MNRE proposes amendments in the biomass co-generation policy

MNRE has been working towards supporting biomass-based cogeneration projects in the country and had introduced a scheme for the same in May 2018. The scheme provides CFA of INR 25 Lakhs/MW for bagasse cogeneration projects and INR 50 Lakh/MW for non-bagasse cogeneration projects.

Recently MNRE has made two amendments in clause 5 & 6 of the scheme to provide more financial support to the projects. The changes are as follows:

Apart from this, The Madhya Pradesh Electricity Regulatory Commission (MPERC) has rejected two petitions filed by owners of bagasse-based cogeneration projects against the imposition of cross-subsidy surcharge for self-consumption of power in Madhya Pradesh.

The petitioners Shri Durga Khandsari Sugar Mills and Narmada Sugar Private Limited had approached MPERC to not impose cross-subsidy on self-consumption of the electricity from its own bagasse-based cogenerating stations. However, both the plaintiffs were selling the majority of its generated electricty via open access and less than 51% was being self-consumed. Hence, the commission was of the opinion that whole power supplied by the cogeneration plants of the petitioners will be treated as if the power is supplied by a generating company.

MNRE has also invited an Expression of Interest (EOI) for tapping the potential of biomass and bagasse co-generation in the country as of October 2018, to promote the source of energy.

Proposed amendments of Electricity Act, 2018

The Ministry of Power of India has recently announced the draft proposed amendments to the Electricity Act, 2003. The proposed amendments aim to be in line with the country’s changing electricity markets and systems, with their large renewable capacities and the emergence of a smart grid network.
The Amendment proposes important changes in renewable energy, cross-subsidy, open access, operations & responsibility of ERCs, and many other changes. Some of these are discussed in brief below:

Renewable Energy

The EA Amendment 2018 proposes several amendments that are favorable to the RE sector. Some of these are:

  • Definition of Renewable Purchase Obligation and Renewable Generation Obligation introduced.
  • RPO has been separately defined. Related to this, the definition of “Obligated Entity” has also been introduced.
  • RGO means the Renewable Energy Generation capacity required to be established to be procured from Renewable Energy Sources, and sale of such energy along with the electricity generated from the coal or lignite based thermal generating station, by a generating company establishing a coal or lignite based thermal generating station.
  • Introduction of renewable energy service company which provides renewable energy to consumers in the form of electricity.
  • Introducing policies in order to support RE sector like National Renewable Energy Policy to promote smart grid, ancillary support, and decentralized distributed generation in accordance with the provisions of the Act;
  • A penalty of maximum Rs. Fifty lakh for non-compliance of RGO. (Reduced from 1 Cr. to 50 Lakh, the earlier penalty was on 1 lakh.)
  • For non-compliance of RPO, an additional penalty is proposed, which shall be minimum of Rs 1 per unit with a maximum of Rs 5 per unit depending on the extent of the shortfall.
  • Generation and supply of renewable energy will not require any license for such generation and supply.

Cross-subsidy

The draft EA Amendment proposes (a) time-bound reduction in cross-subsidies (CSS), and (b) CSS to be not more than 20% of the wheeling charge. These provisions are nothing new. The EA 2003 also included provisions for reduction of CSS. But these were watered down later.

 

The proposal that CSS be 20% of wheeling charges is significant, as if implemented, it will reduce CSS significantly. Also, the provision for charging “additional surcharge” is proposed to be deleted – this will also have a significant impact as in recent years states have used high additional surcharge as a tool to discourage open access.

Open Access

The draft EA Amendment states the following with respect to open access:

“With effect from the commencement of the Electricity (Amendment ) Act, 2018, all consumers having a connected load of 1 Mega Watt and above with the power system, may procure at their option electricity through open access under contractual agreement from any generating company, trading licensee, or from any other source.”

This implies automatic open access, without the need for permission from the Discom. If implemented, this will be a radical change and can potentially transform the electricity market in the country.

Separation of Carriage and Content

One of the key provisions in the previous EA amendment (proposed in 2014) was the separation of carriage and content – i.e. further breakup of the Discom into supplier and network operator, and also allowing multiple suppliers in the area of the Discom. This proposal was met with significant resistance from the state when the Standing Committee of the Parliament viewed the amendment. As a result, the current amendment, while retaining the provisions, has significantly diluted the scope of carriage and content separation by leaving it entirely to the decision of the state government.

