Policy initiative and Regulatory measures for development of Renewable Energy
10 Sep 2020
The renewable energy sector in the country witnessed transformational growth in last few years, in terms of both installed capacity and increasing share of renewable energy (RE) in total power generation of the country. The growth is driven by the government’s efforts to create a conducive policy and regulatory environment. Also, the developments in power sector such as modernization of transmission capacity and distribution networks, electrifying villages and extending power to all households, have resulted in improvements in energy consumption, fiscal discipline in utilities. Over the years, renewable energy sector in India has emerged as a significant player in the grid connected power generation capacity. It supports the government agenda of sustainable growth, while, emerging as an integral part of the solution to meet the nation’s energy needs and an essential player for energy access. It has been realized that renewable energy has to play a much deeper role in achieving energy security in the years ahead and be an integral part of the energy planning process.
The country aims to strengthen its energy security and independence by developing renewable energy resources. These include stringent norms for the construction and operation of energy generation equipment and increasing reliance on more advanced generation technologies in the field of renewable. So there is a great need of renewable energy source in Indian power sector to meet future energy demand and remove Green House Gases (GHG) emission for environment protection. In this connection Government of India has come up with Acts, Policies and regulations to support renewable energy. The Electricity Act 2003 that was notified by the Ministry of Power in June 2003 with other policies National Electricity Policy and National Tariff Policy appears to be in the helm of affairs for the promotion of renewable energy at the state as well as to national level in India. The Act and policies also emphasizes the importance of setting renewable energy quotas and preferential tariffs for renewable energy procurement by the respective SERCs in their restructured states power sector.
India is witnessing a radical change on account of the government’s move towards power generation via renewable energy resources, Government has set a target to achieve 175 GW renewable energy installed capacity by 2022. This includes 60 GW from wind power, 100 GW from solar power, 10 GW from biomass power and 5 GW from small hydro power. Further, with increased focus on offshore wind power, floating solar parks and hybrid parks etc., it is expected to overachieve the target by 2022. The increased focus of Government of India (GOI) towards renewable energy has created attractive opportunities for investments in this sector. Government has rightly recognized RE to be seen not only as sources of energy, but also a tool to address many other pressing needs, including improving energy security and access; reducing the health and environmental impacts and mitigating greenhouse gas emissions.
In order to facilitate integration of large scale renewable generation capacity addition, the Government approved creation of intra-state transmission system in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu rich in renewable resource potential and where large capacity renewable power projects are planned, at an estimated cost of Rs.10,141.68 crore with Government of India contribution from National Clean Energy fund 40%. The activities envisaged under the project includes establishment of 48 new Grid sub-stations of different voltage levels by installing over 7800 ckt-kms of transmission lines in these seven states. The project is proposed to be completed within a period of three to five years. Creation of an intra-state transmission system will facilitate evacuation of renewable power from generation stations to load center.
At present India is fifth largest country in the world in electricity generation, having presently aggregate capacity of 360 GWs as on July’ 2019, out of which approximately 63% is from thermal, 12.5% from hydro, 2% from nuclear and the rest about 22% is from renewable energy sources. Although Indian power sector has experienced a more than ten-time increased in its installed capacity in 1981 to till date but still there is need to be establish more generation plants preferably to be come from renewable sources by governmental as well as various private participation. Contribution of renewable energy sources in the total capacity as well as gross generation is still very low. The Indian power sector is predominantly based on fossil fuels, with more than about three-fourth of the country’s power generation capacity being dependent on vast indigenous reserves of coal. But in few last decades Indian government has taken several steps to reduce the use of fossil fuels-based energy while promoting renewable generation. Core drivers for development and deployment of new and renewable energy in India are Energy security, Electricity shortages, Energy access and Climate change. India has taken a voluntary commitment of reducing emission intensity of its GDP by 33-35 per cent from 2005 levels by 2030.
