Rural Electrification has been one of the key focus areas for the current government.The vision of “Power for All” has been shining brightly in the eyes of government and it aims to electrify all villages by May 2018.The following post will look at the current status of Rural Electrification and various initiatives taken by the government to achieve this target.
Meaning of Electrification
As per the earlier definition of Rural electrification “A village is classified as electrified if electricity is being used within its revenue area for any purpose what. so-ever..” However, the definition needs some revision and the overall purview of Electrification is currently amended definition of Electrification as follows :
The basic infrastructure such as distribution transformer and or distribution lines is made available in the inhabited locality within the revenue boundary of the village including at least one hamlet/Dalit Basti as applicable and
- Any of the public places like Schools, Panchayat Office, Health Centers, Dispensaries, Community centers etc. avail power supply on demand and
- The ratings of distribution transformer and LT lines to be provided in the village would be finalized as per the anticipated number of connections decided in consultation with the Panchayat/Zila Parishad/District Administration who will also issue the necessary certificate of village electrification on completion of the works.
- The number of household electrified should be minimum 10% for villages which are un-electrified, before the village is declared electrified. The revision of definition would be prospective.
Thus,as per the above definition it requires only 10 % of the households in a village to be connected for it to be classified as “electrified”. This implies that even if a large number of households remain un-electrified after covering 10%, still the village will qualify to be called as “Electrified”moreover, the definition doesn’t specify the minimum number of hours of electricity supply in the villages.
Initiatives/Schemes in Rural Electrification
Prima-facie, a couple of major steps have been taken by the earlier government and the current government.Some of these are :
- Establishment of REC (Rural Electrification Corporation) : REC was established in the 1969 with the objective of providing finance and promoting finance and promoting rural electrification across the country.Its main objective is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them.
- RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana) It was launched in April 2005 for attaining the National Common Minimum Program goal of providing access to electricity to each and every household within a period of 5 years.The scheme was to officially end in 2009 ,however, due to non-attainment of the targets, certain allocation were made for the continuation in the 12th plan period (2012 -17). In terms of achieving the targets of lighting up unelectrified villages, the performance was much better in the initial years than in the last three years of the program.
- DDUGY(DeenDayal Upadhyaya Gram jyoti Yojana) : In Dec’14, the government announced DDUGY with some modification to the RGGVY scheme already in progress.It aims feeder segregation and strengthening of sub-transmission and distribution infrastructure in rural areas including metering of distribution transformers/feeders/consumers part from electrification of unelectrified villages,household.
As per the revised targets set by REC vis-a-vis government of India , 2,21,424 villages to be electrified out of which 95,977 have already been electrified ( Dated 20.04.2016 http://garv.gov.in/dashboard ) . Nine states (AP , Goa , Haryana, Kerala,Maharashtra,Punjab,Sikkim and Tamil Nadu) have achieved 100 % of the village electrification.Bihar is the worst performer in terms of household electrification. While 97 percent of the Bihar’s village are electrified, only 12 percent homes have electricity connections.
- Location specific technologies like solar,wind,mini-hydel so that target of electrification reach the granular level of society.
- Technological improvement required at the micro level so that the systems are well maintained over longer duration with requisite maintenance strategies.
- Last but not the least, there are still so many villages across India which have not experience the word “Electricity” and they are to be helped with utmost priority.
Power Trading has come a long way since trading has been recognized as a distinct entity in Electricity Act, 2003.
What is Power Trading?
Basically, Power trading is an activity of buying and selling of power at Power Exchanges, which are approved by Central Electricity Regulatory Commission (CERC)and moreover standardized Products are offered to buy and sell power. Thus Power is traded like a commodity at Power Exchanges like IEX (India Energy Exchange), PXIL(Power Exchange India Ltd.) Likewise shares trading are done on SENSEX etc & commodity trading at NCDEX etc.
What is Open Access?
Open Access allows large users of power having a connected load of 1 Megawatt (1MW) to buy cheaper power from the market.
Acc. To EA 2003 Sec 2(47) : “open access” means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission;
Types of Open Access:
• Inter State Open Access: When buying and selling entity belong to different states.
• Intra State Open Access : When buying and selling entity belong to same state.
Types of Power Trading?
