Outlook for RE share in industries: 50% at competitive prices, 80% with a moderate premium, 24/7 RE is challenging

As industrial consumers shift towards RE procurement, the fundamentals of balancing supply and demand undergo significant changes, introducing new challenges that make the act of balancing more expensive. 

To explore the feasibility of balancing variable RE and industrial demand at different RE consumption levels, this chapter uses a PPA model for a renewable energy project designed to serve an industrial consumer, exploring scenarios from 50% variable RE to 24/7 variable RE supply (24/7 RE). It examines the optimal RE mix, storage requirements, and associated costs as industries inch closer toward 24/7 variable RE. 

One of the main challenges in RE procurement for industries is the temporal mismatch between when RE is generated and when industries need power across different timescales—hourly, daily, and seasonally. Most industrial consumers operate on a 24/7 basis, but solar energy is only available during daylight hours, and wind energy fluctuates across seasons. This leads to periods where either RE supply exceeds demand or demand exceeds RE supply.

Key challenges in meeting demand through RE on a 24/7 basis occur during :

• Evening and night time: Industrial demand remains constant, but solar generation drops to zero, creating a shortfall in supply. This results in an hourly-level mismatch between generation and demand throughout the day.
• Low-wind months: Wind generation fluctuates and may be too low to meet industrial demand, leading to seasonal supply gaps. This causes a mismatch not only at an hourly level but also at a monthly level, where total generation over the month falls short of total demand.

To address this mismatch, consumers must either:

• Shift generation to times of higher demand (e.g., using grid banking or energy storage).
• Shift demand to align with RE generation (e.g., through demand response programs).
• Build a higher capacity of RE, which may lead to excess generation in non-lean RE generation blocks that has to be sold elsewhere.

However, since the type of industrial consumers we examine in this study require continuous power, the potential for demand-side flexibility is fairly limited. Instead, industries must rely on grid banking and storage mechanisms while also incorporating a much higher RE generation capacity in their RE procurement strategies for higher RE consumption levels.

Conceptualising the challenges of balancing RE supply and demand

Balancing renewable energy (RE) supply with firm industrial demand presents two major challenges. 

First, the monthly variation in RE generation (green curve) fluctuates across months, with higher generation in some periods and lower in others. This surplus often needs to be sold at lower prices, impacting revenue realisation. In the absence of cost-effective long-duration energy storage, industries must install higher RE capacity to maintain a steady RE share throughout the year, leading to surplus generation during high-resource months (e.g., May–July). 

Second, daily variability in RE generation creates further mismatches, as RE generation peaks during the day while industrial load remains relatively stable. This results in surplus generation during peak RE hours (midday) and shortfalls during evening and nighttime hours. To address this, battery storage is necessary to shift excess generation to match demand.

The technical and financial viability of sourcing a certain share of RE is constrained by two key factors: surplus generation, which may need to be sold at lower prices, and the need for storage, which would increase costs. These challenges would intensify as the need for RE penetration rises, making balancing increasingly critical at higher RE procurement levels.

Sourcing half of the electricity from variable RE is viable for industries today

Sourcing half of an industry’s electricity from variable renewables is viable today—marking the first stretch toward achieving 24/7 renewable energy

By 2030, various entities—including distribution companies (Discoms), open-access consumers, and captive power producers—will be required to source approximately 43% of their total electricity consumption from RE, including wind, solar, and hydro, as per the Renewable Purchase Obligation (RPO) norms. As industries work toward increasing RE procurement, understanding the practical implications of higher RE shares becomes essential.

This section explores the technical feasibility and financial viability of sourcing 50% of industrial electricity demand with RE in 2024. In this scenario, we model an industrial electricity consumer with peak demand reaching 500 MW and minimum demand rarely dropping below 350 MW throughout the day and across seasons.

The analysis uses Ember’s RE PPA model, which optimises the capacity of solar, wind and battery storage to match a given demand profile.  About 571 MW from solar and 223 MW from wind would help meet 50% of an industrial consumer’s electricity demand with RE, , without needing battery storage

With a peak demand of 500 MW and a load factor of over 80%, this demonstrates that achieving 50% RE does not require excessive oversizing. Particularly considering that the CUF of solar is below 25% and wind is slightly over 30%.

