Bridge to India

Renewables in India: Bringing it All Together

July 27, 2015- Recently, the Ministry of New and Renewable Energy (MNRE) released a draft of the “National Renewable Energy Act” (refer). Along with the proposed amendments to the Electricity Act 2003 and the National Tariff Policy 2005 (refer), this act will create structural policy changes to help increase the share of renewables in India’s energy mix. In the first section, the document describes in detail how institutional structures would be created. However, it is the subsequent sections that have caught our attention. This is our take:

National, uniform and mandatory regulations will govern renewable purchase obligations
A “National Renewable Energy Fund” will be created and a fixed portion of the National Clean Energy Fund will be directly channeled into it
There will be guidelines for renewable energy procurement, including but not limited to competitive bidding processes

The first interesting point relates to getting India’s states on board. The Renewable Energy Act envisages that the central government and each state government will formulate a renewable energy policy and a renewable energy plan. As a part of a “National Renewable Energy Plan” a framework would be created for a national, uniform and mandatory renewable purchase obligation (RPO) trajectory for all obligated entities. Currently, each state fixes its own trajectory for RPOs and solar RPOs that have been set still relate to the earlier, lower national target of 3% (it is now 10.25%). This is in addition to earlier changes of the the Electricity Act and Tariff Policy amendments, where provisions have been made for imposing fines for non-compliance and easy pass through of costs through tariffs for effective compliance.

We understand that the fundamental problem that power is a concurrent subject still remains. However, the central government has several levers that it can use to get states to toe its line. Availability of funds and a clout in fuel supply, power generation and power transmission through central government owned companies are examples of such levers. In the past, the push for renewables from the central government has not been as strong as it seems now. Usually, state governments do not have a lot of incentive in deviating too far from the central government policies. We are hopeful that this on-going effort will yield results on setting up and implementation of obligations.

A second interesting point relates to India’s National Clean Energy Fund (NCEF). This fund is provisioned by an INR 200 cess on every ton of coal used in the country (the cess was just doubled in the last budget in February this year). The fund has a current corpus of INR 170 billion (USD 2.6 billion) (refer). However, only a small portion of this fund has been made available for renewables. In the past, it was used mostly for fiscal troubleshooting with very little transparency. The new Renewable Energy Act now proposes to set aside a fixed portion, yet to be determined, of the funds for a separate National Renewable Energy Fund. This fund will be under the control of the relevant implementing authorities, primarily MNRE. With more clarity on availability of funds, MNRE can set up more predictable support and policy schemes.

A third noteworthy suggestion relates to creating a more uniform project allocation process. Currently, most allocations in the country are based on tariff bidding against benchmarks set by various regulatory commissions. The proposed amendments to the National Tariff Policy 2005 provides for a provision for obligated entities procuring solar power on a cost plus basis from conventional power generators who need to meet their Renewable Generation Obligation (RGO). This can have huge implications on the solar market in India. It is essential that the process for such allocations is completely transparent and provides a level-playing field. In light of this, the draft Renewable Energy Act states that the ministry would publish guidelines for procurement mechanisms, including but not limited to competitive bidding processes.

With the proposed amendments to the Electricity Act 2003, the National Tariff policy 2005, the announcement of National Renewable Energy Act 2015, the expected announcements on the national and state Renewable Energy Policies and Renewable Energy Plans, a near complete demand creation framework for renewables is being formulated at the central government level.

All these bills need to first pass the hurdle of the legislative process in the Parliament. While the Electricity Act amendments have already been tabled, the Tariff Policy amendments and Renewable Energy Act should be ready by the winter or latest by budget session (later part of the financial year 2015-16). Following this Act, the central government would introduce a renewable energy policy and a renewable energy plan and also facilitate state level renewable energy policies and state level renewable energy plans.

It seems that this entire framework will require at least until the middle of 2017 to become operational. Until then, the government wants to provide an early push and allocate up to 15,000 MW of solar projects under the current framework.

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