Broadly Power trading can be sub classified on the basis of duration of contracts and energy trading platform.
What are the statutory requirements for Power Trading?
Some of statutory requirements notified by CERC are:
• Demand should be atleast 1000KVAH
• Connected to atleast 11KV line
• Should have 0.2S class CT/PT
• Should have 0.2S class ABT meter
• Consent from DISCOMs/SLDC to trade power.
List of Power Trading Licensee?
Acc. to CERC’s latest MMC report(08/11/2013),there are 65 Power trading licensees in power market, some of active ones are:
• Tata Power Trading Company Ltd.
• Jaypee Group
• Adani Enterprises Ltd.
• PTC India Ltd.
• Reliance Energy Trading Ltd.
• JSW Power Trading Corp.
• NETS (Lanco)
• MMTC Ltd.
• DLF Power Ltd.
• Jindal Steel and power Ltd.
• GMR Trading Ltd.
What are various Bid areas on Energy Exchange?
What is HHI & its relevance in power market?
HHI stands for Herfindahl-Hirschman Index
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000.In case of p
For the year 2012-13, HHI was 0.1437
Some Facts about Power Trading (Ref from CERC’s MMC Report)
• In 2011-12, Weighted Average price of electricity traded through Power Exchanges Rs 3.67 / unit and through trading licensees Rs 4.33 /unit.
• During the year 2012-13, 89% of the volume of electricity in IEX and 94% of the volume of electricity in PXIL was transacted at less than 6/kWh. 70% of the volume in IEX and 73% of the volume in PXIL was transacted at less than 4/kWh
• During 2012-13, only 179 million units of electricity was exclusively bought during peak hours under bilateral transactions from traders (exclusive of banking). This was 0.79% of the total electricity bought under bilateral transaction from traders (excluding banking). A major part of this, 93.24%, was bought on round the clock (RTC) basis, followed by 5.97% exclusively bought in periods other than peak periods. The per unit price of electricity procured on round the clock (RTC) basis was the cheapest (4.29/kWh), followed by electricity exclusively procured during non-peak hours (4.66/kWh) and electricity exclusively procured during peak hours (4.97/kWh).
As per Ministry of Power,about 25000 MW of capacity from private players is expected to come up in 13th plan which is a kind of paradox as per current scenario.State DISCOMs are reluctant and skeptical to issue bids,preferring to load shedding and buying from short term power market owing to low rates(CERC’s Short term power market Report :http://www.cercind.gov.in/2013/market_monitoring/MMC_Report_1213.pdf).Moreover fuel sourcing issues related to Coal,gas(Gas Pricing issues and recommendations https://knowpowernews.wordpress.com/2013/03/24/rangrajan-committee-report-on-natural-gas-pricing-and-its-repercussions-on-sector/) have emerged as a road block to the competitive bidding route.
In April 2003,CERC has somehow tried to end the stalemate and allowed TATA & ADANI to go for “Compensatory Tariff hike” but somehow the procuring states are not ready for the same(http://articles.economictimes.indiatimes.com/2013-10-09/news/42864252_1_mundra-project-tariff-hike-tata-power).
Reports of Compensatory Tariff Hike related to ADANI & TATA can be read here :
Over 52 GW of the projects have been awarded through competitive bidding route (Case 1 and Case 2 Route) http://www.powermin.nic.in/whats_new/competitive_guidelines.htm . No new Power Purchase Agreement has been signed under the purview of Case 2 Bidding since L & T’s 1320 MW plant in Rajpura(Punjab).
Earlier the bid invitation process at Odisha as well as Chattisgarh could not be completed but as per recent notification,Fresh Rfq will be invited for Odisha UMPP http://www.cmie.com/kommon/bin/sr.php?kall=wclrdhtm&nvdt=20130906125251890&nvpc=099000000000&nvtype=TIDINGS
Refer PFC(Power Finance Corporation) for detailed RFP as well as RFQ http://www.pfcindia.com/Content/UltraMegaPower.aspx
In June 2012, bids were invited by UPPCL on behalf of 4 DISCOMs to procure power starting from 2016-17 for 25 years. Developers are not placing aggressive bids due to changed market scenario as fuel supply sourcing issues as well as pricing risks have uprooted in recent times.According to UPPCL bid results, the average tariff quoted was hovering around Rs 5-6/unit.
