UDAY SCHEME BRINGS BENEFITS TO DISCOMS

The Ujwal DISCOM Assurance Yojna (UDAY) scheme was launched in November 2015 by the Ministry of Power (MoP) and the Government of India (GoI). Since then, there has been significant improvement in the debts of the DISCOMs.

 

The participating states have taken over Rs 2.09 lakh crores of debt of their DISCOMs. The remaining debt is mostly in the form of CAPEX debt or scheme based debt which usually either pays itself off or which converts into grants. Therefore, the process of the states taking over the debts of DISCOMs and issuing them as SDL bonds has now been completed. Now the remainder of the action which includes bond issuance by the DISCOMs has to be completed.

 

Due to these actions, till March 2017, the participating DISCOMs had achieved net savings of Rs 15,000 Cr. The gap between Average Cost of Supply (ACS) and Average Revenue Realized (ARR) had also come down by 14 paisa per unit along with a reduction of 1% in the AT&C losses.

Details about the UDAY scheme and its implementation on our blog can be accessed here.

MOP DETERMINES GUIDELINES FOR FOR COMPETITIVE BIDDING FOR POWER PROCUREMENT FROM SOLAR PV PROJECTS

The Ministry of Power (MoP) has released the guidelines for procurement of power from grid connected solar PV power projects. The guidelines are applicable to solar PV projects of size 5 MW and above. The purpose of these guidelines is to provide a direction for proper electricity procurement by distribution licensees and to protect the interest of the consumers. Also to make this process transparent and uniform.

 

Following are the salient features of the guidelines:

 

  • The appropriate Commission shall be CERC only in case if the distribution licensee is located in more than one state

  • SERCs will be the appropriate commission in case if there is a single distribution licensee.

  • The conditions to be met by the procurer are as follows:

  • The bid document should be prepared in accordance with the guidelines of MoP and the Standard Bidding Documents.

  • Clearances need to be procured from the end procurer, the agency developing the solar park.

  • Procurer has to specify where the project has been set up.

  • The bid structure shall be as follows:

  • The bids will be designed in terms of packages where the minimum will be 50 MW and the bids may be in energy quantity or power capacity terms.

  • The procurer may opt for either ‘tariff as bidding parameter’ or ‘VGF as the bidding parameter’.

  • The PPA period should not be less than 25 years and it can be in terms of energy or power. Repowering will be allowed from time to time for the duration of the PPA.

  • In case of default by the power generator, it shall be liable to pay the solar power generator as written in the PPA. Also, in such a case, the lender shall be allowed to exercise their right to substitution as per the substitution agreement provided in the PPA.

  • In case if the procurer is at default, it shall give its part of the PPA to a third party in the given time. In case if that is not done, the solar generators have a choice to terminate the PPA.

  • Once the procurer calls for bids, a single stage bidding process shall be followed. The procurer can also chose if an e-reverse auction shall be held. It is the responsibility of the procurer to give the details of the bidding process in case of a Solar park specific project.

  • For bid submission and evaluation, the bidders may form a consortium and chose a leader who shall be the focal point of contact. Also, for evaluation of bids, the procurer may form a committee. The technical and price bids shall be submitted separately along with a bid guarantee. Minimum number of bidders should be two and a proper methodology shall be followed for bid evaluation.

  • A 30 day period shall be given for bid submission from the issuance of RfS document. A table containing the time table for bid process is given in the guidelines attached below.

  • Bank guarantees such as earnest money deposit and performance bank guarantee need to be submitted.

The guidelines can be accessed here.

POSOCO-IMD WEATHER PORTAL AND WEB PORTAL “MERIT” LAUNCHED

The Ministry of New and Renewable Energy (MNRE), in collaboration with IMD and POSOCO has launched a weather portal for the power sector. This portal will help in predicting extreme weather events such as heat waves and floods which will effect on the load demand and energy production, transport and distribution management. It will be of aid to the DISCOMs to ensure a reliable supply and infrastructure planning. It will provide information regarding regional weather summary, radar, satellite image, meteogram and region specific forecast.

 

The portal “MERIT” (Merit Order Dispatch of Electricity for Rejuvenation of Income and Transparency) was also developed by MoP in association with POSOCO and CEA. It gives an array of information regarding merit order of electricity procured by the state. It will help the DISCOMs to provide power at a lower cost to consumers. It will also promote the use of clean and green power.

 

The article regarding the same can be accessed here.

