Punjab Regulatory takes Strict note on RPO complaince of PSPCL

The PSERC (Punjab Electricity Regulatory Commission) in response to a petition filed by Punjab State Power Corporation Limited (PSPCL) pertaining to RPO compliance of FY 2014-15, in which the PSPCL has requested before the commission for carrying forward the compliance of RPO to next financial year (FY 2015-16).

Earlier the commission provided carry forward to the PCPCL for unmet RPO of FY 13-14 to FY 14-15 which were be met along with the RPO for FY 2014-15. PSPCL in its petition provided the status of its RPO compliance for FY 14-15 including for FY 2013-14, which is given in the table below:

PSPCL in its petition for carry forward of RPO cited various reasons for non-compliance of RPO. The reasons cited by PSERC were:

  1. Delay in the commissioning of the Project during FY 14-15.
  2. Financial constraints to purchase RECs.
  3. And also stated that it was due to factors beyond control of PSPCL and RPO targets being set by the commission are unachievable.

PEDA in its submission stated that PSPCL misconstrued the RPO targets fixed by commission, as RPO targets can be met through alternate channels and not only by way of RE purchases.

The commission in its order stated that it does not accept that the RPO targets were unachievable and that the shortfall in compliance was not out of control. The commission also stated that it does not accept the argument of alleged financial constraints of PSPCL and its inability to purchase RECs.

The commission also cited the APTEL Judgment which has issued directions to State Electricity Regulatory Commissions and Joint Electricity Regulatory Commission to enforce RPO, and Thus the Commissions are bound to enforce their respective RPO Regulations.

The commission in its judgement has provided the carry forward to FY 15-16 and has taken strict not for the Non-compliance of the RPO, directing the PSPCL to comply with the RPO obligations latest by 30th Dec 2015 and communicated that failing which further action as per Regulations may be initiated.

REC Trade Results July 2015

July’s trading session saw a stagnant response from the demand side. Though, the current demand while comparing it to previous year’s session of July was 3 times higher in Solar and 5 times in Non Solar segment, it indicated a lower compliance when comparing it to trading sessions of 2015. A sum total of 173,223 Lakh RECs were redeemed in this session. Demand took a fall of approx. 5 % w.r.t June.  The demand in last two trading sessions was due to the judgment by Supreme Court.

 Analysis of Trading:-

 Non Solar – Clearing ratio in exchange were at 1.33% and 1.15% in IEX and PXIL respectively for Non Solar RECs. A total of 155,271 RECs were redeemed in this trading session. There was seen a fall of approx. 4 % in the current trading session w.r.t to June in Non Solar RECs.

 Solar – Clearing ratio stood at 0.84% and 0.29% in IEX and PXIL respectively. Solar RECs remained at 17,952, which is a show towards a downfall in the demand in the solar RECs segment; it shows a fall of 5640 RECs from June trading session.

Over the longer term, increasing focus on RPO both from the courts and from regulators is expected to increase demand. Over the last many months several developments have taken place including the draft Electricity Act, orders from the ApTel and from the Supreme Court. The most recent development was the release of the draft of Renewable Energy Act 2015. An analysis can be read here.

Team REConnect

Maharashtra Renewable Energy Policy 2015

Maharashtra Government has finalized its final Renewable Energy Policy. The policy will be known as Maharashtra Renewable Energy Policy 2015. Regional committee will be established to monitor the overall progress of the policy and will be headed by the principal secretary of energy. The brief details of the guidelines and targets defined in the policy are given in the below-mentioned points:

Targets: The new policy announced, has set some ambitious targets for different Renewable Energy sources. The targets defined under the policy are listed in the table below:

Project Specific Guidelines and Incentives:

1. Wind Energy: A total of 5000 MW capacity of wind energy projects shall be commissioned, out of that initial 1500 MW will be used to fulfil RPO of distribution companies and the rest 3500 MW capacity of wind project can be utilized open access for interstate/ intrastate open access/captive consumption/REC etc.

Incentives:

  1. Wind generators will be given permission for re-powering.
  2. Land acquired for commissioning of the wind project will be deemed as Non-Agricultural land.
  3. Concessions will be granted for these projects to get NOC from pollution control board.
  4. Supervision charges for grid evacuation will be waived off.
  5. Wind energy projects can register themselves as industrial unit.

