Ministry of Power sets green energy targets for State Discoms

The Ministry of Power has issued guidelines, for long term growth trajectory for RPO of Non solar as well as for Solar. Though the guidelines have been issued, the final targets will be set by each individual state’s electricity regulatory commission (SERC).

In order to achieve the target of 1, 75,000 MW of renewable capacity by March, 2022, MNRE has notified the RPO uniformly for all States/ UTs initially for three years from 2016-17 to 2018-19 as given in the table below:

 

 

State Discoms will have to mandatorily draw at least 2.75% of their total power consumption from solar plants in the current fiscal, according to the renewable purchase obligation (RPO) norms laid down by the power ministry. Considering this proposed regulatory changes and stricter enforcement by states FY2016-17 is expected to bring a good fortune to the REC Market.

 

The article can be accessed here.

MNRE scheme for Development of Solar Zones in the country commencing from 2016-17 and onwards

MNRE has recently sanctioned the scheme for setting up of 10 solar zones. Each solar zone will be having around 10,000 hectares of government owned or privately owned wasteland, uncultivable land or fallow land in one or more than one patches. An estimated amount of Rs. 4400 crore has been granted as a Central Financial Assistance for this project.

Following are some of the highlights of the scheme:

  • The objective of the scheme is to promoted developers and investors and thereby helping the country in achieving the target of 100000MW by 2022.
  • This scheme will in return help the states in meeting its mandate RPO, and also provide employment opportunities to the location.
  • All the states and Union Territories will be eligible for benefiting under this scheme.
  • The solar zones will be developed in collaboration with the State Government and their agencies. SECI will act as MNRE’s agency for handling the scheme.
  • The state government shall identify an area having daily average insulation of over 4kWh per meter square and having around 10000 hectares of government owned or privately owned wasteland.
  • The solar zones will be set up in a span of 5 years commencing from 2015-16 and the solar projects may come in as per demand and interest shown by the developers.
  • Out of the total solar potential in the solar zone, 25% area will be set apart for deployment of manufactures of ingots, water, solar cell and modules to promote make in India.
  • 25% area for small and medium enterprises, farmers and unemployed youth and 50% for solar project developers.

The scheme 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

Analysis of Amendments in National Tariff Policy

The government recently amended the National Tariff Policy (NTP). Several reform measures have been announced in this change. NTP 2016 has increased focus on renewable energy, sourcing power through competitive bidding and the need for ‘reasonable rates’ (see box – Word Analysis of the NTP).

Executive Summary:

  • Co-generation from non-RE sources to attract RPO

  • Competitive bidding to be the norm for RE procurement (maximum 35% of installed capacity can be sourced from determined/preferential tariff)

  • Provisions for Renewable Generation Obligations (RGO) announced

  • Long term RPO to be announced by Ministry of Power

  • Vintage and technology multiplier allowed in REC

  • Inter-state transmission charges waived off for RE power

  • Solar RPO to be 8% by 2022 (excluding hydro power)

  • Calculation of Cross-subsidy methodology is suggested to be changed to make it less arbitrary

Detailed analysis:

Before delving into the nitty-gritties of the NTP, it is worthwhile to step back and understand the importance of this document. The NTP says that CERC and SERCs “shall be guided” by the tariff policy. Thus, the NTP is in no way binding. In fact, from previous NTP’s several provisions remain only on paper. For example the NTP 2011 required that tariffs be within +-20% of average cost of supply. States have certainly not followed that.

Renewable Purchase Obligations:

  1. The most significant change made is that the ambiguity on applicability of RPO on co-generation has been removed. The NTP 2016 says:

“Provided that cogeneration from sources other than renewable sources shall not be excluded from the applicability of RPOs.”

This change, once incorporated in the regulations of states, will have a significant impact on RPO applicability. Many CPPs are currently avoiding fulfilling renewable obligations due to the regulatory confusion resulting from orders from ApTel (Lloyds Metal) and Gujarat HC

  1. Solar RPO will increase to 8% by 2022. This is a substantial increase as current solar RPO is below 1% in most states.

    Another major change suggested in this clause is that solar RPO will not apply to power sourced from hydro power plants. The policy document states – “8% of total consumption of electricity, excluding hydro power, shall be from solar energy by March 2022”

    This is a significant deviation from the Electricity Act 2003 (EA2003) and current RPO regulations, which require that RPO be calculated on ‘total consumption’. This change will open up major issues in RPO implementation – for example, can this change be done when it is contrary to the requirement of the EA2003, and why should similar exemption not be extended to non-solar RPO.

  1. More clarity has been provided on Renewable Generation Obligation (RGO) provisions.

When RGO provisions were announced earlier, there were concerns of double-counting. However, the current provisions hint that RGO will not be incremental to RPO. The policy says:

  • “The renewable energy produced by each generator may be bundled with its thermal generation for the purpose of sale. In case an obligated entity procures this renewable power, then the SERCs will consider the obligated entity to have met the Renewable Purchase Obligation (RPO) to the extent of power bought from such renewable energy generating stations. 
”

Thus, RGO merely appears to bring thermal generators into the mix and make it convenient to meet RPO. It will not result in expanding the requirement for RE overall.