-In a move to promote competitive bidding for inclusive growth for the Indian power sector, CERC has adjudicated on ADANI case for requesting a tariff hike.The regulator realised that due to rise in Indonesian coal prices(due to change in regulations), it is quite viable to manage at the same tariff cost.
-Another major development that took place in the recent times was approval of mechanism to pass on the imported coal fuel price “http://www.domain-b.com/economy/general/20130621_consumers.html”. CIL need to sign FSA (Fuel Supply Agreement),according to which shortfall of the coal will be met through imported route on cost plus basis. Meanwhile after several rounds of discussion,MoP finally released SBD for case 2 Projects in September 2013 http://powermin.nic.in/whats_new/pdf/overview_of_the_draft_model.pdf Detailed RFQ as well as RFP can be referred here :
Some of the Key points being highlighted in SBD are:
-Bidding will be done on single parameter i.e “capacity charge” (comprises of RoE(Return on Equity,Interest on Loan Capital,Depreciation,Interest on Working Capital, Operation & Maintenance cost ,Cost of secondary fuel,special allowances in case of R & M of a thermal power plant).
-The basic building of SBD is adopting DBFOT Model(Design,Build,Finance,Operate and Transfer)which says the power plants will be transferred to contracting DISCOMs after the completion of the project life.
– Fuel charge will be a pass through component and it will be reflected in the distribution tariff as quoted.
-Incentive will be provided to the developers on improving the Station Heat Rate(The Station Heat Rate of a conventional fossil-fueled power plant is a measure of how efficiently it converts the chemical energy contained in the fuel into electrical energy,usually expressed in Kcal/KWh).
-Land acquisition will be procured by the utility as the concessionaire may face difficulty for getting the land at the aforesaid location.
With the finalisation of the revised SBD for Case 1,more states will initiate the process of issuing RFPs thereby giving the clarity on SBD.Provisions related to tariff revision and acceptance of Long Term power procurement as compared to short term would also drive states to procure more power.Changing sector dynamics of policies and regulations is a positive sign for the sector and thus making India a more competitive one.
The nationwide Grid Failure in July 2012 https://knowpowernews.wordpress.com/2012/08/04/dark-times-in-India-northern-grid-failure/ ,has prompted CERC to take several measures in order to stabilise the system and thereby ensuring Grid Discipline.In its report on Grid Disturbance in August 2012 (http://www.cercind.gov.in/2012/orders/Final_Report_Grid_Disturbance), the enquiry committee has concluded that it has occurred due to series of events like multiple outages,transmission line overloading, inactive response from RLDC,SLDC’s,loss of 400 KV Bina -Gwalior link.Some of the prominent steps proposed are: third party protection audits,formulation of islanding schemes in different states,review of unscheduled interchange(UI) mechanism,further tightening of frequency band (http://articles.timesofindia.indiatimes.com/2012-04-03/delhi/31280863_1_power-demand-discoms-bses-rajdhani-power-supply) etc.
After NLDC’s petition (http://www.cercind.gov.in/2012/orders/Order%20in%20Petition%20%20No.190-MP-2012.pdf) to CERC, it has finally approved the congestion charges in April,2013 and thereby amending the congestion charge regulation 2009 (http://www.cercind.gov.in/2010/ORDER/March2010/Signed_Order_Pet_No_1-2010_Suo_Motu.pdf). Actually the changes proposed are actually in line with CEA’s planning criteria for the aforesaid issue.
Key Features of new procedures for relieving congestion in real time operation.
1. TTC,TRM and ATC
-TTC(Total Transfer Capability) is the amount of electricity that can be transferred reliably over a particular transmission system under a given set of operating conditions,considering the possibility of worst contingency.TTC is measured in MW terms and is dependent on network topology,point of injection/withdrawal of the interconnected network.
-TRM(Total Reliability Margin) is the amount of margin kept while determining TTC which ensures that the network will be secure enough to operate in case of critical situation.
-ATC(Available Transfer Capability) is the transfer capability of the system that is available for scgeduling transactions in a specific direction.
