Paving the Way: Round-up of key policy and regulatory developments

Round-up of key policy and regulatory developments

The renewable energy sector in India has taken several strides over the last one year. Despite challenges posed by the Covid-19 pandemic, the union and state governments have actively engaged in the promotion of renewable energy in the country. New policies have been introduced and older policies have been am­end­ed to incorporate innovative mechanisms to enhance the renewable sector’s growth. Several incentive programmes have also been initiated this year to cope up with various financial and manufacturing challenges faced by developers and manufacturers. Given India’s target of me­eting 50 per cent of its energy requireme­nts from renewable energy by 2030 and its net zero emissions by 2070 target, such policy and regulatory measures are ex­pected to play a crucial role.

Renewable Watch presents an overview of the policy and regulatory environment in the past one year…

Net zero target by 2070

In November 2021, Indian Prime Minister Narendra Modi, during the COP26 global cli­mate summit in Glasgow, stated that In­dia will achieve net zero emissions by 2070. Five targets were presented for India. One, India would increase its non-fossil energy capacity to 500 GW by 2030. Two, India would meet 50 per cent of its energy requirements from renewable energy by 2030. Three, India would reduce its total pro­jected carbon emissions by 1 billion to­n­nes between now and 2030. Four, by 2030, India would reduce the carbon intensity of its economy to less than 45 per cent. Five, by the year 2070, India would achieve the target of net zero emissions.

Proposals under Budget 2021

The Union Budget 2021 included several announcements for the renewable energy sector. The most prominent among them was the infusion of an additional Rs 10 billion of capital in the Solar Energy Corpo­r­ation of India and Rs 15 billion in the In­dian Renewable Energy Develop­ment Ag­en­cy. To revive the finances of the sta­te-owned distribution companies, a refor­ms-based result-linked power distribution sector programme outlay of Rs 3.05 trillion over five years was propos­ed. The pro­g­ra­mme is expected to facilitate infrastructure crea­tion, including prepaid sm­art meters, feeder separation and up­gradation of systems. The budget also for­­malised plans to launch, in 2021-22, the National Hydrogen Energy Mis­sion to generate hydrogen from renewable energy.

To further encourage domestic manufacturing, customs duties on solar inverters were raised from 5 per cent to 20 per cent, and those on solar lanterns from 5 per cent to 15 per cent. A customs duty of 3 per cent was also introduced for the im­port of lithium-ion batteries. The exemption of customs duties on all items of machinery, instruments, appliances, components and auxiliary equipment for setting up of solar power generating projects was revoked. To improve ease of access to finance, debt financing of infrastructure in­vestment trusts by foreign portfolio in­vestors was allowed, subject to amendments in the legislation.

Push for green hydrogen

In August 2021, the Ministry of Power (MoP) proposed a uniform renewable purchase obligation (RPO) on distribution lic­ensees, open access consumers and ca­p­­tive power consumers. The proposal was issued under the Draft Electricity (Pro­­­moting Renewable Energy through Gr­­­een Energy Open Access) Rules, 2021. Un­der this, industries shall be allowed to meet their RPO by purchasing green hy­drogen. The National Hydrogen Mission was also officially announced on August 15, 2021. The mission aims to accelerate plans to manufacture hydrogen from re­newable sources.

Further, the Government of India has an­nounced its intent to make it mandatory for user industries to produce or procure green hydrogen as a part of their operations. According to the proposed policy, refineries will have to use green hydrogen to meet 10 per cent of their requirements with effect from 2023-24. This minimum requirement will rise to 25 per cent in five years. Fertiliser industries will have to use 5 per cent green hydrogen to start with, to be extended to 20 per cent later. Once the proposal is approved, oil refineries and fertiliser manufacturers will be asked to im­plement the policy immediately. The po­licy is also proposed to be extended to other industries at a later stage. The steel in­dustry is expected to implement this po­licy after two years to give it the necessary time to create the set-up required for im­­plementation.

Net metering permitted up to 500 kW rooftop solar capacity

In June 2021, the MoP issued an amendment to the Electricity (Rights of Consu­mers) Rules, 2020 concerning net metering for rooftop solar installations. As per the amendment, net metering can be set up by a prosumer for loads of up to 500 kW or up to the sanctioned load, whichever is lower. For loads beyond 500 kW, gro­ss metering must be used.

