Rethinking Regulations

Forecasting and scheduling (F&S) norms have been a point of discussion ever since their introduction in 2009. During the initial years, there was some resistance from the industry, and even cases were filed against this decision. However, the wind industry has now come around and accepted the F&S concept realising that these norms and the deviation settlement mechanism (DSM) will be essential to meet the targeted growth of 5-7 GW per year.

F&S and DSM regulations help streamline generation while providing the dispatchers with accurate data regarding power availability for transmission to various sets of consumers. However, the implementation of these regulations comes at a cost. In the short term, developers may see F&S investments and deviation penalties as sunk cost. However, in the long run, this would help avoid the risk of generation curtailment. Advanced technologies will be required to ensure better compliance with the F&S and DSM regulations. In other countries with high renewable energy penetration, these mechanisms are strictly followed. They have developed expertise in modelling techniques, which can be learnt by Indian regulators to develop enabling infrastructure in order to implement these regulations.

In 2016-17, two different kinds of DSM and F&S models had emerged, one for projects at the central level and the other for intra-state projects that are connected at the state transmission utility level. The central-level model assumes that the settlement of payments happens on the basis of the power scheduled instead of the power actually generated. The DSM is also based on the cost of power purchase in the power purchase agreements (PPA). Most PPAs for wind projects at the state level are based on the metered generation of power. Therefore, instead of changing the framework of PPAs on the basis of scheduled generation for all projects, the F&S mechanism for state-level projects was modified on the basis of metered generation. Thus, the DSM penalties are a fixed quantum and not related to PPAs.

Key challenges

These two different mechanisms have resulted in a host of issues. The lack of uniformity in regulations has resulted in states deviating from the models provided by the Forum of Regulators and bringing their own versions of F&S regulations. Maharashtra has two levels of payment settlement based on the deviation from the forecast provided by the generator. While one has a fixed quantum of penalties based on deviation slabs, the other requires any additional cost to be distributed across all wind generators. There is another set of challenges for projects connected to the state network but transporting power to the interstate transmission system (ISTS). The primary challenge here is the ambiguity on whether to follow the central or state DSM. For example, in Rajasthan, there are projects from which the generation is first procured by the state and then any residual generation is given to other states through ISTS. This results in a huge deviation in scheduled versus actual generation, entailing a huge penalty. Further, it is yet to be seen how prepared the state load dispatch centres (SLDCs) are to implement these regulations. While there are some states that have the required digital network in place to provide the schedule, revisions and other instructions online, many still lack the necessary infrastructure. In Tamil Nadu, wind generators have provided the system required to help the SLDCs implement the F&S mechanism at the STU level.

Since the Indian Electricity Grid Code is now being revised, the F&S and DSM norms also need to be revisited. The industry has proposed that instead of calculating deviations at the plant level, the state can calculate the penalties at its regional interface and apportion it to the wind generators based on their actual generation and schedules. Meanwhile, it is critical for generators to accept the grid code and focus on providing accurate forecast and schedules.

Wind power has always been a beneficiary of concessional open access and banking provisions. However, these models will have to be revised in this new mechanism where it is expected that the banking provisions will become more stringent or may disappear with time. The financially stressed discoms will avoid getting into arrangements that may require them to buy costly power when the banked wind power is being drawn by the users. To access day-ahead markets, generators will have to be disciplined to ensure compliance with the F&S norms.

F&S is also important for providing a gateway to the alternative open access power market. To ensure greater participation in open access, the load dispatch centres have to function independently. Meanwhile, there should be no curtailment of wind power. The curtailment of generation is allowed only in case of grid congestion. That said, wind power generators are often asked to back down for other reasons. The key solution here will be to make the dispatchers independent so that wind power plants are curtailed only when there are technical issues and not as required by discoms, which do not want to let go of their high-paying consumers.

The lack of independence of regulators is also a key issue across the entire power sector, which considerably hampers the segment operations. Alternative procurement models such as open access will need to be looked at keenly to meet the target of adding around 5,000 MW of wind power capacity per year. This will require strict implementation of the F&S and DSM norms. As the grid code is now coming up for revision, this should be one of the key focus areas for the regulators.

Implementation and implications

For central-level projects that are connected to the ISTS network, the implementation of F&S and DSM mechanisms has been quite smooth as they follow the Central Electricity Regulatory Commission regulations. However, the projects that are connected to the state network have faced some problems, such as those in Rajasthan. Meanwhile, ISTS-connected projects have considerable deviation penalties, though these are manageable at 1-2 per cent of the total revenue. Since these projects were executed through the competitive bidding mechanism, in the F&S requirements were already built in the project costs.

Recommendations

To create a better F&S model and ensure its effective implementation across states, certain modifications to the regulatory framework are necessary.

  • There is a strong need for uniformity in all states in terms of penalty slabs under F&S and DSM regulations. Also, a six-month trial is required from wind generators to focus on providing schedules on a day-ahead basis. This will need to be done sooner than later.
  • The wind power tariff should be converted into a two-part tariff, comprising a notional fixed cost and an energy cost, to address the issue of wind power curtailment.
  • The regulators should also put in place a mandatory payment security mechanism in wind PPAs.
  • Further, renewable purchase obligations need to be enforced more strictly. It would be better if states put forth their demands, based on which tenders should be released, rather than the centre bidding out capacity and then pushing the states to purchase the power, which may leave projects without buyers.

Based on remarks by Mahesh Vipradas, Vice President, Regulatory and Power Markets, Sembcorp Energy India

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