Easing the Stress

Key policy and regulatory reforms

The past year was marked by several important policy and regulatory developments across various segments in the power sector. A key development was the notification of the Draft Electricity (Amendment) Bill, 2020, which proposes reforms such as distribution franchises. The policy and regulatory efforts were also aimed at addressing the challenges arising due to the pandemic, including a reduction in the late payment surcharge (LPS) payable by discoms to power generators. In a significant development on the generation side, the Ministry of Power (MoP) issued guidelines for the procurement of round-the-clock (RTC) power from grid-connected renewable projects complemented with thermal power, to provide sustainable and firm power to the grid.

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

Generation

In September 2020, the Central Electricity Regulatory Commission (CERC) issued a staff paper, which allows generators to recover the additional cost of pollution control equipment from electricity charges over a 25-year period. As per the CERC, 90 per cent of the additional capex on account of installation of emission control equipment is proposed to be recovered over the life of the equipment, which is also estimated at 25 years, considering a salvage value of 10 per cent. After a power purchase agreement (PPA) expires, the power producer will have to tie up with another procurer or sell power in the market to recover its remaining costs.

In July 2020, the MoP issued guidelines for the procurement of RTC power from grid-connected renewable projects complemented with power from thermal power projects. As per the guidelines, the generator will supply despatchable RTC renewable energy with thermal power, maintaining an availability of at least 85 per cent, both annually and during peak hours. Of the total energy supplied in one year, at least 51 per cent has to be renewable energy and the balance could be thermal energy.

In March 2020, in response to the pandemic, the MoP notified directions for the essential operation of power generation utilities. Further, it issued an order stating that power may be scheduled, even if the payment security mechanism has been established for 50 per cent of the amount required contractually. Any project for which tariff is determined through competitive bidding may claim LPS relief, if delayed for more than 45 days (falling between March 24, 2020 and June 20, 2020), under the force majeure provision of the PPA. The move will help the stressed discoms, which were unable to continue meter reading exercises and collect payment from consumers amid the countrywide lockdown. The MoP also issued directions to the CERC to provide a moratorium of three months to discoms to make payments to generating companies (and transmission licensees) and further requested the state governments to issue similar directions to the state regulators.

Transmission

In July 2020, the MoP notified the guidelines for the payment of compensation with regard to right of way (RoW) for transmission lines in urban areas. The guidelines are for determining compensation towards transmission line damages as stipulated in sections 67 and 68 of the Electricity Act, 2003, in addition to compensation towards normal crop and tree damages. Accordingly, compensation has been determined by the statutory authority at the rate of 85 per cent of the land value that has been impacted due to the installation of pylon/tower structures.

In June 2020, the CERC issued an advisory for the development of transmission capacity in an efficient and economical manner under the tariff-based competitive bidding (TBCB) route. The commission has closely examined the issues raised in various petitions and proposed appropriate modifications in the standard bidding guidelines for TBCB projects, which could help avoid litigations and enable the smooth execution of projects.

In November 2019, the MoP extended the waiver of interstate transmission charges and losses for solar and wind projects commissioned before December 31, 2022. As per the earlier order dated February 13, 2018, the waiver was applicable to projects commissioned up to March 31, 2022.

Distribution

In September 2020, the government issued the draft Electricity (Rights of Consumers) Rules, 2020. The rules seek to specify time limits for distribution companies for granting new electricity connections, and addressing common grievances such as delayed and accumulated bills and faulty meters. They entitle consumers to get rebates on power bills that are not served in time and other compensation from discoms that fail to address grievances in time.. Further, the state electricity regulatory commissions (SERCs) have to specify a maximum time period of seven days in metro cities, 15 days in municipal areas and 30 days in rural areas to provide new connections and modify existing ones. If a discom fails to bill consumers and later sends accumulated bills for two or more cycles, the consumer will be entitled to a 2-5 per cent rebate in the billing amount. The exact rebate percentage will be fixed by the state regulator.

