Renewable Energy Policies, Regulations, REC and RPO

1. Renewable Energy Policies, Regulations, REC and RPO alka, assistant director, NPTI, PSTI, Bangalore June 2011

2. ENERGY Then……… & Now…..

3. Energy use has changed a great deal since people relied solely on the sun, their own strong bodies or beasts of burden as energy resources.

4. Long ago, people learned how to use water power to turn paddle wheels and wind power for transportation and irrigation

5. People learned to use the chemical energy stored in materials like wood to cook and heat their homes.

6. But machines and technologies introduced during the Industrial Revolution of the late 18th century required the use of other energy resources, especially fossil fuels.

8. Limited Fuels At present consumption levels- Crude oil will last only for 40 years. Gas will last for 60 years. Coal will be finished in nearly 200 years.

10. PROVEN OIL RESERVE/CONSUMPTIONINDIA VS. WORLD

11. Ever thought of life without oil and gas?

14. PROBLEMS? Limited fuels available on earth. Increasing Consumption of energy Polluted environment

16. RENEWABLE ENERGY

17. Policies for Renewable Energy in India

18. Background of the MNES • Early 70’s: search for new and renewable energy resources that would ensure sustainable development and energy security. • 1981: GoI establishes CASE (Commission for Additional Sources of Energy) in the DST • 1982: CASE formally incorporated in the newly founded DNES (Dept of Non-conventional Energy Sources). • 1992: DNES became MNES (Ministry of Non-conventional Energy Sources)

19. Policies, Procedures and Incentives Policies Prime Minister of India has announced a goal of 10% share for RE or 10,000 MW in the power generation capacity to be added during the period upto 2012.

20. Policies, Procedures and Incentives Renewable Energy Policy A comprehensive RE Policy for all-round development of the sector, encompassing allthe key aspects, has been formulated by MNES. The broad objectives envisaged in thepolicy are:  Meeting the minimum energy needs through RE  Providing decentralised energy supply in agriculture, industry, commercial andhousehold sectors in rural and urban areas, and  Providing grid quality power.

21. Policies, Procedures and Incentives Policy for All-round Development of Renewable Energy Policy measures aim at overall development and promotion of renewable energytechnologies (RETs) and applications. Policy initiatives encourage private as well as FDIincluding provision of fiscal and financial incentives for a wide range of RE programmes. Further, the procedures have been simplified, and provide excellent opportunities forincreased investment in technology up-gradation, induction of new technologies, marketdevelopmentand export promotion.

22. Foreign Investment policy • Foreign investors can enter into a joint venture with an Indian partner for financialand/or technical collaboration and for setting up of RE-based power generationprojects • Hundred per cent foreign investment as equity is permissible with the approval of theForeign Investment Promotion Board (FIPB). • The Government of India also encourages foreign investors to set up RE-based powergeneration projects on Build, Own and Operate (BOO) basis. Various Chambers ofCommerce and industry associations in India provide guidance to the investors infinding appropriate partners

23. Foreign Investment policy • The Government of India encourages foreign investors to set up power projects onBOO basis. Investors are required to enter into a power purchase agreement with theconcerned state government • No prior approval of the government is required to set up an industrial undertakingwith Foreign Direct Investment (FDI) by Non-Resident Indians (NRIs) or OverseasCorporate Bodies (OCBS) • The Reserve Bank of India (RBI) has permitted Indian companies to acceptinvestment under the 'automatic route' without obtaining prior approval from RBI.Investors are required to notify the regional office of RBI, of receipt of inwardremittances within 30 days of such receipt and file required documentation within 30days of issue of shares to foreign investors

24. Industrial policy MNES is promoting medium, small, mini and micro enterprises for manufacturingand servicing of various types of RE systems and devices. Industrial clearances are not required for setting-up of an RE industry No clearance is required from Central Electricity Authority (CEA) for powergeneration projects up to Rs 1,000 million A five-year tax holiday is allowed for RE power generation projects Soft loans are available through IREDA for RE equipment manufacturing Facilities for promotion of Export Oriented Units (EOUS) are available for the REindustry

25. Industrial policy Financial support is available to RE industries for R&D projects in association withtechnical institutions Private sector companies can set up enterprises to operate as licensee or generatingcompanies Customs duty concession is available for RE spares and equipment, including thosefor machinery required for renovation and modernisation of power plants. Excise dutyon a number of capital goods and instruments in the RE sector has been reduced orexempted

26. Policies by State Governments A number of states have announced policy packages including banking, third partysale and buy- back Some states are providing concessions or exemption in state sales tax. These ratesvary widely from state to state and between different technologies.

