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.

KERC Imposes RPO on captive co-generating plants

Karnataka Electricity Regulatory Commission (KERC) after deliberating on Aptel order dated 26th April 2010, decided not to impose RPO on any person consuming electricity from Co-generation power plants on its order dated 8th May 2013. Subsequently similar matter was challenged before the Honorable Supreme Court  where the Supreme Court passed an order  upholding the regulations regarding imposing obligations upon captive consumers on 13th  May 2015.

In the light of Supreme Court order, KERC thus decided to recall its order dated 8th May 2013, with immediate effect and made RPO obligation applicable on captive co-gen power plants. Hence all the captive co-gen power plants will have to meet their RPO obligations which will help in promoting the REC mechanism in the state of Karnataka.

The relevant order can be accessed here.

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.

GERC RPO Regulation Applicable on Captive and OA consumers

The Gujarat Electricity Regulatory Commission (GERC) in a notification dated 1st July 2015, has made  RPO (Renewable Purchase Obligation) regulation applicable on captive and Open Access consumers of the state.

The quantum of RPO applicable on the OA and Captive users will be same as for the distribution licensee. The percentages of RPO targets applicable in the state are shown in the graph below:

Earlier the RPO regulation was not applicable for Captive and OA users as there were ambiguities among the regulations of various states and the pending court cases by affected stakeholders, caused the major issues for applicability of RPO on such consumer.  But with the recent Supreme Court Judgement (Read here) on the issue has cleared all the major doubts, and as results we have seen good response in the recent trade sessions and also some states coming forward and enforcing RPO regulation on the OA and captive users.

The recent Notification of the GERC can be read here.

 

Captive power plant of Bokaro Steel Plant is co-gen : Jharkhand ERC

In an order dated 24th March 2014, state electricity regulator of Jharkhand (JSERC) is of the view that the captive power plant of Bokaro Steel Plant (a unit of Steel Authority of India) can be regarded as a co-generation plant. This means that power consumption from CPP of BSL will qualify towards fulfillment of RPO set under relevant regulations of JSERC.

BSL had prayed JSERC to

1. declare its CPP of 302 MW as co-generation power plant,

2. exempt BSL from applicability of RPO and

3. waive the RPO applicable on consumption of power from its CPP during FY11, FY12 and FY13.

CPP of BSL fulfills the definition of CPP as BSL has 50% equity in the plant and consumes 100 % of power generated.

JSERC also considered APTEL’s judgement in the case of MERC vs Century Rayon, where in it was declared that fastening of RPO on  would defeat  the objective of section 86 (1) (e) of the Indian Electricity Act.

JSERC has RPO targets defined till FY16. It has a total of 4% RPO (1% solar & 3% non-solar) for all three years FY14, FY15 & FY16.

BSL also is a distribution licensee in Jharkhand. As per data furnished in the order total RPO applicable on BSL for consumption of captive power comes around – 64.8 MW of non-solar and 17 MW of solar RPO.

The order can be accessed here.

KERC order on Wheeling and Banking charges for RE generators

Karnataka Electricity Regulatory Commission through an order dated 9th Oct 2013 has decided to extend the validity of order (dt – 11.07.2008) till end of current financial year, which was previously mandated to be valid only till 10th July 2013. The key points in this order are the following:

1) The wheeling charges and banking charges will continue to be 5% of the injected energy and 2% respectively along with additional UI charges between the time of injection and time of drawal.

2) Captive consumers of the state wanting to avail the benefits under the REC scheme will have to pay normal transmission, wheeling and banking charges.  

Normal wheeling charges –

For HT network –  9.85 paise per unit

For LT network – 22.99 paise per unit.

 3) Captive generators will be allowed to bank the excess energy, accounting of which will be done on monthly basis (instead of annual basis).

4) Excess energy (if any) with the distribution licensee, at the end of the month, shall be paid by the DISCOM (in whose generator is plant is situated) at the APPC rate. Currently, the APPC rate is 3.07 Rs per unit.

5) The commission will shortly issue a separate format of wheeling/banking agreement for RE generators willing to participate in REC mechanism.

RECs markets face uncertaininty due to lack of enforcement: Businessworld

We have highlighted the problem with enforcement regularly. A recent article in Businessworld brings the issue center-stage.