At this level of RE penetration, the key challenges of managing seasonal surplus and daily variability are minimal.

The figure below illustrates the net load (load minus RE generation) for each hour in a year for an industrial consumer sourcing 50% of its annual electricity demand from RE on an annual basis. Additionally, it provides an hourly snapshot of demand-supply balancing during both high and low RE generation days, highlighting the variability in RE generation and its impact on industrial electricity consumption.

Banking is a viable strategy to absorb excess generation to reach the 50% RE mark

Since instances of excess generation are rare, the need to sell surplus electricity at lower prices is largely a non-issue. Instead, banking remains a viable option, as current regulations allow consumers to bank up to 30% of the electricity purchased from the grid.

Given that 50% of total demand is sourced from RE, this means that equivalent of 15% of total demand (i.e., 30% of 50%) can be banked. This capacity is more than sufficient to absorb the occasional instances of over-generation, ensuring that excess electricity is efficiently utilised rather than sold at lower prices. For reference, the highest quantum of banking occurs in May, where less than 6% of the total electricity purchased from the Discom is banked in this scenario, demonstrating that banking remains well within allowable limits.

As seen in the figure, even during months of higher generation from solar and wind, the total generation does not exceed demand on a monthly aggregate level. The net load curve remains mostly positive, indicating that generation rarely surpasses consumption.

Rare instances of excess generation while sourcing 50% RE after banking

One major concern to meet RE share is that there may be instances of overgeneration. Which has to be sold elsewhere and can potentially impact the LCOE of the useful electricity supplied. But in this scenario, instances of over-generation after banking are rare. Moreover, the net load curve remains mostly positive, indicating that generation exceeds demand only for a few instances in a year. Even when over-generation does occur, it is infrequent and limited in magnitude. On rare occasions when generation exceeds demand, the excess electricity can be banked and utilised within the same month, ensuring utilisation in other time periods.

For most of the time—especially during months of low wind and solar generation—the shortfall in RE supply is met by the grid.

Batteries aren’t a necessary to reach 50% RE

Meeting up to 50% of demand from variable RE allows industrial consumers to optimise variable RE consumption while maintaining flexibility to source the remaining electricity from other suppliers, such as DISCOMs. This flexibility is particularly valuable during periods when RE procurement is costly, such as night-time or months with lower wind generation. Consequently, optimising the mix of solar and wind may be an important consideration for industrial consumers.

Industrial consumers can meet around 50% of their total electricity consumption from RE without requiring battery storage. Having an optimal mix of solar and wind manages the variability of RE generation.

Since 50% of electricity must be met by variable RE on an annual level, both intra- and inter-annual variations can be fairly managed to maintain this target from year to year. If solar or wind output falls short at certain periods of times, these shortfalls can be offset by periods of higher-than-expected generation. This balancing effect ensures that, on an annual basis, approximately 50% of electricity can be sourced from RE without the added cost of storage infrastructure. Similarly, while years with low wind and solar generation may impact the ability to meet the target, the RE mix ensures that years where both solar and wind are low will be relatively rare, helping to maintain overall RE contribution.

Why balancing 50% renewable energy isn’t an issue

• Over-generation concerns are minimal as the net load curve remains mostly positive, meaning variable RE generation rarely exceeds demand, reducing the need to sell surplus electricity at lower prices.
• When over-generation occurs, it is infrequent and limited in magnitude.
  • Excess electricity can be banked and utilised within the same month, ensuring effective use.
  • Current regulations allow banking of up to 30% of grid-purchased electricity and since 50% of demand is purchased from the grid (Discom), 15% of total demand can be banked
• During low wind and solar months, shortfalls are met by the grid, ensuring reliability.
• On a monthly aggregate level, total generation does not exceed demand
• There are days when RE meets a significant portion of demand (up to 80%) and days when it meets far less (<25%), but on an annual aggregate level, it accounts for 50% of total demand.

Balancing gets harder closer to 24/7 RE, with steep challenges only beyond 80% RE

When referring to 24/7 RE supply, we define it as a scenario where every kilowatt-hour (kWh) of electricity consumption is met exclusively through a combination of solar, wind, and storage. While hydro is a renewable source, it is not considered in this report. The overall framework is broadly similar to the principles of the 24/7 Carbon-Free Energy (CFE) procurement framework.The mechanism we model for achieving this is 24/7 clean power purchase agreements (PPAs) for renewable energy procurement. 

