Key Takeaways for RE industry in Draft National Electricity Policy

DRAFT NATIONAL ELECTRICITY POLICY, 2021

Draft National Electricity Policy, 2021 (NEP) provides a roadmap of the future for renewable industry. It places emphasis on the growth as well as on reliability of the renewable energy.

Following are key takeaways for renewable industry from NEP:

A) NEP is emphasizing on growth of renewable as well as on reliability of generation. Keeping these objectives in mind, NEP is proposing promotional measurers for Hybrid renewable energy generation and energy storage systems. NEP is also suggesting to recognise large hydro plants (plants more than 25 MW capacity) as renewable plant. NEP suggests that Regulators should consider introducing various promotional measures to promote these renewable energy stations due to its environmental benefits coupled with energy security/reliability. NEP should specifically record promotional measures to remove any ambiguity. All ERCs are also stating in their policy documents to promote these sources without spelling out any specific promotional measures.

B) Indian Electricity Grid Code has accorded must run status to renewable energy stations. However, DISCOMs keep issuing (or procuring SLDCs to issue) curtailment notices to deny injection of the renewable energy on flimsy grounds. There is no real deterrence for DISCOMs to not resort to such unlawful activities. NEP is suggesting implementation of two-part tariff mechanism for renewable energy sources. Two-part tariff will be a game changer. There will be certain practical challenges in implementation of two-tariff for certain RE sources like determination of the variable cost for wind and solar assets. It will be easier for solar-coal hybrid sources. However, this is the only way out for discouraging DISCOMs to resort curtailment. I believe, once DISCOMs will be liable to pay 90–95% of tariff (this will be estimated fixed cost) even if they are not drawing power, they will be discouraged to find reasons for issuance of the curtailment/shut down notices.

C) NEP also appears to encourage rooftop solar. NEP should also suggest that there should not be any cap on net metering and cap provided by rules should be removed.

D) NEP also appears to suggest that regulator should move towards implementing light touch regulation mechanism. This is a welcome step and regulator should follow it in its letter and spirit.

E) NEP is encouraging Electricity Regulatory Commissions (ERCs) to promote micro grid.

F) This policy also aims to promote renovation & modernization(R&M). NEP specifically states that R&M of old wind power plants by replacing them with modern and more efficient wind generating units, results in flexibility of generating power across a higher range of wind speed and thereby generating more power at the same location with High-Capacity utilization factor. Solar stations will see the same benefit of R&M. R&M Activities will see two types of cost- a) costs which can be factored in the bid at the time of the bid submission like inflation, transportation of the module/turbine etc. b) Costs due to change in law like increase in tax rate/introduction of the new tax.

There is no quarrel that developers will be liable to make payment for all such costs which could have been factored at the time of the bid submission like sale price of the modules/turbines, transportation cost, installation cost etc. However, moot question remains, whether generators will be compensated for additional costs in R&M incurred by generator due to Change in Law? Unfortunately, CERC has made it very clear that developers can claim change in law benefits for only such modules/turbines which are installed prior to commissioning date. In Cases of R&M, ERCs should adopt a liberal view.

Developers can consider moving before ERCs with these paras of NEP requesting ERCs to allow change in law benefits post commission as well in cases of R&M.

G) NEP’s statement about limited role of the regulator while adopting section 63 tariff is also an encouraging statement. NEP is reiterating specific provisions of the Electricity Act. This statement can be an aid for interpreting Section 63 of the Act in future tariff disputes to argue that if bidding guidelines procedure has been followed then the Commission will have no option except to adopt it. Other considerations like prevailing market price are giving weapons to ERCs for delaying/non-adoption of the tariff. NEP is very clear that role of the regulator is to ensure compliance to the process by bidders and once ERCs find that the bidding guidelines has been complied, it should have no option except to adopt the tariff. Presently, ERCs have started sitting on the wisdom of the bid evaluation committee. Bidding Guidelines have sufficient check and balances to ensure competitiveness of the bidding system. Regulator are scruitnising discovered bid as they are determining tariff under Section 62. Supreme Court in Energy Watchdog has relied on National Tariff Policy to interpret Section 79 of the Electricity Act, this particular provision of NEP can be relied on to give true meaning of Section 63 of the Act.

H) NEP suggests that CERC should consider reviewing/revising tariff sharing framework to make it more relevant in changing market structure. I believe one of such changes will be to start charging on the basis of capacity utilization factor of renewable energy generating stations. This will encourage more inter-state open access transaction and can also be beneficial for bidding projects once these waiver regimes will be over.

I) NEP also brings back discussion on separation of the carriage and content business of the distribution company.

J) Introduction of Distribution System Operator for real-time operation of the Distribution Business.

K) Direct Benefit Transfer will help DISCOMs in their realization of the actual cost of the running of the distribution business.

L) Forecasting and Scheduling of renewable energy stations.

M) Autonomy of State Dispatch Centers in line of creation of National Load Dispatch Centres (separated from PGCIL). Role of these centers are crucial and their frequent curtailment notices reducing them to an interested party rather than an independent system operator.

N) NEP notes that only those equipment/component/raw material which are not manufactured in India will be allowed to be imported.