  1. Long term RPO to be declared by ministry of power in consultation with MNRE.

  1. Provision for allowing vintage multiplier (to take care of cost changes for RE projects) and technology multiplier (to encourage specific technologies) has been incorporated.

Procurement of power:

The preferential tariff regime for RE power appears to be on its way out. The policy says:

“States shall endeavor to procure power from renewable energy sources through competitive bidding to keep the tariff low.

Further, an overall maximum of 35% of installed capacity only can be procured by the state from SERC determined tariff. This limit includes all generation, not just RE.

Transmission of power:

Inter-State transmission charges and losses for renewable power (solar/wind) have been exempted.

This is a welcome change, as it will encourage inter-state transaction of power. However, it seems that this exemption will apply only to wind and solar projects, and not other renewables like small hydro or biomass. The draft policy had suggested that such an exemption apply to power from all renewable energy sources.

Cross-subsidy and open access:

  1. In calculating the cross-subsidy surcharge (CSS) a change in the methodology is proposed. At present, cross subsidy is calculated by using the cost of marginal power (top 5% power at the margin). Instead, now the weighted average cost of power including transmission and wheeling losses will be used.

Further, it is mandated that CSS cannot be more than 20% of the applicable tariff to the category of consumer seeking open access.

As we have shown in earlier articles, CSS determination is often arbitrary and with a purpose to discourage open access. One hopes that with the revised provisions the subjective aspects of CSS calculations will reduce. However, the policy still gives a wide leeway to SERC on this topic:

“Above formula may not work for all distribution licensees, particularly for those having power deficit, the State Regulatory Commissions, while keeping the overall objectives of the Electricity Act in view, may review and vary the same taking into consideration the different circumstances prevailing in the area of distribution licensee.”

Levy of “additional surcharge” has also been made more difficult as it needs “conclusive demonstration” of stranded capacity.

  1. Most provisions regarding open access remain the same as in the 2011 policy document.

However, a relief has been provided by limiting temporary tariff to 125% of normal tariff category.

Other changes:

Some other important changes are:

  1. Differential duties have been discouraged, particularly when states impose differential duties on captive generation.

  1. Licensees have been given the option to charge lower tariffs than those determined by the SERC if competitive conditions so demand.

  1. Provisions regarding micro-grids and protecting the investments made by micro-grid operators have been incorporated.

  1. Smart meters have been mandated for consumers consuming 500 units by 2017 and 200 units by 2019.

  1. Procurement of power from waste-to-energy plants has been made compulsory.

Conclusion:

The changes proposed in the policy are encouraging and can have far-reaching impact, particularly on the RE sector. Provisions regarding RPO on co-gen, higher solar RPO, RGO and competitive bidding can radically change the demand for RE and the way new capacities are set up.

Rational and transparent cross-subsidy calculations can also help in encouraging open access to a large extent.

However, we remain cautious on these changes. The RE related changes will require that states be willing to implement these, and the wide leeway available to SERC on cross-subsidy means that only those states that are anyways in favour of encouraging open access will adopt them. It is unlikely to expand the open access market significantly.

An analysis of the frequency of words used in the NTP 2016 amendment vs the 2011 amendment throws a light on the changing priorities of the government:

The Policy can be accessed here.

Our previous blog on National Tariff Policy can be accessed here.

REC TRADE RESULTS DECEMBER 2015

The demand response for REC’s saw very good momentum in the December’s trading session. Non Solar REC’s and Solar REC’s traded this month were 288% higher and 29.8% lower respectively, compared to trading session of November. The total transaction value of REC’s hit a sum total of Rs 156 crores, compared to Rs. 65 crores last month.

Analysis of Trading:

Non Solar – Clearing ratio in exchange were at 8.31% and 2.22% in IEX and PXIL respectively for Non Solar REC’s. A total of 898,439 RECs were traded in this trading session (in November 231,545 RECs were traded). Clearing ratio at IEX saw a huge jump, whereas the effect was opposite on PXIL.

Solar – Clearing ratio stood at 2.62% and 0.37% in IEX and PXIL respectively, compared to 2.07% and 4.97% last month. The total clearing fell by 26,165, as compared to last month, with PXIL recording very low clearance this time.

 

Trading volumes are expected to increase significantly going forward, as most obligated entities are now gearing up to fulfill their obligation considering that only 3 trading sessions are remaining in the current FY . Further, this year we have seen regulatory action in the form of compliance orders and/ or proceedings in several states like Orissa, Kerala, UP, MP and Maharashtra, to name a few. Overall the market showed clear signs of recovery, especially Non-Solar, and is expected to grow further in the closing months of the FY.

The November’s result can be accessed here.

 

MPERC waives off past Solar RPO

In a recent order, MPERC has waived off past solar RPO for its Discom’s.

