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Renewable Energy Policy Framework-India: To Sustain RE Deployment Pace

Gaurav Gandhi 1 Suzlon Energy Ltd., Pune, India.

Abstract

The issue of climate change is now being viewed by the world over, as one of the biggest threats of the recent times. India’s answer to this challenge comes in the form of heightened emphasis that it lays on renewable energy sources. Coupled with the abundant availability, India looks upon promotion of RE sources as a major step towards addressing climate change issues and sustainability of the global environment. This paper explores different milestones achieved by GoI towards betterment of the India electricity sector and in deploying associated renewable applications. It also highlights on the inception of developments in the RE space, via policy and regulatory interventions, that has helped the electricity sector evolve with notable additions of renewable electricity. It envisages collative impact of recent policy and regulatory initiatives to bolster renewable electricity penetration in to the national grid.

Keywords : Renewable Energy, Policy Framework, Regulatory, Renewable Energy Certificate, GBI

1. Introduction

Indian government is now visibly keen to tap RE source, amply available in the county to support huge electricity quench, born out of tremendous infrastructure and industrial development .The government is also in the process of unbundling the electricity sector to make RE technologies more comparable to conventional power and also evolve more maturely among other RE technologies. Central Electricity Regulatory Commission (CERC), inline to the Government’s vision, has come up with tariff orders, appropriately supporting RE development in the country balancing investment interests, electricity needs and climate issues. This paper discusses different electricity policy and regulatory initiatives taken by GoI to deploy renewable energy in to the national electricity grid. These initiatives demonstrate multi-pronged, long term and integrated strategies for achieving key goals in the context of climate change. This article deliberates on the evolution of Ministry of New and Renewable Energy (MNRE) from Commission for Additional Sources of Energy (CASE). The paper initially explores different policy initiatives taken by GoI for the evolution of the electricity sector by enforcing relevant laws such as Indian Electricity (Supply) Act in 1948 and Electricity Regulatory Commission Act in 1998, with subsequent amendments. In the later parts it introduces various recent developments that have taken place by way of regulatory and policy interventions to bolster renewable energy, subsequent to the Electricity Act 2003, in time to address climate change issues at national and sub-national level. It has discussed various financial incentives such as Generation Based Incentives (GBI), technical up-gradation such as Indian Electricity Grid Code 2010 (IEGC 2010), Introduction of the ambitious and revolutionary Renewable Energy Certificates (RECs) and the National Action Plan on Climate Change (NAPCC). The article concludes on commercial impacts, quality improvements and further ingenuity needs from GoI on policy and regulatory abutting current developments, highlighting the probable strives to achieve targets set under NAPCC and the commercial opportunities for further investments in this sector.

2. Institutional Development

The Ministry of New and Renewable Energy (MNRE) is the nodal Ministry of the Government of India for all matters relating to new and renewable energy. Evolution of MNRE started with the formation of Commission for Additional Sources of Energy (CASE) in 1981 which was further rechristened to Department of Non-Conventional Energy Sources (DNES) in 1982 undertaking additional responsibilities of formulating policies and their implementation, programs for development of new and renewable energy apart from coordinating and intensifying R&D in the sector. It was further renamed to Ministry of Non-Conventional Energy Sources (MNES) in 1992 finally coined to Ministry of New and Renewable Energy (MNRE) in October, 2006.

Under MNRE, three specialized technical institutions were formed for Solar Energy, Wind Energy and Bio-energy. Technical needs in the area of Solar Energy are addressed by Solar Energy Center (SEC), Centre for Wind Energy Technology for wind energy (C-WET) and, Sardar Swaran Singh National Institute of Renewable Energy (SSS-NIRE) for Bio energy. 1 Email: gauravgandhi9@http://www.wendangku.net/doc/54ff8d3d0912a2161479299a.html

Apart from technical institutions, MNRE has instituted a special financial institution, more popularly know as the Indian Renewable Energy Development Agency (IREDA). It is a Non-Banking Financial Institution providing term loans for renewable energy and energy efficiency projects.