2. Sugarcane /Agricultural co- generation projects: Target of 1000 MW has been set for power generation through sugar co-gen/agricultural co-gen projects. Distribution companies shall have first right to fulfil their RPO at fix rate decided by MERC.

Incentives:

  1. Exemption from Supervision charges for grid evacuation.
  2. Exemption from E-duty for captive power plants for 10 years from the date of commissioning
  3.  Exemption from sales tax on purchase of sugarcane for all projects having capacity more than 3MW (35 lacs units).
  4. Promotional elements will be applicable on project which has got consent for infrastructure after the announcement of policy.
  5. MahaGenco will give consent for basic infrastructure and evacuation facility to establish co-gen project

3. Small Hydro projects: A target of 400 MW is set up for small Hydro projects. All the small hydro projects will be obligated to sale power firstly to any distribution company within Maharashtra so that they can fulfil their RPO at rates prescribed by MERC, after this they can go on interstate /intrastate third party power sale through REC route.

Incentives:

  1. Exemption from E-duty for captive power plants for 10 years from the date of commissioning
  2.  Promotional elements will be applicable on project which has got consent for infrastructure after the announcement of policy.
  3. MahaGenco shall give subsidy of Rs.50000 per KW to maximum up to Rs. 1. Cr from green energy fund.

4. Agricultural manures based power generation projects: Target of 300 MW is set up for Agricultural manures based power generation projects. MSETCL/MSEDCL will help developers with grid evacuation of LV/HV/EHV projects and Grid.

Incentives:

  1. Exemption from E-duty for captive power plants for 10 years from the date of commissioning.
  2.  Promotional elements will be applicable on project which has got consent for infrastructure after the announcement of policy.
  3. All projects shall get capital subsidy up to 1 Cr from green energy fund.

5. Solar Power:  A total of 7500 MW of Solar energy projects shall be commissioned, out of that 2500 MW will be used to fulfil RPO through Public private partnership in association with MahaGenco. And rest 5000 MW will be developed by other developers.

  1. A total 10 % of all PPP projects i.e. 250 MW will be established on canals, lakes and irrigation project. Minimum of project capacity will be 1MW.
  2. Minimum of project capacity will be 1MW.
  3. Development of Solar Park.

Incentives:

  1. Land acquired for solar projects will be granted deemed status of Non-agricultural land.
  2. Solar projects having capacity up to 2 MW can be given land 4 hectors as per availability and 50 % discount shall be given on rental/ lease charges. All such transactions will be governed as per Maharashtra land acquisition act.
  3. Government land if available requires for manufacturing of solar modules/panels/etc. shall also be given 50 % discount on lease/rental charges.
  4. Concessions shall be granted for these projects to get NOC from pollution control board.
  5. Solar project developers can sell electricity generated from solar projects to distribution companies /captive use/third-party sale/ REC.
  6. Open Access shall be granted for interstate as well as intrastate projects as per MERC regulations
  7. Exemption from Supervision charges for evacuation.
  8. Projects can register themselves as industrial units.
  9. Exemption from E-duty for captive power plants for 10 years from the date of commissioning.
  10. Developers will be given the necessary support for development solar projects, but there will separate provisions for interstate power transfer.

The Policy Document can be accessed here.

PSERC Finalizes RE Tariff for FY 15-16

The PSERC (Punjab Electricity Regulatory Commission) on 24th July 2015 has finalized the tariff for Renewable Sources of Energy. The tariff will be applicable for the projects to be commissioned during the year 2015-16. Previously in the May 2015, the commission notified a draft for the determination of the RE tariff and invited comments and suggestion. After considering all the submitted comments and suggestions the commission has come out with the final tariff. The brief details of the tariff finalized are provided in the table below:

The Graph below shows the comparison between the tariffs defined by the PSERC and the Tariff of CERC (Central Electricity Regulatory Commission):

As it can be seen in the graph above that the tariff finalized by PSERC in previous years has remained in line with the CERC and that the commission has done the same for the current financial year also. The tariff for solar energy has reduced by close to 9%, while for wind and small hydro it has been increased by approx. 3.75% and 4.10% respectively.

