The Indian renewable energy sector has finally come of age. The phenomenal growth is a result of dynamic policy changes at the central and state levels, sustained decrease in capital costs and tariffs, and regulatory push to create a favourable ecosystem for the sector. While growth has been consistent in resource-rich states such as Karnataka and Andhra Pradesh, laggard states like Chhattisgarh and Odisha have also increased their participation in the sector by releasing encouraging policies.
Uttar Pradesh is one such state where renewable energy growth has been restricted due to multiple issues. However, in recent times, it has seen significant action in terms of policies, tenders and capacity installation. Being a primarily agrarian economy, Uttar Pradesh has a large captive biomass and bagasse generation base. The state has now decided to leverage other forms of renewable energy as well. To this end, the Uttar Pradesh Electricity Regulatory Commission (UPERC) has released a concept note on the amendment to the UPERC (Captive and Renewable Energy Generating Plants) Tariff Regulations, 2014, due to expire on March 31, 2019. The concept note has been released to generate dialogue and solicit feedback from all concerned stakeholders before formalising the amendment. It attempts to create a favourable regulatory scenario for renewable energy development in the state, reflective of the current and future market trends. Through the note, UPERC proposes various approaches for tariff determination. It also tries to address the perceived challenges in the sector.
- Control period: Uttar Pradesh’s renewable energy regulations typically have a control period of five years. However, considering the dynamic nature of the sector, UPERC in its concept note has proposed that the control period should be reduced to three years like the Central Electricity Regulatory Commission’s (CERC) current regulations for tariff determination for renewable energy sources. Renewable energy regulations of other states such as Haryana, Himachal Pradesh and Assam also have a three-year control period.
- Tariff determination: The 2014 regulations provided a preferential tariff to renewable energy projects in order to encourage the uptake of the nascent technology. However, over the past two years, technologies such as wind, solar, biomass and bagasse-based cogeneration have matured and their costs have also reduced. This has encouraged discoms to procure renewable energy of all types, except rooftop solar, through the bidding route.
In fact, in 2016, UPERC released an order mandating the future procurement of bagasse-based power only through the competitive bidding route. Discoms have also initiated the procurement of biomass-based power via competitive bidding.
For waste-to-energy (WtE) plants, the commission had released a provision in the tariff policy of 2016. According to this, the state utilities are directed to procure energy produced by WtE plants at a preferential tariff as determined by the commission. Meanwhile, for rooftop solar projects based on gross metering, UPERC released regulations in August 2017, wherein it decided to provide a tariff equivalent to the previous year’s average pooled power purchase cost. For most of the small-hydro power plants, the tariffs were determined through the bidding route.
For the upcoming regulations, the commission has invited comments on the adoption of the competitive bidding route for the procurement of renewable energy from solar, bagasse and biomass-based generation and cogeneration. Also, while UPERC has retained the provision for the compulsory procurement of power from WtE plants, it has invited suggestions on whether project-specific tariffs or feed-in tariff should be determined by the commission for such plants. For rooftop solar power, the commission has asked if any changes should be made to the gross metering tariff. For small-hydro power projects, UPERC has decided to provide only project-specific tariffs.
- Tariff structure: In a consultation paper on the terms and conditions of tariff regulations for the tariff period April 2019 to March 2024, the CERC has proposed a three-part tariff structure for power plants. The three parts are fixed charges, variable charges and energy charges. The fixed charge is for fixed cost components such as debt-service obligations allowing depreciation for repayment, interest on loan, and guaranteed risk-free return and part of operations and maintenance (O&M) expenses. Variable charge consists of incremental return over and above the guaranteed return and balance O&M expenses, while energy charges include the fuel cost, transportation cost, and taxes and duties on fuel. Further, the CERC suggested that the recovery of the fixed component could be linked to target availability. While the variable component could be linked to the difference between availability despatch, fuel charges could be linked with despatch.
UPERC has proposed that the tariff structure of renewable energy projects in the state could be based on the three-part structure as defined by the CERC. Here, conventional plants would be provided only partial recovery on the fixed cost for the quantum of energy falling short of the targeted plant load factor (PLF). For renewable energy projects, the fixed cost component may be based on a levellised tariff determined for the remaining useful life of the plant. The variable cost component for these projects may be determined on a coal equivalent basis. This would involve adopting the weighted average coal price of pithead plants of the Uttar Pradesh Rajya Vidyut Utpadan Nigam for the last quarter of the previous financial year in the current financial year.
- Normative parameters: The normative parameters for tariff determination are divided into two categories – financial and operational. The financial parameters include capital cost, debt-equity ratio, loan tenure, interest on loan, rate of depreciation, return on equity, O&M expenses (with escalation), working capital and interest on working capital. The operational parameters comprise station heat rate, secondary fuel oil consumption, auxiliary energy consumption, PLF, cost of fuel, gross calorific value of fuel, transportation cost, etc. UPERC is of the opinion that these parameters should be reviewed for renewable energy based plants in accordance with the prevailing parameters as defined by the CERC and other states.
- Availability-based tariff mechanism: As the share of renewable energy in power generation increases, it is imperative to regulate the influx of this power into the grid. The intermittent and variable nature of renewable power makes grid integration a difficult task. It can be achieved by employing effective scheduling and forecasting methods. However, there are separate deviation settlement mechanisms at interstate and intra-state levels. With the implementation of intra-state availability-based tariff (ABT) mechanism, it is expected that there will be greater uniformity in scheduling, forecasting, accounting, and commercial settlement of renewable energy at the central and state levels. UPERC had released draft regulations for forecasting, scheduling and imbalance handling of renewable energy plants in March 2018 for solar and wind power. This regulation is in line with the CERC regulations for the same. As per the concept note, UPERC is now contemplating extending these regulations to all sources of renewable energy.
- Banking of power: As per the existing regulations, banking of power from captive renewable energy plants is allowed subject to the availability of power, and technical and commercial feasibility. The power plants will be provided with ABT-compliant special energy meters. The monthly settlement of energy sales has been proposed to be based on the power banked during the month. Meanwhile, the monthly settlement for the balance energy supplied by the plant will be done at the rate specified for supply to the distribution licensees. The commission is yet to decide whether any changes in the existing provisions are required.
Renewable energy in Uttar Pradesh is sold at a cost premium considering the various risks and challenges associated with it. However, the state has taken cognisance of the falling renewable energy tariffs, making renewables a preferred alternative to conventional power. The increasing pressure to improve compliance with the renewable purchase obligation has also given impetus to the sector. With timely amendments to the existing regulations, the state has displayed its willingness to evolve with the changing power sector dynamics. With changes in critical parameters such as tariff determination and structure along with the implementation of ABT, Uttar Pradesh seems to be opening up to the idea of increasing the role of renewable energy in its future power basket.
By Ashay Abbhi