In May 2020, the government introduced significant distribution segment reforms as part of the Atmanirbhar Bharat Abhiyan. The government announced tariff policy and reforms to encourage consumer rights, promote the industry and ensure its sustainability. A progressive reduction of cross-subsidies, implementation of standards of service for discoms, penalties for load shedding, time-bound grant of open access, competitive bidding for generation and transmission projects, no regulatory assets, timely payment to gencos, smart prepaid metering, and direct benefit transfer of subsidies are some of the key reforms announced under the scheme. Further, the new tariff policy proposes to divide consumers into six categories on a voltage basis against the 50-60 categories and subcategories at present. Other consumer-centric reforms in the policy include direct benefit transfers to agricultural and rural consumers. Further, the MoP has announced that power distribution in UTs will be privatised. It has appointed transaction advisers for proceeding with this decision. In September 2020, the MoP drafted a standard bidding document for the privatisation of the state discoms.

In April 2020, the MoP notified the Draft Electricity (Amendment) Bill, 2020. The ministry has proposed major reforms such as provisions for distribution franchises, removal of regulatory assets, strengthening of payment security mechanisms and formulation of a national renewable energy policy. The draft also proposes to set up an Electricity Contract and Enforcement Authority, which will have the sole authority to adjudicate matters related to the specific performance of contracts such as purchase or sale of power between gencos and discoms. An earlier draft version of the amendments was floated by the MoP in 2018, but the recommendations in the previous version could not be incorporated.

In February 2020, the MoP issued a letter to the SERCs and state distribution utilities regarding reduction in the cost of power due to prepayment by end consumers. The MoP stated that with the installation of prepaid meters, consumers can pay their electricity bills in advance to the utilities. This reduces the carrying cost and working capital requirement of utilities, and eliminates costs related to meter reading, billing and collection.

In October 2019, the Central Electricity Authority (CEA) released the Draft Universal Feeder Code. The draft follows the MoP’s letter to the CEA, directing it to formulate a guideline/methodology for the generation of a unique code for each feeder (rural and urban) to digitally map electricity supply-related infrastructure of discoms. The move aims to ensure better utilisation of the installed infrastructure under various central government schemes.

In October 2019, the MoP issued an advisory to states for not reopening PPAs. As per the agenda note for the power ministers’ conference, the PPAs should not be renegotiated and the provisions under the PPAs should be enforced in letter and spirit. Further, the states should ensure timely payment to generators (solar/wind power) by discoms on a first-in first-out basis.

Renewables

In August 2020, the Appellate Tribunal for Electricity (APTEL) postponed the trading of renewable energy certificates (RECs) scheduled from July 29, 2020 to August 26, 2020. In an order issued on July 24, 2020, APTEL postponed the REC trading session in three separate appeals filed by the Green Energy Association, Indian Wind Power Association, and Techno Electric & Engineering Company Limited against the CERC’s order on fixing the REC floor and forbearance price. In the CERC order issued in June 2020, the floor price of solar and non-solar RECs was reduced to zero from Rs 1,000 earlier and the forbearance price of solar and non-solar RECs was reduced to Rs 1,000 from Rs 2,400 and Rs 3,000 respectively.

In July 2020, the Ministry of New and Renewable Energy (MNRE) issued guidelines for the implementation of off-grid solar power plants under the renewable energy service company (RESCO) and PPA models. According to the guidelines, under Phase III of the programme, off-grid solar power plants with individual sizes of up to 25 kW can be installed in RESCO mode in areas where grid power has not reached or is not reliable. The scheme applies only to the north-eastern states. Under the scheme, a central financial assistance of 90 per cent of the benchmark cost of the system will be provided. Under the RESCO model, a vendor would install and operate a solar power plant with a capacity of up to 10 kWp for at least 10 years and a solar PV plant of capacity above 10 kWp for at least 15 years.

In July 2020, the CERC notified the Terms and Conditions of Tariff Determination from Renewable Energy Sources Regulations, 2020. The regulations will remain effective till March 31, 2023. The commission specified tariff determination parameters for new renewable energy technologies such as floating solar, renewable hybrid energy and renewable energy projects with storage in addition to the technologies covered in the past tariff regulations.