The Government has also approved a Scheme, in December 2014, for setting up of 25 Solar Parks, each with the capacity of 500 MW and above and Ultra Mega Solar Power Projects to be developed in next 5 years in various States and will require Central Government financial support. These parks will be able to accommodate over 20,000 MW of solar power projects. As on date, parks with capacity of about 20,000 MW in 22 states have been sanctioned. Globally China is the country leading first position in renewable installed capacity in the world. With regard to source-wise installed capacity, world-wide China is leading first position in Solar Energy, Wind Energy and Small Hydro power. India’s total power generation installed capacity reached 360 GW by July’ 2019 with coal-fired plants accounting for 195.80 GW of this installed capacity, followed by renewables that come in at over 80 GW. Hydropower projects, gas-based, nuclear and diesel projects make up the remaining capacity in decreasing order of installed capacity. The Government has taken several initiatives to accelerate the growth RE. The key provisions under the different Acts/Policies/Schemes issued by the Central Government and fiscal / promotional incentives for development of renewable energy in the country has been discussed in this article.
Following statutory provisions have been introduced by the government for development of renewable energy in India:
i. Electricity Act, 2003:
The Electricity Act 2003 that was notified by the Ministry of Power in June 2003 with the intent of promotion of renewable energy at the state as well as to national level in India. The Electricity Act 2003 promotes electricity generation from co-generation and renewable energy sources and accelerated the process of renewable energy development in the country. The Act provides that the Central Government to develop a national policy for optimal utilization of resources including renewable energy. It empowers the SERC’s to specify a Renewable Purchase Obligation for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of distribution licensee. Promotion of competition in the electricity industry in India is one of the key objectives of the Electricity Act, 2003.
The Central Government has also introduced draft Electricity (Amendment) Bill, which is under finalization stage. The Bill provides various provisions for development of renewable energy in the country. Electricity (Amendment) Bill provides for an additional National Renewable Energy policy and seeks to promote generation of renewable energy through tax rebates, generation linked incentives, etc. The Bill provides that any generating company, establishing a coal and lignite based thermal generating station will be required to establish a renewable energy generation capacity as prescribed by the central government. which will be at least 10% of the thermal power installed capacity. A National Renewable Energy Policy will be prepared by the central government, in consultation with state governments. The Policy will provide for the development of the power system based on optimal utilisation of renewable sources of energy.
ii. Bidding Guidelines:
Competitive procurement of renewable energy by the distribution licensees is expected to reduce the overall cost of procurement of power and facilitate development of power markets. The Ministry of New and Renewable Energy (MNRE) under Section 63 of the Electricity Act 2003 issued the guidelines for Tariff Based Competitive Bidding Process for long term procurement of electricity from grid connected wind power projects under Section 63 of the Electricity Act, 2003. Government also issued guidelines for long term procurement of electricity from solar PV and small hydro power projects through competitive bidding. The objective of the aforesaid bidding guidelines are to promote competitive procurement of electricity from Renewable Energy Sources by distribution licensees, facilitate transparency and fairness in procurement processes, protect consumer interests by facilitating competitive conditions in procurement of electricity and facilitate fulfillment of Renewable Purchase Obligation (RPO) requirement of the obligated entities. It also facilitates the supply of wind power to the non-windy states at a price discovered through transparent bidding process.
iii. National Electricity Policy 2005:
Central government under Section 3 of the Electricity Act issued the National Electricity Policy for development of the power system based on optimal utilization of resources including renewable sources of energy. The National Electricity Policy 2005 stipulates that progressively the share of electricity from non- conventional sources would need to be increased; such purchase by distribution companies shall be through competitive bidding process. The policy encourages the capital cost reduction in renewable energy projects through competition and promotes private participation in renewable energy.
iv. New Tariff Policy, 2016:
The Ministry of Power is empowered to prepare the tariff policy, which may be revised from time to time for the development of the power sector and for the optimal utilization of natural resources. The first Tariff Policy was notified by the Central Government under Section 3 of the Electricity Act, 2003 on 6th January, 2006 and the same was amended on 31st March, 2008, 20th January, 2011 and 8th July, 2011. The Govt. of India has now notified new tariff policy on 28th January, 2016. For the first time a holistic view of the power sector has been taken and comprehensive amendments have been made in the Tariff Policy 2016. The new Tariff Policy makes a strong pitch for the promotion of clean energy and also support Swachh Bharat programme. The key provisions under new tariff policy for development of renewable energy are summarized as below:
• In order to promote renewable energy and energy security, it is decided that 10% of total consumption of electricity, excluding hydro power, shall be from solar energy by March 2022.
