ABPS Infrastructure Advisory Private Limited REC Mechanism in Himachal Pradesh Utility Perspective Ajit Pandit Director, ABPS Infrastructure

ABPS Infrastructure Advisory Private Limited

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REC Mechanism in Himachal Pradesh Utility Perspective

Ajit PanditDirector, ABPS Infrastructure Advisory Private Limited


Outline of the Presentation

• Legal and Statutory Framework for Renewable Energy Development

• Regulatory Initiatives for Development of Renewable Energy Certificate

Mechanism in India

• RE Certificate Mechanism in Himachal Pradesh : Utility Perspective

– Significance of RPO

– Opportunities & Liabilities

– Implementation Issues

– Consequences of non-compliance

• Way forward

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Legal and Regulatory Framework for

Development of Renewable Energy in India


Key Drivers for Renewable Energy Development

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Source : Ministry of New and Renewable Energy

RE capacity (18 GW) forms ~ 10% of total generation capacity (170 GW) in the country

In energy terms, it constitutes ~ 4% - 5% of total consumption


The EA 2003 has outlined several enabling provisions to accelerate the development

of RE based generation:

– (Section 3): National Electricity Policy and Plan for development of power system

based on optimal utilization of resources including renewable sources of energy.

– (Section 61(h)): Tariff Regulations by Regulatory Commission to be guided by

promotion of generation of electricity from renewable energy sources in their area

of jurisdiction.

– (Section 86(1)(e)): Regulatory Commission to Specify Purchase Obligation from

renewable energy sources.

– (Section 66): Appropriate Commission shall endeavor to promote the

development of market (including trading) in power in such a manner as may be

specified and shall be guided by National Electricity Policy in Sec 3

Electricity Act, 2003 : Enabling Provisions


Appropriate Commission shall fix RPO and SERCs shall fix its tariff latest by April

1, 2006

Initially Appropriate Commission to fix preferential tariffs for distribution utility to

procure RE

In future, distribution utility to procure RE through competitive bidding within

suppliers offering same type of RE

In long-term, RE technologies need to compete with all other sources in terms of

full costs

CERC to provide guidelines for pricing non-firm power if RE procurement is not

through competitive bidding

Tariff Policy (January 2006)


SERCs shall fix separate RPO for purchase of energy by the Obligated Entities

from Solar Energy Sources

Solar RPO to go up to 0.25% by the end of 2012-13 and further up to 3% by

2022

Purchase of energy from non-conventional sources of energy to take place

more or less in same proportion across different states

Renewable Energy Certificate Mechanism may be one of the

mechanisms to achieve such target

It will take some time before non conventional technologies to compete with

conventional technologies and accordingly procurement of renewable energy to

be done on preferential tariff determined by Appropriate Commission

Amendment to Tariff Policy (January 2011)


Promotion of Renewable Energy by Policy Design and Regulatory Initiatives

oElectricity Act 2003 (Jun 2003)

oNational Electricity Policy (Feb 2005)

oNational Tariff Policy (Jan 2006)

oNational Action Plan on Climate Change (Jun 2008)

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Central Government

o Regulations for Preferential Tariff for RE (Sep 2009)

o Renewable Energy Certificate Mechanism (Jan 2010)

o Implementation Framework (2010 – ongoing)

Central Electricity Regulatory Commission

o Preferential RE Tariff Orders by SERCs (2002–2010)

o Over 19 States have mandated Renewable Purchase Obligations (2004 – 2010)

o Modification to RPO and adoption of REC framework

State Electricity Regulatory Commission


A B C

A - Market model based on Open Access/wheeling for self use B - Model based on FIT and RPO for sale to distribution licensee & third party, within StateC- Market model based on instruments with cross border features (REC) catering to National level demand

Evolution of Market Model & Role of Utility


Key Challenges in Encouraging Deployment of RE

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Enabling Mechanism for Inter-State sales of Renewable Energy

