Renewable Energy Regulations: Issues and India’s Reponse

1. Renewable Energy Regulations:Issues and India’s Reponse Rajkiran V Bilolikar

2. Agenda • Renewable Energy Scenario • Policy Base for RE promotion • RE regulations support • RE regulations Issues • Pricing Options

3. Technical Potential of Renewable Energy • Technical Potential of Renewable Energy in MW

4. Technical Potential of Renewable Energy • India’s installed capacity of Renewable power in MW (31.03.2008)

5. Technical Potential of Renewable Energy • State wise Gross Potential and Installed Capacity in MW - WIND

6. Technical Potential of Renewable Energy • Biomass Power Generation Potential and Installed Capacity

7. Technical Potential of Renewable Energy • State wise Gross Potential and Installed Capacity in MW - Biomass

8. Technical Potential of Renewable Energy • State wise Gross Potential and Installed Capacity in MW – Small Hydro (2007

9. Technical Potential of Renewable Energy • Solar Based installations in India – March 31, 2008

10. Technical Potential of Renewable Energy • India Receives Solar Energy - 5000 trillion kWh/year equivalents • (Total Energy Consumption in FY 2010-11 projected as 848 billion kWh by CEA)

11. Renewable Energy Programme - India • India Started its renewable energy programme in 1981 - Establishment of Commission for Additional Sources of Energy • Converted the same into Ministry of Non conventional sources of Energy resources in 1992 • In year 2006, it was renamed – Ministry of New and Renewable energy (MNRE)

12. Policy Base for RE Promotion • Electricity Act 2003 • Section 86(1) of EA 2003 mandates SERC to “Promote Co-generation from Renewable Sources of energy by providing suitable measures for connectivity to Grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of total consumption of electricity in the area of distribution licensee” • National Tariff Policy • Para 6.4 of the Tariff Policy stipulates “Pursuant to provisions of 86(1) (e) of EA 2003, Appropriate Commission shall fix minimum percentage for purchase of power from RE sources in the region and its impact on retail tariffs”

13. Policy Base for RE Promotion • National Rural Electrification Policies (NREP) 2006 • Include provision of access to electricity to all households by 2009 • Quality and reliable power supply at reasonable rates • For villages/habitations where grid connectivity is not feasible of cost effective, off-grid solutions based on stand alone renewable systems may be taken up • Supports to achieve target of 10% renewable energy through RPO (Renewable Purchase Obligation)

14. Integrated Energy Policy 2006 • Power regulators must seek alternative incentive structures that encourage utilities to integrate wind, Small Hydro, cogeneration into their systems • Power regulators should mandate feed-in-laws for renewable energy where appropriate, as provided under the electricity Act • Generation based incentives for MW scale grid connected solar PV and thermal power plants • An additional tariff for new wind power plants which donot claim accelerated depreciation benefit

15. Renewable Energy regulations support • Renewable Energy Purchase Obligations • Feed – in Tariffs • Fiscal Incentives such as accelerated depreciation and tax holiday • Generation Based Incentive

16. Policy Framework for Promotion of Renewable Energy • Feed-in Tariff Policy • It is a generic description of a policy that pays a price, a ‘tariff’ for the electricity generated by RE that is fed into or sold to the grid • Transparent, comprehensible, equitable

17. Policy Framework for Promotion of Renewable Energy

18. Policy Framework for Promotion of Renewable Energy • Renewable Portfolio Standard • The EA 2003 has outlined several enabling provisions to accelerate the development of RE based generation: • (Section 3): National Electricity Policy and Plan for development of power system based on optimal utilization of resources including renewable sources of energy. • (Section 61(h)): Tariff Regulations by Regulatory Commission to be guided by promotion of generation of electricity from renewable energy sources in their area of jurisdiction. • (Section 86(1)(e)): Regulatory Commission to Specify Purchase Obligation from renewable energy sources. • (Section 66): Appropriate Commission shall endeavor to promote the development of market (including trading) in power in such a manner as may be specified and shall be guided by National Electricity Policy in Section 3

19. RPOs targets in few states

20. Key Features of existing RPOs Specify % of RE every utility need to purchase: Single target for overall renewable energy purchase, Usually close to existing purchase levels, In some cases Y-o-Y targets, Technology specific targets in some States Period is up to five years, Applicable to OA/Captive in only three States, Purchase of RE from outside the State is not permitted, Silent on mode of procurement, competitive or cost based Weak on enforcement methodology

21. Policy Framework for Promotion of Renewable Energy • Foreign Investment Policy • Proposal for up to 100 percent foreign equity participation in a joint venture qualify for automatic approval • Foreign investment Promotion Board (FIPB) • Encourages for BOO basis • There is no prior approval of the Government is required to set up industrial undertaking with FDI by NRIs • RBI permitted Indian Companies to accept investment under the automatic route without obtaining prior approval from RBI to set RE based projects