The more details on the tariff order can be read here.

Rajasthan Determines Tariff for Biomass, Biogas and Biomass Gasifier Based Projects

The Rajasthan Regulatory Commission (RERC) through an order dated 08th July has determined the tariff applicable for the projects getting commission during FY 15-16. The tariff has been calculated for Biomass, Biogas and Biomass Gasifier based power projects.

The brief details of the tariffs finalized are shown in the table below:

The tariff order can be reached here.

Analysis on Draft Renewable Energy Act – 2015

A much awaited The Renewable Energy Act – 2015 (DRAFT) has been announced recently. A brief analysis for the same is presented for your kind reference.

Why is the RE Law needed?

The Electricity Act (Amendment) Bill 2015 (proposed) provides many key provisions for the promotion of renewable energy resources including off-grid / decentralised mode of renewable energy production. However, from the perspective of future energy resource planning, there is a need to create a holistic framework to promote the use of renewable energy and its applications not only in electricity (covered under the E-Act) but also in heat and transport segments. There is also a need for an integrated energy resource mapping and planning with right set of institutional and structural support mechanisms for which the RE Law can be a pivotal legislation.

The RE Law also aims to have strong linkages with various other national objectives like:

  • National Action plan for Climate Change (NAPCC)
  • National Mission on Enhanced Energy Efficiency (NMEEE)
  • National Electric Mobility Mission (NEMM)
  • National Wind & Waste Energy Mission
  • National Manufacturing Policy
  • National Skill Development Program

Hence, the RE Law would bring a macroscopic synergies across various national objectives and hence a much coordinated and robust RE development model.

How the new development framework under RE Law would look like?

The RE Law aims to create an exhaustive framework for the development of renewable energy systems (electrical and non-electrical). Architecturally, it can be represented as per the figure shown below.

Overall, the proposed legislation paves way for a very committed, comprehensive and certain development model for renewable energy in India. Enactment of the legislation will create plethora of opportunities for all the RE stakeholders to exercise their might to contribute towards a greener and cleaner India.

The Draft Renewable Energy Act can be Read here.

The REConnect Analysis Report can be accessed here.

Regards,
Team REConnect

KERC Proposes Amendment to RPO Regulation

The Karnataka Electricity Regulatory Commission (KERC) in a recent notification has proposed an amendment to its RPO (Renewable Purchase Obligation) regulation. The amendment will come into force from the date of its publication in the official gazette.

The Proposed amendment defines the solar RPO percentages as well, which was not defined earlier and was considered to be one of the drawbacks towards promotion of solar energy technology. The targets proposed by KERC are shown in the graphs below:

The commission has also proposed new RPO targets for Captive and Open Access consumers, which are in the graphs below:

Apart from the RPO targets the commission has proposed to add the definition of “Contract Demand” and has proposed changes in some clauses as well.

Mainly the commission has proposed that any distribution licensee or other consumers failing to meet the RPO for any year within the time specified, shall purchase RECs to the extent of 110% of quantum of shortfall in meeting RPO, by 30th June of the immediately following year, failing which action under Section 142 of the Electricity Act, 2003 shall be initiated.

The amendment proposes a new way to impose penalty on the consumers failing to meet the RPO, and it directs the consumer to buy REC’s  by 10% more quantum than the total quantum of energy needed to meet RPO targets. The amendment also proposes very high RPO targets for coming years, which is a good move, but again, it will need strong enforcement guidelines from the state.

The increase in RPO targets is important, but at the same time targets without proper enforcement would not yield great results, which needs focus as many states are still being lenient over the RPO compliance by state utilities.

The commission has invited the comments from the interested stakeholder and can be submitted latest by 6th Aug 2015.

The proposed amendment and more details about it can be read here.

Rajasthan Draft Open Access Regulation 2015

The Rajasthan Electricity Regulatory Commission (RERC) in a latest Notification has proposed new Open Access Regulation. The regulations will come into force on the date of their publication in the official gazette. However the open access under these regulations shall be allowed from the date of issue of detailed procedure by STU/ SLDC as provided under this regulation.