For the net metering facility, a single bidirectional energy meter must be used at the point of supply, where the energy im­ported from the grid and the energy ex­ported from the grid-interactive rooftop solar system of a prosumer will be computed at two different tariffs. Additionally, the order grants state regulatory commissions the provision to introduce time-of-day tariffs, whereby prosumers are incentivised to install energy storage for storing solar energy and feeding it to the grid during peak hours.

Production-linked incentive programme

In April 2021, the Union cabinet approved the Ministry of New and Renewable Energy’s (MNRE) proposal for the implementation of the production-linked incentive (PLI) scheme under the National Pro­gramme on High-Efficiency Solar Pho­tovoltaic Modules. Further, the cab­inet set aside an outlay of Rs 45 billion for the sc­heme, which is expected to reduce import dependence for electricity generation. Following a competitive bid­ding process, the incentive will be disbursed for five ye­ars following the commissioning of the solar PV manufacturing plants. The manufacturing units sanctioned under the programme would be eligible for PLI annually, based on sales of high efficiency solar PV modules for five years from commissioning or five years from the scheduled commissioning date, whichever is earlier.

National Programme on Advanced Chemistry Cell Battery Storage

Under the PLI scheme, the Union Cabinet approved the National Programme on Advanced Chemistry Cell Battery Storage in May 2021. The programme has an outlay of Rs 181 billion and aims to achieve 50 GWh of advanced chemistry cell and 5 GWh of niche advanced chemistry cell ma­nufacturing capacity.

Amendments and extension under FAME II scheme

In June 2021, the Department of Heavy In­dus­tries, Ministry of Heavy Industries and Public Enterprises announced am­end­ments to the Faster Adoption and Manu­facturing of Electric Vehicles in India Pha­se II (FAME II) programme. Moving from a uniform demand incentive of Rs 10,000 per kWh for all vehicles, the new amendments provide a specific demand incentive for electric two-wheelers of Rs 15,000 per kWh. In addition, the cap on in­cen­tives for electric two-wheelers was raised from 20 per cent to 40 per cent of the total cost of the vehicles. For the electric three-wheeler segment, the focus will be on de­mand aggregation to reduce the upfront costs.

Following this, the Department of Heavy Industries announced that the FAME II scheme has been extended by two years. The scheme had previously been planned to be implemented over a period of three years from April 1, 2019. It will now be in force up to March 31, 2024.

Extension of ISTS waiver

The MoP has announced an extension of the waiver of interstate transmission system (ISTS) charges on transmission of electricity generated from solar and wind sources. Earlier, the waiver was available to solar and wind projects commissioned up to June 30, 2023. The date has now been extended till June 30, 2025. The waiver of ISTS charges has also been allowed for hydro pumped storage plants and battery energy storage system projects to be commissioned up to June 30, 2025.

Customs duties on solar imports

In March 2021, India’s finance ministry ap­proved the proposal of charging a basic customs duty of 40 per cent and 25 per cent for the import of solar modules and cells, respectively, from April 2022. The 25 per cent levy on cells replaced a 14.5 per cent safeguard duty, which was due to expire on July 30, on products from China, Vietnam and Thailand. The customs duties are expected to help domestic manufacturers compete with regional rivals and avoid supply chain problems in the future.

Revamped Distribution Sector Scheme

The Revamped Distribution Sector Sche­me was approved by the Union cabinet in July 2021. The scheme seeks to improve the operational efficiencies and financial sustainability of all discoms/power depart­me­nts, excluding private sector discoms, by providing conditional financial assistan­ce for strengthening of supply infrastr­uc­ture. The primary objectives of the sche­me in­clude a reduction of aggregate technical and commercial losses to the pan-India levels of 12-15 per cent by 2024-25, and a reduction of the average cost of supply-average revenue realised gap to zero by 2024-25. The scheme will have an outlay of Rs 3,037.58 billion, with an estimated gro­ss budgetary support from the central government of Rs 976.31 billion. The sc­heme will be available till 2025-26.