While achieving 24/7 RE procurement is technically feasible, two key challenges limit its financial viability. The first is the seasonality of solar and wind generation, which requires oversized RE capacity to ensure that demand is met even in low-resource months. This leads to excess generation during high-resource months, where the surplus energy often has to be sold at a lower price, reducing financial returns. The second challenge is the daily variability of renewable energy, where variable generation throughout the day may not align with industrial demand. The overlap between generation and demand observed earlier is insufficient to achieve 24/7 RE supply. This misalignment necessitates storage solutions to balance supply and demand, increasing the overall cost of electricity procurement. As RE penetration increases, these constraints become more significant, making financial viability a key concern.

Seasonal variation remains a significant technology constraint that cannot be fully addressed with existing solutions. Lithium-ion battery energy storage systems (BESS) are effective for short-duration balancing but are unsuitable for seasonal storage due to high costs and limited energy capacity. Addressing this challenge requires storage technologies that can decouple energy capacity from power capacity, enabling cost-effective, long-duration storage. Among emerging solutions, flow batteries present a promising alternative to lithium-ion systems, offering scalable storage that can better support the seasonal and daily balancing required for 24/7 RE procurement.

Understanding and addressing these challenges is crucial to making 24/7 RE a viable and cost-effective alternative in the near future.

24/7 variable RE is technically achievable but requires significant storage addition and RE oversizing

This section examines a strategy to procure 24/7 renewable energy (RE) and assesses its financial viability for an industrial consumer. We consider the same case as discussed earlier, where electricity demand remains relatively stable, peaking at 500 MW and not dropping below 350 MW throughout the day and across seasons. Given this consistent load profile, an optimised supply mix has been identified to efficiently meet the 24/7 RE requirement while minimising cost implications.

When we look at the net surplus and net deficit in generation across different timescales, we find that the scale of surplus generation is significant—while peak demand is 500 MW, solar generation can reach around 3 GW, meaning generation is occasionally up to 6 times higher than demand. This highlights the challenges of balancing supply and demand on both high and low renewable generation days.

In the 50% RE procurement scenario, the capacity mix consisted of 572 MW of solar and 224 MW of wind, with wind contributing approximately 30% of total RE generation. However, in the 24/7 RE procurement scenario, the mix and overall capacity changes significantly:

• Solar capacity increases to 2,443 MW,
• Wind capacity drops to just 37 MW, reducing wind’s share to around 1% (in capacity terms),
• A significant portion of demand is met through battery storage, which increases to a massive 2,753 GW-4hr capacity.

This shift underscores the heavy reliance on solar generation and storage to ensure continuous renewable energy supply in a 24/7 framework.The current strategy for achieving 24/7 RE procurement relies on oversizing solar capacity, generating substantially more electricity than is needed on both a daily, monthly and annual basis. 

While in the 50% RE procurement scenario, instances where RE generation exceeded demand were relatively rare in the 24/7 RE procurement scenario, there is consistent overgeneration during solar hours.

As shown in the figure, even during months with lower solar generation, monthly aggregated solar generation frequently exceeds monthly aggregated demand. This overgeneration ensures that there is sufficient energy availability to optimally manage intra-day variability, and supply storage losses.

As RE penetration increases, balancing supply and demand becomes progressively more challenging due to the variability of solar and wind generation. Different balancing mechanisms—such as banking, battery storage, and selling surplus electricity—play varying roles depending on the share of RE in total consumption. This section explores how these mechanisms function at different penetration levels and highlights key constraints that impact their effectiveness.

Managing the integration of higher shares of variable RE requires addressing several important factors. One challenge arises when electricity production exceeds demand, leading to surplus energy that must either be curtailed or redirected elsewhere. Storage solutions, while helpful, introduce efficiency losses during charging and discharging cycles, reducing the overall available energy. The extent to which renewable energy is effectively utilised depends on the ability to align generation with demand, either in real-time or through stored reserves, making these variables critical in ensuring a stable and cost-effective transition to higher RE adoption.

As RE share increases, balancing becomes harder. Banking is instrumental in reaching a certain RE share; storage necessary beyond that. 

