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Cover Story | July 2015

States,fall in line!

In the last few years, India has seen tremendous progress in the RE sector. However, sustained effort in this direction would need effective framework and implementation of RPOs, which will be the key to meeting the country´s RE goals. The Supreme Court verdict is expected to help enforce RPOs more effectively.

The recent Supreme Court order in the Hindustan Zinc Ltd Vs Rajasthan Electricity Regulatory Commission (RERC) case has given the Renewable Purchase Obligations (RPO) cause a huge boost (See Box: Supreme Court Verdict). But, while most industry players POWER TODAY spoke to deemed the verdict long awaited and welcome, they remained cautious about major changes under the current system. They all agreed that while India´s progress in the Renewable Energy (RE) sector has been impressive, effective implementation of the RPO framework is crucial.

What are RPOs?
In simple terms, RPOs are the minimum percentages of the total power that Distribution Licensee, i.e., power distribution companies (discoms); Open Access (OA) consumers, i.e., those procuring power from power exchanges or traders or bilateral agreements; and Captive Power Plants (CPPs), i.e., those generating and consuming power from captive coal/natural gas power plants, need to purchase from RE sources. Launched in 2010, they created a minimum market for green energy in the absence of pricing externalities of conventional power generation. During 2012-13, RPO targets in India ranged from two per cent for Tripura to eight per cent for Maharashtra.

A major driving force in India to promote the RE sector, RPO regulations may create favourable and neutral or off-putting effect in the growth of the sector as these frameworks differ from one State Electricity Regulatory Commission (SERC) to another.

The Electricity Act and National Action Plan on Climate Change (NAPCC) provides a roadmap for increasing the RE in total generation. The Regulatory Commission in each state mandates a certain percentage of electricity generated through the above process to be from renewable sources.

Also, the RE generators injecting power to the grid are eligible to generate Renewable Energy Certificates (REC) - a tradable certificate of proof that 1 MW of electricity has been injected (or deemed to have been injected). The REC mechanism seeks to address the mismatch between availability of RE sources and the requirements of obligated entities to meet their RPO. Distribution companies, open access consumers and captive consumers have the option of purchasing RECs to meet their obligations.

However, Raveesh Budania, Partner, Headway Solar, seems sceptical. ´When RECs were conceptualised, the levelised cost of energy for solar was Rs 15-18/kWh. After deducting the value of ´electricity component´ (priced at ~ Rs 3-4/kWh), policy makers and regulators must have priced the ´renewable component´ in the range of Rs 9.5-13.4/kWh to make solar power generation commercially viable for the solar project developer.´

´Over the past five years, the solar power generation prices dropped drastically, making it unattractive for obligated entities to buy just the renewable component. Obligated entities are not complying with RPO targets even with cheaper options of buying or building solar capacity; fulfilling RPO through RECs is too wishful,´ he adds.

Even if RPO framework was implemented successfully, which is not the case currently, then also REC framework will face existential conundrum. With bold solar capacity announcements under the central and state initiatives, the project developers would also focus on these safer options rather than developing solar power plants to sell RECs.

RPOs in India
For RPOs to succeed there has to be a need based requirement. For e.g. pharmaceutical companies in Central India are procuring solar energy to fulfil their RPO requirement.

Why are they doing this? It is because the conventional energy cost for these companies is higher than the solar energy cost. Thus, RE is cheaper than the utility rate for conventionally drawn electricity in those states.

´Such drivers will have much higher impact than imposition or enforcement, which to be really effective needs RPOs to be cheaper than conventional or solar or wind energy tariff,´ opines Santosh KM, Managing Director, Enerparc Energy Pvt Ltd. However, even as India seeks to double RE capacity by 2017, the country´s current RE requirement remains unfulfilled. According to the Greenpeace and Infraline Energy report titled ´Powering Ahead with Renewables: Leaders and Laggards´, 22 out of 29 states failed to meet their RPO targets in 2012 (Refer Leader and laggard states as per the current performance scenario). These targets define how much electricity in the country is estimated to be produced from RE sources.

Among the worst-performing states were Delhi (less than 1 per cent achievement), Maharashtra and Punjab (both fell short by 50 per cent), Andhra Pradesh and Madhya Pradesh. Notably, performance on renewables in the three major coal bearing states - Chhattisgarh, Madhya Pradesh and Jharkhand was contrasting. The former took the lead, while the latter two fell far behind.

The RPO policy, devised under the NAPCC, targeted to produce 5 per cent green electricity in 2009, 7 per cent in 2012 and 15 per cent by 2020. However, states fixed their own RPO targets, which totaled 5.44 per cent. (Refer Cumulative Targets of SERCs) As a result of the inconsistency, between national RE targets set by NAPCC and the RPO targets fixed by state electricity regulators, the country registered a deficit of 1.56 per cent/loss of 14,268 million units of electricity (actual loss 18,300 million units).