22. Policy Framework for Promotion of Renewable Energy • Foreign Investment Implementation Authority (FIIA) • Under the Ministry of Commerce and Industry • Would provide one stop after care service to FIs by helping them to expedite approvals and clearances and to sort out operational problems • Act as single point interface between the investors and Govt agencies

23. Policy Framework for Promotion of Renewable Energy • Industrial Policy • MNRE is promoting medium, small, mini, micro enterprises for manufacturing and servicing of various types of RE systems and devices • For setting up of an RE industry, industrial clearances as well as no clearance from CEA for power generation up to Rs. 1000 million • RE power generation projects – five year tax holiday • RE Equipment manufacturing – soft loans are available through IREDA • Private sector companies can set up enterprises to operate as licensee or generating companies • Customs duty concession is available for RE spares and equipment

24. Policy Framework for Promotion of Renewable Energy • Joint Ventures Policy • It’s a financial as well as technical collaboration and they are used by FIs • Usually JVs are in the form of takeovers or strategic alliances • Policies for small scale industries • Does not exceed Rs. 10 million • Not permitted more than 24% equity in its paid up capital from any industrial undertaking, foreign / domestic • National Small Industries Corporation (NSIC) provides assistance

25. Policy Framework for Promotion of Renewable Energy • Incentives for investing in RETs • Fiscal incentives • Direct taxes – 100% depreciation in the first year of installation • Exemption / reduction in excise duty • Exemption from central sales tax and customs duty concessions on import of material, components etc • Income Tax • Sec 32 – accelerated 80% depreciation on specified RE based devices • Section 115 J – Exemption from MAT to industrial undertakings on profits derived from the business of generation and distribution of electricity • 100% deduction in respect of profit and gains from business of collecting and processing biodegradable wastes

26. RE Regulatory Issues - RPOs What is the basis for determination of these percentages and should the RPO include both the minimum and maximum percentage? Whether DISCOMs should be free to procure RE power from other DISCOMs in case of non-availability of RE sources within their own distribution area to meet the target? Whether the RPO percentage shall be applicable for all distribution companies operating in a state or should separate percentages be fixed for different DISCOMs? Further should the DISCOMs be free to purchase RE power from outside the state and if so how?

27. RE Regulatory Issues – Tariff/ Pricing Is it more appropriate to set tariffs for RE based power based on cost-plus principles or linked to the cost of generation of the marginal plants? Is there a tariff setting mechanism by which environmental benefits of RE sources can be quantified? In cost plus regime – can incentives be introduced by the regulator and be built in tariff structure of such sources? What would be appropriate cost sharing mechanism if tariffs which are set using the cost-plus principles exceed the average cost of generation from RE sources?

28. RE Regulatory Issues – Grid Connectivity Who should bear the cost of grid extensions up to the nearest receiving sub-station? Should there be a sharing of cost by the developer? What should be the approach for deciding the technical parameters of interconnection?

29. Alternative Approaches for Tariff Determination Cost Based Approach The cost based approach relies on the requisite station wise information and is adjusted by performance standards by regulators where the rate of return on capital investments is regulated and a cap is imposed on clear profit Marginal cost / Avoided cost based approach The marginal cost or the avoided cost based approach considers the unit cost of energy displaced at the margin by the energy generated at the margin by the renewable energy based power plant

30. Pricing options for non-firm power Short run marginal costing/Avoided cost UI Mechanism formulated under ABT Capacity charge Energy charge UI charge RECs

31. Need for inter-state sales Renewable sources are not spread evenly across country Many states with no or little RE are not able to promote RE States with good RE have exhausted their capacity Currently, no mechanism for purchase of RE across the State boundary It may not be possible to carry out inter-State sales using CERC OA Regulations for following reasons: Most RE generators are difficult to schedule Transaction would be expensive due to low capacity factors of RE RE generators are not connected to STU but to Discoms Intra-state balancing systems have not yet stabilized Therefore, a mechanism which will enable inter-state sale and purchase of renewable energy is required.

32. At National level for FY 2010, target for RE Purchase may be set at 5% of total grid purchase, to be increased by 1% each year for 10 years. SERCs may set higher target than this minimum at any point in time. Central & State Govts may set up a verification mechanism to ensure that renewable power is actually procured. Appropriate authorities may issue certificates that procure renewable power in excess of the national standard. Such certificates may be tradable, to enable utilities falling short to meet their RPS. Penalties as may be allowed under EA 2003 may be levied, if utilities are still falling short in RPS. NAPCC – Specific Provisions related to RE

33. Concept of Renewable Energy Certificate Existing Regime for sale of Renewable Energy Renewable Energy Distribution Company Commodity Electricity REC Sale of Renewable Energy under REC Regime Distribution Company Commodity Electricity Renewable Energy DISCOM OA Consumer Voluntary Market REC

34. Model Guidelines / Procedure for Accreditation

35. Procedure for Registration

36. Procedure for Issuance

37. Procedure for Redemption

38. Renewable Energy Certificates – General Features STEP 1: The applicant shall apply for Accreditation on the Web Based Application and shall also submit the same information in physical form with the State Agency. The application for accreditation shall contain (i) owners details, (ii) operator details (in case the owner and operator are different legal entities), (iii) Generating Station details In case, the Applicant has multiple RE generation projects then, separate Applications will have to be submitted by the Applicant for each RE generation project. Accreditation of each RE generation project shall be carried out separately. The Application made for accreditation of RE generation project shall be accompanied by a non-refundable processing fee and accreditation charges (one time and annual, if any) as determined by the Appropriate State Electricity Regulatory Commission from time to time.

