Ringing in Reforms

Key policy and regulatory decisions in the past year

The past year was marked by key policy and regulatory developments across various segments in the power sector. Some of the positive developments in the generation segment were the grant of cabinet approval for the recommendations of the High Level Empowered Committee (HLEC) and the decision to classify large hydropower projects (over 25 MW) under renewable energy. On the distribution front, the introduction of the letter of credit (LC) mechanism was the key highlight. In the renewables segment, a notable development was the launch of the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM).

Power Line presents a round-up of the policy and regulatory developments in the power sector in the past one year…

Generation

  • In September 2019, the Central Electricity Regulatory Commission (CERC) extended the implementation of the pilot scheme for security-constrained economic despatch till March 31, 2020. The scheme currently involves 49 power plants with a cumulative capacity of 55,940 MW. Their tariffs are decided on a cost-plus basis by the CERC.
  • In August 2019, the Ministry of Power (MoP) introduced the Trust and Retention Account (TRA) to utilise the surplus revenue of stressed power plants for servicing debt. As per the MoP’s order, if the developer uses coal linkage under the amended SHAKTI policy, the TRA must be put in place. The revenue generated will be deposited into the TRA and the lead banker will act as a TRA agent.
  • In June 2019, the MoP clarified that the power procured under the flexible generation scheme would qualify for meeting renewable purchase obligations (RPOs) even if the renewable generation units are not located near the thermal power plants (TPPs) with which buyers have signed power purchase agreements (PPAs). The discoms had earlier expressed reluctance in purchasing renewable power under thermal PPAs.
  • In March 2019, the cabinet approved a slew of measures for the hydropower segment, including the decision to classify large hydropower projects (over 25 MW) under renewable energy and rationalise hydro tariffs. Further, the hydro purchase obligations will be notified as a separate category under non-solar RPO. In addition, budgetary support for enabling infrastructure such as roads and bridges has been fixed at Rs 15 million per MW for projects up to 200 MW and Rs 10 million per MW for projects above 200 MW.
  • The cabinet also approved the recommendations of the HLEC regarding the resolution of stressed TPPs in March 2019. This includes the grant of linkage coal for short-term PPAs, as against the earlier norms of granting coal linkages only to those TPPs that have medium/ long-term PPAs. In addition, generators have been allowed to terminate PPAs in case of payment defaults by gencos, and use the existing coal linkage to generate power and sell it in the short-term market. Further, the coal quantity for the power sector in the e-auctions has been increased.
  • In February 2019, the MoP introduced Pilot Scheme II for facilitating the procurement of 2,500 MW of power from the commissioned coal-fired plants that have not entered into a PPA, for a period of three years. The scheme assures a minimum offtake of 55 per cent of the contracted capacity and a fixed tariff for three years. In the recent auction under the scheme concluded in September 2019, NHPC awarded letters of award to four companies for the supply of 1,000 MW collectively.

Transmission

  • The central government has allowed the Central Electricity Regulatory Commission (CERC) to give early approval for transmission schemes identified for 66.5 GW of projects under the National Renewable Energy Mission (NREM). In order to achieve the 175 GW renewable capacity target by 2022, the Ministry of New and Renewable Energy (MNRE), in consultation with the Central Electricity Authority (CEA) and the central transmission utility, has identified transmission schemes for around 66.5 GW of renewable capacity, of which around 28 GW is under Phase I and the remaining 38.5 GW is under Phase II.
  • In March 2019, the CERC notified the Terms and Conditions of Tariff Regulations, 2019, for the 2019-24 tariff period. Broadly, the regulations retain most of the terms of the previous regulations for interstate transmission systems (ISTSs). The post-tax return on equity is the same at 15.5 per cent and the method of cost recovery has also been retained. Changes have been made to some of the operations and maintenance norms. Further, ISTS licensees are now allowed to charge lower tariffs during the tariff period under certain conditions to help increase the competitiveness of projects.