´The obligated parties are reluctant because they feel that they don´t need RPOs or have cash flow problems. They also feel that RE is difficult to handle. It is thus, more a question of resisting change, as they are used to conventional power,´ shares Tarun Kapoor, Joint Secretary, Ministry of New and Renewable Eenergy, Government of India.

Ramesh Vyas, Director - Solar, International Marketing Corporation too had the same opinion, ´RPO is a state subject. Due to lack of monitoring and enforcement agency, it has not been possible to implement RPO compliance. So far it is left to the people to follow it, and there is no pressure or compliance enforcement agency.´

He adds, ´Successfully implementation of RPOs has only been made possible where this forms a small component of their investment policy, otherwise it is not happening. In last three years, RPO policy has been almost a non-starter.´

Meanwhile, Santosh KM, Managing Director, Enerparc Energy Pvt. Ltd, had a slightly sympathetic view, ´The challenge for utilities in RPO is that they will have difficulties procuring RECs. This is not because they lack intention, but in their current financial condition they may not have surplus cash to purchase RECs beyond a certain price point.´

Raveesh Budania, Partner, Headway Solar, concurs, ´Fulfilling RPO is costly and the loss-making state-owned discoms don´t have the appetite or capability to fulfill RPO. Secondly, the level of enthusiasm to adopt renewables might be different for the states, centre and the regulatory bodies due to implementation challenges and lack of resources and capital.´

However, there were states which outperformed their targets like Meghalaya (set 0.75 per cent and achieved 4.10 per cent), Nagaland, Uttarakhand, Himachal Pradesh and southern coastal states of Karnataka and Tamil Nadu (achieved 19.14 per cent against 9 per cent).

Abhishek Pratap, Senior Energy Campaigner, Greenpeace India, says, ´The report is an indictment of the policy framework around renewables and the dismissive attitude of the government towards it. RPO mechanism could have been a tool to bridge the demand-supply gap in the energy sector across India. But toothless mechanism, combined with unambitious targets has failed to give any impetus to renewables in India.´

SERCs cover ups
Following increasing concern over actual compliance, SERCs are undertaking measures such as reducing RPO targets to reconcile with concerns of utilities. For example, RERC and Tamil Nadu ERC in 2011-12 reduced their targets of 8.5 per cent to 6 per cent and 14 per cent to 9 per cent respectively, despite the latter achieving a compliance of 9.59 per cent.

Maharashtra, FY 2010-11 and 2011-12 appeared to have achieved its RPO targets of 6 per cent and 7 per cent, respectively. But a closer look at the compliance data by the Maharashtra Energy Development Agency (MEDA), credits OA consumers for the units, wheeled in 2011-12, thus dropping the actual compliance sharply to 4.49 per cent. This issue is bound to come back when the OA consumers RPO compliance is taken up. (Refer Analysis of state-wise success/failure in terms of fulfilment of RPO targets)Most recently, Gujarat ERC spared its power distribution companies for not meeting their RPO, by adjusting their shortfall for 2013-14. The original target was for 7 per cent, which power companies claim to have been unable to meet due to ´genuine problems´.

Vyas points out, ´Maharashtra, to meet its RPO had proposed to install 125 MW solar plant about a few years back. However the project was delayed for various reasons. There have been very many such reasons for which the biggest power producing states have not been able to comply.´

He further gave an example of Tamil Nadu, where the government in 2012 had come out with a very good RPO compliance policy, which was challenged in the court of law. ´The challenge was upheld, due to which they couldn´t go ahead with their plans. So there are so many hurdles in implementing the RPO compliance,´ Vyas adds.

´Most of the obligated entities are state-owned discoms, which are incurring heavy losses. Buying expensive RECs would add up to those losses,´ adds Budania. Vineet Mittal, Co-Founder, MD and Director, Welspun Energy Limited, cuncurs, ´The sector is not witnessing the percentage increase in solar energy consumption to the degree it should have experienced. Due to non-conformance the REC mechanism has not been a huge success.´

He further also offered another perspective, ´Solar irradiation and wind velocity received across India varies. While states like Rajasthan and Gujarat receive optimum irradiation, others like Jharkhand don´t receive the quantum for optimum generation. CUF percentage levels are also not conducive for setting up power projects.´

Regulations and Policy support:

  • The Appellate Tribunal (ApTel) gave its judgment on May 2015, in a petition filed by various associations asking it to direct SERCs to comply with RPO regulations.

The order is likely to make routine carry forward and waiver of RPO that has been observed in the last few years much more difficult. ApTel gave several directions to SERCs regarding the setting up of RPO and regular review of the same carry forward and review shall be done as per the RPO regulations. 