Thus, ATC = TTC – TRM
2.To ensure proper usage of TTC,TRM,ATC terminology, a detailed procedure has been prepared w.r.t Open Access in Inter state transmission.
3.Some of inputs that are required to design an efficient Transmission network are network topology,coal- fired thermal dispatch,gas,nuclear and hydro dispatch,MW demand and MVAR demand.
4.TTC between the two points are generally designed bu increasing the load in the importing area and generation in the exporting area till a credible contingency occurs in a single transmission element(n-1)
5. TRM is computed on the basis of 2 per cent of the total anticipated peak demand met in the control area and size of the largest generating unit in the control area.
Declaration of congestion in Real time
-The figures need to be dosplayed on the websites of RLDC’s based on the inputs provided by the respective SLDC’s.
– A corridor is considered to be “congested” if the grid voltage in the important nodes downstream or upstream of the corridor has breached the operating range as specified in Indian Electricity Grid code.Moreover details regarding the planning of transmission corridor has been published by CEA in its manual
-RLDC an NLDC can issue a congestion notice to the SLDC’s and the same need to be forwarded to all the concerned entities through ususl methods of communication like fax/email/postings on website.
-In case of congestion caused due to forced outages of transmission after fixing the drawal schedule,Open Access transactions should be curtailed as per CERC’s OA regulations followed by revision of TTC,ATC,TRM etc.
-If a violation of TTC limits persists for more than 2 time blocks (Each Time block comprise of 15 minutes) after the issuance of warning notice with no action taken by the defaulting entity,the NLDC/RLDC wil issue a notice for imposing congestion charges.
The applicable congestion charges as per CERC order are Rs 5.45/unit.
Congestion Charge Accounting and Settlement
-Congestion charges account will be settled on a weekly basis.RLDC’s will maintain and operate the bank account quite similar to UI account Any delay in payment beyond 12 days would attract a simple interest of 0.04 %/ day.
-RLDC’s should also submit a monthly statement of accounts to CERC.
Given the grwoing complexity of Indian Power market, CERC need to constantly monitor the procedures and adequate steps should be taken to streamline the Indian Power Sector.
Reference: CERC , Power Line Magazine, Power Sector Blogs.
Fossil fuels play a major role in meeting the energy demand of the nation and are expected to continue doing so in the foreseeable future. Oil & gas resources form a major part of our primary energy mix and touch our lives in more ways than one. The developing Indian economy has been constantly challenged for sourcing primary energy. India is dependent on imported crude oil to the extent that recently the US Energy Information Administration (EIA) has observed that India was the world’s fifth largest net importer of oil in 2012, importing more than 2.2 million bbl. /d , or about 70 percent of consumption.
Natural gas pricing in India is diverse and complex in nature. India is one of the few countries where different types of basic prices of gas are prevalent. Across the gas value chain and particularly for consumers, the complexity in the pricing of natural gas in India has resulted in enormous problems.
Proposed pricing formula by Rangarajan Committee implies gas price at USD8/mmbtu
Background for gas pricing in India: Committee observed that as there is no gas on-gas competition in India, which is unlikely to happen for several years, it proposed a formula based on wider global prices. Further, even as the global gas markets are not coherent like oil markets, committee proposed a formula based on average of net-backs for producers and average of exchange traded prices.
Formula proposed by the committee: Arms-length price in India = 12-month average of:
a) volume-weighted net-back pricing at well head for gas producers who export to India and
b) volume-weighted price of US’s Henry Hub, UK’s NBP and Japan’s JCC linked price. Committee has not commented on domestic gas allocation to sectors.
The suggested formula will apply to pricing decisions made in future, and can be reviewed after five years when the possibility of pricing based on direct gas-on-gas competition may be assessed.
Review of recommendations related to Natural Gas Price:
•Since the PSC-related key financial recommendations are on prospective basis, they would not impact current PSCs and hence would not impact the profitability/NAV of current producing blocks of RIL/Cairn India.
•However, the proposed gas pricing formula will have a meaningful impact on the domestic gas producers (RIL, ONGC, Oil India) as RIL’s KG-D6 gas price revision is due in March 2014 and would also influence prices for other gas producers like ONGC.