Distribution

  • In September 2019, the Appellate Tribunal for Electricity issued directions to all the state and joint electricity regulatory commissions to submit the necessary information to the secretary, Forum of Regulators, explaining the delay in tariff revisions, inadequate compensation to distribution companies and deferred revenue over the past three financial years. The bench appointed eight independent legal professionals or amicus curiae on September 8, 2019 to assist the court in resolving the issues plaguing the power sector.
  • In June 2019, the MoP made it mandatory for distribution licensees to open and maintain adequate LC as a payment security mechanism under PPAs from August 1, 2019. The MoP has directed the National Load Despatch Centre and the regional load despatch centres to despatch power only after it is intimated by the generation company and the discom that an LC for the desired quantum of power has been opened.

Renewables

  • In August 2019, the MNRE amended the bidding guidelines for wind power projects to reduce the investment risks related to land acquisition and capacity utilisation factor (CUF), and provide incentives for early part commissioning of the project. Accordingly, the timeline for land acquisition for wind power projects has been extended from seven months to 18 months. Further, the window for the revision of declared CUF has been increased from one year to three years.
  • In August 2019, the MNRE issued a letter to states to ensure that the “must-run” status of renewable energy plants is honoured. If any state load despatch centre curtails wind or solar power generation for reasons other than grid safety, it would be liable for the losses incurred by the solar or wind power generator.
  • In February 2019, the Cabinet Com-mittee on Economic Affairs (CCEA) launched the KUSUM scheme to provide financial and water security to farmers. Under the scheme, a central aid of Rs 344.22 billion will be provided to farmers for harnessing 25.75 GW of solar energy capacity by 2022. In July 2019, the government issued detailed guidelines under the scheme.
  • In February 2019, the CCEA approved Phase II of the Grid Connected Rooftop Solar Programme for achieving a cumulative capacity of 40,000 MW from rooftop solar projects by 2022. The programme will be implemented with a total central financial assistance of Rs 118.14 billion.

Coal

  • In August 2019, the Ministry of Coal (MoC) started the auction of 27 coal mines and allotment of 15 coal mines to central and state PSUs. The MoC is auctioning 21 non-coking coal mines for end-use non-regulated sectors and six coking coal mines for end-use iron and steel sectors. Of the blocks allotted to PSUs, five coal mines are for the power sector.
  • In April 2019, the CEA issued norms for coal consumption by TPPs. As per the norms, the annual contracted quantity per MW entitlements for all TPPs, irrespective of their age, will be calculated based on the normative station heat rate with an upper ceiling of 2,600 kCal per kWh. Accordingly, the normative coal requirements of different units of TPPs have been revised.
  • In February 2019, the CCEA allowed coal block allocatees the flexibility to sell 25 per cent of the coal output in the open market. In the case of auctions, the successful bidder will be required to pay an additional premium of 15 per cent of its final bid price on a per tonne basis for the actual quantity of coal sold in the open market.

Others

  • In July 2019, the CEA issued the Measures Relating to Safety and Electric Supply (Amendment) Regulations, 2019. The amendments pertain to general measures for safety at electric vehicle (EV) charging stations including earth protection, testing and inspection and periodic assessment of charging stations.
  • In February 2019, the CERC issued the Cross Border Trade of Electricity Regulations, 2019, to encourage neighbouring countries to buy more power from India’s spot markets. The regulations provide general provisions for connectivity; long-term, medium-term and short-term open access; payment of charges and payment security mechanism; dispute settlement; and a resolution mechanism, among others.
  • In July 2019, the GST Council brought down the goods and services tax on EVs to 5 per cent from 12 per cent. In February 2019, the cabinet approved the proposal for the implementation of the Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME II) scheme. The scheme, with a total outlay of Rs 100 billion, will be implemented with effect from April 2019, over a period of three years. In December 2018, the MoP notified guidelines and standards for the development of EV charging infrastructure in the country. As per the guidelines, discoms will facilitate the setting up of private charging stations at offices and residences. These stations may obtain electricity through open access.

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