Inclusive Approach

Policy and regulatory initiatives aimed at promoting all renewable segments

To keep pace with the changing dynamics in the renewable energy market, policymakers have been actively formulating policies and regulations. While 2019 has been a tough year for many industry players with the sector witnessing sluggish growth, several initiatives have been taken on the policy front to address the challenges plaguing the sector. From the introduction of competitive bidding guidelines and power sector reforms to the launch of new schemes for rooftop solar and solar pumps and inclusion of new energy sources in the renewables category, policymakers have adopted an inclusive approach in 2019. Renewable Watch highlights the key policy and regulatory developments of 2019…

Reforms at large

Many of the issues in the renewable energy sector stem from the inherent challenges of the power sector in India and the poor financial health of state discoms. In view of this, the Union Budget, announced in July 2019, highlighted the government’s plans for power sector reforms including revival schemes for state discoms and a package of structural and tariff reforms. In addition, a  scheme was announced to invite global companies to set up “gigafactories” for solar photovoltaic (PV) cells, lithium storage technologies and charging infrastructure. The central government also laid emphasis on open access, and decided to work with the state governments to remove barriers such as cross-subsidy surcharge and open access charges.

In addition, the Ministry of New and Renewable Energy (MNRE) released guidelines in July 2019 to formalise a payment security mechanism for power generators in order to protect developers from delayed payments. Discoms will now have to open and maintain a line of credit before power is despatched from the local load despatch centre, and failure to do so would mean no power despatch for the discom. This is a welcome move as delayed payments from discoms have severely affected the cash flow of private solar and wind power generation companies. Payment security will prevent assets from getting stranded. To safeguard renewables from the financial stress in the thermal power sector, the MNRE also requested the Reserve Bank of India to remove the priority lending limit for the renewable energy sector to allow private banks to lend more to renewable energy infrastructure projects. It also requested banks to differentiate renewables from conventional power so as to improve the lending situation in the renewable energy space.

In August 2019, the central government formed a high-level group to give recommendations for changing the power sale and purchase framework in the country and increasing competitiveness in the power market. This committee will also address the issues related to the sanctity of contracts, which has become a major risk for renewable energy investors and developers. Meanwhile, the Ministry of Power (MoP) has sought to expedite the process of introducing a new tariff policy, which will penalise discoms for unscheduled power cuts, except in the case of technical faults or natural calamities. The policy will force discoms to maintain the supply of power, which will reduce the curtailment of low-cost renewable energy supply.

Inclusion of large hydro

With the country planning to add 160 GW of intermittent solar and wind power by 2022, hydropower has assumed major significance owing to its quick ramping, black-start and reactive absorption capabilities, which make it ideal for peaking power, spinning reserves and grid balancing. However, discoms are reluctant to sign power purchase agreements (PPAs) for hydropower due to high tariffs, particularly in the initial years. Thus, though India has an immense large-hydro power potential of 145,320 MW, only about 45,400 MW has been utilised so far. To address these concerns, the union cabinet, in March 2019, approved a policy change to categorise large-hydro projects as renewable energy projects. Until then, only hydro projects under 25 MW (small hydro) were identified as renewable energy projects.

Hydropower purchase obligation has also been categorised as a separate category within non-solar renewable purchase obligations (RPOs) to cover large-hydro projects commissioned after the notification of these measures. In addition, tariff rationalisation measures have been announced. These include providing flexibility to developers to determine the tariff and budgetary support for the flood moderation component, and funding the cost of enabling infrastructure.

Streamlining auction guidelines and project timelines

To address the challenges associated with land and transmission constraints and delayed payments to developers, the MNRE has amended the competitive bidding guidelines for the procurement of solar and wind power. The guidelines for solar projects were introduced in August 2017 and subsequently amended in June 2018, January 2019 and July 2019. The first amendment extended the timelines for project execution to safeguard developers from penalties due to delays in project commissioning. The second amendment was aimed at expediting the process of solar project development, and fixing a period of 110 days for completion of the bidding process. The second amendment also specified a period of 15 months for the commissioning of projects in solar parks and 18 months for projects outside solar parks from the date of execution of the PPA. The third amendment was introduced to protect lenders in case of defaults by developers. As per this amendment, in case of default by a solar power generator, the lender will be entitled to opt for the substitution of the developer in concurrence with the procurers.