Loan interest subvention scheme for WtE biomethanation

In August 2021, the MNRE launched a loan interest subvention scheme in coll­a­boration with the United Nations Indus­trial Development Organization and the Global Environment Facility to provide fi­nan­cial assistance for innovative waste-to-energy(WtE)-based biomethanation pro­jects. The scheme has been launched for demonstration of such projects and business models. These projects are primarily capital-intensive and financially sen­sitive to both operating costs (waste availability) and revenue (particularly biogas yield and its utilisation scenario).

Steps to fast-track the ISTS process

The MoP, in November 2021, revised the terms of reference of the National Com­mittee on Transmission (NCT) to fast-track the ISTS planning and approval pro­cess. This revision is expected to ease the de­velopment of renewable energy projects and their integration into the power system. The NCT is mandated to propose ex­pansion of the ISTS to the MoP for app­roval after assessing the trend of growth in demand and generation in various re­gions, and constraints, if any, in the inter-state, interregion transfer of power, which are likely to arise in the near/medium term. The responsibility of approving ISTS projects worth up to Rs 5 billion has been delegated, to expedite approval. The central transmis­sion utility will now approve ISTS growth proposals up to Rs 1 billion, while the NCT will app­rove proposals costing bet­ween Rs 1 billion and Rs 5 billion. Pro­posals worth more than Rs 5 billion will be appro­ved by the MoP.

Changes in the ethanol blended petrol programme

The prime minister, in November 2021, approved the ethanol blended petrol programme to set a higher ethanol price de­rived from various sugarcane-based raw materials for the upcoming sugar season in 2021-22, which will run from December 1, 2021 to November 30, 2022. In addition, GST and transportation costs will have to be paid too. The government has agreed that oil public sector enterprises should be allowed to establish their own prices for 2G ethanol, as this will aid the country’s development of advanced biofuel refineries.

Revised guidelines for renewable energy generation capacity

In November 2021, the MoP and the MNRE issued revised guidelines allowing thermal generation companies to set up renewable energy generation capacity either on their own or through developers via open bids, and supply the energy to consumers under existing power purchase agreements (PPAs). This is expected to assist the repla­cement of fossil fuel-based electricity with renewable energy. Because renewable energy is less expensive than thermal energy, the benefits of bundling renewable and thermal energy will be split 50:50 between the generation and distribution companies/other procurers. Discoms will no lon­ger need to purchase separate renewable energy balancing capacity. They will be able to use the renewable energy supplied under the plan to satisfy their renewable purchasing mandate without incurring the cost of a separate PPA.

Revised policy for biomass utilisation

The Revised Policy for Biomass Utilisation for Power Generation through Co-Firing in Coal-Based Power Plants was announced in October 2021. It has been mandated that all thermal power plants should use a 5 per cent blend of biomass pellets made primarily of agricultural residue along with coal, with effect from one year of the date of issue of this guideline. The obligation sh­a­ll increase to 7 per cent (except for th­o­se having ball and tube mills) with effect from two years after the date of issue of this order.

New renewable energy policies released by states

Gujarat: The Gujarat government, in Ja­nuary 2021, announced its new Guja­rat Solar Power Policy, 2021, which lays do­wn incentives for residential, commercial and industrial solar developers. Under the policy, third-party projects will be eligible to sell power to the state. Further, they will be eligible to set up solar projects for self-use with no ceiling on the capacity of the project. The ceiling of 50 per cent of the contracted load for solar projects has also been removed. For captive power projects, there will be no cross-subsidy surcharge or additional surcharge. The new policy will be valid till December 31, 2025.

Maharashtra: The Maharashtra government, in January 2021, released its Un­con­ventional Energy Generation Policy to promote the development of renewable energy projects. In the first part of the policy, the state has chalked out plans for the development of 17.3 GW of transmission system-connected renewable energy projects by 2025. Of the proposed 12.9 GW solar capacity, 10 GW will be set up as stand-alone projects, 2 GW as grid-connected rooftop solar projects, 500 MW as solar-based water supply projects and 250 MW as solar projects for farmers. The remaining solar capacity of 150 MW will be set up as wind-solar hybrid plants, solar-powered electric vehicle (EV) charging stations and storage-integrated solar or wind projects.

