Renewable energy technologies have been developed and deployed in India since mid-1980s with a range of policy initiatives by the government. These policies were directed towards development of different renewable energy technologies for diverse applications including power generation from renewable energy sources like wind, solar, small hydro etc. This article reviews the policy and regulatory environment for power generation from renewables in India, and the impact it has on the development of the sector.
In 1993, the Ministry of New and Renewable Energy (MNRE), earlier known as the Ministry of Non-Conventional Energy Sources (MNES), issued guidelines for purchase of power from renewable energy sources by state utilities. These guidelines marked the power purchase tariff of Rs. 2.25 per unit, with an annual escalation of 5%. The guidelines also prescribed other promotional measures like wheeling and banking of power generated from different renewable energy sources. The guidelines were adopted by various state utilities, and provided the initial policy support for renewable-based power generation in India. Besides a fixed power procurement rate, the government provided other incentives like accelerated depreciation, and exemption in customs duty for imports of components /machinery for renewable energy systems/projects.
The regulatory framework
Subsequent to the enactment of the Electricity Regulatory Commissions Act in the year 1998, State Electricity Regulatory Commissions (SERCs) became key players in determining power tariffs. The SERCs were constituted to bring transparency and competition into the sector.
The Electricity Act 2003 repealed the earlier acts: The Indian Electricity Act, 1910; The Electricity (Supply) Act, 1948; and The Electricity Regulatory Commission Act, 1998. The Electricity Act 2003 further strengthened the role of regulatory bodies in pricing, and in the promotion of competition and transparency. The Act, have specific provisions for promotion of power generation from renewable energy sources:
Section 61 (h)
“The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the promotion of co-generation and generation of electricity from renewable sources of energy.”
Section 86 (1) (e)
“to promote co–generation and generation of electricity through renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any persons, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.”
The National Electricity Policy, formulated by the Ministry of Power, in pursuance of the provisions of the Act, also stresses the need for the promotion of non-conventional energy sources:
5.12 Cogeneration and Non-Conventional Energy Sources
5.12.1 Non-conventional sources of energy being the most environment friendly there is an urgent need to promote generation of electricity based on such sources of energy. For this purpose, efforts need to be made to reduce the capital cost of projects based on non-conventional and renewable sources of energy. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources.
In terms of specifying a percentage of total consumption which should come from renewable energy sources, the policy specifies that,
5.12.2 … Progressively the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be through competitive bidding process. Considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies.
The National Tariff Policy, formulated by the Ministry of Power, has specific guidance on purchase tariff for power generated from renewables:
Section 6.4…. It will take some time before non-conventional technologies can compete with conventional
sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission.
Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional sources. In the long-term, these technologies would need to compete with other sources in terms of full costs.
The Electricity Act 2003, and subsequent policies, provide for three important promotional measures for renewables:
The Act provides a framework for tariff determination in Sec 61(h) and the tariff policy further elaborates it providing a long-term policy for pricing of power from renewable sources of energy, prescribing a gradual step by step introduction of competition.
In addition to provisions on tariff determination, which boosts investor confidence, the Sec 86 (1)e, of the Act creates demand for power generated from renewable energy sources by mandating SERCs to specify a percentage of consumption which should be procured from renewables.
Power evacuation infrastructure is a critical requirement for promotion of renewables-based generation, since sources like wind and small hydro are geographically unevenly distributed and often located in remote areas. The Electricity Act addresses this by mandating SERCs to take suitable measures to ensure connectivity with the grid. Providing the infrastructure for evacuation of power is the responsibility of
the state transmission utility (STU), and it is expected that the STUs would prepare grid expansion/augmentation plans in the light of the renewable energy potential of the state.
The provisions regarding tariff determination and percentage specification have been implemented by many SERCs. Table 1 gives the percentages specified by different SERCs for procurement of power from renewable energy sources.
These SERCs have also issued tariff orders for purchase of power from different renewable energy sources, which is a technology-specific tariff. This implementation of the provisions of the Electricity Act has boosted power generation from renewable energy, with total installed capacity reaching to 13838 MW as on 31st January 2009.
Emerging regulatory issues
It is clear from Table 1 that despite the provisions of the Electricity Act and subsequent policies, some states have not yet specified percentage for procurement of power from renewables. Some of the states have not complied, with requirement of specifying percentage for power procurement from renewable energy sources, since there is minimal renewable energy potential available. (Currently, all regulations/orders by SERCs require renewables-based power to be purchased from plants located within the state.) Some states, in spite of good resource potential, have specified very modest percentages. In states with adequate renewable energy resources, the development of renewable power is limited to the capability of the state to purchase power from renewable projects, to the extent that it does not substantially affect consumer tariffs. Renewable energy resources therefore remain under-utilized in these states. On the other hand, states which do not have / or have a very limited renewable resource can not procure power form renewable energy sources. One possible solution, to optimally utilize the renewable energy resource, is to specify a national minimum Renewable Procurement Obligation (RPO). The National Action Plan on Climate Change published by the Government of India in 2008, indicates the necessity of such a national minimum percentage.
Given the energy security and climate imperatives, renewable sources of energy are slated to play an important role in meeting the country’s energy demand. Power generation, being one of the most important applications of renewable energy, needs to be governed by an informed regulatory framework that facilitates its growth and improvement.