39. Renewable Energy Certificates – General Features STEP 2: The State Agency shall assign a unique acknowledgement number to the Applicant for each application for accreditation of its RE generation project, for any future correspondence. STEP 3:After receipt of application in physical form for accreditation, the State Agency shall conduct a preliminary scrutiny to ensure Application Form is complete in all respect along with necessary documents and applicable processing fees and accreditation charges. The State Agency shall undertake preliminary scrutiny of the Application within 5 working days from date of receipt of such Application.

40. Renewable Energy Certificates – General Features STEP 2: The State Agency shall assign a unique acknowledgement number to the Applicant for each application for accreditation of its RE generation project, for any future correspondence. STEP 3:After receipt of application in physical form for accreditation, the State Agency shall conduct a preliminary scrutiny to ensure Application Form is complete in all respect along with necessary documents and applicable processing fees and accreditation charges. The State Agency shall undertake preliminary scrutiny of the Application within 5 working days from date of receipt of such Application. STEP 4: After conducting the preliminary scrutiny, the State Agency shall intimate in writing to the Applicant for submission of any further information, if necessary, to further consider the application for accreditation or reject application. The reasons for rejecting the application for accreditation shall be recorded and intimated to Applicant in writing within 2 working days from date of receipt of the completed application by State Agency. 

41. Renewable Energy Certificates – General Features STEP 5:While considering any application for accreditation of RE generation project, the State Agency shall verify and ascertain availability of following information: Undertaking of 'Availability of Land' in possession for setting up generating station Power Evacuation Arrangement permission letter from the host State Transmission Utility or the concerned Distribution Licensee, as the case may be Confirmation of Metering Arrangement and Metering Location Date of Commissioning of RE project for existing eligible RE Project or Proposed Date of Commissioning for new RE for accreditation Undertaking regarding Off-take/Power Purchase Agreement Proposed Model and Make for critical equipment (say, WTG, STG, PV Module) for the RE Project. Confirmation of compliance of critical equipment with relevant applicable IEC or CEA Standards Undertaking for compliance with the usage of fossil fuel criteria as specified by MNRE Details of application processing fees/accreditation charges

42. Renewable Energy Certificates – General Features STEP 6: The State Agency, after duly inspecting/verifying conditions elaborated in Step 5, shall grant 'Certificate for Accreditation' to the concerned Applicant for the proposed RE Generation project assign a specific project code number to that effect which shall be used by the such Applicant (Eligible Entities) for all future correspondence with the State Agency. The process of accreditation shall normally be completed within 30 days from date of receipt of complete information by State Agency. In case accreditation is not granted at this stage, the reasons for rejecting the application for accreditation shall be recorded and intimated to Applicant in writing. STEP 7: If accreditation is granted, the State Agency shall also intimate accreditation of particular RE generation project to the following entities, The Central Agency, as defined under Clause 2(1) (b) The host State Load Despatch Center The distribution company in whose area the proposed RE generation project would be located.

43. Renewable Energy Certificates – General Features 1 “certificate” ≃ 1 MWhe of renewable energy generated Mechanism is used in many countries, RPS (US & Japan), ROCs (UK), RECs (Australia). Certificates are traded to meet the mandatory targets for RE purchases by utilities/DISCOMs Targets establish demand Market for RECs sets price At times regulators fixes the ceiling price ~ in form of penalty to bring in certainty Purchase of REC would be deemed as purchase of renewable energy. Entity under S 86(1)(e) obligation can purchase RECs to satisfy its obligation.

44. RECMechanism for implementation in India Renewable Energy Certificate (REC) shall be proof that certain environmental attributed have been produced by way of generation of renewable energy RE generators will be selling two products: Electricity generated by RE source Environmental attributes in the form of REC Electricity will be procured by the licensee to whose network RE generator is connected Purchase would be at the prices determined by the SERC which may be average power purchase price for that utility It will reduce the burden on the local distribution licensee RECs could be procured by all entities subjected to RPS. For serving RPS, purchase of RECs should serve the purpose

45. Thank YouRajkiran V. Bilolikar,Assistant Professor, Energy Area,Administrative Staff College of India, Bella Vista, Raj Bhavan Road, Hyderabad - 500082T: +91 40 6653 4390F: +91 40 6653 4356M: +91 9704087888rajkiran@asci.org.in