No real gains from renewable generation obligations

There are potential hurdles to getting open-access consumers. The policy also may not lead to any meaningful addition of capacity

renewable generation, NTPC
Among the central generators, NTPC is the primary coal-/lignite-based generator and accounts for 44% of the 12,500 MW under construction. (IE)

When the Tariff Policy was revised in 2016, a clause was added—number 6.4(5)—which stated that beyond a stipulated date, any coal-/lignite-based generating company will have to set up a renewable generating project of such capacity as stipulated by the Union government or, alternatively, procure and supply equivalent amount of renewable energy. To give effect to this clause in the Tariff Policy, the Union government notified what is called the ‘renewable generation obligation’ (RGO) on the February 23, 2023.

Continue reading this story with Financial Express premium subscription
Already a subscriber? Sign in

In a nutshell, the notification cites that all coal-/lignite-based plants that will be commissioned on or after April 1, 2023, will be required to establish, by April 1, 2025, renewable generating capacity of a minimum of 40% of the capacity of the coal-/lignite-generating-station or procure and supply energy equivalent to such capacity. Generating plants getting commissioned after April 1, 2025, will need to comply with this stipulation from the day of commissioning itself.

Also read: Hark! Do you hear the SOS from a coastal town in TN?

Till now, we were accustomed the ‘renewable purchase obligation’ (RPO), wherein all bulk consumers are mandated to buy a certain proportion of their power from renewable sources. The latest guidelines of the government (introduced in July 2022) on RPOs states that, by 2029-30, the total RPO will be about 43%. The corresponding figure for 2023-24 is 27%, though we are nowhere near this figure. These RPO figures includes solar RPO, wind RPO, hydro RPO (called HPO) and storage RPO (called SPO). While RPO can be termed as a demand-push policy move, RGO is a supply-push initiative.

Whether the policy of RGO can actually catalyse more of renewable generating capacity is debateable since all distribution companies (discoms) are expected to purchase power through competitive bids, and this includes renewable power too. The only exceptions are hydro and waste-to-energy plants. In addition, there are some other exceptions where the capacity of some existing generating units is expanded. In such a scenario, where is the incentive for coal/lignite plants to set up renewable capacity? They can, at best, participate in bids when called for by bulk consumers. Besides, there is no guarantee that they will win the bid.

In case a coal/lignite generating unit sets up renewable capacity on its own to fulfil its RGO commitments, it will either have to identify open-access consumers who would be agreeable to bulk power off-take or, alternatively, sell the power in the electricity exchange subject to clearance for dispatch. Neither of these options provides comfort since open-access is generally thwarted by state electricity regulatory commissions (at least in some states) by levying very high open-access surcharge, thus making it economically unviable for open-access consumers. And, as for electricity exchanges, the short-term market is not deep enough to support collective transactions at scale; besides, the market-determined tariff may not be remunerative, especially during periods when demand is relatively low vis-à-vis supply.

Let us also examine the type of ownership of coal-/lignite-based units under construction today. According to the Central Electricity Authority (CEA), there are no private sector coal/lignite units under construction today. They are either in the central sector or the state sector, and the capacities are about 12,500 MW and 15,600 MW, respectively. Coming to the state sector, one wonders whether the states’ generating companies will adhere to this stipulation of RGOs. Usually, any directive under the Tariff Policy found uncomfortable to the state(s) is ignored, and this may happen in the case of RGOs too—a fall-out of the forces of the political economy. Enforcing compliance of RGOs by state commissions is also fraught with problems since generating companies, unlike discoms, are not licensees of the commissions.

There are other reasons also why the policy of RGO may not succeed. According to the policy, RGO-compliance can also be realised by procuring renewable power (assuming that there will be no transmission constraints) from some other source instead of setting up fresh capacity. In that case, where is the additional renewable capacity that is the primary objective of this policy? The capacity from where the renewable power will be procured is already existing in the system. Among the central generators, NTPC is the primary coal-/lignite-based generator and accounts for 44% of the 12,500 MW under construction. NTPC, in any case, has been trying to move to solar power on its own. It already has about 3,000 MW of renewable generation in operation and plans to have an installed renewable capacity equivalent to 45% of its total generation by 2030. Therefore, all such capacities will be offset as RGO commitments, thereby defeating the purpose of capacity creation under RGO framework. NTPC would have pursued setting up of renewable capacities irrespective of RGO. So again, where is the additional capacity obtained through the policy of RGO?

Also read: From on financial crisis to the next

Perhaps, a better approach for adding to renewable capacity is to address some of the policies or inadequacies that are currently in existence rather than formulate a new framework, such as RGOs. Why should we impose basic customs duty at the expense of Indian consumers? Why should we insist on purchasing cells and modules from a list of pre-approved domestic manufacturers (though now kept in abeyance for a year), knowing fully well that they can’t cater for the entire demand in the country, leave aside the fact that their quality is not world-class? Why should we offer free transmission on inter-state transmission lines for renewable generators, distorting the economics and operation of the sector? How do we ensure that end-to-end land acquisition and permits required are made simpler for renewable developers? How do we ensure that dues of renewable generators are not held up by discoms? How do we provide cheaper and quicker finance for setting up roof-top solar, projects especially for low-ticket (meaning domestic) consumers? These are only a few of the questions plaguing the renewable sector. Concentrating on these and finding a solution to these issues will definitely give us better mileage.

The writer is senior visiting fellow, ICRIER

Views are personal

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 24-03-2023 at 04:00 IST