ENERGY CONSERVATION BUILDING CODE 2017

Shri Piyush Goyal launched the Energy Conservation Building Code, 2017 which was developed by MoP and BEE. The code aims to optimize energy savings while keeping in mind the comfort levels of the occupants. It also aims to reduce building’s energy consumption and promote low carbon growth.

 

It has been estimated that by integrating the energy code, there will be a reduction in energy of 50%  and 30 BUs by 2030. Following are the salient features of the Energy Conservation Building Code 2017:

- Developed by BEE with technical support from United States Agency for International Development (USAID) under the U.S.-India bilateral Partnership to Advance Clean Energy – Deployment Technical Assistance (PACE-D TA) Program.

 

- Anticipated reduction in energy consumption of 50% by 2030.

 

- Equivalent to 300 Billion Units by 2030, peak demand reduction of over 15 GW in a year, savings of Rs 35,000 crore and 250 million tonnes of CO2 reduction

 

- Minimum 25% energy savings to be demonstrated by new buildings to become energy compliant. Additional improvements of 35% and 50% would lead to higher grades like ECBC Plus or Super ECBC.

 

The article can be accessed here.

MOP WAIVERS TRANSMISSION CHARGES AND LOSSES ON ELECTRICITY FROM SOLAR SOURCES

This is an attempt to encourage solar and wind  energy in the country, the Ministry of Power (MoP) had waived off the inter-state transmission charges and losses on the electricity generated by wind and solar sources of energy in September last year. That order has now been amended by the MoP  and as per the new order, transmission charges and losses are wavered off only on solar projects.  The MoP, after consultation with MNRE, CEA, CERC and POSOCO, has notified the following:

For generation projects based on solar resources, the waiver will be on projects commissioned till 31/12/2019. The waiver will be available till 25 years of date of commissioning of such projects and on solar  projects entering PPAs for sale of electricity to DISCOMs for compliance of RPO. The remaining of the terms and conditions remain the same as the 2016 order.

As per our analysis, this order by the MoP has a number of limitations. First of all, it is only applicable to solar projects from which the electricity will be sold to the DISCOMs. Secondly, it will only be on those solar projects entering PPAs for the compliance of RPO.

The order released in 2016 can be accessed here.

HIMACHAL PRADESH ELECTRICITY REGULATORY COMMISSION (RENEWABLE POWER PURCHASE OBLIGATION AND ITS COMPLIANCE) REGULATION

HPERC has notified Renewable Purchase Obligation and its compliance, 3rd amendment 2017 on 24th March 2017.

 

Quantum of Renewable Power Purchase Obligation (RPPO)

 

Since Himachal Pradesh mostly thrives on the energy produced through Hydropower, the state will be a beneficiary since RPO is excluded from RPO obligation as per the regulation.

The graph below shows the total and type of energy consumption by the state of Himachal Pradesh. The data has been derived from CEA Report.

 

Almost 3/4th energy of the total consumption comes from the Hydro Power. Its an added advantage for the state that RPO is exempted from the power consumed through Hydro sources, thus this in turn will reduce the cost of power from the state.

The graph below gives a comparison between the MoP recent RPO Trajectory and HPERC’s earlier RPO Trajectory:

HPERC for computing Renewable purchase obligation for a year of obligated has included  the transmission and distribution losses within the state in the following manner:

  • In case the electricity is purchased by such obligated entity from sources outside state , the electricity at state periphery shall be considered as the consumption of obligated entity

  • In case the electricity is purchased or generated from generating sources located within the state the electricity injected at the generating bus bar shall be considered as its consumption

The above given clauses are against the law of Electricity Act 2003 as for computing renewable purchase obligation total consumption has to taken under consideration excluding the transmission and distribution losses.

The Supreme Court order on RPO dated 13th May 2015 has taken into consideration the word “ Total Consumption” which also has been used in Electricity Act 2003. One can find below the reference from the act Section 86 (e):

promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence;

 The regulation can be accessed here.

FOR THE FIRST TIME, INDIA BECOMES A NET EXPORTER OF ELECTRICITY, SAYS POWER MINISTRY:

As per an article in the Times of India, the power ministry on 29th March, 2017 declared that India has now become a net exporter of power. Power export of about 5,498 million units was seen from April ’16 – February ’17 and this value was 4% higher than the power India imported from Bhutan. New electricity lines to neighboring countries such as Nepal, Myanmar and Bangladesh will only aid in the sale of electricity from the country.

This is an interesting prospect for India since it has always been a power deficit country. Though there are many villages as mentioned in the  Economic Times article within India which do not receive electricity all day round, India has been able to gain the status of being a net exporter. This is mostly because of the poor financial health of DISCOMS in the country.

