Renewable Energy Policies, Regulations, REC and RPO

alka, assistant director,

NPTI, PSTI, BangaloreJune 2011

ENERGY

Then………&

Now…..

Energy use has changed a great deal since people relied solely on the sun, their own strong bodies or beasts of burden as energy resources.

Long ago, people learned how to use water power to turn paddle wheels and wind power for transportation and irrigation

People learned to use the chemical energy stored in materials like wood to cook and heat their homes.

But machines and technologies introduced during the Industrial Revolution of the late 18th century required the use of other energy resources, especially fossil fuels.

Energy distribution –developing and developed countries

Limited Fuels

At present consumption levels-

Crude oil will last only for 40 years.

Gas will last for 60 years.

Coal will be finished in nearly 200 years.

India’s Oil Balance

PROVEN OIL RESERVE/CONSUMPTION

INDIA VS. WORLDWorld99.55%

India0.45%

India World

India

2.72

%Worl

d

97%

World India

Ever thought of life without oil and gas?

PROBLEMS?

Limited fuels available on earth.

Increasing Consumption of energy

Polluted environment

Do we want a situation like this???

Energy Security

• To be an Energy Secure Nation, best measure is switching to Renewable Energy and persistent Energy Conservation

RENEWABLE ENERGY

Policies for Renewable Energy in India

Background of the MNESEarly 70’s: search for new and renewable energy resources that would ensure sustainable development and energy security.1981: GoI establishes CASE (Commission for Additional Sources of Energy) in the DST1982: CASE formally incorporated in the newly founded DNES (Dept of Non-conventional Energy Sources).1992: DNES became MNES (Ministry of Non-conventional Energy Sources)

Policies, Procedures and Incentives

PoliciesPrime Minister of India has

announced a goal of 10% share for RE or 10,000 MW in the power generation capacity to be added during the period upto 2012.

An exclusive and comprehensive Policy on RE has been proposed aiming to raise RE capacity to 100 GW by 2050

Policies, Procedures and Incentives

Renewable Energy PolicyA comprehensive RE Policy for all-round

development of the sector, encompassing all the key aspects, has been formulated by MNES. The broad objectives envisaged in the policy are:

Meeting the minimum energy needs through RE

Providing decentralised energy supply in agriculture, industry, commercial and household sectors in rural and urban areas, and

Providing grid quality power.

Policies, Procedures and Incentives

Policy for All-round Development of Renewable Energy

Policy measures aim at overall development and promotion of renewable energy technologies (RETs) and applications.

Policy initiatives encourage private as well as FDI including provision of fiscal and financial incentives for a wide range of RE programmes.

Further, the procedures have been simplified, and provide excellent opportunities for increased investment in technology up-gradation, induction of new technologies, market development and export promotion.

Foreign Investment policy

Foreign investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and for setting up of RE-based power generation projects

Hundred per cent foreign investment as equity is permissible with the approval of the Foreign Investment Promotion Board (FIPB).

The Government of India also encourages foreign investors to set up RE-based power generation projects on Build, Own and Operate (BOO) basis. Various Chambers of Commerce and industry associations in India provide guidance to the investors in finding appropriate partners

Industrial policyMNES is promoting medium, small, mini and micro

enterprises for manufacturing and servicing of various types of RE systems and devices.

Industrial clearances are not required for setting-up of an RE industry

No clearance is required from Central Electricity Authority (CEA) for power generation projects up to Rs 1,000 million

A five-year tax holiday is allowed for RE power generation projects

Soft loans are available through IREDA for RE equipment manufacturing

Industrial policyFacilities for promotion of Export Oriented Units

(EOUS) are available for the RE industry

Financial support is available to RE industries for R&D projects in association with technical institutions

Private sector companies can set up enterprises to operate as licensee or generating companies

Customs duty concession is available for RE spares and equipment, including those for machinery required for renovation and modernisation of power plants. Excise duty on a number of capital goods and instruments in the RE sector has been reduced or exempted

Policies by State GovernmentsSome states are providing concessions or exemption in

state sales tax. These rates vary widely from state to state and between different technologies.

