Reinforcing Renewables: MoP proposes introduction of RGO from April 2024

India has set a target of net zero by 2070, alongside other emission targets for 2030. Further, in the recently updated nationally determined contribution, the country has committed to having non-fossil fuel-based energy sources to account for 50 per cent of the cumulative electric power installed capacity by 2030. In line with these objectives, the government is planning to make it mandatory for all thermal power plants proposing to install new generating capacity, including private and captive ones, to either set up or acquire renewable energy capacity equivalent to a minimum of 25 per cent of the capacity of the thermal generating station. To this end, a draft note has recently been issued by the Ministry of Power (MoP) proposing an amendment to the Tariff Policy, 2016, incorporating the renewable generation obligation (RGO) provision. The cut-off date proposed in the notification for introducing this clause is April 1, 2024.

Details of the draft notification

In order to create an additional avenue for the promotion of renewable energy, the Tariff Policy, notified on January 28, 2016, provides under Clause 6.4.5 that any generating company proposing to establish a coal/lignite-based thermal ge­­ne­ration station after a specified date will be required to establish such renewable energy generating capacity or procure and supply rene­wable energy equivalent to such capacity, as may be pres­cri­bed by the central government. The MoP has, in the recent notification, proposed that this date be April 1, 2024; and that the capacity of renewable energy to be established/procured/supplied by new coal/lignite-based thermal generating stations be set at a minimum of 25 per cent of the capacity of the thermal generating station being established.

Accordingly, in order to promote renewable energy sources, any generating co­m­­pa­ny proposing to establish a coal/lignite-based thermal generation station after April 1, 2024 will be required to establish at least 25 per cent renewable energy generating capacity, or procure and supply renewable energy equivalent to such capacity. The renewable energy produced by each generator may be bundled with the thermal power that it has generated, for the purpose of sale. If an obligated entity procures this re­newable power, the state electricity re­gulatory commissions will consider the obligated entity to have met its renewable purchase obligation (RPO) to the extent of the power bought.

Impact envisaged

On a macro level, the RGO is being seen as a welcome move and is expected to enhance the generation and utilisation of renewable energy in the country when notified, speeding up the energy transition. It should also help reach the ambitious goals of having 500 GW of non-fossil fuel power generation and reducing the emission intensity of the gross domestic product by 45 per cent, by 2030. Further, it should address the intermittency issue associated with renewable energy. Moreover, it has been proposed that this move be executed under the existing proposal for bundling of conventional power with renewable energy, and selling this bundled electricity to discoms. The bundling can be part of the same power purchase agreement, which would reduce the requirement of coal by 25-30 per cent. Additio­na­lly, it would reduce the price of power, as renewable energy is cheaper.

Earlier in 2022, the power minister highlighted that India’s power demand will inc­re­ase, going forward. Bund­ling was mentioned as one of the ways to ma­ke pro­curement of power more attractive for discoms. Accordingly, the RGO no­ti­fi­ca­tion will help meet the increasing po­wer dema­nd of the country in the future. Notably, the RGO mandate depends on flexibilisation of coal-based power plants. If plants operate at 85 per cent plant load factor, there is 30 per cent available space for renewable energy addition. Further, it is expected that this will provide an opportunity for stressed thermal assets to find buyers for their po­wer, as the price of bundled power will re­d­u­ce due to renewable energy be­ing cheaper. It will, thereby, also provide relief to ban­ks by reducing the quantum of non-performing assets. Moreover, it can benefit the associated transmission infrastructure by ensuring better capacity utilisation.

While the notification is a welcome move, it would be important for the government to ensure that adequate checks and balances are in place so as to ensure that the RGO is enforced. As has been seen in the past, despite having regulations regarding RPOs, states have found it extremely difficult to enforce such obligations