• Committee’s recommendation to determine gas price through arms-length is a very positive one. However, views/affordability of the key consuming sectors like power and fertilizer would also weigh heavily on the final gas price decision in March 2014. The higher input price for fertilizer will have implications.
Impact of Recommendations:
•Domestically produced gas price in the country would then be around $7-8/mmBtu at the current rate.
However, any increase in domestic prices would negatively impact the downstream consuming sectors, predominantly power and fertilizer sectors. While power generation cost would increase compelling an increase in power tariffs, increase in feedstock cost for fertilizer sector would lead to increase in governments’ outlay on fertilizer subsidy. Currently power and fertilizer sectors consume about 2/3rd of domestic gas. For other industries which consume domestic gas as fuel the alternative fuel choice is liquid fuels. As a result any increase in domestic gas price is not likely to affect its competitiveness vis – a vis other liquid fuels.
Moreover ,other effects which can be summarized are as follows:
-ise in inflation sharply which is around 10.16 % already in double digit.
-rise in prices in almost all sectors major sectors affected will be Transport, Auto, FMCG, Textiles.
-The rise in LPG gas will cut the common man’s pocket deeply.
-Impact on banking sectors as the hike may lead to raise in inflation which will urge RBI to raise interest rates thus affecting banks due to tightening of CRR.
-The decision will help to rein in the fiscal deficit, which is projected at 5.5 percent of the gross domestic product in 2010/11 and free up revenues for other programs.
-State oil firms currently lose about Rs 215 crores per day on selling fuel below the imported cost. Thus it will help these companies to make profits.
Thus this can be summarized with a view point that there are some of the key issues that need to be taken care before implementing the recommendations by the Rangrajan committee because ultimately it is the end user or consumer who will be facing the brunt of the increase in net price in natural gas and LPG.
There is an urgent need for Indian policymakers to draw on market oriented solutions to resolve the immense uncertainty that exists in the gas sector.
References :Report of the Committee on Pricing and Taxation of Petroleum Products , 2006 (Rangrajan Committee Report),CII,MoPNG
Power is essential for the socio-economic development of a country and is being recognized as a basic infrastructural requirement. Although the installed capacity has increased to 210 GW but India faced an energy deficit of 10.1% in 2011-12.
Even today, 40 per cent of households are denied electricity; the other 60 per cent do not have reliable access to electricity and is lagging service, measured by hours of supply as well as penetration. Power cuts, erratic voltage and low or high supply frequency have added to the ‘power woes’ of the consumer.
Today, the need of the hour is sustainable power supply which will help address the need for increased demand. For a large and dispersed country like India, with its unique geography and current state of economy, innovative means of producing energy needs to be looked at to reduce its dependence on oil and coal as a primary source of energy.
Ministry of Power, Government of India launched Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in 2005 for providing access to electricity to rural households. Electrification of about 1.15 lakh un-electrified villages and electricity connections to 2.34 crore BPL households by 2009 was on the agenda. Under the scheme of Rural Electricity Infrastructure and Household Electrification, DDG was introduced in the XIth Plan to address the issue with the recommendations of Gokak Committee.
Technologies which can be used for Distributed Generation are:
• The Internal Combustion Engine.
• Wind Turbines
• Concentrating Solar Power (CSP)
• Fuel Cells
Penetration of DDG: As on 30-11-2012[ ], around 6% of the villages are still to be electrified and these villages will be electrified with a mix of GE and DDG.
Benefits of DDG
-Utilization of waste fuel to Energy
-Investment Deferral in Transmission Sector
-Power Quality and Ancillary Service
-Remote Areas Electrification
Barriers to implementation of DDG
-Lack of Adequate Information for market development.
-Poor Access to Credit
-Lack of awareness of RET(Rural Energy Technologies) in rural India
-Limited Site specific issues may erupt
-Financial Viability-A major factor
To successfully implement DDG,Overall strategy that can be thought of is
-Support Incentive in the near term
-Transition to New Market
-Reducing remaining institutional barriers.
Model/Proposed Framework for Implementation of DDG:
• Rural Electrification Policy: The current REP Clearly discusses the means of achieving 100% rural electrification but it falls short of recommending a single nodal Agency for all rural electrification efforts as shown in Fig 1. The Agency will have to act as an overseer for channelizing of funds through various agencies like MNRE, REC etc. and encouraging private participation in the sector.