Cost Effective Mechanism for purchase of Renewable Energy

Nation wide target for purchase of Renewable Energy

Stronger enforcement and penalty mechanism

Mechanism for purchase of small quantity of RE by individual Open Access

consumer

FOR Report (Nov 2008) on ‘Policies for Renewables’ recommended:

Need to facilitate ‘Inter-State Exchange of RE Power from National Perspective

Explore feasibility of introduction of REC mechanism as tool to promote RE within

framework of EA 2003

Forum of Regulators (FOR) initiated study to address challenges


NAPCC : Guideline for RE Development

National Action Plan for Climate Change (NAPCC)

At National level for FY 2010, target for RE Purchase may be set at 5% of total grid

purchase, to be increased by 1% each year for 10 years

SERCs may set higher target than this minimum at any point in time

Central & State Govts may set up a verification mechanism to ensure that

renewable power is actually procured

Appropriate authorities may issue certificates that procure renewable power in

excess of the national standard. Such certificates may be tradable, to enable

utilities falling short to meet their RPS

Penalties as may be allowed under EA 2003 may be levied, if utilities are still falling

short in RPS

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NAPCC has set challenging target for RE Development

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• NAPCC target of 5% for RE Procurement in 2010

• Target to increase by 1% each year to reach 15% by 2020

• Separate target for Solar Energy

• Provides for creation of Renewable Energy Certificate Mechanism

NAPCC identified REC framework to realize annual target of National RPO

Considering that demand for electricity

would increase to 1700 BU by 2020, it would create market for 255 BU units of renewable energy

generation


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Regulatory Initiatives for Development ofRenewable Energy Certificate Mechanism

in India


Key Objectives for Introduction of REC Mechanism

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Effective implementation of RPO

Increased flexibility for participants

Overcome geographical constraints

Reduce transaction costs for RE transactions

Enforcement of penalty mechanism

Create competition among different RE technologies

Development of all encompassing incentive mechanism

Reduce risks for local distributor by limiting its liability to energy purchase

In the view of hurdles faced by RE

Development, it appears that these

objectives should take precedence over

others

In Indian Context, following aspects had to be considered for REC design Electricity Market is regulated to great extent (> 90% of electricity volumes continue to be transacted at regulated rate) Preferential RE Tariff regime to continue (Feed-in tariff & REC to co-exist)


Concept of REC Mechanism in India

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Avg. PP Costof Host Utility(regulated)

Market Rate as per

Power Exchange

At Tariff Determined by

Regulatory Commission

Renewable Energy

Electricity

REC

DistributionCompany

Renewable Energy

Electricity

REC

DistributionCompany

Obligated Entity

(Buyer)

Existing Mechanism

RECMechanism

OA / TraderBilateral

agreement(de-regulated)


REC Pricing Framework

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Renewable Energy

Electricity ComponentREC Component(Environmental

Attribute)

Market Discovered Price(Obligated Entity/Voluntary

Buyer)

AveragePower Purchase Cost

(Distribution Utility)

Andhra Pradesh - Rs

1.78/kWh

Maharashtra - Rs

2.43/kWh

Karnataka - Rs

1.85/kWh

Kerala - Rs

1.46/kWh

Tamil Nadu - Rs 2.62/kWh

Himachal Pradesh - Rs

1.48/kWh

Rajasthan - Rs

2.48/kWh

ParametersNon Solar

RECSolar REC

Forbearance Price (Rs/MWh)

3900 17000

Floor Price (Rs/MWh)

1500 12000

Bilateral Agreement

(de-regulated)

(OA User/Trader)


Entities involved to Operationalise REC Mechanism

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Institutional

Framework

Central Entities

State Entities

Forum of Regulators Central Electricity Regulatory Commission Central Agency (National Load Despatch Centre) Power Exchanges Compliance Auditors

State Electricity Regulatory Commission State Load Despatch Centre State Agencies Eligible Entities Obligated Entities


Key Role performed by FOR

• Formulated Model REC Regulations for SERCs

• Sought Legal Opinion from Solicitor General on key legal aspects

– Applicability of RPO to Captive Users and Open Access Consumers

– Statutory backing for Enforcement mechanism as regulatory measure

• Introduced Enforcement Mechanism for non-compliance

– Apart from legal provisions under EA 2003, obligated entity has to

contribute a charge to Fund at Forbearance Price.