More than 17 states have so far announced policies for purchase & support of electrical energy generated through various RE sources

More than 11 state regulators have under the NTP 2006, passed orders for a minimum offtake of renewable power by distribution licensees (caleed RPOs)

A no. of states have introduced policies for purchase of electricity from Biomass, Wind Energy and Small Hydro Power Projects.

Incentives Incentives for Investing in RETs MNES provides financial incentives, such as interest and capital

subsidy Soft loans are provided through:

IREDA, a public sector company of the MinistryNationalised banks and other financial institutions for identified technologies/systems

The government also provides various types of fiscal incentives for the RE sector, which include:Direct taxes - 100 per cent depreciation in the first year of the installation of the projectExemption/reduction in excise dutyExemption from Central Sales Tax, and customs duty concessions on the import of material, components and equipment used in RE projects

Incentives

Direct TaxesConcession under Income Tax RulesUnder Income Tax Rules number of concessions

are available to the non-conventional energy sector

Financial IncentivesDetails of various schemes on financial incentives

and promotional measures provided for different renewable energy technologies categorised asEnergy from Waste, Solar Photovoltaic Power, Solar Thermal Systems, Biogas Plants

EA 2003The Act 2003 has several enabling provisions, with a

view to promote accelerated development of non-conventional energy based power generation

Section 86(1) (e), “The State Commission shall promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence”

EA 2003Section 3 (1), Government of India (GoI) shall,

from time to time, prepare the National Electricity Policy and Tariff Policy, in consultation with the State Governments for developing the power system based on optimal utilisation of resources such as coal, natural gas, nuclear, hydro, and renewable sources of energy.

Section 4, GoI shall, after consultation with the State Governments, prepare a national policy, permitting stand-alone systems (including those based on renewable sources of energy) for rural areas.

Legal Frame Work for Renewable Energy

Section 61 (h) of the Act - SERC may specify the terms and conditions for the determination of the Tariff for co-generation and generation from the Renewable Energy Sources

• May be guided by the Central Commission.

The National Action Plan on Climate Change (NAPCC) – aims at increasing the share of Renewable Sources of Energy from 5% of the total Energy Mix in 2010 to 15% by 2020

•Ministry of Power, GoI Resolution dated 20.01.2011 – SERCs shall also reserve a minimum percentage for purchase of Solar Energy from the date of Notification in the Official Gazette (22.01.2011) which will go up to 0.25% by end of 2012-12 and further upto 3% by 2022.

Policy and Regulatory Frame Work for Renewable Energy

RE Generation in the country

Renewable Energy Installed Capacity Potential

Wind Power 13066 48756

Small Hydro Power 2939 14292

Biomass Power 997 8680

Bagasse Cogeneration 1562 5000

Waste to Power 72 7000

Solar Power (SPV) 18 200000

Total 18654 283728

Capacities in MW as on31.12.10

Source: MNRE

Quantum of RE required to meet NAPCC target (BU)

Technology wise capacity addition required (MW)

Implementation and Delivery mechanism

Ministry: encouraging the setting up of grid-interactive power projects based on renewable energy through private investment route.

State Nodal Agencies: are responsible for promotion and development of private sector projects by way of providing necessary clearances, allotment of land, allotment of potential sites in case of SHP projects and facilitating power purchase agreements etc.

SERCs: determining tariffs. Leading financial institutions and banks: financing

renewable energy based power projects.

CERC (Terms & Conditions for recognition & issuance

of REC for RE Generation)Regulations,

2010

2. Definitions and Interpretation

‘Act’ means the Electricity Act, 2003

‘Certificate’ means the renewable energy certificate issued by the Central Agency in accordance with the procedures laid down by it and under the provisions specified in these regulations

‘eligible entity’ means the entity eligible to receive the certificates under these regulations

2. Definitions and Interpretation

‘floor price’ means the minimum price as determined by the Commission in accordance with these regulations at and above which the certificate can be dealt in the power exchange

‘forbearance price’ means the ceiling price as determined by the Commission in accordance with these regulations within which only the certificates can be dealt in the power exchange

‘obligated entity’ means the entity mandated under clause (e) of subsection(1) of section 86 of the Act to fulfill the renewable purchase obligation

2. Definitions and Interpretation

‘preferential tariff’ means the tariff fixed by the Appropriate Commission for sale of energy, from a generating station using renewable energy sources, to a distribution licensee

‘renewable purchase obligation’ means the requirement specified by the State Commissions under clause (e) of sub-section (1) of section 86 of the Act, for the obligated entity to purchase electricity from renewable energy sources;

‘State Agency’ means the agency in the concerned state as may be designated by the State Commission to act as the agency for accreditation and recommending the renewable energy projects for registration and to undertake such functions as may be specified under clause (e) of subsection (1) of section 86 of the Act;

RPO & RECThe Electricity Act, 2003, the policies framed under the Act, as also the National Action Plant of Climate Change (NAPCC) provide for a roadmap for increasing the share of renewable in the total generation capacity in the country.

