Interview with Gireesh B. Pradhan

“The market design needs a relook to revive demand growth”

The Central Electricity Regulatory Commission (CERC) has been working on a number of reforms to facilitate growth in the power sector. One of the landmark orders issued by it last year was to implement the forecasting and scheduling mechanism for wind and solar power across the country. Gireesh B. Pradhan, chairperson, CERC, spoke to Renewable Watch on wide-ranging issues including upcoming regulations, improving renewable purchase obligation (RPO) compliance, and the outlook for the sector. Excerpts…

What is your assessment of the current state of the power sector? What have been its biggest achievements in the past one year?

Let me answer this question in two parts. The power sector has witnessed significant developments and taken big strides to meet the growing demand. Policy and regulatory initiatives have resulted in a number of positive outcomes for the sector. These include a phenomenal addition of generation capacity, a substantial growth in renewable energy generation, and a robust short-term power market. Substantial growth has been witnessed in terms of size and transformation capacity in the transmission segment. The grid is more secure and reliable now. Further, the multiplicity of players has created growth avenues and expanded the horizon of the market.

Regarding the biggest achievements in the past year, renewable energy has achieved parity with thermal power in terms of price per unit. During the year, special efforts were made to integrate renewable generation, which started yielding results. Ancillary services have been rolled out. A regulatory framework has been created for scheduling and a deviation settlement mechanism introduced for variable solar and wind generation. This has significantly facilitated the integration of renewable generation, while ensuring secure and reliable grid operations. Going forward, we will be working on new interventions like energy storage technologies and electric vehicles.

What are the biggest bottlenecks in the growth of the power sector?

The distribution segment remains the weakest link in the power sector. The financial health of the discoms has been a major concern. Further, low demand has a cascading effect on other segments of the sector – generation, transmission and the short-term power market. This has also led to generation assets getting stranded. In order to improve the situation, discoms need to carry out proper demand estimation. There is also an urgent need to establish procedures for energy accounting to accurately identify energy losses. Tariff rationalisation needs to be carried out to help the distribution segment improve its financial health.

What are some of the key orders passed by the CERC in the past one year?

The CERC has issued many landmark orders on a wide range of issues, which have had a significant impact on the development of the sector. Taking into consideration the uncertainty and variability of renewable energy, an order for a framework on the “Forecasting and Scheduling Mechanism for Wind and Solar Technologies” was brought out. This framework requires forecasting by the system operator as well as the wind/solar generator, with the objective of minimising deviations from the schedule. By an order, additional legroom has been provided through a relaxation in the deviation limits.

Further, to provide flexibility to respond to the variations in demand and renewable energy generation, the technical minimum in the case of thermal generating units has been reduced to 55 per cent, with a corresponding compensation mechanism for the deterioration in heat rate, auxiliary energy consumption and oil support.

What is your outlook for the renewable energy sector over the next few years? What will be the CERC’s main focus for this segment?

Renewable energy generation has witnessed significant growth, with the capacity reaching 58.3 GW from less than 5,000 MW in 2002-03. India has a huge untapped renewable energy potential. Renewable energy has achieved parity in terms of cost per unit vis-à-vis thermal power.

However, the demand for renewable power has not been adequate. The creation of substantial renewable generation capacity brings along certain long- and short-term challenges that require the attention of policymakers and regulators. Considering the ambitious targets we have set for ourselves, we need to see how well we are positioned in terms of policy guidelines, regulatory frameworks and a conducive market ecosystem to mainstream and integrate intermittent renewable energy sources.

At present, India has a renewable energy capacity of around 58.3 GW. Considering a total renewable energy capacity of 175 GW, a goal determined by the government, grid management is expected to become even more difficult. Therefore, the need for flexibility in thermal generation assumes importance as more and more renewable generation is integrated. Generation from renewable energy sources, especially solar and wind, is inherently variable in nature and as such, needs to be balanced adequately. Given that renewable energy generation has zero variable cost, it is treated as must-run. Coupled with this, we also need to address the issues of variability and uncertainty. Therefore, India needs to plan ahead; more so in the context of the ambitious renewable energy target of 175 GW. These challenges warrant a specific energy “storage” solution to cater to peak demand as well as to address the variability of intermittent generation.

RPO is an important part of the renewable energy market design. The act mandates the state electricity regulatory commissions (SERCs) to specify RPOs. Therefore, the responsibility of RPO enforcement on the obligated entities rests with the respective SERC. Most of the SERCs have specified minimum RPO targets for obligated entities in their states. However, compliance remains an issue. Some SERCs have also allowed the carry forward of RPO compliance targets. The SERCs need to ensure strict compliance of RPO targets by distribution utilities. They may need to consider the creation of a separate fund or provisioning as part of the annual revenue requirement of the discom to meet the expenditure towards RPO compliance. We have been raising this issue in the Forum of Regulators (FoR) at regular intervals. In the last meeting of the FoR, it was decided to evolve a web-based tool for RPO monitoring and compliance. We are working on it.

In order to improve the scenario at the ground level, the states have to adopt the framework for effective integration of renewable energy generation. A high-level technical committee has been constituted under the chairmanship of the CERC member, technical, to identify and examine the key issues and suggest suitable methods for the states to effectively adopt regulations for renewable energy integration at the state level.

What are the short- and medium-term priorities for the CERC?

The short-term priorities before the commission are a review of the status of grid reliability and effectiveness of the deviation settlement mechanism. A review of the performance of the short-term electricity market, tariff regulations for renewable power, the renewable energy certificate framework and ancillary services operations are some of the other priorities for the commission in the near future. As regards long-term priorities, the commission would like to work on connectivity, long-term and medium-term open access, the design for further development of electricity markets and frameworks for the integration of renewable energy into the grid.

What is your outlook for the power sector for the next few years?

We have several issues to deal with in the power sector. What we need is commitment and determination to address them effectively. As regards the present problem of the financial ill-health of discoms, the Ujwal Discom Assurance Yojana has the potential to make a difference and it needs to be implemented in right earnest. The scheme does not just provide financial support; it is also linked to a mutually agreed and do-able performance trajectory. We are currently experiencing a phase of low demand for power, resulting in stranded generation capacities. The market design needs a relook to revive growth in demand.

The transmission segment is experiencing problems, chiefly owing to right-of-way issues. Appropriate policy prescriptions need to be put in place to mitigate these problems. The commission considers emerging generation capacities through renewable sources as critical to achieving energy security for the nation. Therefore, firming up a robust regulatory framework for seamless integration of renewable energy is a critical area to focus on.

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