  • Additionally, faced with the prospect of non-compliance of RPOs, the Forum of Regulators (FOR), a representative body of Central and state regulators, has called for amendments to the EA, 2003. These amendments are aimed at empowering regulators to impose penalty for non-compliance and stresses on the need for invoking existing regulations and adding special provisions to deter against non compliance.

  • The Central Electricity Regulatory Commission (CERC) in its statutory advice to the Power Ministry had pitched for specific provisions to be incorporated in the EA, 2003, for RPO compliance.

As per media reports, CERC´s former chairman, Pramod Deo, stated that state regulators were worried that the increase in RPO would unduly burden consumers. But, FOR conducted a study and obtained legal counsel which shows that increased RPOs especially for industrial and commercial consumers (who contribute most to environmental damage) has marginal impact on retail tariff and the differential RPO setting will not burden common consumers at all.

Amendments to the National Tariff Policy:
The Ministry of Power has proposed several changes to the National Tariff Policy. Some changes are significant, like the proposal to substantially increase solar RPO (from 3 per cent by 2022 to 8 per cent by 2019), to remove inter-state transmission charges on RE power and curtailing cross-subsidy to 15 per cent of applicable tariff.

Few key points in the amend¡ments to the National Tariff Policy:

  • The SERCs and CERC shall necessarily be guided by the National Tariff Policy.
  • For RPO, long term trajectory to be provided by Ministry of Power (MoP), in consultation with MNRE and keeping in view the objectives of NAPCC.
  • For a new coal/ lignite-based plant, RE capacity to the extent of 10 per cent of thermal generation capacity will have to build.
  • No inter-state transmission charges for RE power.
  • Time differentiated tariff to be implemented for large consumers (>1MW) within one year, and for all consumers within five years.
  • In calculating the cross-subsidy surcharge (CSS), a change in the methodology is proposed.
  • Further, the provision requiring gradual reduction of cross-subsidy to a maximum of 20 per cent of its opening level is proposed to be deleted.
  • A new provision limited the CSS to 15 per cent of the applicable tariff category has been proposed.

The changes proposed in the Tariff Policy are welcome, and in line with the government´s objective to promote RE power. However, the effectiveness of the same remains a question mark. Several provisions in the existing policy (of January 2006) remain only on paper.

A good example of this is the requirement that ´Availability Based Tariff (ABT) is to be introduced at State level by April 2006´. In several states this still remains a distant dream nine years after the deadline.

Similarly, the ability of reaching eight per cent solar RPO remains doubtful when several states did not even follow the minimum requirement of 0.25 per cent as per the existing policy. Also, the intent and conduct of SERCs in enforcing RPO regulations has been a big question mark.

It is noteworthy, that the EA 2003 says that the Appropriate Commissions ´shall be guided´ by the Tariff Policy in tariff determination. The proposed amendment to the EA says, ´the provisions of Tariff Policy shall be followed by the Appropriate Commission for the purpose of Tariff determination.´

What needs to change?
The Greenpeace report highlights the lack of penalty measures undertaken against states that miss out on their targets. Looks at the skewed RPO mechanism and replace the existing policy with a more equitable and effective differential RPO policy.

´RPOs are directed by the state regulators and so enforcement depends on them. If they don´t take any action, then the policy compulsory doesn´t operate. Thus so far we have had a little bit of a problem because most of the regulators who hold the authority have not enforced it very strongly and that has created the hurdle,´ acknowledges Kapoor.

Rohit Khatri, Energy Researcher, Infraline Energy, suggests some measures, ´Each state must develop differential RPO targets that are based not only on current RE capacity, but also the existing consumer profile, the state´s fiscal deficit and GDP. The report recommends the same criteria be used for setting new RPO targets that are ambitious, equitable and viable but mandatory for every state.´

Santosh, however, has another take on the issue, ´The reason RPO targets in India are not being met is simply due to lack of enforcement and lack of a pragmatic pricing mechanism for RPOs. Obligated parties move towards bilateral PPAs to produce their own green energy and captive plants, duly consuming it, rather than buying certificates, which is always the last option.´

He outlined four main points of focus that would help enable and develop RPO implementation. ´Pricing is one part for sure. Making OA work, enabling net metering across all states in India, rationalising cross subsidy and electricity tariff will also remove barriers.´

Kapoor had two main points for the betterment of RPOs. ´We need a strong provision in the EA 2003 and policy - which is happening. The amendment will take care of state discoms and private players which are taking advantage of loopholes and technicalities in the EA. It is pending in Parliament and the bill has to be passed now.´ ´Secondly, we need to do a little more publicity and convince all the stakeholders and the general public. If the general public starts believing in this then there will automatically be a lot of pressure. Training programmes have to also be conducted for distribution companies because they are the ones who will need to implement RPOs and if they are left unconvinced and uninvolved, there will be hurdles,´ he opines.