The regulation will apply to open access for use of the intra-state transmission system and / or the distribution systems of licensees in the State, including when such system is used in conjunction with the inter-state transmission system.

The Licensees, generating companies including persons who have established a captive generating plant and consumers shall be eligible for open access to the intra-state transmission and/or distribution system.

Power procurement through the power exchange will be permissible only on week ahead basis or higher denomination of days and not on the day-ahead basis.

Categorization of Open Access Consumer:

  • Long-term Open Access: Any consumer availing open access for a period of exceeding 12 years but not exceeding 25 years.
  • Medium-term Open Access: customers availing open access for a period exceeding 3 months but not exceeding 3 years at a time.
  • Short-term Open Access: Consumers availing open access for a period up to one month at a time.

Charges for Open Access: The commission from time to time will calculate the open access charges to be payable by the open consumer access. These charges will include transmission charges, wheeling charges, cross and subsidy surcharges and additional surcharge. In addition to this the customer will have to pay the Reactive Energy Charges as per the rates defined in the state.

Losses - Apart from the charges applicable, the open access customers will have to bear energy losses of the transmission system and the distribution system as approved by the Commission from time to time

Metering: The open access customer shall provide Main Meters, Check Meters and Standby Meters based on voltage, point and period of supply/drawal.

Communication Facility: An open access customer shall provide for or bear the cost of equipments for  Communication up to the nearest Grid Sub Station or State Load Dispatch Centre.

The commission has invited comments and suggestion from the interested stakeholders and can be submitted by 3rdAugust 2015.

The details and the procedures proposed in the Draft Regulation can be read here.

MNRE Notifies Guidelines for Development of Solar Parks

The Ministry of New and Renewable Energy (MNRE) has recently notified the guidelines for the development of solar parks in the country. Previously in December 2014, the ministry had finalized scheme for the development of Solar Parks, targeting a capacity of 20 GW through this scheme.

The scheme rolled out by MNRE last year plans to set up 25 solar parks, each with a capacity of 500 MW and above; thereby targeting around 20000 MW of solar power installed capacity. These solar parks will be set up within in a span of 5 years commencing from 2014-15.

So far Lands has been identified in Gujarat, Madhya Pradesh, Rajasthan, Telangana, Andhra Pradesh, Arunachal Pradesh, Karnataka, Kerala, Uttar Pradesh, Meghalaya, Nagaland, Punjab, Tamil Nadu, Andaman & Nicobar Islands and Uttarakhand.

Status and Achievement of Solar Park: Some states has shown keen interest in setting up large projects under the scheme, and the Ministry received consent from the States for setting up of Solar Parks. The graph blow shows the state-wise projected capacities that can be developed on the identified lands.

Under the scheme the MNRE will provide a grant of RS. 20 lakh/MW or 30% of the project cost, whichever is lower. Solar Energy Corporation of India (SECI) will be the implementing agencies for development of solar parks.

The main objective of the development of these large solar projects is to bring down the cost of solar power, and is one of the major components of the government’s plans of developing 100 GW solar Energy by 2021-22.

In depth details of the MNRE guidelines can be read here.

Our previous blog post on The MNRE Scheme for Solar Parks can be read here.

Analysis of the 5th Amendment to REC Regulations

Background:

Recently, CERC proposed the 5th amendment to REC regulations. The gist of proposed changes is:

  • Captive generators and portion of power for self-consumption will no longer be eligible for RECs
  • If an open access (OA) project avails concessional wheeling, banking or cross-subsidy benefits, it will not be eligible for RECs

These changes have been proposed in the context of an REC market that faces significant oversupply. As on June 30 2015, RECs worth 2,650 crore remain unsold, and clearing percentages in many months are well below 5%. In most months, more RECs have been issued than redeemed, further aggravating the problem of over-supply.

