In the past one year, the policy and regulatory environment in the renewable energy sector has experienced disruptions caused by Covid-19 and the financial stress of discoms it. During the lockdown following the onset of the pandemic, the power demand from industrial consumers fell. This severely affected discoms. With their financials taking an even greater hit, it became harder for them to make payments to developers. This was a time when developers were facing their own set of challenges with respect to logistics, regulatory delays and financing, which impacted project commissioning deadlines. To address the woes of all the stakeholders, the Ministry of Finance (MoF), Ministry of New and Renewable Energy (MNRE), Ministry of Power (MoP), and electricity regulatory commissions took significant policy and regulatory decisions. Besides Covid-19 and discoms, these decisions covered almost all segments of the industry. New innovative policies were proposed and tweaking of old polices continued.
Power Line presents an overview of the policy and regulatory environment in the past one year…
In February 2020, it was announced that the pandemic would be treated as a force majeure event. In August 2020, after various modifications, the MNRE granted a five-month extension to renewable energy projects under development. The extension was granted for the period from March 25, 2020 to August 24, 2020. This was a blanket extension with no requirement of case-by-case examination and documents of evidence. It applied to developers, original equipment manufacturers, and engineering, procurement and construction companies.
In May 2020, the MoF announced a Rs 900 billion stimulus package for discoms (the amount was later increased to around Rs 1,200 billion) as part of the government’s efforts to help revive the economy from the coronavirus crisis. The liquidity infusion was to be used to pay central public sector power generation companies, transmission companies, independent power producers and renewable energy developers. The stimulus was to be infused through the Power Finance Corporation (PFC) and REC Limited in two equal instalments. As per the ministry’s announcement, 50 per cent of the loan would be provided in Tranche I and the balance in Tranche II, albeit subject to certain conditions for discoms.
In November 2020, the MoF announced that performance security deposits for solar tenders will be reduced from 5-10 per cent of the contract value to 3 per cent. The ministry also decided to remove bid security/earnest money deposit requirement from bid documents in the future. States too rolled out policies and regulations to ease the disruptions caused by the pandemic. In June 2020, as a one-time measure, the Haryana Electricity Regulatory Commission (HERC) waived renewable purchase obligation (RPO) backlogs up to 2019 for state discoms. The discoms had demanded restriction of open access power procurement during off-peak hours and imposition of additional surcharges. To this end, the HERC decided to allow discoms to levy an additional surcharge of Rs 1.15 per kWh for open access.
In August 2020, the Karnataka Electricity Regulatory Commission (KERC) extended the deadline for discoms, grid-connected captive consumers and open access consumers to meet their RPOs for financial year 2020 by November 30, 2020. Also, to meet RPO targets, renewable energy certificates (RECs) up to 110 per cent of the RPO shortfall can be purchased by December 31, 2020. The Karnataka and Punjab governments both lowered late payment surcharge for discoms.
Draft Electricity (Amendment) Act
The key policy highlight during the past year was the proposed amendments to the Electricity Act, 2003. The amendments aimed to improve contract enforcement by establishing a centralised electricity contract enforcement authority. They also deliberated on the mitigation of offtake and payment risks for renewable energy developers and the promotion of hydropower with hydro purchase obligations for discoms. They focused on reforming discoms by phasing out cross-subsidies and surcharges in accordance with the tariff policy. The two contentious amendments were the decision to centralise the selection of electricity regulatory commission members and direct benefit transfer of electricity subsidy, with states determining tariffs without subsidy.
During the past one year, the government proposed to privatise all discoms starting with those in union territories in a bid to improve their financial health. In September 2020, the MoP issued standard bidding guidelines for privatisation of discoms.
Draft Electricity (Rights of Consumers) Rules, 2020
In September 2020, the Draft Electricity (Rights of Consumers) Rules, 2020, were issued with the aim to improve the performance of discoms and consumer services with respect to metering, billing, grievance redressal, etc. The key point related to renewable energy is the limit on net metering for rooftop solar systems of size less than 5 kW. For those greater than 5 kW, gross metering is applicable. In addition, consumers will be compensated for outages and delays in processing applications for grid-connected rooftop solar systems.
Proposals under Budget 2020
The power and renewable energy sectors were allocated Rs 220 billion under the union budget for the year 2020-21, which was announced on February 1, 2020. The budget focused on three key aspects – “Aspirational India”, economic development for all, and building a caring society.