 

RPO COMPLIANCE TO DRIVE THE COUNTRY TOWARDS RENEWABLE ENERGY GROWTH:

In an article in the Economic Times, the importance of RPOs has been highlighted by saying that RPOs are the most important instruments towards achieving the lofty goal of installing 175 GW of renewable energy by 2022. Last year, the Ministry of Power had declared the National RPO Trajectory but not much was complied with. As per the CEO of Mercam Capital Group, a number of issues need to be addressed in order to make sure that RPOs are complied with such as evacuation issues, DISCOM financials, etc. The government needs to provide a conducive environment for renewable installations to thrive. In some cases, it has so happened that the state electricity regulatory commissions have allowed a carry forward of the shortfall of DISCOMS which one of the reasons for non-compliance.

On the other hand, it can also be said that a number of changes are being made from the government’s side as well to make sure that RPOs are complied with. A new policy has been introduced in which it is estimated that solar RPO will be 8% by 2022. Also, it also mandates the DISCOMS to procure 100% power from waste to energy projects. The World Bank as well as some other banks are providing financial support so as to increase the number of renewable energy installation in India.

In the last trading session, a huge gap was seen in the number of solar and non-solar RECs traded. Now, with the reduction in floor and forbearance prices of RECs by Central Electricity Regulatory Commission, compliance towards RPOs may get further delayed.

Review of UDAY Scheme on completion of one year

The UDAY scheme was launched an year ago, and was then touted as signature Discom reform scheme of the central government. In this article, we have analyzed the impact of UDAY scheme, responsiveness of the states, extent to which the Discom’s have got benefitted and also the reforms which they were supposed to undertake.

To briefly summaries, the UDAY scheme aimed at “financial turnaround of Power Distribution Compa-nies”.
Under the scheme, the state government was re-quired to take over 75% of the existing debt of the Discom and issue State Government bonds in re-turn.

The remaining 25% debt would be issued either as a bond by the Discom (guaranteed by the state gov-ernment) or the terms of the loan would be changed by the banks. In return, the Discom’s were required to undertake a series of reforms.

The key ones were:

  • Reduction of AT&C losses to 15% by 2018-19,
  • Quarterly tariff revision (to partly reduce the burden of large revisions once a year),
  • Reduce the gap between cost and revenue per unit to zero by 2018-19 and
  • Discom’s were to comply with RPO outstanding since April 2012 as per timelines suggested by MoP.

For a more detailed list of the requirements and for a detailed understanding of the scheme, refer our article here, or the scheme document here. After an year from launching, 17 states and UT’s have signed up for the UDAY scheme, while 15 have not. Notable states that have not signed up include Tamil Nadu, West Bengal, Kerala, Orissa, Assam and Telangana.
These states have relatively large Discoms and, espe-cially in the case of Tamil Nadu, significant accumulated losses and bank debt. Another way to look at this is the political affiliation of the state.
Most states that have signed up for UDAY scheme are associated or governed by BJP. Notable exceptions are Uttar Pradesh, Karnataka and Bihar. The only notable exception amongst the states that have not signed is Assam (governed by the BJP).

Bonds issuance:
8 states have issued bonds, aggregating to Rs 149,000 crore. The coupon rate (interest rate) on these ranges from 8.12% to 8.55%. Of the total bonds issued more than 80% are contributed by just 3 states – Rajasthan, UP and Haryana. To understand the impact of the bond issuance, we analyzed the balance sheet of one Discom (the Jaipur Discom). The key points are:

*Coupon rates are as per latest issuance
Total debt of the Jaipur Discom has reduced by Rs 5,722 crore, or 22% of the total. However, this ag-gregate number includes a significantly higher amount of debt that was directly taken by the Discom from the banks. This debt is now replaced with debt owed to the state government. Thus, while the debt burden of the Discom has not changed much, its the banks that have benefited the most – they now own government bonds (which are a very good asset to own), compared to Discom loans. The performance on the actions that the Discom’s were supposed to take is analyzed below.

Note : Additional Bank debt taken over in June 2016 – Rs 7,228 crore.

Tariff increases:
Of the 8 largest Discom’s analyzed, not a single Discom undertook tariff revisions on a quarterly basis. Further, there was a wide difference between tariff increases of different Discoms. Discom’s of UP, Punjab, Bihar, Jharkhand & J&K did not increase tariff at all. While Ra-jasthan increased domestic tariff by 2%, Chhattis-garh increased the same by 21%. It is important to note that while Rajasthan issued bonds of 58,000 crores, Chhattisgarh only issued bonds for Rs 870 crores (the lowest amongst all states).

