Madhya Pradesh

Power surplus scenario calls for revisiting its renewable strategy

In a recent order issued by the Madhya Pradesh Electricity Regulatory Commission (MPERC), the regulator has exempted renewable energy sources from merit order despatch, thereby reinstating must-run status for power generated from renewable energy sources. The decision has come as a big relief for the industry, which was in a flux ever since the state government came out with a draft order taking away the must-run status of renewable energy in August 2017. Renewable power enjoys must-run status across the country to ensure grid integration and better returns to developers.

However, renewable power producers in the state will now have to pay wheeling, transmission and cross-subsidy charges like conventional power producers. This may hurt the sector as the low tariff bids received in the previous years were largely because Madhya Pradesh offered exemptions on additional charges borne by power producers.

On the government’s part, one of the key reasons for imposing these charges could be bringing renewable energy generating companies at par with other generators, especially in the wake of rock-bottom renewable power tariffs and the power-surplus situation in the state. The last auction for solar projects in the state witnessed a winning bid at a levellised tariff of Rs 3.31 per kWh, which is lower than the state’s average cost of procuring thermal and hydel power. Meanwhile, the power-surplus situation combined with binding long-term power purchase agreements (PPAs) has landed all the three discoms into losses.

The power-surplus situation has led to a slowdown in new capacity additions, in both thermal and renewables. Consequently, a state that was considered as an emerging destination by renewable energy developers until two years back has not seen any new tender post the Rewa solar park tender, the results for which were announced in February 2017.

This is despite the fact that Madhya Pradesh has to contribute significantly to the 175 GW renewable energy target by 2022 as announced by the government. Under the target, the state is supposed to have 5,675 MW of solar, 6,200 MW of wind, 118 MW of biomass and 25 MW of small-hydro power capacity by 2022.

The story so far

In February 2017, Madhya Pradesh made headlines due to the record low solar tariff of Rs 2.97 per kWh proposed by ACME Solar in the Rewa solar park’s 750 MW auction. The state is blessed with high levels of solar irradiation and suitable wind energy development sites that make it an attractive destination to set up renewable energy projects. As of January 2017, Madhya Pradesh ranked sixth in terms of cumulative installed solar capacity (850.35 MW) among other states with a compound annual growth rate of 118.5 per cent over the past five years. This is a huge jump from a mere 2 MW of solar capacity in the state in 2011. In 2016-17, Madhya Pradesh generated 1,363.04 MUs from solar, 3,546.89 MUs from wind and 159.11 MUs from small-hydro plants. Renewable energy sources account for 19 per cent of the total installed power generation capacity in the state.

Current state of solar

Madhya Pradesh receives a high solar radiation of more than 5.5 kWh per square metre per day with around 300 days of clear sun. In 2012, the state came out with its solar policy to avail of the open access facility for selling power to third-party consumers or captive power users. Owing to the availability of solar energy and a favourable policy environment, the state saw a rapid addition in its solar capacity. In 2016-17, only 73.98 MW of solar capacity was installed in the state, which was quite low as compared to the 224.2 MW of capacity addition in 2015-16.

This lull in capacity addition over the past year can be mainly attributed to surplus power in the state, which the discoms’ were unable to procure. Moreover, Madhya Pradesh fulfilled 100 per cent of its renewable purchase obligation (RPO) target in 2016-17. The two factors combined have dissuaded the government from adding more capacity. However, an increase in capacity addition is expected in the coming years as the state has five solar power parks with a combined capacity of 3,000 MW. These solar parks are the Rewa (750 MW); Agar, Rajgarh and Shujalpur (750 MW); Neemuch and Mandsaur (750 MW); Chhattarpur (500 MW) and Morena (250 MW).

Despite low solar installations in the state, in February 2017, the solar tariff fell to a new low of Rs 2.97 per kWh in the Rewa solar park auction,  owing to lower capex and cheaper credit. The record was broken by the Rs 2.44 per kWh tariff proposed in the Bhadla solar park auction in Rajasthan.

The International Finance Corporation (IFC) signed an agreement with the Madhya Pradesh government to help develop the Rewa solar park by mobilising around $550 million in private investment. IFC is the lead transaction adviser for the project. It will provide services such as balancing public and market risks and creating a competitive auction process.

Rooftop solar makes an impact

Madhya Pradesh has set a target to install 2,200 MW of rooftop solar power capacity by 2022 out of which it has achieved 13.36 MW as of August 2017. In 2015, a net metering policy was announced under which the state allowed rooftop solar installations up to individual rated capacity of 112 kW (LT) at average power purchase cost.

The state has been betting big on rooftop tenders this year with over 80 MW of capacity tendered since June 2017. In June 2017, Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited (MPMKVVCL) issued a 10 MW tender for the development of rooftop solar plants under the capex mode. Following that, another tender was issued by MPMKVVCL to standardise rates for grid-connected rooftop solar projects in the states as well as to select contractors for grid-connected rooftop solar projects (1-4 kW) with energy storage up to 1 MW. In August 2017, Madhya Pradesh Urja Vikas Nigam Limited (MPUVNL) tendered 30 MW of rooftop solar capacity to be developed under the RESCO mode. MPUVNL also tendered rooftop projects aggregating 40 MW of capacity in November 2017, to be developed under the RESCO mode.