Beyond 50% variable RE, the utility of banking declines — Energy banking cannot be a substitute for storage

Due to grid banking restrictions, particularly around the quantum that can be banked, banking as a mechanism to balance demand and variable renewable energy (VRE) supply cost-effectively is limited for RE procurement beyond 50%. The quantum of banking allowed is directly linked to the consumption from DISCOMs, as banking is typically permitted for at least 30% of the total monthly consumption from the distribution licensee. As VRE consumption increases, the proportion of electricity sourced from DISCOMs decreases, thereby reducing the quantum of energy that can be banked. This limitation restricts the ability of industrial consumers to use banking as a mechanism to shift generation effectively, as the share of their consumption/sourcing from RE increases.

Additionally, beyond a certain threshold, costs mainly start increasing due to two reasons.

1. Limited compensation for excess banked energy, typically 75% of the last discovered solar tariff by DISCOMs. This could be 45% lower than the tariff the consumer is paying to the generator for electricity.
2. Banking charges, often 8% of banked energy or additional per-unit withdrawal fees.

Assuming that the 30% quantum limit on monthly banking applies, the feasible size of solar capacity to meet a peak demand of 500 MW is up to 1 GW. This results in a solar capacity-to-peak demand ratio of 2.

Beyond this point, further increases in RE capacity result in only marginal increase in RE penetration while significantly increasing costs due to banking challenges in managing surplus energy. Excess generation beyond the banking limit must either be curtailed or sold at lower prices, reducing the cost-effectiveness of additional RE capacity.

Our analysis indicates that increasing the banking quantum limit would have the greatest impact on raising RE’s share in consumption. However, it is unlikely that DISCOMs will permit this, given the potential financial impact of this.

Additionally, any excess electricity that surpasses the banking limit is typically purchased by DISCOMs at 75% of the tariff at which they have recently signed a solar power purchase agreement (PPA). This means that the financial loss on each unit of surplus electricity sold could be as high as 40%, further diminishing the financial viability of expanding RE capacity beyond a certain threshold.

While banking helps manage excess generation, it should not be considered a replacement for storage. Banking is most effective for balancing uncertainties in solar and wind generation, allowing for adjustments within a monthly cycle by offsetting excess generation. Energy banking would not be very effective in balancing monthly variations in demand and supply mismatch.

Oversizing of solar and large-scale storage deployment becomes the primary strategy for achieving 24/7 RE

As the renewable energy share rises beyond 65%, storage requirements begin to grow rapidly. Up to this point, minimal or no battery capacity is needed, with zero storage required below 65% RE share. However, beyond 75%, battery capacity expands significantly—from 252 MW (4hr) at 75% RE to 899 MW at 90%, and then surges to 1,256 MW at 97%. To achieve 24/7 RE, storage requirements reach 2,753 MW, nearly matching the solar capacity, which also increases to 2,443 MW, while wind drops to just 37 MW.

Moderate oversizing and small battery capacity can enable up to 75%-80% renewable energy penetration for industries

As renewable energy penetration increases beyond 50%, the optimal share of wind in the generation mix initially rises, peaking around 65% RE share. Beyond this point, wind’s role begins to decline. By the time the system reaches 90% RE, wind contributes only marginally. In a conservative scenario, a balanced mix of solar and wind can supply up to 65% of electricity demand without the need for storage. However, beyond this level, storage becomes necessary to manage variability and ensure reliability. Battery capacity grows steadily after 65%, increases significantly beyond 90%, and rises sharply after 97%, as the system relies heavily on solar oversizing and storage to deliver a stable 24/7 renewable energy supply.

50% RE Penetration

• The overlap between generation and demand is sufficient with an optimal mix of solar and wind (estimated at 30% of total RE capacity).
• Minimal excess generation occurs, as supply rarely exceeds demand.
• Banking serves as a useful mechanism to manage minor mismatches between generation and demand without requiring significant storage.

75% RE Penetration

• Excess generation becomes more frequent, necessitating the sale of surplus electricity.
• Limited use of banking due to regulatory constraints
• Battery storage begins to play a larger role, now comprising 20% of total system power capacity, though storage losses remain minimal in the overall balancing mix.