Haryana raised domestic tariff by a respectable 19%Industrial tariff increased also show a similar story – Rajasthan raised tariffs by 1.67%. ,Haryana by 0.98%, while Chhattisgarh by 18%. Other states did not raise tariffs.
Renewable Purchase Obligations:
An important requirement of the UDAY scheme was that Discom’s were to be fully complaint of RPO  from April 1, 2012 onwards. The scheme document says the following with regards to RPO -
“Clause 9 – DISCOM’s opting for the scheme will comply with the Renewable Purchase Obligation (RPO) outstanding since 1st April 2012, within a pe-riod to be decided in consultation with MoP”


However, the MoU entered between the Ministry of Power and the Discom’s is completely silent on the RPO requirement. Prima facie, it appears that this point has been dropped by the Ministry. The only exception is the MoU with UP Discom, which has the following provision.
“Clause 1.3 (f) – In compliance with the Renewable Purchase Obligation (RPO) outstanding since 1.4.2012 to 31.3.2015, Discoms of UP shall fulfill RPO obligation 3 years after the Discom reaches break-even i.e. the Financial year 2019-20”
This clause presents several legal and practical prob-lems that will impact the REC markets significantly. Firstly, it is in direct contravention to the Electricity Act 2003 which obligates RPO on all consumption.

There is no provision for waiver or roll forward of such obligations. In light of this, can the MoP and UP Discom circumvent an act of the parliament and mutually decide a timeline for compliance? Further, the MoU wordings itself leave ample scope for further delay/ waiver when it says – “...3 years after the Discom reaches break-even…”. If the Discom does not reach break-even does that mean it will get further time?
In short, the original intent of the UDAY scheme re-sulting in RPO compliance has been abandoned by the Ministry of Power itself.
Reduction in AT&C losses:
AT&C losses remain very high for most Discom’s in the country. This is due to several reasons – weak distribution infrastructure being one. However, this caption is also a proxy for un-checked theft of power and un-metered supply. Even without the UDAY scheme, AT&C losses have been declining. However, since this data becomes available only at the time of ARR filing by the Discom, it is not possi-ble to verify if the decline has accelerated after the adoption of UDAY.

*Source: Forum of Regulators (FoR) Report
Conclusion:
The UDAY scheme has resulted in significant redrawing of the balance sheet of the Discoms. The beneficiaries of the scheme have been the banks, which were sitting on unsustainable levels of debt with loss making enti-ties. This debt has now been replaced with high quality government debt. However, in terms of real reforms and changes on the ground, whether relating to tariff increases or RPO compliance, there seems to be little that is changing. Unless the government follows through with actual op-erational changes, the story is likely to repeat itself over the next 5-10 years, where Discom’s will have again built up unsustainable debt and losses.

Our previous blog on Uday scheme can be accessed here.

Andhra Pradesh Electricity Regulatory Commission (Renewable Power Purchase Obligation and its Compliance)

The Ministry of Power (MoP) had recently declared the national RPO trajectory.  The order had enlisted the yearly RPO trajectory for both non-solar and solar power purchase from 2016-17 till 2018-19. Following the steps of MoP RPO trajectory, Chhattisgarh, Himachal Pradesh and now Andhra Pradesh has notified its Renewable Power Purchase Obligation and its Compliance, regulations which will be effective from April 17, 2017.

The regulation will be applicable to:

  • The distribution licensee
  •  Or any person, consuming electricity procured from conventional sources through open access third party sale,
  • Every consumer owning a captive generating plant of installed capacity 1 MW and above and synchronized with the Grid.

 

The table below shows the Minimum Quantum of Purchase in percentage (%) from renewable sources (in terms of energy in kWh) of total consumption:

 

The said obligations will be applicable on total consumption of electricity by an obligated entity, excluding consumption met from hydro electric sources of power.

 

Analysis:

  • RPO to be applied on co-generation power
  • The distribution licensees shall compulsorily procure 100% power produced from all the Waste-to-Energy plants in the State, in the ratio of their procurement of power from all sources.
  • The Consumption from hydro sources to be excluded
  • RPO % is proposed to increase steeply – from 11.50% in 2016-17 to 17% in 2018-19 line with the MoP Trajectory.
  • The graph given below gives a comparison between the MoP recent RPO Trajectory and APERC’s RPO Trajectory

The regulation can be accessed here

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