However, there is a silver lining, as some states like MERC, MPERC, UTERC, PERC and the UTs are starting to take action against RPO defaulters by setting deadlines for cumulative fulfilment of the RPO targets and threatening future non-compliance with regulatory penalties.

Besides this, some suggested measures would be the implementation of an effective real-time monitoring and verification system for compliance reporting, as hardly any ERCs provide the requisite quarterly compliance report.

The Greenpeace report further recommends fiscal and policy measures to promote Renewable Energy projects over conventional electricity. To improve the share of RE in the electricity grid for its distribution and supply and fight the pricing perception barrier, higher amount of renewable energy should be taken on a priority basis from renewable-rich states and proper interstate transmission must be opened up.

Vyas also feels that monetary aid to cash-strapped discoms and policy improvement is the way forward, ´the most important tool would be concessional finance. International funding can also bring change. Another step is to ease out wheeling charges and ensure policies at state and central level for easy transport of power. Removing barriers in the free flow of power should be a key aspect of the energy policy.´

He also spoke on another untouched topic, ´RPO is basically a compliance requirement, but the spirit comes from really getting it right, doing good engineering and execution. There is a need to create trained manpower. There is a glaring shortage of competent manpower in design, engineering and project implementation. There is a shortage of techno-commercial personnel to promote and educate potential clients on Renewable Energy - be it awareness or choice of technology.´

´The second area is the ´Make in India´ scheme. One major purpose of enhanced focus on Renewable Energy is to make India energy secure. Make in India, in RE is indeed the key to National Energy Security. The government is inviting the private sector to participate in defence-related manufacturing. It has to support renewable manufacturing sector for similar reasons,´ Vyas ends.

Why are RPOs important to the RE sector?
Distribution is probably a business that has the worst returns in India. If you look at the electricity value chain, generation has reasonably okay returns, the transmission has a slightly lower return, but distribution has the worst return. The reasons for this are manifold and commonly known. Re-financing discoms is the first prerogative the previous government started and if that continues it would ease out their financial burden.

Another thing is electricity´s concurrent chapter nature, where both the Centre and states control the policy is inherently flawed. Electricity needs to be more streamlined when it comes to the rules. We cannot have a power project in one state being more attractive than another, just because one lacks clarity in policy.

Thus, making OA (for which permissions currently are very difficult) easier is the right route.

It is an irony that despite having a deficiency in energy, consumers are not free to choose where they can buy energy from.

´Making OA work will be the first key step. The second would be to enable net metering across all states in India, the third step would be to rationalise cross subsidy, and the fourth would be to rationalise electricity tariff,´ informs Santosh, adding that the first two steps are not enablers, but only remove the existing negative barriers that exist in the current regulation.

Pricing is one part for sure.
A natural appetite to buy carbon certificates would occur only if these are priced at least Rs 3-4 lower than the grid energy price. For e.g. if a company wants to meet its carbon targets they can do it by either buying carbon certificates or through bilateral PPA to buy solar energy directly as a merchant consumer in OA. Today, companies are doing the latter because at Rs 6.50-6.70 /kWh they can buy photovoltaic energy through a merchant tariff.

Contrast this with RPOs which is higher price and is just a certificate with no energy behind it. Thus, what makes sense for any of the three obligated consumers bases is the former method.

A utility would rather announce
a policy in its state and bid competitively, allocate a 500 MW of solar lisenses at Rs 6.50 kWh spread over a period of time, meet its RPO and also get energy rather than just buying certificates of paper from the market, which is also price Rs 2 or so higher. Thus, when prices are rationalised, trade of certificates will rise.

If these current barriers are removed, we have done a lot of projects today for the self generation and consumption market, which interests people. If wheeling, banking and OA becomes easier and clear, and their policies are stipulated for the next 10 years and not just short term, it will kick start the RE market in a completely different direction.

The current model of large projects being set up in far away locations and transmitted through leaky grids can be converted into an opportunity for self generation and consumption by obligated entities, where they produce energy right where it is consumed, and thus enable market growth.

´This in turn will help in carbon footprint mitigation and RPOs being implemented because the companies and industries like pharmaceuticals, hotels, etc. will start generating their own energy,´ Santosh adds. There is a huge appetite on the ground level in the market for distributed decentralised power. No one spoke about self generation and consumption, even around one year ago, but today a few companies are spearheading this. Thus, rationalising the prices, free floating RPOs so that the market prices can determine the pricing and removing barriers are absolutely necessary to keep the carbon market alive.