Under Aspirational India, the allocation of Rs 10 billion was announced for expanding the Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM-KUSUM) scheme. Under economic development for all, Rs 100 trillion is planned to be invested in infrastructure over the next five years, which the National Infrastructure Pipeline was launched in December 2019. It consists of more than 6,500 projects across various sectors including clean energy. The budget announcement also emphasised the financial stress of discoms and indicated that measures would be adopted to reform them. The government’s intent to promote prepaid smart meters was also announced and it was mentioned that large solar power capacity would be set up alongside rail tracks, on land owned by Indian Railways.
In order to promote the concept of building a “caring society”, the budget advised utilities to shut down old thermal power plants with carbon emissions above the preset norms. In order to attract investment in the power sector, it was proposed to extend the concessional corporate tax rate of 15 per cent to new domestic companies engaged in the generation of electricity. The removal of dividend distribution tax was proposed as well to make India a more attractive investment destination for foreign investors. Finally, it was also proposed that start-ups with turnovers of up to Rs 1 billion could claim 100 per cent deduction on their profits for computing taxes for three consecutive assessment years out of 10 years since the start-up’s inception.
Imposition of safeguard duty and customs duty on solar imports
The MNRE proposed a basic customs duty (BCD) on solar imports after the previously set safeguard duty (SGD) expired on July 31, 2020. As of August 2020, a 10 per cent BCD on solar modules and a 20 per cent BCD on solar inverters is applicable from October 2020. The government plans to hike the duties to 40 per cent for solar modules and 25 per cent for solar cells from July 30, 2021. In addition, a new set of SGDs of 14.9 per cent has been imposed for the period July 30, 2020 to January 29, 2021 and 14.5 per cent from January 30, 2021 to July 29, 2021.
Extension of ISTS waiver
In August 2020, the MoP extended the waiver of interstate transmission system (ISTS) charges and losses on all solar and wind projects commissioned before June 30, 2023. Earlier, in 2019, the waiver was extended from March 31, 2022 to December 31, 2022.
FDI and project development cells in the MNRE
To curb opportunistic takeovers and acquisitions of Indian companies during the pandemic, the MNRE set up a foreign direct investment (FDI) coming into the sector from countries sharing borders with India (China, Bangladesh, Bhutan, Myanmar, Pakistan, Nepal and Afghanistan). The ministry created a project development cell to attract foreign investment and a dispute resolution committee to settle issues between solar and wind power developers, and the SECI and NTPC Limited. It also planned setting up a renewable energy standardisation cell.
Removal of floor price for RECs
In June 2020, the CERC reduced the floor price (minimum) and forbearance price (maximum) to zero per MWh and Rs 1,000 per MWh respectively. The same were Rs 1,000 per MWh and Rs 2,400 per MWh, respectively, in 2017. The commission observed that the market for RECs had matured significantly over the years and there was no need for a floor price to encourage the sale of these certificates.
Real-time market, third power exchange
The real-time electricity market was started in June 2020. As part of this, Indian Energy Exchange Limited and Power Exchange India Limited work in coordination with the National Load Despatch Centre on trade and availability of the transmission corridor. Further, half-hour trading windows and a gate closure at 90 minutes before the actual delivery have been defined. In August 2020, the CERC approved the petition filed by Pranurja Solutions Limited to establish a third power exchange in India. Pranurja Solutions is a company promoted by the BSE, PTC Limited and ICICI Bank.
Amendments to tariff-based competitive bidding
The MNRE announced in September 2020 that a letter of undertaking (LoU) from the Indian Renewable Energy Development Agency, PFC and REC Limited would have the same effect as a bank guarantee. This announcement was part of the amendments made by the MNRE to the tariff-based competitive bidding guidelines for grid-connected solar projects. Among other amendments, the minimum paid-up share capital for the successful bidders of solar projects should be maintained at least at 51 per cent. Also, the earnest money deposit can be in the form of an LoU from the specified NBFCs and should be furnished by the bidders.
Round-the-clock power and blended wind power
In July 2020, the MNRE announced guidelines for procuring round-the-clock (RTC) power from grid-connected renewable energy projects supported by conventional thermal power projects. As per the guidelines, at least 51 per cent of the power supplied should be sourced from renewable power projects, which may include storage. Power generators will have to ensure at least 85 per cent availability annually as well as during peak hours. Failing this requirement will lead to penalties. The MNRE also issued guidelines for the procurement of renewable energy from 2,500 MW of ISTS-connected blended wind power projects, along with up to 20 per cent of solar power under the tariff-based competitive bidding process, in June 2020. The scheme will be implemented through SECI.