In the explanatory memorandum, CERC has elaborated on the thinking behind the proposed amendment. The memo states:

Lack of RPO enforcement has been one of the major reasons for the high level of unsold REC inventory. However, it is also important to analyze the supply side aspects and understand whether the right beneficiaries (as was envisaged while introducing REC framework) are participating and able to compete in the REC market. It remains a fact that a major portion of the REC inventory is contributed by the CGPs. Also, developers under third party model are able to leverage the concessional benefits while participating under 
REC framework.” (Emphasis added)

and,

“Around 51% of the projects under the CGP route were commissioned before the first notification (14 January 2010) of the REC Regulation. These projects must have computed their financial viability without the REC benefit.” 


The proposed changes will have far-reaching implications on the REC market structure. As per data provided in the Explanatory Memo approximately 41% of the capacity (under captive generation) will be completely excluded from RECs markets, and a significant portion of OA capacity (19% of total) will be impacted.

Analysis by REConnect Energy suggests that annual RECs generation may fall from 96.25 lakhs in FY 14-15 to 54.30 lakhs per year after the amendment.

Table: Annual RECs Issuance

 Sources: REC registry website; REConnect analysis

Note: Annualized redemption is assumed to be 2X times redemption is FY 14-15. Increase is expected due to SC order and Electricity Act amendment.

Impact on Open Access (OA) projects:

The proposed amendment is contrary to the provision in the draft Electricity Amendment bill (EA Bill) in the Parliament, and of many state policies.

The EA Bill says:

Sec 42(4):

“The open access consumers procuring electricity from renewable energy sources shall not be required to pay the surcharge for open access for such period as may be prescribed by the Central Government”

 Surcharge in the above context means cross-subsidy surcharge (CSS).

 If the EA Bill is to be passed by the Parliament, the impact of the 5th Amendment will be to make all RE projects in OA ineligible for RECs. This will discourage OA in renewable energy – something that goes against one of the principle objectives of the EA and of CERC (to encourage market development in the electricity sector).

Further, many states allow concessional cross-subsidy or exemption from cross-subsidy as a way to promote open access in RE projects. For example, Rajasthan’s solar policy exempts solar projects under open access from CSS. Similar provisions exist in many state policies.

Renewable Energy projects will not be viable under open access without concessional CSS provided by the states. States realize this – and therefore the concession exists in the first place. If RECs benefits were to be denied to such projects, it’s the equivalent of giving from one hand and taking from another. The net result of the amendment will be to completely finish-off the OA market for RE power – this is something that will be contrary to one of the fundamental pillars of the Electricity Act.

Further, in many existing OA transactions, prices are likely to have been negotiated knowing the fact that the RE project will get revenue from RECs. Such projects may suddenly become unviable. In many states with low tariffs, such projects will not remain competitive without RECs and therefore risk becoming NPAs.

Impact on Captive Generating (CGP) projects:

As mentioned above, the impact on CGPs of the amendment will be drastic. All CGP’s will be considered ineligible for RECs benefits. However, in proposing the amendment, CERC has failed to consider the case of two categories of projects–

(1)   CGPs set up specifically to meet RPO requirements, and

(2)   CGPs under the group captive mechanism

Since CERC amended the RECs regulation to allow self-retention of RECs by obligated entities, many companies have set up CGPs in one state and meet their obligation in other states through retention of RECs. This approach has multiple benefits – it has encouraged setting up of new RE capacity, and also helps the obligated entity manage its compliance costs.

The proposed amendment will take away this benefit to obligated entities. This is erroneous on three counts – (a) the CGP is likely to have been setup by the obligated entity to meet RPO across units. Such an investment, made in good faith keeping in mind existing regulations, may become redundant after the regulation, (b) it will discourage setting up of large new RE capacities as obligated entities will not be able to meet RPO in states that have low RE resources, and (c) it will take away a valid means for obligated entities to comply with RPO, leaving them with very limited options – buying of RECs.

Group captive projects, on the other hand, also face difficulties due to the amendment. In many group captive projects, the primary investment is made by an investor, and power prices are determined through negotiations. Further, such projects tend to be long term in nature as they involve an element of equity investment by the consumer. A sudden change in RECs eligibility is likely to make such projects unviable, and result in severe losses to investors who set up projects assuming a stable RECs regime.

Overall, we believe that while CERC’s intent to correct the supply imbalance in the RECs market is needed, the unintended consequence of the 5th amendment on open access and captive projects will be harmful to the growth of the renewable energy industry.

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