Power Today Suggests:

  • Ambitious National Renewable Energy Target with long term trajectory for RPO targets.
  • Swift nod to appropriate amendments in EA, 2003 and the Nation Tariff Policy.
  • Strict enforcement and compliance structure for a robust RPO mechanism.
  • Rationalised and competitive pricing to encourage adoption of green energy and inclusion of off-grid RE systems within the RPO mechanism.
  • Creation of conducive environment to encourage RPO implementation through free markets and inter-state transmission of RE.
  • Autonomous status to all SEBs.
  • Financing the differential RPO mechanism.

Supreme Court Verdict
The Supreme Court on May 13, 2015 pronounced a landmark judgment on the applicability of RPO regulations in the Hindustan Zinc Ltd vs RERC case. In August 2012, the Rajasthan High Court had dismissed an appeal by Hindustan Zinc Ltd, Ambuja Cements Ltd., Grasim Industries Ltd, and 14 other companies that challenged RPO regulations enacted by the state regulator (RERC).

  • Imposing RPO is desirable in the larger public interest.
  • RPO applicability on CPP and OA consumers is well within the ambit of the EA 2003.
  • Cost of fulfilling the obligation cannot be held above the larger public interest.

This order is likely to have far-reaching implications on the enforcement of RPO regulations as the stay by HC in various states may become redundant and stronger enforcement will be enabled. The state electricity regulators can now impose RPO regulations more forcefully and effectively.

´RPO enforcement depends on policy, regulators and public opinion´

RPO is compulsory for obligated parties, do you think this has helped increase RPOs?
RPOs are directed by the state regulators and so enforcement depends on them. If they don´t take any action then the policy compulsory doesn´t operate. Thus so far we have had a little bit of a problem because most of the regulators who hold the authority have not enforced it very strongly and that has created the hurdle.

Why are they reluctant to implement the initiative fully?
They are reluctant because they feel that they don´t need extra power, or somewhere they have cash flow problems and sometimes they feel that renewable energy is difficult to handle for them. So it is more a question of changes in environment being accepted, as they are used to conventional power and are resisting the change coming now.

It will take a little time for them to adjust and will be more accepted as people start realising that renewable power can be managed, is inexpensive and good for the country. Public pressure is also very important.

In a country like India, where there is so much pollution, the public has to put pressure and refuse any more coal and smoke, and then only things will improve.

Most states have failed to meet their RPOs, despite being top in terms of generating renewable power. Your comments.
Though they have failed to meet their goals, they were quiet close to the targets, so they have done something. For example, Gujarat almost reached their target and Maharashtra has come up with a very good renewable policy and is talking about doing 7,500 MW of solar and 5,000-6,000 MW of wind energy. So states have come up with good plans and are making efforts and the situation is not so negative.

The movement will come with change in attitude when those working in the distribution and transmission companies realise and accept that RPO is not bad.

What other steps are required in order to substantially increase the implementation of RPOs across the country?
Two main things are required to help implement RPOs:
1.We need a strong provision in the EA 2003 and policy--which is happening. The amendment will take care of state discoms and private players which are taking advantage of loopholes and technicalities in the EA. It is pending in Parliament and the bill has to be passed now;
2.We need to do a little more publicity and convince all the stakeholders and the general public. If the general public starts believing in this then there will automatically be a lot of pressure. Training programmes have to also be conducted for distribution companies because they are the ones who will need to implement RPOs and if they are left unconvinced and uninvolved, there will be hurdles.

Do you think the SC ruling will help bring states fall in line when it comes to RPO mechanism?
Yes, the verdict will have an effect. Besides that we are also proposing to bring an amendment in the Electricity Act, 2003, to make slightly stronger provisions for enforcement. Enforcement comes from the policy, the regulators, the courts and from public opinion. All these things matter and so we are moving in the right direction.

´There is a need based requirement for RPos´

Most states in India failed in meeting their RPOs, despite many of them being top in terms of generating renewable power. Your comments.
If you look at the RPO story holistically, an RPO is in essence a piece of paper without any energy behind it, equivalent to a Certified Emission Reduction (CER) market. If you look at the CER market in Europe, its success was largely because the EU forced all polluting industries with a whip and cane to comply with the requirements. So what started the fire to run it was enforcement and the fact that CER pricing was not fixed on slabs and was left free for the market forces to determine. The reason RPO targets in India are not being met is due to lack of enforcement and of a pragmatic pricing mechanism for RPOs.

How much do you expect the recent SC verdict to give RPOs a boost?
The verdict was much awaited and positive decision for the solar industry. Those applicable for RPOs include state discoms, captive power plants (beyond 1 MW) and open access consumers and the Hindustan Zinc case will surely have an impact on the latter two. However, the place where this imposition actually needs to be driven in a major way is the discoms, which are the largest consumers with the highest potential.