Under Sec 14 of Electricity Act 2003, no licence is required for electricity generation & distribution in notified rural areas (26 states have notified).RE Policy states that for villages/habitations, where grid connectivity would not be feasible or not cost effective, off-grid solutions based on stand-alone systems may be taken up for supply of electricity so that every household gets access to electricity.
• Management of DDG systems: Local authority/panchayat/societies need to maintain the system as they are the real consumers and a sense of belongingness may incorporate in them.
• Selection of Technology: Relevant technology need to be adopted by the authorities with adequate feasibility analysis(in terms of raw materials, feedstock level, transportation facilities, usage pattern of consumers etc.) of particular region.
• Capital Subsidy from Government: Generally Rural cooperative societies manage the high expenditure of the DDG but owning to huge capital expenditure involved in the preliminary stage, government should provide adequate subsidy to the developers or the EPC companies whosoever is involved in the project. The incentives/subsidy should be based on the various factors like geographic location of area, planned capacity addition and output performance.
• Enabling guidelines for Tariff revision: Under the purview of CERC, Tariff setting and revision should be taken care by the concerned nodal agency which has been assigned the successful implementation of DDG in a particular area and moreover there should be crystal clear transparency in this process.
• CDM Benefits: All RE projects are eligible for CDM benefits, DDG projects can be made financially more viable and competitive after encompassing the monetary benefits associated with them.
• Considerations to be taken w.r.t various institutional Models recommended by Gokak Committee: Models like Sunderbans Model, TERI Model, Bangladesh Model may be adopted after suitable changes in order to increase people participation at large.
• Other recommendations:
Extend RGGVY to fund evacuation infrastructure
Develop transparent and simple interconnection rules and procedures.
Streamlining Project Approval
In the long run, distributed generation will help consumers to get power at lower tariff as power will be available at lower per unit cost. More employment opportunities, both at plant management level and in the manufacturing sector for related machinery, will improve living standards of the people. Availability of power at low cost will attract more investments, which would be more evenly distributed throughout the country rather than being limited to cities alone.
Going forward, concerted efforts by the Union and State Governments, financial institutions, academic and research institutes, non-governmental organisations, as well as multilateral and bilateral agencies is required. A distributed generation matrix for India is recommended for lighting the lives of those for whom lighting a bulb still remains a distant dream!
• Biomass Energy for Rural India Society, available at http://bioenergyindia.kar.nic.in Central Electricity Authority http://www.cea.nic.in)
• Village Electrification report of CEA
• Gokak Committee Report on Distributed Generation
• “Electricity Act 2003”, Ministry of Power, Government of India, New Delhi, India, Jun. 2003.
• World Bank Report on “Empowering Rural India: Expanding Electricity Access by Mobilizing Local Resources” 2010.
• California Energy Commission “Distributed generation and cogeneration policy roadmap for California” 2010
• Chandrashekar Iyer,” Decentralized Distributed Generation for India” – 2011
Introduction of REC(https://www.recregistryindia.nic.in/index.php/general/publics/AboutREC) trading framework has been a significant step in 2010,transforming the renewable energy market to go for market based modelled approach. Success/ Failure of the REC Trading framework can be gauged from the inventory being built up in monthly trading sessions. Of the 712792 RECs put up for sale in the two power exchanges in Sep 2012 session, about 450000 remained unsold and moreover 37% of the REC holders didn’t participate in the trading session at that time. This growing demand supply mismatch is giving alarming bells to the project developers and various potential investors who are eager to invest in RE sector in the near future.
REC mechanism seeks to expand its horizon from resource rich states to the deficit states but the key factor which will lead to success of REC is the RPOs by various obligated entities. Nonetheless state power regulators need to play a proactive role in the development of REC market. Till date all states except Arunachal Pradesh and Sikkim have declared their RPOs explicitly(http://ceew.in/pdf/Appendix_F-Renewable_Purchase_Obligation_for_States.pdf).