– Fund to be utilised for purchase of RECs or creation of RE infrastructure

as directed by SERCs

• Extended scope of RPO applicability to captive users, open access

consumers apart from DISCOMs

• Undertook study for setting RPO targets and long term trajectory

at National level to accomplish NAPCC goals


Initiatives for the Implementation of REC Mechanism

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State Level

SERC Regulations for REC Implementation

• Maharashtra• Gujarat• HimachalPradesh• Jharkhand• UttarPradesh• Manipur& Mizoram• Tripura• Orissa• Uttarakhand• MadhyaPradesh• Kerala• Bihar• Tamil Nadu• Rajasthan• Assam(Draft)

• CERCRECRegulations,2010(Jan2010)• FORModelRECRegulationsforSERCs• CERCOrdersfor RECImplementation

• DesignationofCentralAgency(NLDC)(Jan2010)• ApprovalofProceduresfor RECImplementation(Jun2010)• ApprovalofFloorPriceandForbearancePrice(Jun2010)• ApprovalofFees&Chargesforregistration,issuance,redemption(Sep2010)• RECRegistry–Softwaredevelopment,testing&launch(Nov2010)

Central Level

Designation of State Agency

• Maharashtra - (MEDA)• Gujarat - (GEDA)• Himachal Pradesh –

(Directorate of Energy)• Rajasthan -(Rajasthan Renewable

Energy Corporation)• Jharkhand – JEDA• Manipur (MANIREDA)&

Mizoram(ZREDA)• Chhattisgarh (CREDA)• Haryana (HAREDA)• Tripura (TREDA)


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Overview of RE Framework in Himachal Pradesh


State has vast hydro potential in India

MNRE has identified around 536 sites with a total potential of around 2267.81

MW

The State has installed power generation capacity of around 375.385 MW and

another 132MW is under implementation, predominantly comprising Small

Hydel Power.

Biomass Power Generation Potential comprises of around 415MW (Agro based -

133MW & Forest Residue based – 282MW)

Wind Energy have little or no power generation potential in the State

Renewable Energy in Himachal Pradesh

Source : Ministry of New and Renewable Energy


State Commission specified RPPO as 20% for distribution licensee, vide

Notification dated June 18, 2007

5. Quantum of purchase of electricity from renewable sources.-(1) Energy from renewable sources and cogeneration, available after the captive use and third party sale outside the State, shall be purchased by the distribution licensee(s):

Provided that subject to the availability of renewable energy and co-generation within the area of a distribution licensee the quantum of purchase of energy from renewable sources and cogeneration by a distribution licensee, under these regulations shall be minimum 20% of its total consumption during a year;

……………………………………….

(4) Subject to supply constraints or any other uncontrollable factors, the Commission may, at the request of the distribution licensee, waive off the quantum of purchase laid down under sub-regulation(1).

Applicability of RPPO was for 3 years

Past Initiatives for Promotion of RE and impact on DISCOM

During 2009, RPPO achievement was around 4% against target of 20%

During 2010, RPPO achievement increased to 7%

Renewable Energy is essentially available from SHP


May 2010, HPERC had specified Regulations recognising REC as valid instrument

for compliance of RPPO by ‘Obligated Entity’

RPPO shall be applicable to, Distribution Licensee

Person consuming electricity generated from Conventional Captive Generating Plant

having capacity 1MW and above for his own use

Person consuming electricity procured from conventional generation through Open Access