3.Pre Electricity Act 2003 Environment

3.1.Indian Electricity Act, 1910

The much rising need for electricity generation and distribution was identified in the early years of 1910.

To institutionalize and control the growth of this sector in commensurable manner, the Electricity Act (“Act 1910”) was conceptualized and subsequently enforced on 18th March 1910[1]. The Act 1910 laid basic framework for supply of electricity in India. The growth of this sector was initiated by granting licenses for electricity supply by respective state governments. The license allowed the licensee to lay down wires and carry distribution related works in the specific areas.

3.2.The Electricity (Supply) Act, 1948

Introduced in the Post Independence era, this act was based on the broader lines of the Electricity (Supply) Act 1926, enforced in the United Kingdom (UK). The Electricity (Supply) Act 1948 (“Act 1948”) [2] constituted semi-autonomous bodies i.e. Electricity Boards (EB) to administer “Grid Systems”. The Act 1948 nationalized the electricity sector by merging generation, distribution, transmission and trading.

Under Section 3 of Act 1948, national statutory body called Central Electricity Authority (CEA) was constituted. The primary objective of the Act 1948 was to extend electrification to semi-urban and rural areas by intervention of State Electricity Boards (SEBs). Tariff for sale of electricity was determined mutually by generating company and SEB in accordance with the norms regarding operation and the Plant Load Factor (PLF) along with the rates of depreciation and reasonable return amongst other such factors as determined by the Central Government.

Till 1998, the Act 1948, was amended regularly, mainly to enable generation in a central sector (1975), to bring commercial viability to SEB by ensuring minimum return of 3% on fixed assets (w.e.f. 1985), establishments of Regional Load Dispatch Centers (RLDCs) (1991), and provisions for Transmission Utilities (TUs).

3.3.The Electricity Regulatory Commission Act, 1998

The Electricity Regulatory Commission Act 1998 (“Act 1998”) conceptualized formation of central and state electricity regulatory commissions with powers to determine tariff [3]. Constitution of State Electricity Regulatory Commission (SERC) was optional for state government. The Act 1998 promoted CEA to a more technical advisory role, delinking the commercial aspects to Electricity Regulatory Commission (ERCs) and transferred administrative control of the grid system to SERC from SEB.

4.Post Electricity Act 2003 Developments

The Electricity Act 2003 (“EA 2003”) played a pivotal role for unbundling of the electricity sector and discussed in detail on renewable energy, for the first time in its history. So much so that it has a separate mention on renewable energy.

The Electricity Act 2003

This act abolished all other earlier electricity related laws [4], i.e. (i) The Indian Electricity Act, 1910 (ii) The Electricity (Supply) Act, 1948 and (iii) The Electricity Regulatory Commission Act, 1998. Salient features of EA 2003 are as follow,

?Special section for renewable energy, i.e. section 86(1)e

?Provision of Renewable Portfolio Standard (RPS)

?Captive generation has been freely permitted.

?No license required for Generation and Distribution in notified rural areas.

?Provision for private licensees in transmission.

?Trading, a distinct activity monitored by Regulatory Commissions

?Open access in distribution

?For rural and remote areas stand alone systems for generation and distribution permitted.

Installation of renewable energy witnessed massive growth after enforcement of EA 2003, especially in the wind energy sector. Wind energy market in India is mature in terms of technology while other renewable sources are still in the nascent phases of development. Also, deployment of wind turbines is comparatively easy

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which aided the upsurge in wind energy installation in India. Currently it represents India as 5th largest wind power installer after Spain, with 70% share of domestic renewable installation. This can be well indicated with figure 1, which shows yearly installation of wind energy in India. It clearly shows that year 2003 was defining year for RE deployment.

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Figure 1: YoY Wind Power Installation in India 5. Other guidelines, Incentives and Subsidies

Ministry of New and Renewable Energy (MNRE) introduced certain guidelines on renewable power purchase in 1993. As per these guidelines, states were allowed to purchase renewable electricity at ` 2.25/kWh 2, with an annual escalation of 5%. Also certain wheeling and banking charges were incorporated in these guidelines. But, these were just guidelines and none of the states were bound to purchase renewable electricity, at that time. These guidelines were adopted with different variations by concerned utilities in the States.

