Cost of avoided carbon: Optimizing power supply in southern India

Southern India houses over 49% of the country’s total renewable energy capacity. This paper analyses the power supply situation in the region for 2018 to evaluate the impact of renewable energy policies on energy costs and the resulting cost of avoided carbon, using an optimisation model built in GAMS. Results show that the cost of absorbing renewable energy due to the ‘must run’ policy for solar and wind plants ranges from $1.9/tCO2 to $4.5/tCO2 across states, over and above the $5/tCO2 carbon tax levied through the coal cess, with total additional cost due to this policy ranging from $200 to $350 million/year. Inter-regional transfer of renewable energy after meeting mandated Renewable Purchase Obligations is suggested as a possible route to reduce the financial burden on distribution utilities, potentially reducing unit energy costs by 1-7% across states. Validation against 2018 data suggests regulatory constraints and policy interventions have reduced the solution space for cost-based optimisation in Southern India.