Do you think the SC ruling will help bring states fall in line when it comes to RPO mechanism?
OA and CPP consumers I´m sure will definitely get a bit of a scare and get up and start looking at RPO much more seriously. Not so much REC, but definitely RPO through self generation and consumption. But for sure, they will start looking at green energy which is a nice step.

I have my doubts about discoms on the other hand, because I don´t think they can do anything even if they want to simply because their current financial end doesn´t permit it. But, the larger question of discoms will anyway be handled because these big projects that NTPC is doing right now will bundle the energy and spread it out to the states. By bundling the grid energy, states will also be meeting their RPO requirements in a way.

Thus, REC will start assuming a smaller and smaller role as time goes by and RPO will definitely be the centre stage, but meeting of RPOs will happen in two different ways, where discoms will meet it by their own state level policies or by buying green energy from NTPC, while private players will meet their RPO obligations by the self generation and consumption route or merchant power market.

RPO is compulsory for state run discoms, captive power plants and open access consumers. How much do you think this has helped in increasing implementation and REC sales?
The current verdict is a clear case of imposition and is not an isolated case, but states have slapped notices on CPPs and OA consumers, which are sitting at various levels.

There is a need based requirement, e.g. pharmaceutical companies in Central India who are procuring solar energy to fulfil their RPO requirement. Why are they doing this?
It is the energy cost for these companies is higher than solar energy cost. Thus, if they have a bilateral PPA by merchant route they get energy at Rs 6.50 kW/h, which is cheaper than the utility rate for electricity in those states.

Such drivers will have much higher impact than imposition or enforcement, which to be really effective needs RPOs to be cheaper than conventional/solar/wind energy tariff.

What do you think are the reasons why state discoms and companies are reluctant to implement the initiative fully?
Pricing is one part for sure. If you want natural appetite to buy carbon certificates, this would happen only if these are priced at least Rs 3-4 lower than the grid energy price. For example, if a company is interested in meeting its carbon targets they can do it in two ways by either buying carbon certificates and continue to buy brown energy or they can do a bilateral PPA with a company and buy solar energy directly as a merchant consumer in OA. And companies are doing the latter today because at Rs 6.50-6.70 /kWh they can buy photovoltaic energy through a merchant tariff.

Contrast this with RPOs which is higher price and is just a certificate with no energy behind it. Thus, what makes sense for any of the three obligated consumers bases is the former method. A utility would rather announce a policy in its state and bid competitively, allocate a 500 MW of solar lisenses at Rs 6.50 kWh spread over a period of time, meet its RPO and also get energy rather than just buying certificates of paper from the market, which is also price Rs 2 or so higher. Thus, when prices are rationalised, trade of certificates will rise. The real price of carbon is definitely not Rs 7-8, but around Rs 4.

State discoms are taking advantage of loopholes and technicalities in the Electricity Act for which amendments are pending in Parliament. How will this will effect implementation of RPOs.
Distribution is probably a business that has the worst returns in India. If you look at the electricity value chain, generation has reasonably okay returns, transmission has a slightly lower return, but distribution has the worst return. The reasons for this are manifold and commonly known. Re-financing discoms is the first prerogative the previous government started and if that continues it would ease out their financial burden.

Another thing is electricity´s concurrent chapter nature, where both the Centre and states control the policy is inherently flawed. Electricity needs to be more streamlined when it comes to the rules. We cannot have a power project in one state being more attractive than another, just because one lacks clarity in policy.

Thus, making OA (for which permissions currently are very difficult) easier is the right route. It is an irony that despite having deficiency in energy, consumers are not free to choose where they can buy energy from. Thus, making OA work will be the first key step.

The second would be to enable net metering across all states in India, the third step would be to rationalise cross subsidy, and the fourth would be to rationalise electricity tariff.

Now, the first two steps are not enablers, but only remove the existing negative barriers that exist in the current regulation. If the current barriers are removed we have done a lot of projects today for the self generation and consumption market, which interests people.

Thus, if wheeling, banking and OA becomes easier and clear, and their policies are stipulated for the next 10 years and not just short term, this will kickstart the renewable energy market in a direction completely different from the current model of large projects being set up in far away locations and transmitted through leaky grids into self generation and consumption where energy is produced right where it is consumed, and will enable market growth. This in turn will help in carbon footprint mitigation, RPOs being implemented because the companies and industries like pharma and hotels etc. will start generating their own energy.

Do you think public awareness would be a key area to focus on in order to develop and increase RPO implementation?
Yes, this is absolutely right, but today it is not happening. There are two markets in India, the big one which is about large scale policy driven projects and mimics big thermal power projects and transmitting through grids. Now, India´s grid infrastructure is not the best in the world, there is a lot of development that still needs to happen. On top of that, the combination of pilferage and transmission losses goes into double digit percentages. So, expensive energy which the state government pays Rs 6.50 paisa with a point of transmission is leaked by 10 per cent by the time it reaches the customer.