A survey was conducted to gauge the total renewable energy capacity of states,RPOs declared by them, CUFs of various renewable sources of energy. It has been analysed that only 4 states -Tamil Nadu, Gujarat, Karnataka and Maharashtra have significant wind power installations and RPOs higher than those required in 2010-11 and 2011-12.For eg Tamil Nadu needed about 4000MW of renewable energy capacity to meet its RPO of 14 % and it has already installed capacity of 4908MW.Except these states, rest of them were unable to meet their solar RPOs.
-There is huge inconsistency in RPO norms across the states. NAPCC,2008 targets 5% of the total grid purchase to be achieved through renewable energy. However in the absence of national level RPOs, states have been fixing their own targets depending upon the availability of renewable energy in that particular area.
-Another risk that is quite prominent as far as REC market is concerned- regulatory capture by the obligated entities which further skews the market against developers and investors. Certain states have been revising their RPOs targets in a downward trend for e.g Tamil Nadu(wind rich state) revised from 14% (2010-11) to 10% (2011-12).According to regulators, unrealistic targets imposed by some state regulators could set a wrong precedent not only for the state. Similarly, in April 2012, MP Power Trading Company Ltd. requested MPERC to waive RPO targets for solar energy for 2011-12 and 2012-13 because no solar power plant has been commissioned in MP and solar RECs were not available for trading on any one of the exchanges.
-RPO setting in most of the states is based on the assessments that are outdated. Therefore, they are set much lower than what could be feasible. Some stake holders are worried about the impact on tariff due to these targets. Like a study conducted by CRISIL along with CERC indicated that compliance with NAPCC target will have a marginal tariff impact of Re 0.01/unit/consumer ,reducing every year to reach Re 0.005/unit/consumer by 2017.
-Another risk that is anticipated by developers is lack of visible long term RPO trajectory. Only 7 states(AP,karnataka, Delhi, HP, Kerela, Maharashtra, Odisha) have declared their RPO trajectory till 2015-16 or beyond.
Limited Focus on CPPs and Open Access consumers
While most of the states have amended their regulations to include open access customers and CPPs under the purview of RPO but still there are some states which have not notified their OA and CPP consumers to meet RPOs. The glim scenario can be seen from the trading of RECs over IEX in which over 90% of the participants are DISCOMs and there have been very few CPPs and Open Access users. But there are states like Karnataka i.e KPTCL directed OA users in the state to fulfill 5% RPO for 2011-12.Similary Chattisgarh has also notified CPPs to provide RPO compliance on monthly basis.
Recently Rajasthan high court dismissed an appeal raised by Hindustan Zinc, Ambuja Cements etc that had challenged RPO regulation enacted by RERC. The petitioners stated that RERC did not have authority to pass the RPO regulation and impose a surcharge(penalty) as CPPs and OA were completely de-licensed under EA 2003.However Jaipur bench of High court rejected the petition stating the exact meaning of word ‘total consumption’ as total consumption in the area of distribution licensees in all modes. One of the reason for non compliance is the lack of incentive mechanism to support RPO implementation.
-A key stumbling block in the implementation of RPO is the financially strained DISCOMs. Burdened with over 2 trillion of losses, how can one expect DISCOMs buying costly RECs? However a recent development is the Debt restructuring for the DISCOMs(http://powermin.nic.in/whats_new/pdf/Financial_restructuring_of_State_Distribution_Companies_discoms_Oct2012.pdf)
-Another encouraging trend is that several DISCOMs have been facing losses due to their inability to hike tariffs but recently over 17 states have revised their tariffs giving a good signal to the market stabilization for RE.
Need to Improve REC Market Design
-There is lack of visibility in floor and forbearance price beyond the initial five year period because only non PPAs based sales are eligible for RECs.
-REC trading is restricted to auction markets and can be conducted only on a “once through” basis, thereby not permitting forward contracting and liquidity reduction.There is a sheer need of secondary trading market,which both the exchanges as well as industry players have been seeking for some time.
-Finally compliance window has to be shortened to a quarter or half year to ensure that there is continuous procurement action on obligated entities.
Thus,REC markets will fail to bring the desired results unless regulators are empowered to enforce the RPOSs and DISCOMs are allowed to function as independent power utilities rather than as an arm of government.
References: Power Line Magazine,MNRE Website, ICRA report on DISCOM bailout,REC registry,RE Connect etc.