Jayant Deo, former MD and CEO of the Indian Energy Exchange (IEX) is quoted as saying:

” [obligated] entities are getting away with non-compliance because of poor enforcement of regulations and the lack of any penalties. With state discoms being allowed to renege on obligations, many expect private players to follow suit”

The recent demand-supply gap in the September 2012 trading session and the inventory that is building up is starting to worry project developers and potential investors in the renewable space. Vibhav Nuwal of REConnect Energy is also quoted in the article:

“70–80 per cent of the demand comes from the private discoms. The remaining come from captive and open-access consumers,” says Vibhav Nuwal, director at REConnect Energy, the largest trader in this market. Although, Nuwal says, the solar REC market, which began trading in May 2012, is too small and volatile to draw inferences from; he acknowledges the widening demand-supply gap in the non-solar segment.

 

Delhi announces its final RPO regulation

The most awaited RPO regulations was finally announced by Delhi Electricity Regulatory Commission (DERC) for the capital region.

Like RPO regulations of other states, DERC also came out with a similar one. The RPO regulation is applicable to:

  • Distribution Licensee(s) operating in the National Capital Territory of Delhi
  • Any Captive user, using other than renewable energy sources exceeding 1 MW
  • Any Open Access Consumer with a contract Demand exceeding 1 MW from sources other than renewable sources of energy.

The obligation till FY 2016-17 is shown in the table below:

Obligated entities have to submit necessary details regarding total consumption of electricity and purchase of energy from renewable sources before 30th April to the State Agency every year .

Open access consumer receiving electricity from renewable energy sources shall be exempted from the cross-subsidy surcharge determined by the Commission from time to time to the extent of RPO. However, no banking facility shall be provided for supply of electricity from renewable energy sources through open access.

The REC market will strengthen if the enforcement in Delhi has a good start as the consumption here is very high.

Contributed by Rahul Tyagi

MP amends RPO regulation to include Co-gen as renewable energy

In our recent newsletter (Vol 19), we had mentioned the following:

Madhya Pradesh recently proposed an amendment to its RPO regulations. The amendment proposes to substitute “Co-generation from Renewable Sources of electricity” with the word “Co-generation” in various sections of the regulation. As a result of this change, companies that have co-gen facilities would be able to off-set their RPO against consumption from co-gen.

This amendment goes the farthest in terms of any states action in the matter so far. It provides a double benefit to co-gen plants – they are not merely exempt from RPO (as in the case of Maharashtra), but can also set-off RPO resulting from other conventional sources with cogen consumption.

This amendment was recently notified. The amendment can be accessed here.

In our view, this is a backward step in MP, as it will inhibit new RE capacity addition in the state. In contrast, Orissa regulatory has recently held that Co-gen obligations and RE obligations are distinct. Forum of Regulators has also suggested the same approach. In the 23rd meeting of FOR, held on 29th & 30th April, 2011, the following was agreed:

After discussion the members agreed with the contention that RPO should be made applicable to co-generation based captive consumers as well, in line with the spirit of Section 86(1)(e) of the Electricity Act, 2003. It was also felt that the scope of Section 86 (1)(e) is to promote Renewable and that only the non-fossil fuel based cogeneration plants should be covered under the said provision for the purpose of RPO.

Punjab roll-forwards RPO to next year

PSPCL recently petitioned the Punjab Electricity Regulatory Commission to amend its RPO from 2.4% (including 0.03% solar) to 1.65%. This is inline with the extent of RPO achieved in the state (1.67% non-solar and 0.0075% solar). The reasoning behind the request for reduction was that PSPCL suffered due to reduced RE generation (delays and closures of RE facilities), and its efforts to procure RE power from the market did not bear fruit. PEDA supported PSPCL’s petition.

The commission rejected the request [DOC file]. Instead, it allowed PSPCL to carry forward the RPO to next year. PSPCL will now have to meet the shortfall this year in addition to the current year RPO (2.9%).

In our analysis, a few things stand out in the petition:

  • PSPCL did not mention efforts to procure RECs from the market as a step it took to try and meet its RPO
  • The commission did mention it as one of the steps it can consider to meet its RPO in the current year. The order states: ” This carry forward shortfall in RPO compliance during 2011-12 to 2012-13 shall be in addition to the RPO specified in the RPO Regulations for that year, to be made good separately for non-solar and solar power as specified by the Commission, through purchase/generation of electricity from RE Projects on best efforts or in case of non-availability of such electricity, through purchase of RECs from the Power Exchange(s)”
  • It is unclear whether the waiver will also apply to open access and captive consumers. The order is specific to PSPCL, but this may open a way for a carry-forward for open access and captive consumers also

Overall, the order from the commission is in the right direction. Given the nascent stage that REC markets are in, it will be difficult to enforce full penalties due to non-compliance. However, waiver or retrospective change in RPO % would send a wrong signal to the market and obligated entities.

 

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