• Renewable Generation Obligation - New coal/lignite based thermal plants also establish/procure/purchase renewable capacity as prescribed by Government of India
• Allow bundling of renewable power with power from thermal plants, whose PPAs have expired or plants which have completed their useful life.
• No inter-State transmission charges and losses to be levied for renewable power (solar/wind).
• Compulsorily procurement of 100% power produced from all the Waste-to-Energy plants in the State by the Distribution Companies.
• In view of geological uncertainties and clearance issues faced by Hydro projects and also to promote clean power, Hydro projects have been exempted from competitive bidding till August 2022.
• Since India is running one of the largest renewable capacity expansion programmes in the world and there is a need for corresponding grid stability. Regulator will frame norms for ancillary services to support power system or grid operation especially with expanding renewable energy.
v. National Action Plan of Climate Change (NAPCC):
The National Action Plan of Climate Change has set the target of 5% renewable energy purchase for FY 2009-10 which will increase by 1% for next 10 years. The NAPCC further recommends strong regulatory measures to fulfil these targets. NAPCC have set the target to achieved 15% of total energy requirement of the country from renewable by 2020. The plan identifies eight core “National Missions” running through 2017.
Central Government has taken several policy initiatives and regulatory measures for development of renewable energy sources in the country. State governments have also issued state specific policies based on the available renewable potential in their state. Some of the policy and regulatory initiatives have been taken by the government for development of renewable energy are as given below:
i. Policy for Repowering of the Wind Power Projects:
Central government issued the policy for Repowering of the Wind Power Projects on 5th August, 2016. Most of the wind-turbines installed up to the year 2000 are of capacity below 500 kW and are at sites having high wind energy potential. It is estimated that over 3000 MW capacity installation are from wind turbines of around 500 kW or below. In order to optimally utilise the wind energy resources repowering is required. Objective of the Repowering Policy is to promote optimum utilisation of wind energy resources by creating facilitative framework for repowering. The main features of draft repowering policy are:
i. Wind turbine generators of capacity 1 MW and below would be eligible for repowering under the policy.
ii. Indian Renewable Energy Development Agency (IREDA) will provide an additional interest rate rebate of 0.25% over and above the interest rate rebates available to the new wind projects being financed by IREDA.
iii. All fiscal and financial benefits i.e. Accumulated Depreciation or GBI available to the new wind projects will also be available to the repowering project.
iv. In case augmentation of transmission system from pooling station onwards is required, the same would be carried out by the respective Transmission Utility.
v. Additional generation would either be purchased by Discoms at Feed-in-Tariff applicable in the State at the time of commissioning of the repowering project or allow third party sale.
vi. For placing wind turbines 7D x 5D criteria would be relaxed for micro sitting.
vii. During the period of execution of repowering, projects would be exempted from not honoring the PPA.
ii. Wind-Solar Hybrid Policy:
Solar and Wind power being infirm in nature impose certain challenges on grid security and stability. Solar and winds are almost complementary to each other and hybdridation of two technologies would help in minimizing the variability apart from optimally utilizing the infrastructure including land and transmission system. The existing wind farms have scope of adding solar PV capacity due to placing wind turbines 7D x 5D criteria and similarly there may be wind potential in the vicinity of existing solar PV plant. Suitable policy interventions are required not only for new wind-solar hybrid plants but also for encouraging hybridization of existing wind and solar plant.