The competitive bidding guidelines for wind power projects were amended in July 2019, the first amendment since their announcement in December 2017. The new guidelines permit the sale of power at full PPA tariff in the case of early commissioning. The risk of project delays has been mitigated by considering the timeline of project execution from the date of PPA signing to the date of commissioning, which has been fixed at 18 months. The guidelines also mandate the identification of 100 per cent land at the time of bid submission. The land acquisition documents must be submitted before the scheduled commissioning date.

In December 2018, the MNRE amended guidelines for the implementation of the viability gap funding programme for solar projects under the National Solar Mission (NSM) Phase II. As per the new amendment, if there is a delay in the allotment of land or connectivity by the government, the Solar Energy Corporation of India (SECI) can extend the financial closure and commissioning dates of the project after giving justifications for the same, without any financial implications for the solar power developer. If SECI is the developer, the extension will be given by the MNRE. These amendments will apply to over 2,000 MW of grid-connected solar projects under Batch III of NSM Phase II. They will facilitate solar capacity expansion by safeguarding developers’ interests.

Promoting rooftop solar

Recognising the importance of distributed solar power generation in achieving India’s renewable energy targets and addressing the local demand and supply issues being faced by discoms, the Cabinet Committee on Economic Affairs approved the second phase of the grid-connected rooftop solar PV programme in February 2019. The programme will help achieve the target of 40 GW of rooftop solar PV capacity by 2022. Under Phase II, 38 GW of grid-connected rooftop solar PV capacity is expected to be installed. In August 2019, the MNRE issued guidelines for the implementation of the programme, which has two main components. Under the first component, 4,000 MW of grid-connected rooftop solar projects will be installed in the residential sector with central financial assistance. In the second component, incentives will be provided to distribution companies based on their achievement towards the initial target of 18,000 MW of grid-connected rooftop solar plants.

Many states also issued new regulations to promote rooftop solar. For instance, Tamil Nadu issued new net metering regulations as part of its Solar Policy, 2019, while Rajasthan amended its existing regulations. The Joint Electricity Regulatory Commission for the State of Goa and Union Territories (except Delhi) issued net metering regulations, which will apply to grid-connected rooftop solar, ground-mounted solar and floating solar power projects. Delhi issued a new policy for group and net metering while Uttar Pradesh released new regulations allowing domestic and gross metering for commercial and industrial consumers.

Solarising agriculture

An important policy development of this year was the launch of the Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM-KUSUM scheme) in March 2019, to help farmers install solar pumps and grid-connected solar power projects. The MNRE has issued detailed guidelines for the implementation of the scheme aimed at solarising agriculture. The programme has been divided into three components and aims to add 25,750 MW of solar capacity by 2022 with central government support of Rs 344.22 billion. The first component under the programme includes the installation of 10,000 MW of decentralised grid-connected ground-mounted renewable energy projects of up to 2 MW. The second component involves the installation of 1.75 million stand-alone solar-powered agricultural pumps, while the third component includes the solarisation of 1 million grid-connected solar-powered agricultural pumps.

The solarisation of irrigation pumps will help reduce their dependence on conventional sources of energy supplied by discoms and thus reduce the burden of subsidy for agricultural consumption of electricity. This will also provide an additional source of income to farmers who will be in a position to sell the surplus power to discoms.

Groundwork for new growth areas

To promote other upcoming renewable energy sources, like offshore wind, solar-wind hybrid, ocean energy and biomass, the government issued several notifications in 2019. In February 2019, the MNRE issued draft offshore wind energy lease rules, which are aimed at increasing activity in the offshore wind segment. According to the draft lease rules, no project development activity or site survey for calculating the potential of offshore wind can be undertaken without a lease. Also, the MNRE will grant a lease for all offshore wind projects in India’s exclusive economic zones.