Standstill in wind

As of 2002, the installed wind capacity was 22.6 MW, which grew over time to reach 2,497.8 MW as of June 2017. This was mainly owing to the new wind energy policy released in 2012, after which the state government set a target to have an installed wind capacity of at least 6,200 MW by 2022. To this end, Madhya Pradesh added the largest capacity in 2016-17 in the country (1,292 MW). This addition was owing to the attractive tariffs offered by the state.

Post that, however, the state’s wind power segment has been at a standstill as solar power tariffs have become more attractive and policies have also skewed in favour of solar. It is only after the recent wind power auctions held by the Solar Energy Corporation of India that wind power tariffs fell to Rs 2.64 per kWh. The state is now in the process of revising its wind power policy for project allocation and tariff determination through competitive bidding.

It is estimated that Madhya Pradesh has a potential to install 10,483.9 MW of wind capacity at a 100 metre hub height. Therefore, it has a large untapped potential.

 

Other segments

Madhya Pradesh has a bioenergy potential of 1,442 MW. According to the New and Renewable Energy Department, Government of Madhya Pradesh, it has about 43.74 MW of installed bioenergy capacity. In 2016-17, the state generated 115.67 MUs (including energy generated from municipal solid waste) from bioenergy. In January 2017, the state inaugurated its first waste-to-energy plant in Bhopal, which entailed a cost of around Rs 20 million. The plant can process 4 to 5 tonnes of segregated organic municipal solid waste each day to produce biogas.

The state plans to set up wind-solar hybrid parks and two possible locations have been identified by the National Institute of Wind Energy – Ganesh Goshla and Jamgodrani Hills with an estimated energy potential of 4,046 kWh per MW per annum and 4,214 kWh per MW per annum respectively for hybrid power plant development. However, currently there are no upcoming projects in this space.

Hurdles in renewables’ development

Despite the targets set and tenders released in the state, Madhya Pradesh has been facing challenges in increasing its installed renewable energy capacity. As mentioned earlier, due to the inflexibility of thermal power plants for the instant ramping of power, renewable projects are the first to be backed down in case of demand falling behind schedule. In August 2017, the state’s regulatory commission proposed taking away the must-run status of the cogeneration and renewable energy projects by subjecting them to merit order despatch. The plan, however, was dropped after facing much resistance and the projects were allowed to retain the status. This could lead to uncertainty over the status of renewable energy projects in the future, which could further increase tariffs in the upcoming tenders in the state.

Madhya Pradesh was one of the first states to provide exemptions on the wheeling and transmission of renewable power. However, at present, renewable energy developers have to pay wheeling, cross-subsidy, additional surcharges, etc. as decided by the Central Electricity Regulatory Commission. This could increase solar tariffs, resulting in lesser procurement of renewable energy by the state’s discoms.

The Ministry of New and Renewable Energy (MNRE) had recently issued an advisory to all states to provide adequate deadline extensions if the projects were delayed due to any reason on the part of the state government, such as land allotment, development of transmission or evacuation facilities and connectivity permission. However, Madhya Pradesh cancelled PPAs for Sky Power Solar’s 100 MW projects, which was reportedly because of late project completion as a result of change in project location.

Although steps are being taken to improve the transmission of renewable energy, it remains a big challenge. The state requires a strong and well-connected transmission network for power evacuation from its solar and wind power parks. To this end, in 2016, the Madhya Pradesh government formulated a blueprint for the Rs 40,000 million Green Energy Corridor project spearheaded by Power Grid Corporation of India Limited. Besides, German development bank, KfW has already tied up for a loan with the centre for the project.

In August 2016, Madhya Pradesh signed up for the government’s distribution utility debt restructuring scheme, the Ujwal Discom Assurance Yojana (UDAY), and took over the discoms’ debt of Rs 260,550 million. As of September 30, 2017, the state held eighth rank on the UDAY state/discom performance chart. Madhya Pradesh still suffers from high aggregate technical and commercial (AT&C) losses of about 28.93 per cent, as compared to the national average of 22.73 per cent. The high AT&C losses of state discoms show that their operations are inefficient.  Meanwhile, the average cost of supply-average revenue realised (ACS-ARR) gap at Re 0.13 per kWh is lower than the national average of Re 0.30 per kWh. Since the ACS-ARR gap is positive, it shows that the discoms are incurring losses. However, the state is on the right track to achieve its targets. Madhya Pradesh is expected to get an overall net benefit of nearly Rs 175,150 million by participating in UDAY.

The way forward

Madhya Pradesh fell short of its RPO targets in 2015-16 but achieved 100 per cent target in 2016-17. Given the significant growth in the state’s wind power capacity in 2016-17, record fall in solar tariffs and the consequent increase in investor interest, the state is likely to meet its RPO targets in the future.

Madhya Pradesh has one of the most comprehensive open access policies and can take advantage of the same for the interstate transmission of power in the near future. The development of a strong interstate transmission system would also help the state to increase its capacity addition to meet its RPO targets and would help address the grid curtailment issues in the solar and wind power segments. In addition, the state needs to come up with a plan for reverse bidding of wind energy projects to take advantage of the falling tariffs in the segment. Even though bioenergy has been on the sidelines, it has a massive resource potential that would offer a unique opportunity to the state to increase its capacity and come up with innovative models for reducing costs. The rooftop solar segment is on the right track and going forward, the state is likely to meet its targets.

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