Setting the Pace

MoP issues RPO and ESO trajectory till 2029-30

According to the Pareto principle, 80 per cent of consequences come fr­om 20 per cent of causes. In line wi­th this principle, only a few polici­es/ re­gulations have led to major changes in an industry. The renewable purchase obligation (RPO) policy might be one such regulatory tool that has led to major str­uctural changes in the renewable energy sector (for regulators, discoms, institutional consumers, de­velo­p­ers, etc.). This key policy in the rene­w­ab­le energy space is again being discu­ssed by the industry as the Ministry of Po­wer (MoP) has iss­u­ed an RPO and en­ergy storage ob­ligation (ESO) trajectory till 2029-30. Ac­cording to this order, the to­tal prescri­bed RPO will progressively increase from 24.61 per cent in 2022-23 to 43.33 per cent by 2029-30. This inclu­des wind RPO, hydropower purchase obligation (HPO) and other RPOs.

During the period under consideration, the wind RPO will increase from 0.81 per cent to 6.94 per cent; the HPO will inc­rease from 0.35 per cent to 2.82 per cent; and other RPOs will increase from 23.44 per cent to 33.57 per cent. The MoP has stated that wind RPO will only be satisfied by energy generated by wind power projects that are operational after March 31, 2022. The HPO will only be fulfilled by el­ectricity generated by large hydro projects (LHPs), including pumped storage projects (PSPs), that are operational after Mar­ch 8, 2019, and continue until March 31, 2030. Ot­h­er RPOs can be satisfied us­ing electricity generated by any renewable energy generating plant other than wind and hydro.

The Central Electricity Regulatory Com­mi­s­sion will construct a renewable energy certificate (REC) sche­me for hydro­power to ease HPO compliance with a capping price of Rs 5.50 per kWh from March 8, 2019, to March 31, 2021, and an annual es­calation of 5 per cent. Hydro­power im­ported from abroad will not be counted to­wards HPO. The order also specifies that HPOs of the state/distribution company may be met through the free power being provided to the state from the LHPs and PSPs commissioned post Mar­ch 8, 2019, excluding the contribution towards local area development. If the free power is in­sufficient, then a state would have to buy additional hydro­power to meet its HPOs or an equivalent amount of RECs.

Any deficit in meeting other RPOs each year can be made up for with the extra en­e­rgy utilised by wind power plants compl­e­ted after March 31, 2022, beyond what is needed to satisfy the wind RPO. It can also be met through the excess en­ergy co­nsu­m­ed from eligible LHPs (in­cluding PSPs) co­mmissioned post Mar­ch 8, 2019, beyo­nd what is needed for HPOs for that year.

The ESO will be calculated, in energy terms, as a proportion of the total electricity consumption, and will be regarded as satisfied only when at least 85 per cent of the total energy stored in the energy storage system is obtained from renewable energy sources each year. For energy sto­rage, which has been introduced for the first time, the targets will increase from 1 per cent during 2023-24 to 4 per cent by 2029-30. This will be met through solar and wind power projects with energy storage.

Power System Operation Corpora­tion Limited has been given the responsibility to maintain data related to RPO compliance. In addition to the RPO and ESO trajectory an­no­unced by the MoP, the state commissions may consider notifying RPO trajectories, including HPO and ESO, for their respective states.

Recent initiatives

Back in March 2019, the government had introduced important measures to pro­mote the hydropower segment, in­clu­ding two key announcements – the classification of LHPs as renewable en­ergy sou­r­ces, and the introduction of the HPO mechanism as a separate entity within the non-solar RPO category. In 2021, following up on these announce­me­­nts, the government notified the HPO trajectory, giving states hydropower procurement targets along the lines of RPOs. HPOs were to be applicable to all obligated entities and were to cover LHPs commissioned on or after March 2019. The policy change was introduced to meet the 30,000 MW hydro capacity ad­dition target by 2030.