27. Incentives Incentives for Investing in RETs MNES provides financial incentives, such as interest and capital subsidy Soft loans are provided through: IREDA, a public sector company of the Ministry Nationalised banks and other financial institutions for identified technologies/systems The government also provides various types of fiscal incentives for the RE sector, which include: Direct taxes - 100 per cent depreciation in the first year of the installation of the project Exemption/reduction in excise duty Exemption from Central Sales Tax, and customs duty concessions on the import of material, components and equipment used in RE projects

28. Incentives Direct Taxes Concession under Income Tax Rules Under Income Tax Rules number of concessions are available to the non-conventional energy sector Financial Incentives Details of various schemes on financial incentives and promotional measures providedfor different renewable energy technologies categorised as Energy from Waste, Solar Photovoltaic Power, Solar Thermal Systems, Biogas Plants

29. EA 2003 The Act 2003 has several enabling provisions, witha view to promote accelerateddevelopment of non-conventional energy based power generation Section 86(1) (e), “The State Commission shall promote co-generation andgeneration of electricity from renewable sources of energy by providing suitablemeasures for connectivity with the grid and sale of electricity to any person, and alsospecify, for purchase of electricity from such sources, a percentage of the totalconsumption of electricity in the area of a distribution licence”

30. EA 2003 Section 3 (1), Government of India (GoI) shall, from time to time, prepare the National Electricity Policy and Tariff Policy, in consultation with the State Governments for developing the power system based on optimal utilisation of resources such as coal, natural gas, nuclear, hydro, and renewable sources of energy. Section 4, GoI shall, after consultation with the State Governments, prepare a national policy, permitting stand-alone systems (including those based on renewable sources of energy) for rural areas.

31. Legal Frame Work for Renewable Energy Section 61 (h) of the Act - SERC may specify the terms and conditions for the determination of the Tariff for co-generation and generation from the Renewable Energy Sources • May be guided by the Central Commission.

32. Policy and Regulatory Frame Work for Renewable Energy The National Action Plan on Climate Change (NAPCC) – aims at increasing the share of Renewable Sources of Energy from 5% of the total Energy Mix in 2010 to 15% by 2020 •Ministry of Power, GoI Resolution dated 20.01.2011 – SERCs shall also reserve a minimum percentage for purchase of Solar Energy from the date of Notification in the Official Gazette (22.01.2011) which will go up to 0.25% by end of 2012-12 and further upto 3% by 2022.

33. Quantum of RE required to meet NAPCC target (BU)

34. Technology wise capacity addition required (MW)

35. Implementation and Delivery mechanism Ministry: encouraging the setting up of grid-interactive power projects based on renewable energy through private investment route. State Nodal Agencies: are responsible for promotion and development of private sector projects by way of providing necessary clearances, allotment of land, allotment of potential sites in case of SHP projects and facilitating power purchase agreements etc. SERCs: determining tariffs. Leading financial institutions and banks: financing renewable energy based power projects.

36. CERC (Terms & Conditions for recognition & issuance of REC for RE Generation)Regulations, 2010

37. 2. Definitions and Interpretation • ‘Act’means the Electricity Act, 2003 • ‘Certificate’means the renewable energy certificate issued by theCentral Agency in accordance with the procedures laid down by it andunder the provisions specified in these regulations • ‘eligible entity’means the entity eligible to receive the certificates underthese regulations

38. 2. Definitions and Interpretation • ‘floor price’means the minimum price as determined by the Commissionin accordance with these regulations at and above which the certificatecan be dealt in the power exchange • ‘forbearance price’means the ceiling price as determined by theCommission in accordance with these regulations within which only thecertificates can be dealt in the power exchange • ‘obligated entity’means the entity mandated under clause (e) of subsection(1) of section 86 of the Act to fulfill the renewable purchaseobligation

39. 2. Definitions and Interpretation • ‘preferential tariff’means the tariff fixed by the Appropriate Commission for sale of energy, from a generating station using renewable energy sources, to a distribution licensee • ‘renewable purchase obligation’means the requirement specified by theState Commissions under clause (e) of sub-section (1) of section 86 of theAct, for the obligated entity to purchase electricity from renewable energysources; • ‘State Agency’means the agency in the concerned state as may bedesignated by the State Commission to act as the agency for accreditationand recommending the renewable energy projects for registration and toundertake such functions as may be specified under clause (e) of subsection(1) of section 86 of the Act;

40. RPO & REC • The Electricity Act, 2003, the policies framed under the Act, as also theNational Action Plant of Climate Change (NAPCC) provide for a roadmap forincreasing the share of renewable in the total generation capacity in thecountry. • However, RE sources are not evenly spread across different parts ofthe country.In some states there are avenues for harnessing the RE potentialbeyond the RPO level fixed by the SERCs. However, the high cost ofgeneration from RE sources discourages the local distribution licensees frompurchasing RE generation beyond the RPO level mandated by the StateCommission. • It is in this context that the concept of REC assumes significance. Thisconcept seeks to address the mismatch between availability of RE sources andthe requirement of the obligated entities to meet their renewable purchaseobligation. It is also expected to encourage the RE capacity addition in Stateswhere there is potential for RE generation as the REC framework seeks tocreate a national level market for such generators to recover their cost.

