Curbs on surplus power facility may destabilise renewable energy growth: Analysts

Discoms are facing losses due to the difference in power procurement costs.

However, adoption of these alternatives will mean higher tariffs that would impact the end consumers.
However, adoption of these alternatives will mean higher tariffs that would impact the end consumers.

The ‘restrictive’ provisions for notional storage of power introduced by state discoms and power regulators in recent months could impede aggressive renewable energy capacity targets set by the government, feel some analysts and industry experts.

The discoms have recently reduced the period for settlement of the ‘surplus’ energy to one month or less from a year, thereby restricting the developers’ flexibility to get credits for surplus power.

To promote the renewable energy sector, state discoms used to give developers the facility of “banking of power” (notional storage of surplus) under which surplus power could be carried over to the next month till the end of a financial year. The balance of unused power was later settled by discoms based on “banking charges” decided by the State Electricity Regulatory Commissions. However, discoms claim the process is leading to financial constraints and some renewable energy-rich states, that have achieved their RE targets set by MNRE have withdrawn the provisions and many have reduced the settlement timelines.

Jyoti Gulia, founder and director of JMK Research, a Delhi based renewable energy advisory firm, said, after the restrictive net metering regulations and withdrawal of waivers for open access renewable projects, discoms are restricting banking provisions to prevent high paying commercial and industrial (C&I) consumers from shifting to alternative REpower procurement models.

“The national RE target of 450 GW by 2030 is still far away. Restrictive banking provisions at this early stage of the RE growth in India will create a huge setback for renewable project developers,” Gulia added.

Since renewable sources of energy are intermittent in nature, the proposed imposition of a 10% cap on banked energy by CERC will not motivate RE developers. Banked energy also indirectly helps discoms with peak load shifting, and restrictions will result in more unstable grid management. States are likely to follow suit and introduce similar restrictions, she said.

State discoms however claim that banking of power leads to extra cost for them and affect their finances. Andhra Pradesh and Tamil Nadu have completely withdrawn the provisions while Maharashtra and Gujarat have reduced the annual banking facility to monthly or time-of-day facility, stating, they have already achieved 80-90% of their respective renewable energy production targets set by MNRE for states. They also claim that the objective of promoting the renewable sector is over, hence they can withdraw the provisions.

Discoms argue that they have to buy excess power at tariffs linked to average power purchase cost (APPC) to settle the banked energy to the developers, which is higher compared to the competitively bid renewable tariffs. As per the latest Central Electricity Regulatory Commission (CERC) order for FY22, the national APPC is Rs 3.85 per kilowatt-hour (kWh), which is higher than the per-unit cost of generation from solar projects, which is in the range of Rs 2-2.8/kWh.

Besides, discoms claim that consumers in some states take advantage of the banking provision by drawing on banked energy during peak demand periods while injecting power during off-peak periods. The cost of power procurement during the peak period is higher. Discoms are facing losses due to the difference in power procurement costs.

N Srikant, Andhra Pradesh, Energy secretary, told FE that banking is a euphemism for compensation and requires budgetary allocation by States. Besides, it would also require investments in large storage projects where surplus power could be stored. In the absence of two, there are only two ways to finance such variable energy (intermittent power) — through tax money or recovery from consumers through higher tariffs.

“While we continue with the provisions for old projects, We have decided to do away with the provision for new projects. We have told the developers upfront to consume the entire power injected, as it would be difficult to finance the compensation. It’s more like a loss financing for us.”

Developers on the other hand believe that banking provisions were provided to promote the renewable sector. If all the incentives are taken back there would be no motivation for developers to invest in renewable projects. Especially, when net metering regulations were also restricted by CERC.

Manjesh Nayak, Co-founder of Oorjan Cleantech, said, restrictions would disincentivize solar adopters and slow the transition to non-conventional sources. The benefit for discoms is too limited, whereas the negative impact on the renewable energy targets is far-reaching. However, to cope up with the issue, renewable energy generators may explore various alternatives, such as downsizing the project to the minimum demand of industries, trading excess power on power exchanges, or installing power storage options like pumped hydro or battery banks.

However, adoption of these alternatives will mean higher tariffs that would impact the end consumers.

Puneet Goyal, co-founder director of SunAlpha Energy said, Gujarat discoms are charging Rs 1.5/ unit as banking charge, not for the banked energy but entire power produced for behind the meter plants. “As per the policy banking charge is Rs 1.50 per unit of the consumed unit, which the discom interprets as total produced units. Whereas, it should be levied only for consuming or adjusting the banked units. In case no units are banked, no banking charges should be applicable. No clarity on this from the Gujarat government is affecting players like us.”

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