MERC denies Cleanmax’s plea to use Open Access and Net metering simultaneously

In a petition filed by Cleanmax Enviro Energy Solutions Pvt. Ltd., the organization had sought clarification regarding the net metering arrangements for Open Access consumers under the MERC regulations 2015 from the commission. As a part of the reply to the petition, according to the ruling by MERC, the generators cannot use both Open Access and net metering simultaneously. The regulatory commission also mentioned that benefits of net-metering are limited to the rooftop solar installations with capacity up to 1 MW only. The generators above 1 MW can avail Open Access.

The explanatory ruling came as a result of responding to a petition filed by Cleanmax Solar to grant net metering permission for a 991 kW rooftop solar photovoltaic (PV) project at Asahi India glass limited situated at MIDC – Taloja, Raigad Maharashtra. Asahi was a customer of MSEDCL with a contract demand of 7500 kVA connected at 100 kV. Asahi also availed partial open access at 3,000 kVA from traditional energy under a group captive arrangement from Sai Wardha Power Generation Limited. In 2017, Asahi made an application for Net Metering arrangement for the Rooftop Solar Photovoltaic system under the rooftop solar regulations 2015.

After listening to both the party’s petition the commission came to a decision that…

“Net metering and Open Access are two different sets of arrangements for different eligible consumers and its Regulatory framework also has been provided by the two different Regulations. If these two arrangements are mixed up then there are various issues related to Grid security, accounting, billing, settlement etc. Hence, the Commission has made Net Metering Regulations for “below 1 MW” and Open Access for “1 MW and above” and cannot avail simultaneously by same consumer”.

Hence denying Cleanmax’s plea.

One of the reasons for the commission to take this decision was their concern for grid security due to which the DISCOMs would have to go into distribution network contingencies and other related issues to Open Access and Net Metering Simultaneously.

RULING FROM COMPETITION COMMISSION MAY RESULT IN SIGNIFICANT CHANGES IN ELECTRICITY SECTOR

In a recent Judgement, the Competition Commission of India (CCI) considered the case of an electricity consumer that was repeatedly denied open access permission. In this case, the consumer approached the CCI alleging “abuse of dominant position” on part of the state utilities. The case was filed by HPCL-Mittal Pipelines Limited (‘HMPL’) against denial of open access. In this case, “upstream network constraints” were cited to disallow OA application multiple times.

 

The CCI found that prima facie denial of open access in the above case did result in violation of Sec 4(2)(c) of the Competition Act 2002. This clause refers to “abuse of dominant position by denial of market access”. The CCI has ordered a detailed investigation in the matter.

 

The CCI also made certain other interesting observations in the case:

 

  1. In the above case, it identified “conflict of interests situation” between the various constituents of the electricity utilities like the Discom, TransCo, SLDC, etc due to “structural linkages”, i.e. common holding structure. The order states the following:

It appears that OP-2 has leveraged its dominant position in the relevant market to adversely affect the competition in the downstream market, where it is present through its group entity OP-3. The structural linkages between the OPs as depicted in the diagram illustrated earlier also points toward the conflict of interest that exists in the present case. Thus, given the conflict of interest situation that exists in the present case, anti-competitive motive behind such denial by OP-2 cannot be ruled out and may need to be tested in detailed investigation.

 

  1. The case dwells in depth on the jurisdiction of the CCI to rule on such cases given that the EA2003 is also a special statute that deals with all matters of electricity. The CCI finds that there are enough grounds and supporting case laws to justify its jurisdiction as far as competition related matters are concerned across all sectors.

 

This judgement is certainly a very interesting development for the electricity sector, as denial of open access permissions is a problem across most states. The inherent conflict of interest is evident, as often the Discom itself has to approve OA applications, in what will effectively result in taking away of its own best paying consumers.

The regulatory regime of the sector itself, especially the State Regulatory Commissions (SERCs) have so far taken a view that has supported the Discom’s, at the cost of the overall market and sector. Examples include setting of Cross-subsidy surcharges without regards to the formula and limits defined in the National Tariff Policies, upholding denial of open access in many cases, etc.

 

It is hoped that an outsider, for example CCI, which does not bring with it the baggage of the SERCs, or the “conflict of interest” that results from the government appointing the electricity regulator and owning the entire value chain, will catalyse real change in the electricity sector.

DERC DETERMINES TERMS AND CONDITIONS FOR DETERMINATION OF OPEN ACCESS POLICY:

DERC has released an order determining the terms and conditions for open access charges for FY 2017-18. Following are the salient features of the order:

 

  • Eligibility: Short Term Open Access (STOA) is applicable to consumers having a contract demand of 1 MW and above connected at 11 kV or above.

  • Metering Arrangements: The distribution licensee shall provide check meters of the same specifications as the check meters. The distribution licensee shall provide ABT compliant special energy meters at the point of drawal. The formats for availing open access approvals have also been notified

  • The 60 day timeline has also been defined for the procurement, testing and installation of ABT meters.