In our opinion, this is a pragmatic approach, as it may allow the passage of the EA Amendment act without significant resistance from the states. However, the flip side of this approach is that such a reform will take a long time to be realized on the ground, and there will be significant differences between states. The EA2003 has heralded the break-up of Electricity Boards into Genco, Transco and Discom’s. Fifteen years on, the separation is still only partially effective in most states.

Others

  • Subsidy to be provided only through “Direct Benefit Transfer”. This can be a potential game-changer for the Discoms, and even for the entire sector. Today, subsidies are paid through the Discom, which, even though is a commercial entity, often works as a government arm. If DBT is introduced, it can pave the way for genuine Discom reforms on commercial principles.
  • Every proceeding before the Appropriate Commission shall be decided efficiently. Matters related to passing through in tariff on account of change in law/duties/taxes etc shall be decided in a maximum of 30 days. All other matters will be disposed of within 90 days. Regulatory Commission shall have all the powers of a civil court.
  • Development of market: Another important change has been the mandate to promote forward and futures contracts in electricity.

Conclusion

We believe that the proposed changes will have a wide and deep impact on the electricity sector. The promotion of RE and removal of roadblocks for development of RE and of open access in the country is a welcome step and one that was long overdue.

The separation of distribution and supply function also signifies a fundamental shift in the way electricity is distributed in the country. However, by watering down the provisions for the same and giving states the choice to implement is a pragmatic way the government has adopted to allow the passage of EA Amendment. In any case, this change is likely to take a long time to start showing on the ground.

Another radical change proposed is of paying subsidies through “Direct Benefit Transfer” only. This can be a potential game-changer for the sector and can pave the way for genuine Discom reforms on commercial principles.

The Infographic displayed above analyses the extent of usage of certain keywords in Electricity Act 2003, Draft EA amendment bill 2014 and the latest Draft Electricity Act 2018. The graph is prepared to understand how the government’s priority has evolved over the years from only conventional power to renewable energy as well.

The word ‘Renewable’ is used 22 times in Draft EA 2018, 23 times in Draft EA bill 2014 and just 4 times in EA 2003. Similarly, Open Access is used 20 times in EA 2003, 32 times in Draft EA bill 2014 and 23 times in Draft EA 2018.

Terms like RPO and Smart Grid have no mention in EA 2003, while in Draft EA bill 2014 RPO was used once & smart grid 7 times whereas Draft EA 2018 smart grid was used 5 times and Franchisee was used the highest 8 times in Draft EA 2018. The term Cross Subsidy is used the least in Draft EA 2018 just once and 3 times in both EA 2003 and Draft EA bill 2014.

MoP reveals proposed amendments related to captive power plants in Electricity Rules 2005

Ministry of Power recently announced proposed amendments in the electricity rules 2005 related to provisions regarding captive generating plants. The captive power producers body ICPPA expressed their woes against the proposed amendments.  According to ICPPA, these amendments are aimed at creating new ways of earning Cross Subsidy Surcharge (CSS) from captive users.

The amendments state that any captive user whose ownership of that plant is not exceeding 15% shall not qualify the power plant as a captive power plant. The proposed amendments have associated the ownership of the captive power plant with the eligibility of being a captive user.

In case the captive user fails to abide by the rules, then the electricity generated by the plant will be considered as if its a supply element by a generating company.

ICPPA secretary Rajiv Agrawal while interviewing with Economic Times said that “If any user is forced to draw lesser power share due to genuine reasons like the closure of its end-use plant for maintenance then the whole power generated in a year will be treated as non-captive and state income will charge CSS on it. It means all users of CPP will also have to pay the penalty, and thus the CPP may have to close down.”

The amendments suggest each captive user utilize 51% of the generated electricity from the captive plant and in case of group captive, each member should have a 26% equity share in the plant to be able to utilize the power from the plant.

“Captive plant set up by a company or any other body corporate, shall mean the issued and paid-up share capital in the form of equity share capital with voting rights (excluding equity share capital with differential voting rights) only as per the provisions of the Companies Act, 2013. In other cases, ownership shall mean proprietary interest and control over generating station or power plant, Provided further that for the purpose of assessing status as captive generating plant, a normative debt : equity ratio of 70:30 will be considered i.e. at least 26% of the equity base of 30% of capital employed, in the form of equity share capital with voting rights (excluding equity share capital with differential voting rights) needs to be invested by Captive user(s).”

In our opinion, the proposed amendments can bring stability in the electricity sector and increase the workability of DISCOMs across the country. By suggesting the eligibility of captive plants to be associated with the ownership in the plant the commission is asking the captive users to conduct rightful investments and be responsible towards the generation from the plant.

Read the document here.

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