100% RE Penetration (24/7 RE Supply)

• Massive oversizing of solar and storage is required to ensure continuous supply.
• Wind capacity becomes less useful beyond 50% RE penetration, as solar dominates the mix at higher RE levels.
• A significant scale-up in RE capacity is necessary—almost 3× the capacity required for just a 2× increase in RE supply (from 50% to 24/7 RE).
• Storage capacity requirements grow exponentially, reaching nearly 2,800 MW, to manage intermittency and ensure reliability. 
• The final 3% of demand is the hardest to meet, requiring disproportionately high storage investments, making cost and efficiency critical challenges in achieving 24/7 renewable energy.
• Banking cannot be availed at 100% RE penetration

Increasing RE share from 50% to 80% comes at a moderate premium, while achieving 24/7 RE can cost up to 3.5x the cost of RE generation

Sourcing 50% renewable energy is already cost-effective for heavy industries in India. Scaling up to 80% RE penetration leads to a modest cost increase of up to 1.4X the cost of RE generation, primarily driven by storage requirements and the challenge of managing surplus electricity, which is often sold back to the grid at prices lower than the cost of generation. Increasing RE penetration to 90% raises costs to around 1.6X the cost of RE generation. At this stage, the system becomes increasingly reliant on battery storage, though the cost premium may still be manageable for some consumers. However, reaching 24/7 RE poses a significant financial hurdle—achieving just the final 1% of RE penetration increases the cost of supply by at least ₹2.5/kWh, a 41% jump. While losses from selling excess electricity are not a major concern at assumed market prices (₹1.8/kWh), they could become more significant if prices fall—or provide cost relief if  prices rise. The cost of 24/7 renewable energy ranges from ₹8 to ₹11 per kWh, with an average estimate of ₹9.5 per kWh.

Green tariffs have the potential to transform Discoms’ role

Green tariffs can complement open-access RE procurement, particularly in achieving 24/7 RE. While industries can source up to 70% of their RE needs through open access at competitive rates, the remaining 30% often comes at a higher cost due to storage expenses and losses associated with selling excess power. Using green tariffs to meet this last portion of demand offers a cost-effective solution, eliminating the complexities of balancing demand with variable RE supply.

However, if electricity consumption is concentrated in high-cost periods—such as seasonal lows in generation or night hours—discoms may increase premiums on green tariffs. While the combination of open-access RE and green tariffs is currently the most cost-effective approach for industries to achieve 24/7 RE procurement, this strategy may become less effective over time. As discoms move toward cost-reflective pricing, green tariff charges may more accurately reflect the actual cost of supply, making it unsustainable to rely solely on buying power during hours when RE PPAs don’t supply.

Despite this, green tariffs have the potential to become a dominant mechanism for RE sourcing and redefine the role of DISCOMS in the process in the future due to the following advantages:

• Addressing Discoms’ pushback – Discoms often resist open-access RE as they risk losing high-paying industrial consumers. Green tariffs provide an alternative mechanism that allows industries to procure RE without bypassing discoms, mitigating revenue losses for utilities while enabling a smoother transition to higher RE adoption.
  
• Cost reduction through aggregation – Large-scale aggregated green tariff programs—where multiple consumers and RE generators (including storage) participate—help lower costs. A single buyer relying on a PPA with limited generators must oversize capacity for reliability, increasing costs and leaving surplus power that is hard to monetise. Aggregation, however, balances diverse demand profiles with a mix of RE sources, reducing the need for oversizing, optimising procurement, and minimising excess generation risks. Moreover, Discoms can procure RE from multiple locations, enhancing the geographical spread of generation and improving supply reliability.
• Simplified procurement for industries – Open-access RE purchases require significant administrative and technical expertise, which is not a core function for most companies. Discoms, however, already possess these capabilities, making green tariffs a simpler option for industrial consumers.

What can be a realistic target for maximising RE consumption today

Sourcing 50% of electricity from RE is already cost-competitive for industrial consumers in India. A noticeable cost premium begins to emerge only after 65% RE share, when storage becomes necessary to maintain supply reliability. Even so, a moderate premium—up to 80%—may be acceptable for many industries committed to decarbonisation, offering a realistic near-term target for heavy industry. Costs remain relatively manageable up to 90% renewable energy, but reaching the final 5% becomes prohibitively expensive due to steep increases in storage requirements and generation overcapacity.