The main objective of the Policy is to provide a framework for promotion of large grid connected wind-solar PV system for optimal and efficient utilization of transmission infrastructure and land, reducing the variability in renewable power generation and thus achieving better grid stability. Policy aims to encourage new technologies, methods and way-outs involving combined operation of wind and solar PV plants. The Goal of the Policy is to reach wind-solar hybrid capacity of 10 GW by 2022. Policy empowers the Central Commission to lay down the guidelines for determination of generic tariff for wind-solar hybrid system. Further, the Commission is required to frame regulations for forecasting and scheduling for the hybrid system. The Government will encourage development of wind-solar hybrid system through various incentives. All fiscal and financial incentives available to wind and solar power projects may also be made available to hybrid projects. Low cost financing for hybrid projects may be made available through IREDA and other financial institutions.
iii. National Offshore Wind Energy Policy:
India has vast coastline of 7600 km considering the development of offshore wind energy in the Indian Exclusive Economic Zone, the National offshore wind energy policy was approved and notified by the Central Government in October, 2015. Under this Policy, the Ministry of New & Renewable Energy (MNRE) has been authorized as the Nodal Ministry for use of offshore areas within the Exclusive Economic Zone of the country and the National Institute of Wind Energy (NIWE) has been authorized as the Nodal Agency for development of offshore wind energy in the country and to carry out allocation of offshore wind energy blocks, coordination and allied functions with related ministries and agencies. It would pave the way for offshore wind energy development including, setting up of offshore wind power projects and research and development activities, in waters, up to the seaward distance of 200 Nautical Miles (EEZ of the country) from the base line. The policy will provide a level playing field to all investors/beneficiaries, domestic and international. Initial studies carried out by National Institute of Wind Energy indicate offshore wind power potential in Gujarat and Tamil Nadu. The Government is planned to set up the first offshore wind power project at the Gujarat coast soon.
iv. Scheme for CTU-connected Wind Power Projects:
The wind power potential in the country is assessed by the National Institute of Wind Energy (NIWE) at 100 meter above ground level, which is estimated to be over 302 GW. Most of this potential exists in 8 windy States namely Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu and Telangana. In order to facilitate transmission of wind power from these windy States to non-windy States provisions have been made in the Tariff Policy to waive the inter-state transmission charges and losses for wind power projects. A need has been felt to formulate a scheme for supply of wind power to the non-windy states at a price discovered through transparent bidding process. This scheme encourage competitiveness through scaling up of project sizes and introduction of efficient and transparent e-bidding and e-auctioning processes. It also facilitates fulfillment of Non-Solar Renewable Purchase Obligation (RPO) requirement of non-windy states.
The Scheme will be implemented for setting up 1000 MW capacity of CTU connected Wind Power Projects by Wind Project Developers on build, own and operate basis. However, the capacity may go higher than 1000 MW, if there is higher demand from Discoms of non-windy States. The selection of wind power projects under the Scheme will be through a transparent e-bidding process followed by e-reverse auction for eligible bidders for procurement of wind power at tariff discovered through open competitive bidding process. SECI will develop guidelines for e-bidding process. Eligible project capacity for bidding will be minimum 25 MW and maximum 500 MW by a bidder.
v. National Solar Mission:
India is endowed with a very vast solar energy potential. Most parts of the country have about 300 sunny days. Average solar radiation incident over the land is in the range of 4-7 kWh per day. The solar energy utilized through solar photovoltaic technology which enables direct conversion of sunlight into energy and solar thermal technologies which utilizes heat content of solar energy into useful applications. Over the last three decades several solar energy based systems and devices have been developed and deployed in India which are successfully providing energy solutions for lighting, cooking, water heating, air heating, drawing and electricity generation. As a result many solar energy systems and devices are commercially available with affordable cost in the market.
Jawaharlal Nehru National Solar Mission was launched on 11th January, 2010. The Mission targets include (i) deployment of 20,000 MW of grid connected solar power by 2022, (ii) 2,000 MW of off-grid solar applications including 20 million solar lights by 2022, (iii) 20 million sq. m. solar thermal collector area, (iv) to create favourable conditions for developing solar manufacturing capability in the country; and (v) support R&D and capacity building activities to achieve grid parity by 2022.