Karnataka: In October 2021, Karnataka Renewable Energy Development Limited (KRDEL) re-issued the Draft Karnataka Re­newable Energy Policy 2021-2026, which is aimed at developing 10 GW of renewable energy projects with the option of adding energy storage systems. Earlier, in March 2021, KREDL had issued the Draft Karnataka Renewable Energy Policy 2021-2026, which aimed at developing 20 GW of renewable energy projects. As per the revised policy, a target of 1 GW has been set for rooftop solar ins­tallations ov­er the next five years. In addition to supporting developments in the green energy corridor, renewable energy parks, and solar, wind, solar-wind hybrid, energy storage, biomass, waste-to-energy, mini and small- hydro projects as well as new initiatives and pilot projects, the state aims to make headway in emerging technologies such as offshore wind, tidal and wa­ve energy, roo­f­top aero turbines with so­lar, aero turbines on highways, hydrogen and fuel cells..

Haryana: In May 2021, Haryana’s New and Renewable Energy Department relea­sed the draft Haryana Solar Power Policy, 2021 with a big focus on rooftop solar projects and small-scale distributed solar, in addition to utility-scale solar projects and parks. The draft policy also aims to promote the development of solar capacities in the agricultural sector as well as sola­risation of EV charging stations. The policy mandate includes the promotion of the concept of solar cities and solar villages. Additionally, virtual net me­tering, including group virtual net metering, may be promoted in the urban areas.

New EV policies announced in several states

The year 2021 saw several states annou­nce draft and final EV policies.

Rajasthan: In July 2021, Rajasthan’s government released the Rajasthan Electric Vehicle Policy, 2021 for the adoption of EVs in the state. As per the policy, the state will subsidise the upfront cost of EVs for early adopters, by offering to reimbu­r­se the state goods and service tax as well as extending a one-time incentive, to be decided on the basis of the battery capa­city of the vehicle sold. The policy focuses on two- and three-wheelers.

Odisha: In August 2021, the government of Odisha published its EV Policy. By 2025, the state aims to attain a target of 20 per cent battery-operated EV registrations among total vehicle registrations. Under the policy, the government has provided a 100 per cent exemption on road tax and registration fees on EVs purchas­ed within Odisha. The policy will be in effe­ct for a period of five years.

Meghalaya, West Bengal, Gujarat and Ma­­­­ha­rashtra were also among the states that introduced or approved new EV policies in 2021.

Bold steps by state electricity regulatory commissions

Maharashtra: Following a petition by Maharashtra State Electricity Distribution Company Limited reporting a poor res­po­nse to 6.5 GW of its solar tenders issued in the past three years, the Maha­rashtra El­ectricity Regulatory Commis­sion, in January 2021, issued an order all­o­wing the floating of open tenders throu­gh a continuous bidding process for solar projects under the Mukhyamantri Saur Krishi Vahini Yojana.

West Bengal: In the same month, the West Bengal Electricity Regulatory Com­mission made amendments to its Coge­ne­ration and Electricity Generation from Renewable Sources Regulations, 2013. Among the notable amendments was a mandate to implement gross metering for rooftop systems of over 5 kW capacity, up from 1 kW earlier. The RPOs of the state were also amended.

Union territories: In May 2021, the Joint Electricity Regulator Electricity Commis­sion for the State of Goa and Union Terri­tories issued an announcement regarding generic tariffs for solar, wind and small hy­dro projects, covering projects located in the state of Goa as well as the union territories of the Andaman & Nico­bar Islan­ds, Lakshadweep Islands, Pu­du­­cherry, Dam­an & Diu, Dadra & Nagar Haveli, and Cha­n­digarh. As per the regulations, the generic tariff will act as a ceiling tariff.

Rajasthan: The Rajasthan Electricity Re­gulatory Commission in July 2021 issued a modification to its Grid Inte­r­active Dis­tribu­ted Renewable Energy Genera­ting Syste­ms Regulations, 2021. These regulations were notified in April 2021. Acco­rding to the changes, all rooftop solar and small grid-interactive systems commissioned under net metering agreements up to September 15, 2021 shall continue to operate under the net metering arrangement till the period of connection. The earlier commissioning deadline was June 30, 2021.