Actual mandate on purchase of renewable electricity came in to force after the implementation of EA 2003. The concept of Feed in tariff was introduced and different states offered different electricity purchase tariff, rationally aligned with available wind resources.

5.1. Direct Fiscal Incentives

As on date, Government of India (GoI) offers various direct fiscal incentives to promote renewable energy deployment for both grid connected and off-grid applications. These fiscal incentives have proven to be pivotal in attracting project developers in the renewable energy sector.

5.1.1. A ccelerated Depreciation (AD)

Under section 32 of Income Tax (IT), project developer (“Investor”) can avail up to 80%

depreciation in the first year[5]. In addition to 80% depreciation, investor can also claim 20%

depreciation, for the projects after 2005, for new plant and machinery, mainly as a tool to attract new

technology to optimize wind resource of the country. This proved an attractive tool by which most of

the profit making corporate diverted their tax liabilities to renewable sector.

5.1.2. T ax Holiday

Section 80 (I) A of IT affirms that income generated from renewable sources by sale of electricity

will be exempted from tax liabilities for 10 years[5] and this can be flexibly adjusted over the project

life, but in a continuous manner, i.e. across 10 years in the entire length of the project

5.2. Subsidy

Certain renewable energy components are subsidized in terms of custom duty. Also, some of the renewable products such as aero-generator, water pumping wind mills, and battery chargers are exempted from excise duty.

6. Recent Developments

Recently GoI has come up with radical policy announcements, which clearly envisages its vision of addressing climate issues and seriousness in deploying renewable energy. GoI has proactively initiated process to support renewable energy deployment through appropriate channels. GoI has released National Action Plan on Climate Change (NAPCC), Central Electricity Regulatory Commission (CERC) provided guidelines to deploy different 2 1 `=0.02 $=0.017€ (2010, August)

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renewable sources with the State Governments adopting them, CERC also announced proposed enforcement of Renewable Energy Certificates (REC) mechanism along with MNRE announcing the Generation Based Incentive (GBI) scheme. All these efforts demonstrate a national level commitment for a sustainable clean environment by contributing higher renewable electricity mix to the national grid. Different initiatives by GoI to promote renewable energy deployment, issued recently, are discussed in detail below.

6.1. NAPCC

GoI released NAPCC on 30th June 2008[6], to outline its strategy to meet the challenge of Climate Change. It outlines a national strategy that aims to enable the country adapt to climate change and enhances the ecological sustainability of India’s development path. It prescribes 5% of renewable electricity into grid by 2010 and 1% annual increase till 2020, i.e. by 2020 total renewable electricity in to grid totaling 15%. Eight National Missions, form the core of the NAPCC. These Missions are as below,

1. National Solar Mission,

2. National Mission on Enhanced Energy Efficiency,

3. National Mission on Sustainable Habitat,

4. National Water Mission,

5. National Mission for Sustaining the Himalayan Eco-system,

6. National Mission for a Green India,

7. National Mission for Sustainable Agriculture

8. National Mission on Strategic Knowledge for Climate Change.

Consequent to the announcement of the NAPCC, which identified development of solar energy

technologies in the country as a National Mission, the GoI has approved Jawaharlal Nehru National Solar Mission (JNNSM) [7]which aims at development and deployment of solar energy technologies in the

country by 2022. It aims to deploy solar technologies in 3 phases, spanning the remaining period of the

11th Plan and first year of the 12th Plan (up to 2012-13) as Phase 1, the remaining 4 years of the 12th Plan (2013-17) as Phase 2 and the 13th Plan (2017-22) as Phase 3.

Unit Target for Phase I Cumulative Target for Phase II

Cumulative Target for Phase III Grid connected ( 33 KV and above) solar plants

MW 1000 4000 20000 Off-grid solar applications

MW 200 1000 2000 Solar collectors Million Sq.

m 7 15 20

Table 1: Target under JNNSM

Policy initiatives to achieve targets under JNNSM

o National Tariff Policy, 2006 would be modified to mandate that the SERCs fix a percentage for

purchase of solar power, i.e. separate provision of Solar-RPS within the existing RPS framework. The

Solar-RPS for States may start with 0.25% in phase I and to go up to 3% by 2022.

o 25 year (long term) Power Purchase Agreement (PPAs), to start with under phase I, to be signed

between NTPC Vidyut Vyapar Nigam Ltd. (NVVN) and Solar Power Developers.

o Exemptions on specific capital equipment, critical materials, components and project imports.