For the first phase of the Mission, the Government had approved a target to set up 1,100 MW grid connected solar plants including 100 MW capacity as rooftop and other small solar power plants till March 2013. In addition, a target of 200 MW capacity equivalent off-grid solar applications and 7 million square meter solar thermal collector area were also approved. The Government had also approved setting up of large utility scale grid power plants through bundling of solar power with the unallocated thermal power available from NTPC stations and the policy to provide generation-based incentive for small grid connected solar power plants. The government has also approved revision of cumulative targets under National Solar Mission from 20,000 MW by 2021-22 to 1,00,000 MW by 2021-22 for Grid Connected Solar Power Projects. The revised target of 1,00,000 MW is planned to be achieved during this period and broadly consist of 40 GW Grid connected Rooftop projects and 60 GW large and medium size land based solar power projects.
vi. Green Energy Corridor:
The wind power potential in the country is assessed by the National Institute of Wind Energy at 100 meter above ground level, which is estimated to be over 302 GW. Most of the wind power potential is concentrated in 8-9 wind resource rich states. These windy states may not consume wind power beyond their RPO limit and therefore, wind power is to be evacuated from these resources rich states to the off-taker states. This requires strengthen transmission intra-state as well as inter-state transmission infrastructure. Green Energy Corridors Project that has identified transmission requirement for the renewable power capacity addition during 12th plan period is under implementation. Intra-state transmission infrastructure projects in eight states have already been approved. The project is at different stages of implementation in states.
In order to facilitate integration of large scale renewable generation capacity addition, the Government approved creation of intra-state transmission system in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu rich in renewable resource potential and where large capacity renewable power projects are planned with Government of India contribution from National Clean Energy fund 40%. The activities envisaged under the project includes establishment of new Grid sub-stations of different voltage levels by installing over 7800 ckt-kms of transmission lines in these states. The project is proposed to be completed within a period of three to five years. Creation of an intra-state transmission system will facilitate evacuation of renewable power from generation stations to load centre
vii. Fiscal Incentives:
Preferential tariff is being provided to increase renewable energy generation in the potential states. Most wind potential states have announced the preferential tariffs. State Regulatory Commission’s have announced the Renewable Purchase Obligations (RPO’s), which mandates the Distribution Licensees to take certain percentage of electricity from renewable, which has accelerated the growth. Generation Based Incentive (GBI) also allowed by the Central Government on grid interactive wind power projects commissioned on after 01.04.2012. The GBI shall be @ Rs. 0.50 per unit of electricity fed into the grid with a cap of Rs. 100 Lakhs per MW. The incentive will be for a minimum period of 4 years and maximum period of 10 years with a cap of Rs. 100 Lakhs/MW.
The Government promotes renewable energy sector in the country through fiscal incentives such as concessional custom duty on certain components of renewable energy system, excise duty exemption, exemption on Special Additional Duty, ten years tax holiday on income generated from renewable power projects, and loan from Indian Renewable Energy Development Agency and other financial institutions. Exemption / reduction in Central Sales Tax and General Sales Tax available on sale of renewable energy equipment in various states. The accumulated depreciation was earlier allowed @80% on the machines installed on or after 01.04.2014 has now been revised to maximum 40% from 01.04.2017. Beside the above incentive provided by the Central Government, some State Governments have also provided the state specific incentive through respective state renewable energy promotional policies. Some of the common incentives provided by State Governments are as follows:
• Exemption from payment of Energy Cess on Electricity Supply.
• The project shall be exempted from Electricity Duty for a period of 10-years.
• Subsidy @ 4% towards Wheeling Charges within the State.
• Equipments shall be exempted from SGST/Entry Tax.
• Banking charges exemption up to extent of 100%.
• Permission to use Govt. land on actual use basis.
• Carbon Credit incentives as applicable on the wind power projects.
• Industrial Consumers allowed corresponding pro-rata reduction in Contract Demand.
viii. Renewable purchase obligation:
Renewable Purchase Obligation (RPO) is a mechanism by which the State Electricity Regulatory Commissions are obliged to purchase a certain percentage of power from renewable energy sources. RPO is being implemented throughout the country to create demand for renewable energy. RPO is of two categories – Non-Solar and Solar. Under the solar obligation, every State in the country has announced a solar specific percentage as part of overall Renewable Purchase Obligation. RPOs are enforced on three categories of consumers –Distribution Licensees, Open Access Consumers and Captive Consumers.
