By Somit Dasgupta
In October this year, the government notified revised figures for renewable purchase obligations (RPOs) for the period 2024-25 to 2029-30. RPOs indicate what percentage of the power purchase should be sourced from renewable sources. RPOs have been in existence since long as they emanate from section 86(1) of the Electricity Act 2003 (EA2003) and were only applicable to distribution companies (discoms). There is, however, a difference now. The current set of RPOs has been notified under section 14 of the Electricity Conservation Act 2021.
The implication is that these RPOs will not only be applicable to the discoms but to all ‘designated consumers’ from the sectors identified under the Electricity Conservation Act 2021. The sectors which have been identified, as of date, include aluminium, cement, chlor-alkali, iron and steel, pulp and paper, textiles, thermal power plants, railways, and discoms. This means that the requirement for renewable power will be much more now as it has to cater to several other consumers, apart from discoms.
The erstwhile RPOs were fixed by the respective state electricity regulatory commissions (SERCs) depending on the renewable potential of the state. The current set of RPOs, however, have been fixed by the Union government and are uniform across states. As is well known, solar potential in India is dispersed throughout the country but wind potential is concentrated in the coastal states. The earlier RPOs were composite in nature, meaning that a single figure would include contribution from all renewable sources put together. Now, we have separate RPOs for wind, hydro, solar, distributed generation, etc. The RPO regime left much to be desired since the SERCs never made any serious attempt to ensure their implementation. There are two reasons for this. First, when the RPOs were announced, renewable power was expensive compared to conventional coal-based power. Second, the discoms already had a lot of excess power tied up, for which fixed cost was being paid. So, buying additional renewable power was a drain on the resources of the discoms.
Incidentally, this concept of promoting renewable generation through RPOs was also introduced in the UK in 2002 and it carried on till 2017 when it was stopped for installation of fresh capacity. It is believed that this policy was extremely successful in the UK as the proportion of renewable power generation went up from 3.5% (in 2006) to almost 41% (in 2020). This policy was particularly helpful for wind-based generation whose contribution to total power generation went up from 1% (in 2006) to 24% (in 2020). This massive increase in wind-based generation led to a decrease in the wholesale price of power by 1.28 pounds per megawatt-hour because the costliest coal-based power was no longer required.
In contrast, RPOs have not been a success in India because as mentioned earlier, they were never implemented in the right earnest. However, this was not the only reason. RPOs help in only creating an artificial demand through a captive market. What about the supply side factors? There are a number of issues afflicting the renewable sector which is crippling its growth. Land acquisition is a major hurdle, getting regular payments from the discoms is another issue, getting grid connectivity is yet another struggle. On top of this, there are problems of imposition of basic customs duty, imposition of the approved list of models and manufacturers, or ALMM (though kept in abeyance for some time now), etc. Problems afflicting the solar roof-top sector are different—examples being lack of awareness, high interest rates with no innovative financing, small consumers not being able to provide collateral, people not willing to give rooftop space, poor after-sales service etc. Wind-based generation has its own set of problems which includes problems of availability of land, introduction of reverse bidding process (now suspended), dramatic fall in solar tariffs, etc.
The limited point being made is that announcing and implementing RPOs does not guarantee growth of renewable power. One has to take a holistic approach and here, there is a problem as far as India is concerned. Power is a concurrent subject, so while the central government lays down the targets, the actual implementation is done by the states. The states have to provide the correct market signals and unfortunately, they have failed on this score. To promote growth of renewable power, there has to be risk-sharing between the government and the developers. Today, practically all the risk is being taken by the latter.
Finally, whether these RPO figures are tenable will become clear with some back of the envelope calculations. The notification of October 2023 gives separate RPO figures for wind and hydro projects which will come up after March 2024 and separately for the renewable projects already existing. The notification says that, in 2024-25, 27.35% of the power will be from existing renewable sources. Let’s take the case of discoms first.
Considering the fact that about 1,230 BUs of power was purchased (gross input energy of utilities) in 2021-22, the corresponding figure may become about 1500 BUs in 2024-25, assuming a yearly growth rate of 5%. With an RPO of 27.35%, it means that 410 BUs have to come from renewable sources. Renewable generation in 2022-23 was only about 200 BUs and this doubling to 410 BUs in two years is highly improbable. This means that the RPOs are not likely to be achieved for the simple reason that there will not be enough generating capacity. On top of this, if we are to add all the designated consumers to the discoms (as suggested in the government’s notification of October 2023) the deficiency in generating capacity will be all the more stark.
To sum up, we need to take a holistic look and resolve the supply side issues (in addition to laying down RPOs) if we are to enhance our renewable generation. However, we need to be practical and fix RPOs in a manner that they inspire confidence and not ridicule.
The author is s senior visiting fellow, ICRIER
Views are personal