6.2. GBI

Due to provision of accelerated depreciation, many IPP, NGOs, Trusts, academic and research institutions faced difficulties since they were not able to utilize the depreciation benefit. Hence to attract IPP investments and to enhance quality of energy generation, MNRE proposed GBI structure which was notified in December 2009[8].

Eligibility for GBI

o The GBI scheme would be applicable only for those power producers who do not avail of the

accelerated/enhanced depreciation benefits under the Income Tax Act.

o The scheme will be applicable only for those independent power producers having minimum

installed capacity of 5 MW and whose capacities are commissioned for sale of power to the grid

after the announcement of the scheme.

o The scheme will not be applicable to those who have set up capacities for captive consumption, third

party sale, merchant plants etc.

The interface between MNRE and investor is IREDA. All financial transactions will be carried out through IREDA. The scheme is as below,

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o GBI will provided to the wind power producers at ` 0.5/ kWh of power fed in the grid for a period of not

less than 4 years and a maximum period of 10 years

o The maximum incentive available to a wind power project will be ` 6.2 million per MW and the total

disbursement in a year will not exceed one fourth of the maximum limit of the incentive (i.e. ` 1.55 million per MW during the first 4 years)

o The scheme is to be applicable to a maximum capacity of up to 4000 MW during the remaining period of

11th Plan period. However, the provision of accelerated depreciation is to be continued till the 11th Plan period or introduction of Direct Tax Code, whichever is earlier. GBI will be applicable to wind turbines commissioned after the issue of this scheme and commissioned on or before March 31, 2012

6.3. CERC

Central Electricity Regulatory Commission (CERC) is regulatory body formed under EA 2003 to advocate states on different issues related to electricity pertaining to tariff determination, interstate electricity transmission regulation, adjudication upon disputes involving generating companies or transmission licensee, maintaining grid standards etc.

6.3.1. C ERC Tariff Guidelines

CERC has notified renewable energy tariff benchmarking guidelines, which are well accepted by SERCs. The guidelines call for tariff setting for renewable energy projects to be based on resource availability, ex. For wind energy, CERC has classified 4 different zones, with reference to wind power density of the region and differential feed in tariff is estimated for respective zones. These guidelines will support RE deployment by minimizing risk of resource variation and will attract investment in RE projects.

6.3.2. C ERC (Terms and Conditions for Recognition and Issuance of Renewable Energy

Certificate for Renewable Energy Generation) Regulation 2010

In January 2010, CERC has notified REC mechanism [9]. The certificates will be dealt through Power Exchanges only, as approved by CERC. Need for REC mechanism was recognized against the background of uneven spread of renewable energy resource in India with most of the blessed states having good renewable resource, and associated RPO being met. Additionally, the aim is to incentivize renewable electricity production, to distribute renewable electricity prices evenly and to increase public participation in the process. Due to higher cost associated with solar power projects, RECs are further categorized as Solar and Non-Solar and will be traded separately in respective sections. CERC approved auditors will monitor these REC transactions.

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Figure 2: REC Mechanism CERC has also notified certain forbearance and floor prices for Solar and non-Solar RECs as below,

Non-solar REC (`/MWh)

Solar REC (`/MWh) Forbearance Price

3,900 17,000 Floor Price 1,500 12,000

Table 2: Forbearance and Floor Price for REC Mechanism

As CERC has notified REC framework, some SERCs have already started to adopt it. Once SERC notify, REC mechanism will be operation, which is expected to be by this year end.

6.3.3. I ndian Electricity Grid Code 2010

CERC notified The Indian Electricity Grid Code 2010 (“IEGC”) in April 2010[10]. It prescribes rules, guidelines and standards to be followed by various participants in the system to plan, develop,

maintain and operate the power system, in the most secure and efficient manner, while facilitating

healthy competition in the generation and supply of electricity.