Electricity Act 2003 and the National Tariff Policy provide for the appropriate Commission to specify for purchase of electricity from RE sources, a percentage of the total consumption of electricity in the area of a distribution licensee. The Central Electricity Regulatory Commission also plays a facilitator role. Therefore, most SERCs have, by way of RPO regulations, specified RPO targets for solar and non-solar energy; On the whole, the objective of Government policy and regulations, was to, over a period of time, progressively increase the share of electricity from non-conventional sources by mandating obligated entities to purchase a specified minimum percentage of their total power consumption including losses from non-conventional sources.
ix. Forecasting and Scheduling framework for Renewable Energy
A variable characteristic of renewable energy sources is the fluctuation and unpredictability of their load supply, which makes it challenging to manage the grid in real time. For the large scale integration of renewable energy with the main grid, a fine balance has to be developed between renewable generation and transmission system flexibility. For managing the variability and unpredictability of renewable energy generation, accurate forecasting is crucial for grid management and security. The issue could be addressed through proper forecasting and scheduling of wind and solar power.
The framework on Forecasting, Scheduling and Imbalance handling for variable wind and solar energy and state model regulations have opened up the market for these generators at the intra-state level. To account for deviations by all generators, including RE generators, all states need to put in place the prescribed ABT framework. The CERC have already issued mechanism for scheduling and forecasting of inter-state transmission of solar and wind power. Karnataka become the first state in the country to issued and notified the regulation for scheduling and forecasting of renewable power. The States of Rajasthan, Tamil Nadu, Madhya Pradesh and Jharkhand have also notified regulations for intra-state transmission of infirm power. The National Institute of Wind Energy (NIWE) has undertaken forecasting and scheduling exercise in the State of Tamil Nadu wherein industry association is financing the work taken up by NIWE to provide forecast for the whole state. Similar initiatives have been carried out by the Rajasthan and Gujarat states. For proper forecasting and scheduling it is necessary to put in place metering and communication infrastructure at all pooling stations for real time generation of data.
x. Storage of renewable power:
In order to facilitate storage of surplus power and ensure grid security, the Government is promoting energy storage projects by providing several physical incentives for these projects. Regulators are also framing separate regulations for promotion of energy storage projects in the respective states. Energy storage not only provides means to absorbed higher penetration of variable wind and solar generation into the electricity system, it also helps in effective utilization of transmission and distribution assets and enables the thermal generation plants to operate efficiently. Energy Storage projects is one of the most effective solution to address the lack of scheduling of renewable sources. These projects are required to be given a special status as they provide a mechanism to convert infirm power to firm power within a short period and ensure scheduling of renewable power in inter and intra state transactions
Energy storage systems are an alternative option for both grid-connected and off-grid renewable energy systems. It also helps in strengthen the intermittent power flow from renewable energy sources. It captures the excess energy generated from renewable energy sources during low demand times in order to dispatch it during high demand times. Storage also helps in mitigating rapid changes in generation from renewable energy sources, which could be due to wind speed variability affecting generation or lower solar generation due to clouds. In such cases the stored energy offset outages. Energy storage separates generation from demand and thereby increases both grid flexibility and performance. Storage can reduce outages, lower pollution from fossil fuels and eventually enable a complete reliance on renewable sources.
An important measure of India's energy policy and its commitment to reduce carbon emission under international treaties obligations is to promote co-generation and generation of electricity from renewable sources of energy and increase the share of renewable energy in the country's total electricity consumption. The renewable energy segment presents an attractive investment opportunity in the power sector with record capacity additions, declining tariffs and growing private sector participation. As of end March 2019, the installed renewable capacity stood at over 70 GW, accounting for 18 percent of the total installed power capacity. Further, in the latest auctions, solar and wind tariffs have fallen considerable lower than the average cost of coal based power. In terms of generation, however, the renewable sources share remains small owing to the lower CUF of renewable energy plants.