Interview with S.K. Agarwal and A. Srivastava

“Uttar Pradesh is on track to achieve its 2022 target”

Owing to unreliable coal supply and the high cost of imported power, Uttar Pradesh is now moving towards renewable energy. The state is rich in renewable energy resources like solar and biomass, which can prove to be a boon for its crippled power sector and help meet its power demand. A key imperative for the government to attract developers to invest in this space will be to ensure a conducive regulatory framework. Renewable Watch spoke to S.K. Agarwal, member, Uttar Pradesh Electricity Regulatory Commission (UPERC) and Abhishek Srivastava, joint director (generation and PPA), UPERC, on the progress and the future of renewable energy in the state as well as the commission’s focus areas in the coming years. Excerpts….

What is the progress in renewable energy development in Uttar Pradesh?

S.K. Agarwal Member, Uttar Pradesh Electricity Regulatory Commission

S.K. Agarwal: Renewable energy picked up in the state relatively later than in other states. In 2014, the first tender for 500 MW of grid-connected solar power was released, which was divided into three phases. The initial tariff for this tender was around Rs 9 per kWh with a power purchase agreement (PPA) for a period of 12 years. However, the commission insisted that the PPA should be for the stipulated period of 25 years. For the second phase, the buyers were given the option to procure the power at the discovered tariff for 12 years and at a reduced tariff for the next 13 years. In the third phase, the tariff was around Rs 5.07 per kWh. About 400 MW of the total tendered capacity has been commissioned. Meanwhile, there was a 500 MW tender released recently, wherein the discovered tariff was Rs 3.50 per kWh. The state did not accept the tariff and the capacity was retendered. The freshly discovered tariff came down to Rs 3.17 per kWh. At present, tenders worth 550 MW of capacity are in the process of being finalised. The state is expected to bring out more tenders to achieve its target of installing 10,700 MW of solar capacity by 2022. Of this, 4,300 MW will be in the form of rooftop solar and 6,400 MW will be in the form of ground-mounted, grid-connected solar plants.

Abhishek Srivastava Joint Director (Generation and PPA), Uttar Pradesh Electricity Regulatory Commission

Abhishek Srivastava: In terms of capacity, Uttar Pradesh is on track to achieve the set targets. However, the prevailing issues of land acquisition and inadequate transmission capacity pose challenges in setting up renewable capacity. One of the fundamental issues with solar continues to be its inability to support peak load, typically seen in the evenings. Therefore, despite installing the desired capacity, the ultimate goal of reducing the dependence on fossil fuel-based power will not be achieved unless technologies such as energy storage kick in. The hybridisation of hydro power with solar can also be a good option to enable better grid integration.

What has been the response to rooftop solar?

S.K. Agarwal: Rooftop solar is picking up well on the back of government-mandated installations for all central public sector units (CPSUs). To this end, organisations approached the commission to relax the ceiling of 1 MW earlier applicable for rooftop solar projects. Now, around 40 MW of CPSU rooftop solar projects with a capacity of up to 7 MW have been approved by the commission. In the new regulations that will come into force from April 1, 2019, the commission has proposed to increase the ceiling to 2 MW. Any projects with a capacity higher than this will be permitted by the discom, depending on the merits of the case. For domestic rooftop solar, transformer capacity has not been a cause for concern so far. However, taking a future view, the earlier ceiling for this segment, at 30 per cent of the transformer capacity, is being removed in the new regulations. Moreover, if the capacity to be installed exceeds 10 kW for the residential rooftop solar category, a charge of Rs 1,000 per kW would have to be paid for the additional capacity. The commission has allowed the projects to be set up through both the capex and opex (RESCO) models. These measures are aimed at boosting the rooftop solar segment in the state.

Abhishek Srivastava: Rooftop solar is a great way of offsetting energy usage from fossil fuels along with a reduction in the cost of energy. Higher capacities have been approved in the state and there have been no technical issues so far. However, cities have a major problem of pollution, which reduces the intensity of incoming solar radiation. For instance, the 70 kW rooftop solar capacity installed on the UPERC premises recorded only 12-13 per cent capacity utilisation factor (CUF) as compared to about 17 per cent recorded in rural areas on the day after Diwali.

What are the major regulatory bottlenecks in the renewable energy sector?

S.K. Agarwal: There are some regulatory issues with the sector, but these can be qualified as oversights rather than bottlenecks. The only bottlenecks that exist at present are on the utility side, and these stem from their reluctance to let go of their high tariff-paying consumers. We feel that given that the newly discovered solar and wind tariffs are at par with those of coal-based power, the utilities do not face any significant losses even if the conventional power stations are run at lower plant load factors (PLF). Therefore, the financial burden on utilities is no longer due to power procurement from renewable sources but to their high tariff-paying consumers migrating to rooftop solar, captive power and open access.

What is the implementation status of the net metering and open access regulations?

S.K. Agarwal: The state has had open access regulations for a long time. The only challenge in this segment is when power is procured from outside the state since it burdens the state’s drawing capacity from the grid, which currently stands at 8,500 MW. The open access PPAs for power procured from states such as Chhattisgarh, Jharkhand and Maharashtra need the inter-state transmission system (ISTS). This creates a challenge in peak months as the state does not then have spare transmission capacity and has to ultimately refuse open access consumers. However, the commission has passed orders that on a day-ahead basis from ISTS, the SLDC needs to publish the available capacity and any applications for this segment must be given approval. For solar-based inter-state open access, the  commission has waived the transmission and wheeling charges and the cross-subsidy surcharge (CSS). For intra-state solar-based open access, consumers have to pay half the transmission and wheeling charges and the full CSS. However, there are very few open access consumers in the state as there are not many bulk power consumers. Therefore, open access is not a big challenge here.

Abhishek Srivastava: Appropriate regulatory provisions have been made to facilitate open access and net metering solutions in the state. Anyone opting for rooftop solar is being provided with a net metering connection without any trouble.

What is your opinion on the sustainability of falling solar power tariffs?

S.K. Agarwal: The tariffs seem to have hit rock-bottom and are unlikely to fall any further. The tariff in Uttar Pradesh has always been at a slight premium of about 50-60 paise as compared to other states, given the resource availability, high land costs and payment delays by the discoms, among other risk factors. However, PPAs with tariffs as high as Rs 17 per kWh are for such small capacities that the financial impact, in absolute terms, is negligible. Therefore, if any such PPAs were to be cancelled, they would have happened by now.

Abhishek Srivastava: I am a bit apprehensive about the tariff of Rs 3.17 per kWh discovered in the recent bids, considering the long-term technical feasibility and project economics. The tariffs in subsequent bids could remain at similar levels as there is not much scope for these to either increase or decrease by a large margin owing to aggressive bidding by companies.

What is expected to be the regulatory focus for the next one year?

S.K. Agarwal: The commission wants to focus on the development of solar capacity in the state, with the aim of meeting any additional power demand. It is expected that coal tariffs will become increasingly volatile, considering the rise in railway freight prices and fluctuating coal availability. So, if the state wants to hedge itself against the uncertain increase in power purchase costs, an appropriate renewable and conventional power mix should be looked at.

Abhishek Srivastava: Most of the regulatory challenges in the system have been addressed by the commission. The cost of power and tariffs continue to be an issue in the state. The commission’s focus will be on looking at all possible solutions in this regard.

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