However, I have seen a huge appetite on the ground level in the market for distributed decentralised power. No one spoke about self generation and consumption even around one year ago, but today a few companies are spear-heading this. But the government is not doing enough for this market, despite not needing to provide any subsidy here. All it needs to do is enable wheeling, banking, give long-term policy clarity, enable net metering in all the states and make OA real.

RPO obligatory agencies, excluding discoms, are OA and CPPs, which are predominately industries or commercial establishments. I have done a 5 MW solar self generation and consumption project each, for two airports in south India having OA lisenses. I have done projects for industries in south India, which are again RPO obligated entities generating their own solar rooftop power and consuming it, thus mitigating part of their requirement. So, the route to RPO is not necessarily REC, but will be in my opinion self generation and consumption or merchant power energy production; with REC being one of the ways.

What other steps are required in order to substantially increase the implementation of RPOs across the country?
The verdict is overall a good step, the challenge will be pulling utilities into this as they will have difficulties procuring RECs. This is not because they lack intention, but in their current financial condition they may not have surplus cash to purchase RECs beyond a certain price point.

What needs to be done to make RECs real, is firstly imposition like what has happened in the Hindustan Zinc case and secondly benchmarking of REC prices in a dynamic manner by linking it to a pool price of the renewable energy. If you look at the overall current Rs 6.50 benchmark of solar energy, Telengana has set it around Rs 6.30 with potential to go lower, so REC price should be same or less than these average solar procurement prices.

A combination of these two will create a carrot and a cane syndrome, i.e an attraction and compulsion which will woo the market. Another approach is when the obligated parties move towards bilateral PPAs to produce their own green energy and captive plants duly consuming it, rather than buying certificates, which is always the last option for them.

So, rationalising the prices, free floating RPOs so that the market prices can determine the pricing and removing time barriers that exist i.e. Extention of certificate expiry dates are the things that are absolutely necessary to keep the carbon market alive.

´The SC verdict will affect CPPs AND OA CUSTOMERS´

RPO is compulsory for obligated parties, has this helped increase implementation?
RPO is a state subject and every state has kept a certain component as RPO for RE. Due to lack of monitoring and enforcement agency, it has not been possible to implement the RPO compliance. So far it is left to the people to follow it, and there is no pressure or compliance enforcement agency. Wherever RPOs have been successfully implemented it has been made possible where this forms a small component of their investment policy. So, in short in last three years RPO policy has been almost a non-starter.

Most states in India have failed in meeting their RPOs, despite many of them being top in terms of generating renewable power. Your comments.
Let us look at the top ones, Maharashtra, which generates maximum power to meet its RPO, had proposed to install 125 MW solar plant about a few years back. However the project was delayed for various reasons.

Look at Tamil Nadu, where the government in 2012 had come out with a very good RPO compliance policy, which was challenged in the court of law and the challenge was upheld, due to which they couldn´t go ahead with their plans. So there are so many hurdles in imple¡menting the RPO compliance.

Do you think the SC ruling will make states fall in line when it comes to RPO mechanism?
Yes. Now there will be two kinds. One is the state discoms who are the big financial problems and also the big owners of power plants. There may not be immediate impact but slowly they will fall in line. But, if you talk about captive power producers in the private sector, I think there we will see a big difference. It is noteworthy that captive generation is also quite big in India. A substantial 10-12 per cent of the total energy consumed in India is estimated to come from captive power. Once that starts moving, there will be a huge impact in the market.

Why are obligated parties reluctant to implement the initiative fully?
It is not just reluctance, but many State DISCOMs are not in a position to do so either. They already owe huge amounts of money for payment of coal, for purchase of power from other government and non-government agencies and they don´t have finance to meet RPO.

Now to comply with RPOs they will have to shell out either by way of fresh investment or buy costly power such as wind or solar. Another option to buy Renewable Energy Certificates needs money.

It is essentially the cash crunch which has been one of the major reasons for state discoms not being able to comply with the RPO requirement.

For private sector RPO on Captive generation & Open Access customer is applicable. Industries such as Cement, Aluminum, Steel, Paper etc come under RPO. So far little has been done to meet the obligation.

State discoms are taking advantage of loopholes and technicalities in the Electricity Act for which amendments are pending in Parliament. How will this will effect implementation of RPOs.
There are 3-4 things that are in the pipeline that are set to be more favourable to implement RPOs. The first and foremost is the amendment to the Electricity Act 2003. Till 2003 we had a very archaic, British era Electricity. In 2003 we got the contemporary Indian Electricity Act. To meet rising aspirations and changing needs, modifications are under way and new amendment is awaited and on which the conulutations with various stakeholders are being held.