To develop large solar projects at the facilities owned by central public sector undertakings (CPSUs), the second phase of the CPSU solar programme was approved in March 2019. These CPSUs have the required financial capability and ample land to implement solar projects for their own use. They may even conduct auctions for the capacity. The programme aims to set up 12 GW of solar power projects for self-use or use by government entities. The MNRE issued a notification regarding the modalities and the role of discoms in July 2019. Under the second phase of the CPSU programme, 4 GW of solar capacity is expected to be tendered in 2019-20, followed by another 4 GW in 2020-21 and the remaining in 2021-22.

In August 2019, the MNRE clarified that the power produced using various forms of ocean energy, such as tidal, wave and ocean thermal energy conversion, will be considered renewable. These sources can be used for meeting the non-solar RPOs. The MNRE issued a notice in October 2019 stating that the power generated from the co-firing of biomass in thermal power projects is renewable energy and is eligible for meeting the non-solar RPO.

With wind-solar hybrid projects slowly gaining traction, the MNRE issued draft competitive bidding guidelines for the procurement of power from grid-connected wind-solar hybrid projects in October 2019. The guidelines aim to provide a bidding framework for the procurement of hybrid wind-solar projects, as well as a storage component to reduce variability of power. Like solar and wind power projects, hybrid projects will be awarded through an e-reverse auction. The timeline for the commissioning of hybrid projects is 18 months.

Forecasting and scheduling of power

The integration of various renewable energy sources into the grid will require stringent forecasting and scheduling along with penalties for any deviation. To this end, the Central Electricity Regulatory Commission finalised the fifth amendment to its deviation settlement mechanism (DSM) regulations in May 2019. The amendment included two new clauses – daily base DSM and time-block DSM. Daily base DSM means the sum of deviation charges for all time blocks in a day excluding additional charges. Time-block DSM indicates the deviation charge for a specific time block in a day excluding the additional charges.

Several states released their forecasting, scheduling and DSM regulations for solar and wind power generation to address the increasing variability of renewable sources. In June 2019, the Tamil Nadu State Load Despatch Centre and the Tamil Nadu Electricity Regulatory Commission (TNERC) announced rules for the forecasting, scheduling and deviation settlement of wind and solar generation. The rules will be applicable to all wind and solar energy generators (excluding rooftop solar projects). In July 2019, the Himachal Pradesh Electricity Regulatory Commission (HPERC) finalised the amendments to its DSM regulations. The HPERC has included the concept of area clearing price, which is the price of a time block electricity contract established on the power exchange after dividing the market across the constrained transmission corridors and considering all the valid purchase and sale bids. Meanwhile, the Punjab State Electricity Regulatory Commission (PSERC) approved the procedure for the forecasting, scheduling and deviation settlement of solar and wind generation. It will come into effect on January 1, 2020. The PSERC also directed solar and wind generators to establish the required forecasting and communications infrastructure for furnishing day-ahead and week-ahead forecasts to the state load despatch centre (SLDC), and register with the SLDC before January 2020. These measures will ensure better load balancing and also help in grid strengthening.

Outlook

The share of renewable energy in the country’s overall power mix is growing as is the number of regulatory and policy changes that support renewables. Policymakers have been making consistent efforts to address stakeholder concerns. The biggest concern in the sector is not the lack of enabling policies and regulations, but their effective implementation. A case in point is the open access regime. The amendment for allowing open access was issued in 2003 but has not been effectively implemented even after 16 years. Moreover, if guidelines for discoms under the Ujwal Discom Assurance Yojana had been effectively implemented, the scheme would have recorded a better outcome. In the rooftop solar space, it is still difficult to obtain approvals for net metering despite the provision of relevant regulations. For streamlined growth of renewables, it is important to remove such gaps between policy decisions and their execution.

In sum, India’s policy scenario is evolving in accordance with the market dynamics. That said, more schemes need to be introduced to promote energy storage and floating solar, design and implement discom reforms, strengthen ancillary markets, facilitate power trading and create new opportunities to ensure sustainable renewable energy growth in the country.

By Khushboo Goyal

GET ACCESS TO OUR ARTICLES

Enter your email address