> "Banking shall be permitted at least on a monthly basis on payment of charges."
The banking charges can be paid in kind, with a share of the banked energy, or in cash (Rs/KWh). These charges vary across states and may be different for solar and wind projects. While some states have started to withdraw the banking facility or increase charges due to the increasing share of RE in the grid, others are working on creating a more focused legislative and executive effort to strengthen the renewable energy banking system.
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Frequently asked questions
The banking of electricity is the process of storing excess electricity generated but not consumed. This is done by depositing the energy in a 'bank' like a unit and then withdrawing it when electricity production is insufficient.
The concept of banking electricity is similar to depositing money in a bank and withdrawing it when required. The energy generated can be deposited with an electricity distribution company (discom) which then supplies it to its consumers at an applicable tariff.
The quantum of wind energy generated varies notably during the day and season to season. This leads to excess energy generation which, if not consumed instantly, would be lost, resulting in a revenue loss for the generator.
The concept of banking electricity was first introduced by the Tamil Nadu Electricity Board in 1986 to encourage the generation of wind energy.
