The National Renewable Energy Act 2015 could be a catalyst for greater investment
Renewable energy seems to be the flavour of the season. After the Union Cabinet gave its approval for ramping up solar power capacity target under the Jawaharlal Nehru National Solar Mission (JNNSM), to 100 GW by 2022, the ministry of new and renewable energy (MNRE) released the draft of the renewable energy Act 2015 (Act) for public comments. The proposed 100 GW capacity is split into 40 GW through rooftop generation and 60 GW through large- and medium-scale grid-connected solar power projects.
So far, all renewable energy activity in India has been carried out under the Electricity Act of 2003. While it played an incredible role in renovating the Indian power sector, it was formulated in an era when renewable energy was not so prominent. The proposed legislation is aimed at providing a level playing field to renewable energy (same as the conventional power systems) players.
This piece tries to highlight some of the prominent changes of the proposed renewable energy Act and, how this could have a positive impact on the growth of the renewable energy sector as a whole.
The proposed law introduces the concept of ‘deemed generation’ benefit. As per this, if a grid is not available for power evacuation after the project has commenced generation or is already operational, the power will be considered to be deemed generated and sold, with charges being payable to the generator. The detailed guidelines on this aspect are proposed to be issued as part of the new renewable energy policy. This is a big relief to the sector, which faces loss of revenue due to either the grid not being available (leaving projects unable to evacuate power); or the grid not being able to handle unpredictable wind flow (owing to which discoms prefer not to buy electricity from the wind-power companies).
Another longstanding demand of the industry, the implementation of ‘renewable purchase obligation (RPO)’, has been included in the draft. Under the RPO principle, certain obligated entities (typically, large consumers and electricity discoms) are required by law to buy a certain portion of their energy needs from renewable sources. After the precedent-setting judgement by the apex court earlier this year, enforceability of such obligations shouldn’t be a challenge any longer—another reason for cheer for this industry.
The Act bring about another major change—the ‘renewable generation obligation’. As per this, thermal power producers will be obligated to generate at least 5% of thermal-power installed capacity through renewable energy technology. This is an onerous change and will have an impact on the generating company. However, it will certainly give a much-needed boost to the renewable energy sector and may also lead to an increase in the number of domestic M&A transactions wherein the thermal companies acquire smaller renewable energy companies in order to meet the afore-mentioned requirement.
Further, based on various representations, the draft also addresses one of the key challenges faced by renewable energy companies, delayed payments from the discoms. The regulated entities are now obligated to create adequate and sufficient payment security mechanisms that ensures timely payments for renewable energy power procured.
The prime minister’s office has been pushing various ministries to initiate supporting interventions like incorporating changes in land use regulations and tenancy laws to facilitate aggregation and leasing of land by farmers/developers for solar projects, identification of large chunks of land for solar projects, identification of large government complexes/buildings for rooftop projects and development of power transmission network, etc.
The proposed Act clearly sets the agenda for renewable energy development in the country. It is hoped that the enactment of the new legislation would be a catalyst for flow of capital into the sector. Renewable energy development was one of the poll promises made by prime minister Narendra Modi, and therefore has been a top priority for the government. One can only hope that the new law doesn’t meet the same fate as the land acquistion Bill brought by the government and gets approval at the earliest!
Prakriti Jaiswal, associate, J. Sagar Associates, Advocates and Solicitors, also contributed to this piece
The author is partner, J. Sagar
Associates, Advocates and Solicitors. Views are personal