IEGC has a separate section which provides guidelines on scheduling of renewable energy

generators connected to the grid. For renewables, this code will be applicable from January 2011 and

for non-renewables it is already in force since May 2010. Once it is enforced for renewable,

scheduling of renewable electricity is must and within tolerable limits stated in IEGC. Failing which

there are commercial implications by way of Unscheduled Interchange (UI) charges.

7.Conclusion

GoI has proactively participated to revamp the electricity sector by appropriately imposing policy and regulatory reforms. To achieve target of 15% renewable by 2020 specified under NAPCC, GoI has announced JNNSM program ensuring solar energy contribution. Also, solar energy is promoted under REC mechanism by segregating it as Solar REC and defining higher commercial attributes. IEGC 2010 has ramped up quality standards of electricity grid by addressing unevenness in interconnection and electricity dispatch. GBI mechanism is announced commensurately to tap Independent Power Producers (IPPs), NGOs, academic and research institutions, trusts etc. distinctly different than typical depreciation based investors, which will also help the sector to evolve qualitatively and more professionally, meeting the electricity goals.

Though, GoI has taken such serious steps to amplify renewable energy use, more endeavors are necessary in policy and regulatory terms. The good reason for saying this is - projected electricity demand statistics. As per GoI published data, electricity requirement of country by 2021-22 will be 1914 Billion Units (BUs) [11]. As per NAPCC target considering 15% of electricity from various renewable technologies, projected renewable electricity generation stood around 287 BUs, assuming 28% cumulative capacity factor for all renewable energy technologies (in consideration with technological advances), there is requirement of 117081 MW of renewable energy to be installed by 2021-22. Of this, renewable energy installation by March 2010, stands around 17000 MW. That means that the required installations are around 100000 MW till 2021-22, which is 8340 MW per annum! Now even if we consider that solar installation is in line to the targets as per JNNSM, there is requirement of around 6500 MW non solar renewable to be deployed to the National grid annually, starting from year 2010-11. As GoI has already set installation targets for Solar, it is now required to set installation targets for non- Solar renewable more ambitiously in view of plausible mature renewable technology available immediately, such as wind energy. On the medium term, GoI cannot afford the risk, in terms of time and investment, by waiting to induct another mature renewable energy technology. Hence, there is inevitable dependency on wind power sector. There is immediate requirement to triple the annual wind power installation from 2010-11, which was 1566 MW in 2009-10. To maintain corporate interest and attract IPPs, it is imperative that the accelerated depreciation benefits should continue in parallel with GBI benefit, distancing business interests. There is also an urgent need to adopt low carbon economy by affiliating to energy efficiency techniques and prioritizing RE technologies, such as solar lantern, solar street lighting etc., wherever possible.

Further, the recently introduced cess on coal should be diverted to further subsidizing renewable electricity. Acknowledgement

Let me extend a very sincere thank you to everybody who gave their time answering my queries and provided me critical literature. Some of the people who deserve a special thank you include: Mr. Chintan Shah, Mr.

Mahesh Vipradas, Mr. Pradeep Mathur, Ms. Vasundhara Sen from Suzlon Energy Ltd. and dear friend of mine Dr. Kedar Dimble.

References

1. Indian Electricity Act. 1910.

2. The Electricity (Supply) Act. 1948.

3. The Electricity Regulatory Commission Act. 1998.

4. The Electricity Act 2003.

5. Vipradas, M., Renewable Energy in India. 2008, Climate 2050.

6. NATIONAL ACTION PLAN ON CLIMATE CHANGE. 2008.

7. MNRE, Jawaharlal Nehru National Solar Mission, MNRE, 2010.

8. MNRE. Generation Based Incentive. 2009

9. Central Electricity Regulatory Commission. http://www.wendangku.net/doc/54ff8d3d0912a2161479299a.html.in/.

10. CERC, Indian Electricity Grid Code. 2010.

11. 17th ELECTRIC POWER SURVEY OF INDIA. 2009.

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