41. 3. Central Agency and Functions • CERC has designated National Load Dispatch Center( NLDC) to undertake thefunctions of Central Agency under the CERC REC Regulations. • The CERC REC Regulations envisage functions of the Central Agency as follows: • 1. Registration of Eligible Entities, • 2. Issuance of Certificates, • 3. Maintaining and Settling Accounts in respect of certificates, • 4. Repository of Transactions of Certificates and • 5. Other function incidental to the implementation of Renewable Energy CertificateMechanism as may be assigned by the Commission.

42. State Load Despatch Centre a. Follow Indian Electricity Grid Code and State Grid Code for the purpose of accountingrenewable energy injected into the grid. b. In case the Eligible Entity is connected to the transmission network, maintain therecord of meter readings and communicate the energy injection report for eachaccredited RE project of the registered Eligible Entity within State to the Central Agencyon monthly basis. c. In case the Eligible Entity is connected to the distribution network of Distribution Utility,establish protocol for receipt of information and maintenance of the record of meterreadings for such RE projects. Further, arrange to communicate injection report for each accredited REproject of the registered Eligible Entity within the State to the Central Agency onmonthly basis.

43. State Load Despatch Centre d. In case the Eligible Entity is CPP and is connected to the transmission/distributionnetwork of Transmission/Distribution Utility, SLDC shall establish protocol for receipt ofinformation and maintenance of the record of meter readings including self consumption forsuch RE projects. Further, SLDC shall arrange to communicate injection report for each accredited REproject of the registered Eligible Entity within the State to the Central Agency on monthlybasis. e. Communicate renewable energy injected into the grid for each accredited RE project ofthe registered Eligible Entity within State to the State Agency.

44. 4.Category of Certificates Solar and Non-Solar certificates 5. Eligibility and Registration of Certificates Eligiblity conditions: Obtained accreditation from state agency No PPA to sell at preferential tariff Sell electricity to distribution lecensee at a price not exceeding the pooled cost of power purchase of that licensee

45. 6. Revocation of Certificates7. Denomination and Issuance of Certificates8. Dealing in certificates: only through power exchanges9. Pricing of Certificates10. Validity and extension of Certificates11. Fees and Charges12. Funding for capacity building of state Agency13. Appointment of Compliance Auditors14. Power to give Directions15. Power to relax

46. Salient Features of REC framework • Renewable Energy Certificate (REC) mechanism is a market basedinstrument to promote renewable energy and facilitate renewable purchaseobligations (RPO) • REC mechanism is aimed at addressing the mismatch between availabilityof RE resources in state and the requirement of the obligated entities to meetthe renewable purchase obligation (RPO). • Cost of electricity generation from renewable energy sources is classified ascost of electricity generation equivalent to conventional energy sources andthe cost for environmental attributes.

47. Salient Features of REC framework • RE generators will have two options i) either to sell the renewable energy at preferential tariff or ii) to sell electricity generation and environmental attributes associated with RE generations separately.

48. Salient Features of REC framework • The environmental attributes can be exchanged in the form of Renewable Energy Certificates (REC). • REC will be issued to the RE generators for 1 MWh of electricity injected into the grid from renewable energy sources. • REC would be issued to RE generators only. • REC could be purchased by the obligated entities to meet their RPO under section 86 (1) (e) of the Act. Purchase of REC would be deemed as purchase of RE for RPO compliance. • Grid connected RE Technologies with minimum capacity of 250 KW and approved by MNRE would be eligible under this scheme. • RE generations with existing PPAs are not eligible for REC mechanism.

49. Salient Features of REC framework • SERC to recognize REC as valid instrument for RPO compliance. • SERC would define open access consumers, captive consumers as obligated entities along with distribution companies. • SERC to designate State agency for accreditation for RPO compliance and REC mechanism at State level. • CERC to designate Central Agency for registration, repository, and other functions for implementation of REC framework at national level. • Only accredited project can register for REC at Central Agency.

50. Salient Features of REC framework • Central Agency would issue REC to RE generators for specified quantity of electricity injected into the grid. • REC would be exchanged only in the CERC approved power exchanges. • Price of electricity component of RE generation would be equivalent to theweighted average power purchase cost of the discom including short termpower purchase but excluding renewable power purchase. • REC would be exchanged within the forbearance price and floor price. Thisforbearance and floor price would be determined by CERC in consultationwith Central agency and FOR from time to time.