Solarisation of pumps
In November 2020, the MNRE raised the target of solar capacity addition under the PM-KUSUM scheme. While Component A of the programme remains unchanged, the original targets under Components B and C have been increased. Under Component B, 2 million stand-alone solar pumps will be installed; this is 0.25 million more than the previous target. Under Component C, the aim is now to solarise 1.5 million grid-connected agricultural pumps; this is higher than the initial target of 1 million. These changes represent an overall revision in the scheme’s targeted capacity from 25.75 GW to 30.8 GW by 2022. The installation of the targeted capacities will take place in 2020-21.
During the year, the MNRE issued clarifications on certain issues regarding the PM-KUSUM scheme. As per the clarifications, the government’s share of subsidy for Components B and C will be a minimum 30 per cent of the applicable MNRE benchmark cost or cost discovered through tender, whichever is lower. The states may provide a higher share of subsidy to reduce the contribution of farmers. Also, discoms can pass on the procurement-based incentive given to them by the central government under Component A of the programme to renewable energy project developers to get a more competitive tariff. The implementing agencies can invite a single bid under Component A based on a pre-fixed levellised tariff for the installation of projects. Apart from this, the ministry issued guidelines for the installation of innovative stand-alone solar pumps.
In January 2020, the MNRE issued new guidelines for decentralised solar power projects. In April 2020, the ministry extended phase three of the off-grid and decentralised solar PV applications programme till March 31, 2021. It also outlined a policy plan in October 2020 to encourage the adoption of decentralised renewable energy systems to improve livelihood in rural India. In another development, the Uttarakhand Renewable Energy Development Agency invited firms to offer technical support for the installation of small-scale grid-connected solar power plants under the Mukhyamantri Saur Swarojgar Yojana. The scheme is designed to provide jobs to 10,000 youths in the state who lost employment due to the pandemic. As per the specifications of the scheme, individual capacities of up to 25 kWp will be allotted. The capacities are proposed to be installed and commissioned by March 2022.
Inclusion of municipal solid waste in waste-to-energy programme
In the revised guidelines for its waste-to-energy (WtE) programme, the ministry included municipal solid waste-based projects in March 2020. It approved a grant of Rs 4.8 billion as CFA for biogas, bio-CNG, enriched biogas power, and biomass gasifier projects under the programme, and set a target of 257 MW for the remaining period of 2019-20. Of the total amount, a sum of Rs 4 billion has been set aside for municipal solid waste-based projects with a target of 200 MW.
New policies in Gujarat, Rajasthan
In September 2020, the Gujarat government reworked the policy for allocating wasteland for renewable energy parks. As per the new provisions, 50 per cent of the renewable park project should be completed in three years from the date of handing over of the sites. Another two years will be given to complete the entire work. The state government will provide the wasteland on lease for 40 years – five years for development and 35 years for power generation. Further, the park developer will be allowed to sublease the land to project developers. Earlier, the Gujarat government had extended the validity of the Gujarat Solar Power Policy, 2015 up to December 31, 2020.
In December 2019, the Rajasthan government introduced two new policies – the Rajasthan Solar Energy Policy, 2019 and the Rajasthan Wind and Hybrid Energy Policy, 2019. The state set a target to install 30 GW of solar capacity by 2024-25. Of this, utility-scale solar parks will account for 24 GW, distributed generation for 4 GW, and rooftop solar plants and solar pumps for 1 GW each. To promote rooftop solar projects, both net metering and gross metering have been allowed, albeit with some restrictions. The wind policy incorporates hybrid energy systems. The policy has set a target to add 2 GW of wind capacity by 2024-25 to fulfil RPO mandates of state discoms, and support an additional 2 GW of wind projects for captive consumption and open access sale. The total target for hybrid projects has been set at 3,500 MW.
State-level metering regulations, subsidies for rooftop solar
In October 2020, the Delhi government broadened the scope of applicability for virtual net metering connections by including more consumer segments. In February 2020, the Kerala State Electricity Regulatory Commission (Renewable Energy and Net Metering) Regulations, 2020 were issued. According to the regulations, discoms will provide net metering arrangements to consumers only on a first come, first served basis. In January 2020, Maharashtra finally allowed net metering and issued regulations for the same. Meanwhile, the Uttar Pradesh and Punjab governments announced subsidies for solar rooftop projects in March 2020.
Net, net, a major part of the policy and regulatory decisions were made in a bid to ease the immediate challenges faced by stakeholders due to the pandemic. Old policies that did not give desired results were repealed (for example, the removal of tariff ceilings). Many new policy decisions were proposed (draft amendments to the Electricity Act; stimulus package for discoms; privatisation of discoms; BCDs and SGDs for restricting solar imports; extension of ISTS waiver; promotion of RTC power) that are expected to shape the renewable energy sector in the coming years.