 

This comes despite ApTel’s judgment specifically disallowing waive-offs, and CAG’s remark about states not meeting RPO regulations.

 

Even more telling is the fact that India is playing a lead role at the ongoing international climate talks in Paris, and has been promoting its solar capacity additions as the most ambitious in the world.

 

However, MPERC’s decision goes contrary to all of the above. In its order, MPERC has said the following:

 

“The Commission also noted that respondents could not fulfill the Solar Renewable Purchase Obligations during the FY 2014-15 also. The Commission is monitoring the progress through the Suo-Motu petition no. 43/2015 regularly. The Commission also gone through the progress achieved by the respondents during the FY 2015-16 based on which, the Commission feels that the respondents may purchase more than the Solar Renewable Purchase Obligations fixed for the FY 2015-16. This may mitigate the default on the part of the respondents in fulfilling the statutory Solar Renewable Purchase Obligations in previous financial years. Under the above circumstances, the Commission is of the view that it would not be appropriate to impose any penalty at present on the respondents.” (emphasis supplied)

 

And further -

 

“The Commission is not in agreement with the views of the petitioner that the Solar Renewable Purchase Obligations during the FY 2015-16 should be cumulative as this will generate bad practices to accumulate the shortfall and to carry forward the targets.”

 

It is worthwhile to note that in its judgment on the same issue, dated 20/11/2013, MPERC had said the following:

 

“….Commission is constrained to express serious concern on the lack of effort on the part of the utilities in fulfilling their respective RPOs. More than four months of the current financial year still remain and the respondents are directed to pursue renewable energy procurement to the maximum so that the shortfall against the RPO is minimised. Continuous failure on the part of utilities in this regard cannot be allowed to go unpunished” (emphasis supplied)

 

In response the potential bad precedent, the Commission has instead decided to not impose past year obligations, and instead hopes that excess purchase of solar power in 2015 “may mitigate the default” of prior years.

 

REConnect Analysis:

 

This order sets a very bad precedent. Not only has MPERC clearly gone against the order of ApTel, it also goes against the government’s ambitious plans of developing solar energy and all the commitments that India is making at the international stage.

 

CAG highlights gaps in RPO compliance of states; Penalties of Rs 4,234 crore not levied

In a recent audit report covering the functioning of MNRE, the Comptroller and Auditor General (CAG) has highlighted various issues on RPO compliance by states.

The main issues highlighted by the CAG are:

  • Setting RPO well below the NAPPC target

  • States have been lax in discharging their obligations under RPO regulations in every aspect. Many states have not prescribed any penalties (Rajasthan, Karnataka, UP are mentioned in the report), most do not collect data on compliance

  • Further, no states (except Uttarakhand, which has imposed a ‘token’ penalty) have imposed penalties. The CAG has estimated that a penalty of Rs 4,234.8 crore was leviable by states, but has not been done

  • CAG further mentions that “RPO was further diluted by frequent deferring of RPO targets as seen in the cases of Gujarat, Madhya Pradesh, Maharashtra and Uttarakhand”

 

REConnect Analysis:

It is good to see the CAG stepping into an area which has seen very little enforcement of rules by state regulators, despite the Supreme Court and ApTel giving clear judgements for enforcement.

It is also good to see the extent of penalties not collected being quantified for the first time. By any account, Rs 4,234 crore is a huge number. However, we believe that is is a significant understatement as the assessment by CAG covered Discom’s only – not CPPs and open access consumers who constitute a significant portion of obligated entities in the country.

 

News coverage of the CAG report can be accessed 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.

Tripura SERC Proposes New RPO Targets

The Tripura Electricity Regulatory Commission (TSERC) in its recent notification has proposed new targets for Renewable Purchase Obligation (RPO). The commission in its notification dated 18th July 2014 also proposed draft for RPO targets.

The summary of the new targets proposed is given below:

The graphs below shows the RPO targets being proposed and finalized by the commission in its previous orders and the comparison of RPO targets with the targets defined under national tariff policy:

The TERC in its new proposed targets has significantly increased the RPO targets and are almost in line with the targets defined under National Tariff Policy.

The commission has proposed significantly higher targets for FY 15-16 onwards, but it is to be seen how RPO is enforced in the state.

The order can be accessed here.

REConnect Newsletter Volume 42 – OPEN ACCESS

Dear Reader,

We are pleased to present Open Access Vol 42 – our monthly newsletter covering RECs and regulatory and market developments in the renewable energy space.

 Key points covered in this newsletter are:

 1) Analysis of Karnataka’s solar policy

 2) Regulatory updates including important changes in RPO regualtions in Rajasthan, Order of JERC for enforecemnt of RPO including    imposition of penalty, and other regulatory updates

 3) Analysis of the most recent trading session of RECs and capacities in the REC mechanism

 Past newsletters can be accessd here - http://www.reconnectenergy.com/newsletter/past-newsletters/

For latest news and updates, please visit our blog at – http://reconnectenergy.com/blog/

 As always, we will love to hear your feedback on the newsletter.

- Team REConnect

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