Quantum of ‘minimum’ Renewable Power Purchase,

Commission may suo-motu or on request of a licensee, revise the targets in

supply constraints and factors beyond control of licensee

Solar Obligation shall be fulfilled through purchase of solar energy or by Solar

REC only

Change in Scenario : Recent Initiatives RPO REC Regulations

Year Non Solar RPO Solar RPO Total

2010-11 10% - 10.0%

2011-12 11% 0.1% 11.1%

2012-13 12% 0.1% 12.1%


Distribution Licensee may purchase renewable energy or renewable

energy certificates for compliance with the RPPO targets

Distribution Licensee to indicate the estimated quantum of purchase for

the ensuing year in tariff/annual performance review

Estimated quantum shall be in accordance with the RPPO

Unable to fulfil the obligation, the shortfall of the specified quantum of that

year would be added to the specified quantum for the next year but credit

of excess RE purchase shall not be adjusted

If fulfilling the RPPO through Purchase of Certificates Solar RPPO shall be

fulfilled by purchase of Solar REC only

Certificates under respective category shall be purchased from Power

Exchange(s) operating under the guidance of CERC only

Obligated Entity should deposit Certificates with the Commission as per the

procedure specified by CERC to show compliance with RPPO

Duties of Distribution Licensee


Non fulfillment of RPPO in any year through procurement of RE or through purchase the

respective RECs, Commission may direct ‘Obligated Entity’ to create and maintain

separate fund

Obligated Entity to deposit an amount determined on the basis of shortfall in units in

RPPO and Forbearance Price determined by CERC

Fund shall be utlilised on the direction of Commission for purchase of RECs and partly for

the development of infrastructure for evacuation of power from RE generating stations

Obligated Entity may be liable for penalty under Section 142, if fails to comply with the RPPO

In case of genuine difficulty in compliance with RPPO, the Obligated Entity may

approach Commission to carry forward the compliance requirement to next year

Section 142 shall not be invoked if Commission has consented to carry forward the

compliance requirement

Section 142 (Punishment for Non-Compliance of Directions by Appropriate Commission) the Appropriate

Commission may after giving such person an opportunity of being heard in the matter, by order in writing,

direct that, without prejudice to any other penalty to which he may be liable under this Act, such person

shall pay, by way of penalty, which shall not exceed one lakh rupees for each contravention and in

case of a continuing failure with an additional penalty which may extend to six thousand rupees for

every day during which the failure continues after contravention of the first such direction

Recent Initiatives : Consequences of Non Compliance


Impact on DISCOM for Compliance of RPPO using RECs

Description FY 11 FY 12 FY 13 FY 14 FY 15

Energy Requirement (MU) 6692.87 7016.90 7356.61 7712.78 8086.18

Non Solar RPO (%) 10% 11% 12% 13% 14%

Solar RPO (%) - 0.10% 0.10% 0.10% 0.10%

Non Solar RPO (MU) 669.29 771.86 882.79 1002.66 1132.07

Non Solar RE Available (MU)* 639.21 739.21 839.21 939.21 1039.21

Non Solar Shortfall (MU) 30.08 32.65 43.58 63.45 92.86

Solar RPO (MU) - 7.02 7.36 7.71 8.09

Solar Available (MU)

-

-

-

-

-

Solar Shortfall (MU) - 7.02 7.36 7.71 8.09

* Note : assumed additional availability of at least 100 MU p.a. of non-solar RE power


Impact on DISCOM for Compliance of RPPO using RECs


Status of Accreditation and Registration of Projects

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Status of Transaction of RECs

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REC mechanism offers alternative to fulfill RPO targets by Obligated

Entities.

Obligated Entities can plan to meet their RPO targets in efficient

manner.

Long term visibility of Floor Price and Forbearance price is

necessary to ensure regulatory certainty for Utility as well as RE

project developers.

Impact on Avg. power purchase cost of Utility is not very significant.

Utility /SERCs may develop Model Power Purchase Agreement for

procurement of electricity from RE projects at APPC.

Bilateral transactions of RECs as & when enabled would provide

larger flexibility and liquidity for REC market, which is the need of

the hour.

Way Forward


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ABPS Infrastructure Advisory Private Limited REC Mechanism in Himachal Pradesh Utility Perspective Ajit Pandit Director, ABPS Infrastructure