In August 2021, the government issued the Draft Electricity (Promoting Renew­able Energy through Green Energy Open Acc­ess) Rules, 2021. Under this, indus­tri­­es were allowed to meet their RPOs by purchasing green hydrogen. It was specified that “the quantum of green hydrogen wo­u­ld be computed by considering the equivalence to the green hydrogen produced from one MW of electricity from the renewable sources or its multiple”. These rules were notified in June 2022. In the final version, a uniform RPO on all obligated entities in the area of a distribution licensee has been plan­ned, and the use of green hydrog­en/ green am­monia for the fulfilment of RPOs has been allowed.

Policy background and lack of compliance

Between 2010-11 and 2013-14, only six st­ates – Arunachal Pradesh, Himachal Pra­desh, Karnataka, Meghalaya, Mizo­ram and Tamil Nadu – complied with the RPO targets set by their respective state elec­tricity regulatory commissions. Du­r­ing this period, around 95 per cent of RPO co­mpliance happened through the direct purchase of renewable energy, and the remaining through the REC mo­de. While 17 states fell short of meeting their RPOs, only six reported purchase of RECs, even though RECs were available on the designated exchanges. Gujarat met 43 per cent of its RPOs through RECs – the most among the relevant states.

The data provided by the Ministry of New and Renewable Energy (MNRE) on cumulative solar RPO achievements up to 2016-17 shows that 27 states/union te­rritories (UTs) failed to comply with the­ir RPOs. Overall, of the cumulative target of 17,660 MW, only 10,803.49 MW was achieved, a deficit of approximately 39 per cent. This lack of compliance continued in next year as well. For financial year 2018-19, only four states could achieve their RPO targets, and only se­ven could achieve more than 60 per cent of their targets, with the rest achieving less than 60 per cent.

In 2019-20, only Karnataka, Andhra Pra­desh, Rajasthan and Tamil Nadu were able to achieve more than 100 per cent of their RPOs. Seven states were able to achieve 55-100 per cent of their RPOs. The remaining majority of the states ac­hieved less th­an 55 per cent of their RPO targets.

Reasons for the lack of compliance

There are a couple of reasons behind this lack of RPO compliance. The first is the declining trend of projects registered through the REC route. Under the MNRE framework, only renewable energy projects with a minimum capacity of 250 kW were eligible for registration under the REC mode initially. It was envisaged that as the REC market matured, off-grid technologies could also be considered for inclusion in the REC mechanism. How­ever, despite the initial surge of RECs registered, interest gradually fell. This led to a chicken-and-egg scenario, as the de­clining interest in RECs was blamed on poor RPO compliance across states. The­re has also been a rise in un­rede­e­med RECs due to insufficient RPO compliance. Such RECs grew from 108 at the end of 2010-11, to 9.365 million as of August 2014. This led to a decline in the planned cash fl­ows of generators that took the REC ro­u­te, which may have further impacted in­vestments in renewable energy projects.

Recent government reports have attributed RPO non-compliance to the discoms’ perception that renewable energy costs more than other energy sour­ces. This results in cost-driven decisi­ons and policies that avoid the consumption of renewable energy. In addition, some dis­coms perceive the additional cost as­sociated with integration to be very hi­gh. Consequently, only a few states ha­ve gone ahead with state-specific auctions and renewable energy procurement, and much of renewable energy development is limited to these few states. In addition, there has been a slowdown in renewable energy due to the inherent issues related to the lack of grid infrastructure and land acquisition challenges.

The way forward

There are two different viewpoints with respect to the policy of RPOs, going forward. The most commonly discussed one is the imposition of stricter penalties for non-compliance with RPOs in the draft Electricity Act. This viewpoint was reiterated by the minister of power and new and renewable energy at a recent industry ev­ent. The second viewpoint is that there should be a gradual phasing out of RPOs (not the REC mechanism), given the falling cost of renewables and the unnecessary restrictions and unjustified penalties being imposed on utilities that are already in acute financial stress.

Going forward, obligations pertaining to different renewable sources and high penalties for non-compliance are going to become the norm. However, the phasing out of this complicated regulation for all renewable sources apart from em­er­ging segments such as green hydrogen may be more beneficial for the sector. How­­ev­er, even a discussion on the possibility of it being phased out seems to be out of sight in the foreseeable future. n

By Sarthak Takyar

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