This apart, the ground reality is that the cost of fossil power, coal or even hydro and nuclear are increasing. Most the power plants put up in the 1970s and 1980s are outdated and inefficient. This means that the cost of power in overall terms is going up, whereas cost from solar and wind renewable power is decreasing. Gap between cost of Fossil fuel generation and Renewable is being bridged. This with proper monitoring of RPO compliance will be helping the cause of RPO compliance. Of this falling Renewable costs will result in more voluntary action due to the commercial benefit.

The second hurdle for private sector is their preference to utilize available capital for the core product line. Result is little fund allocation for renewable energy generation. Government initiatives to consider lending in Renewable under Priority sector at concessional rate together with the conducive environment is likely to have favorable impact in terms meeting RPO needs. I think these steps will show results in the next 1-2 years.

RECs were earlier priced unrealistically, which was another bottleneck in meeting the compliance targets. But this has been dealt with and REC certificate pricing has been brought down to a much lower and realistic level, which will further also encourage compliance.

What other steps are required in order to substantially increase the implementation of RPOs across the country?
As stated earlier, one of the most interesting and important tool would be to offer concessional finance. International funding can bring a big change. Another important step is to ease out wheeling charges ensure policies at state and central level for easy transport of power.

One important aspect of energy policy should be efficient transmission of power with all retrograde hurdles removed. Today most of the states have barriers in free flow of power.

RPO is basically a compliance requirement, but the spirit comes from really getting it right, doing good engineering and execution. There is need to create trained manpower. There is glaring shortage of competent manpower in Design, Engineering and Project Implementation. There is shortage of techno-commercial personnel to promote and educate potential client on Renewable energy- be it awareness or choice of technology. We need the right kind of manpower for every future requirement. I think, governments, colleges and institutions have to work towards this taking into consideration the future needs. The second area is the ´Make in India´ scheme. One major purpose of enhanced focus on renewable energy is to make India energy secure. ´Make in India´, in Renewable Energy is well beyond a slogan. It is indeed the key to National Energy Security. Government is now inviting private sector to participate in Defence related manufacturing. It has to support Renewable Manufacturing sector for similar reasons.

Do you think public awareness would be a key area to focus on in order to develop this? How far do you think people´s involvement would go in increasing RPO?
I think that there is reasonable awareness about Renewable Energy options. However there is a deeper need to enhance detailed awareness about Solar and Wind energy options. These options are to be understood and encourages as supplementary source of energy needs.

RPO is best way to make the beginning. However many sectors need to go beyond RPO. I see distinct possibility of many industries producing captive solar power far more than RPO by 2017.

There is an urgent need to create deeper awareness. A massive campaign is needed. Certain misgivings about ´uniformity of renewable power´ need to be clarified. Storage of Renewable energy is another area with little awareness. However for us in India it is less crucial. Due to shortage of supply we are better placed to consume solar/wind power as it is produced.

All those engaged in solar business have big responsibility.
Once we find that a customer is considering renewable energy, educating the customer or explaining the nitty-gritty becomes our job. Most people say they are waiting for better technology and better efficiency, to them my reply would be if that was the case, we should not have bought any mobiles till the smart phones were made or nobody should not have bought a black-and-white TV and waited for the colour one.

So, you get whatever is the best in the market and buy that and after 1-2 years or whatever is the life-cycle of the particular technology you upgrade yourself. This system needs to be brought home as people think that higher efficiency will come at cheaper price. But whenever there is a new development the price at first is very high, so this education needs to be spread by the parties that are in this business as the onus is on us.

The recent SC verdict in the Hindustan Zinc Ltd v/s RERC case is expected to give RPOs a boost. How much according to you will this case contribute to this much needed initiative?
Any law passed or ruling given affects those who are the fence-sitters or those who still have fear of the law and would at least fall in line to comply. So it can´t be said that just because of this ruling everyone will be immediately interested in RPOs. But, let us put it like this. There is company with Rs 5,000 crore turnover. For RPO compliance needs Rs 10 crore investment. Now such a company would not like to take a chance. Moreover this is not a donation but an asset which will give returns and tax saving. Thus those who were still with the ´chalta hain´ attitude, after the SC ruling in the Hindustan Zinc vs RERC case, they start looking at RPOs.

Also, there has been betterment as continuos push by Central government by raising target from 30 GW of previous government to 175 GW for renewable energy. This itself is one major factor which has positively changed the climate. Ruling such as the Hindustan Zinc is leading people to think very seriously about the matter and they may start factoring it in their planning now.

In fact, we have also got people approaching us with feelers for wanting to know how much would their renewable obligations be and what kind of capacity they should consider etc. So, it is small but I think that it is beginning now.

Jocelyn Fernandes

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