Screenshot (244).png

The previous open access policy was announced in 2005. As of now, there are close to 60 clients in Delhi in Open Access which are trading power. As per the last policy, the quantum of energy traded had to be constant which is not the case anymore.

Earlier, an undertaking used to be taken in case of a mixed feeder which is still the case. Also, the SNAs asked for Bank Guarentee which included open accessed charges which is also still the case.

The order can be accessed here.

Himachal Pradesh Electricity Regulatory Commission Determines Additional Surcharge

HPERC in its recent order determined the Additional Surcharge on the consumers availing Short Term Open Access Consumers. The Commission earlier approved the rate of additional surcharge as 78paise/kWh in its order dated 18th Feb, 2016.

The HPSEBL has, vide the present petition, requested the Commission to approve the Additional Surcharge of 80 paise per unit for STOA.

After reviewing all the comments and suggestion from the stakeholders and objectors the commission deter-mines the Additional surcharge to be 49.16paise/kWh. The graph below depicts the change in additional sur-charge over the past three control periods :-

The regulation can be accessed here.

 

Gujarat Electricity Regulatory Commission determines Additional Surcharge for Open Access Consumers 2016-17

Gujarat Electricity Regulatory Commission (GERC) in its order dated 1st October 2016 has computed the additional surcharge payable by the Open Access Consumers for the control period of 1st October 2016 to 31st March 2017.

The order has come as per the GERC Open Access Regulation which states, that additional surcharge shall be determined in every 6 months periods.

The GUVNL (Gujarat Urja Vikas Nigam Limited) furnished the data to the commission as per the guidelines defined and proposed an additional surcharge of Rs. 0.44/kWh. The additional surcharge has decreased by Rs. 0.22/kWh from the previous surcharge.

The Additional Surcharge will be applicable to the consumers of MGVCL, UGVCL, PGVCL and DGVCL, who avail power through open access from any source other than their respective DISCOMs and will be applicable for the open access transaction commencing from 1st October, 2016 to 31th March, 2017. The graph below depicts how the addition surcharge has varied over the past:

The regulation can be accessed here.

RERC determines Additional Surcharge for Open Access Consumers 2016-17

In the recent decision the Rajasthan High Court passed an order against RERC for the levy of Rs.1/kWh as Additional Surcharge on all Open Access Consumers.

On 12.05.2016 Rajasthan Electricity Regulatory commission passed an order for the levy of additional surcharge for all the Open Access consumers. This had negative Implication on any consumer willing to buy power from a third party in the state. The surcharge made all the Open Access transactions in the state highly unviable. Even the Green Power Transactions were not exempted from the surcharge.

In its verdict the High Court has “set aside” the verdict passed on 12.05.2016 and has provided directions to RERC to follow and obtain the desired information in a rightful and transparent manner.

The court has provided following direction to the State Regulatory Commission:

  • The RERC should make a public advertisement to notify the Objectors
  • The requisite advertisement to be made in two Vernacular and one English Newspaper
  • The advertisement will also notify the date of hearing within one week of the last date for collection of material as per advertisement.
  • RERC will hear the objectors and pass orders within ten days. The objectors will not be entitled to any adjournment.
  • The parties agree that the additional surcharge, if any, determined by RERC would be payable effective the date it was payable under the order dated 12.05.2016.
  • The current order has been occasioned only for reason of violation of principles of natural justice in passing the impugned order dated 12.05.2016 and is not reflective of the merits of the levy of additional surcharge or its quantu

The order can be accessed here.

 

 

MNRE Issues Notice on RPO compliance

The Ministry of New and Renewable Energy in collaboration with Government of India has made a great initiative by spreading the message about RPO and the need for its compliance through Times of India.  The Government highlights that all the obligated entities must comply with their RPO by March 15-16 since this trading session will be the last trading session of the compliance year, whose result calls for stricter enforcement by states. The Times of India’s article can be viewwd below

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.

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.

TN lifts ban on inter state open access

According to an article in Times of India (refer), Tamil Nadu has allowed consumers and generators in the state to procure and sell power from/to outside states.

The directive comes in continuation to commitment given by Hon’ble CM of TN –  that there would be no scheduled power cuts in the state and also grated “must-run” status to all windmills.

A statement from Raj Bhawan reads –

“In exercise of the powers conferred by sub-section (1) of Section 11 of the Electricity Act, 2003 (Central Act 36 of 2003), the Governor of Tamil Nadu hereby rescinds the Energy Department Notification No. II(2)/EGY/104(c)/2009, published at page 1 of Part II—Section 2 of the Tamil Nadu Government Gazette, Extraordinary, dated the February 17, 2009,”

Following this directive it can be expected that power business in Tamil Nadu becomes more competitive with time.

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