In April 2020, the MNRE granted a blanket extension of 30 days for the commissioning of renewable energy projects beyond the lockdown period. Further, considering the adverse impact of the lockdown on renewable energy project development, in March 2020, the MNRE, issued a memorandum stating that time extension for the scheduled commissioning of renewable energy projects due to supply chain disruptions would be treated as a force majeure event. To address the concerns of developers on this count, the MNRE on April 1, 2020, inter alia, issued an office memorandum, clarifying that renewable energy has been granted “must-run” status under Indian law and this status should continue even during the lockdown period.

In March 2020, the MNRE issued a directive to the Solar Energy Corporation of India (SECI), NTPC Limited and state government departments to remove the tariff cap on renewable energy project auctions. The move is likely to encourage participation in project auctions, which have witnessed a tepid response in recent months owing to low ceiling tariffs.

In October 2019, the MoP had issued a clarification regarding the renewable purchase obligation (RPO) for captive power plants (CPPs). As per the notice, the RPO should be at the level mandated by the appropriate commission for 2015-16 for all CPPs commissioned before April 1, 2016. For CPPs commissioned from April 1, 2016 onwards, the RPO level as mandated by the appropriate commission or the MoP, whichever is higher, will be applicable.

Coal

In August 2020, the coal ministry approved Coal India Limited’s (CIL) plan to supply 100 per cent of the normative requirement to thermal power units. The coal ministry recommended increasing the annual contracted quantity (ACQ) of coal to 100 per cent of the normative requirement of a non-coastal plant from 90 per cent earlier. For coastal plants, the ACQ has been increased to 70 per cent.

In May 2020, the finance minister announced reforms in the coal mining sector as part of the fourth tranche of the government’s economic package. One of the key reform measures was approval of commercial coal mining on a revenue sharing basis and with no eligibility conditions. So far, 38 mines have been offered for auction for commercial mining. Other reforms included a Rs 500 billion investment for augmenting the coal evacuation infrastructure, and the  auction of coal bed methane extraction rights to CIL’s mines.

In December 2019, the MoP notified an amendment regarding the eligibility of power plants to participate in the coal auctions under the SHAKTI policy. As per the amendment, all power plants that do not have PPAs can participate in the auction of coal linkage for a short term up to one year as per the conditions specified in the methodology. Earlier, CPPs were excluded from auctions and developers needed an untied capacity of over 50 per cent to be able to participate in the auction.

Others

In July 2020, the CERC notified the draft Power Market Regulations, 2020. The regulations will apply to power exchanges, over-the-counter (OTC) market and other market participants. They will be valid for all contracts traded in the exchanges, RECs, energy saving certificates as well as contracts in the OTC market. Among other things, the draft regulations have introduced a new concept called “market coupling”, which is a process of collecting bids from all power exchanges and matching them to discover a uniform market clearing price through an agency called a market coupling operator notified by the regulator.

In June 2020, the MoP issued an amendment to the revised Guidelines and Standards for Charging Infrastructure for Electric Vehicles. As per the amendment, the tariff for the supply of electricity to EV public charging stations will be determined by the appropriate commission in accordance with the extant tariff policy issued under section 3 of the Electricity Act, 2003. The tariff will not be more than the average cost of supply, plus 15 per cent, unless otherwise specified by the tariff policy.

In April 2020, the CERC notified the Procedure, Terms and Conditions for the grant of Trading Licence and Other Related Matters (First Amendment) Regulations, 2020. The regulations state that the trading margin from either of the parties to the banking transaction cannot be less than 0 paise per kWh. Further, where the duration of the short-term contract is more than one month, the letter of credit in favour of the seller will be equivalent to 1.05 times of the monthly contract value with a validity period equal to the validity of the contract.

In December 2019, the CERC notified a framework for a real-time market for electricity. Accordingly, the commission notified amendments to the enabling provisions of the CERC Indian Electricity Grid Code, 2010; and CERC Power Market Regulation, 2010; and CERC Open Access in Inter-state Transmission Regulations, 2008.

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