Green power in red zone? Existing challenges to the Renewable Energy Sector in India
by Shri Venkatesh, Managing Partner
As the world grapples with the increasingly devastating impact of climate change largely caused by anthropocentric developmental activities, the role of renewable sources of energy becomes imperative. Renewable energy (green energy) has scaled to be a driving force in the object to achieve sustainable development.
Furthering the cause of environmental preservation and sustainable development, India has taken an ambitious stand towards promoting renewable energy. Ahead of the COP21 – 2015 United Nations Climate Change Conference, India submitted its Intended Nationally Determined Contribution (INDC) to the United Nations Framework Convention on Climate Change (UNFCC), outlining the country’s post-2020 climate actions. India’s INDC builds on its goal of installing a mammoth 175 gigawatts (GW) of renewable power capacity by 2022.
Whilst the aim is laudable, it is faced with severe internal challenges. Electricity, being a subject of the Concurrent List within the Constitution of India, Parliament as well as the state legislatures have concurrent powers to enact laws on this subject. Hence, there is a noticeable lack of necessary coordination, checks, and balances in the implementation of policies on this subject.
In the context of renewable energy, there have been various instances where developers have faced sustainability and operational issues due to a tug-of-war between the Central and state governments. This acts as a deterrent to the spirit of collaborative and cooperative federalism and leads to roadblocks in achieving the objective set out by India before the UNFCC.
Initially, the major challenge faced by the renewable energy sector was the cost of procurement, which was much higher than conventional sources (coal and gas). This was an instant cost deterrent for poorly managed and operated State Distribution Companies (Discoms). However, the issue has been put at bay due to technological advancement and production achieving economies of scale. Accordingly, tariffs for renewable energy have become competitive, as compared to the tariffs of conventional power sources.
Recently, the Solar Energy Corporation of India (SECI) in an auction for 1,070 MW of solar projects in Rajasthan has set a record-low for tariff (L1) of around Rs. 2/kWh (Tranche III). This tariff is about 15.3% lower than its previous record-low tariff of Rs. 2.36/kWh discovered in its auction for 2 GW of the Inter-State Transmission System (ISTS) connected solar projects (Tranche IX), which was discovered earlier this year.
Even though the cost of new projects has come down substantially, with the onset of cost-effective renewable energy, the earlier agreed tariffs are now in jeopardy. Case in point being Andhra Pradesh. The State had unsuccessfully sought to renegotiate tariffs with renewable energy developers who had set up their projects between 2010 and 2015 based on the tariff which was discovered through competitive bidding in the year 2017. Once, this attempt was interjected by the High Court, the Discoms of Andhra Pradesh have now filed various petitions before the concerned regulatory commission seeking identical relief. During the pendency of these disputes, the payments to renewable energy developers have been unilaterally reduced.
All of this has affected investor sentiment when it comes to renewable energy projects in India, even though the Government of India is supporting renewable energy developers in their disputes with the State of Andhra Pradesh. Whilst capacity addition is rampantly being promoted by the Government of India, the safety/assurance of agreed returns has been put in jeopardy by such incidents.
Further, in order to incentivise and promote renewable energy, the status of ‘Must Run’ was granted to renewable energy power plants (except for biomass-based power plants) under the Indian Electricity Grid Code, 2010 (IEGC). This has contributed substantially to the remarkable growth of the renewable energy sector in India.
The ‘Must Run’ status means that evacuation of power from solar and wind power plants should not be curtailed for factors other than grid safety or safety of equipment or personnel. ‘Curtailment’ means discontinuance, stoppage or reduction of offtake of power from a generating station. As per the IEGC, curtailment it is allowed only on account of natural reasons such as grid unavailability or failure or to ensure grid stability. The concerned State Load Despatch Centres (SLDCs) and Regional Load Despatch Centres (RLDCs) are required to maintain the record of schedule from renewable energy generating stations based on the type of renewable energy sources i.e., wind or solar from the point of view of grid security. Importantly, while scheduling generating stations in a region, the system operator is required to aim towards utilization of available wind and solar energy fully.
To the contrary, in practice, State-owned Discoms, through State-owned SLDCs, resort to curtail renewable energy without communicating any reason. It is undisputed that on certain occasions, due to grave grid instability, all sources of energy including renewable energy are curtailed. However, curtailment is often used as device to cause generation loss during peak renewable energy season. The primary reason for such curtailment appears to be purely commercial, as Discoms/transmission companies find short quick gains in time blocks when the renewable energy is curtailed.
To offset this problem, the Union Ministry of New and Renewable Energy (MNRE) has issued various Office Memorandums directing payment of Deemed Generation Charges in time blocks when power is curtailed. However, in practice, no such relief has yet been granted by the concerned regulatory commissions.
Further, land acquisition continues to be a big challenge for renewable energy developers in India. Issues such as lack of a proper Land Utilization Policy, poorly maintained land records, land ceiling limits, and the task of obtaining permissions from local bodies act as roadblocks to the implementation of large-sale renewable energy projects.
Nonetheless, the Central government is taking active steps to address the ongoing issues. In fact, after observing the sorry state of affairs in states curtailing power from renewable generators, on October 1, 2020, the Ministry of Power (MoP) issued the Draft Electricity (Change in Law, Must-run Status, and Other Matters) Rules, 2020 (Draft Electricity Rules). The said Rules, inter alia, recognises the ‘Must Run’ status of renewable energy projects and mandates that such generators shall not be subject to curtailment on account of merit order dispatch or any other commercial consideration. In the event of curtailment of such generators, compensation shall be payable by the procurer to the generator at the rate prescribed under the PPA.
Thus, undeniably, whilst renewable energy is being promoted by the Government of India, however, due to the nature of the Constitution, unless and until concrete efforts are made by the state governments, the growth of the renewable energy sector will not yield the desired results.