However, RE sources are not evenly spread across different parts of the country. In some states there are avenues for harnessing the RE potential beyond the RPO level fixed by the SERCs. However, the high cost of generation from RE sources discourages the local distribution licensees from purchasing RE generation beyond the RPO level mandated by the State Commission.

It is in this context that the concept of REC assumes significance. This concept seeks to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their renewable purchase obligation. It is also expected to encourage the RE capacity addition in States where there is potential for RE generation as the REC framework seeks to create a national level market for such generators to recover their cost.

3. Central Agency and Functions

CERC has designated National Load Dispatch Center( NLDC) to undertake the functions of Central Agency under the CERC REC Regulations.The CERC REC Regulations envisage functions of the Central Agency as follows:1. Registration of Eligible Entities,2. Issuance of Certificates,3. Maintaining and Settling Accounts in respect of certificates,4. Repository of Transactions of Certificates and5. Other function incidental to the implementation of Renewable Energy Certificate Mechanism as may be assigned by the Commission.

State Agency

Designated by the SERCShall act as agency for accreditation and recommending the RE projects for registrationIf acreditation granted, it shall intimate the acreditation to the NLDC (central agency), host SLDC and the distribution company in whose area the proposed RE generation project shall be located

State Load Despatch Centrea. Follow Indian Electricity Grid Code and State Grid Code for the

purpose of accounting renewable energy injected into the grid.

b. In case the Eligible Entity is connected to the transmission network, maintain the record of meter readings and communicate the energy injection report for each accredited RE project of the registered Eligible Entity within State to the Central Agency on monthly basis.

c. In case the Eligible Entity is connected to the distribution network of Distribution Utility, establish protocol for receipt of information and maintenance of the record of meter readings for such RE projects.

Further, arrange to communicate injection report for each accredited RE project of the registered Eligible Entity within the State to the Central Agency on monthly basis.

State Load Despatch Centred. In case the Eligible Entity is CPP and is connected to

the transmission/distribution network of Transmission/Distribution Utility, SLDC shall establish protocol for receipt of information and maintenance of the record of meter readings including self consumption for such RE projects.

Further, SLDC shall arrange to communicate injection report for each accredited RE project of the registered Eligible Entity within the State to the Central Agency on monthly basis.

e. Communicate renewable energy injected into the grid for each accredited RE project of the registered Eligible Entity within State to the State Agency.

Model Guidelines / Procedure for

Accreditation

MODEL GUIDELINES FOR ACCREDITATION BY

STATE AGENCY

Model Guidelines: Contents

Objective Applicability & Scope Step wise description Functions, roles and responsibilities of entities involved Information requirement – application form & content Report: format for accreditation certificateTimelines Fees and charges Event of default and consequences thereofPowers to remove difficulties

Model Guidelines: Information

Requirement OwnerOperatorRE StationConnectivityMetering Statutory Clearance General Fees & Charges Declaration

Online generation of Application, print & submit to State Agency along with enclosures

REGISTRATION BY CENTRAL AGENCY

Registration: Applicability and Scope

Applicable to all RE Generating companies who have received the Certificate of accreditation

Undertake registration Not earlier than 3 months prior to proposed date of commissioning After receipt of Certificate of Accreditation

Validity of Registration: 5 Years

Registration: Information Requirement Application for Registration as per the format specified Should contain

Owner detailsRE Generation Station detailsCertificate of Accreditation by the state agencyGeneration facility commissioning scheduleAny other relevant information as specified Non-refundable registration fees/charges and annual fee/charges shall be accompanied Declaration

Separate applications in case of multiple RE generation projects

Online generation of Application, print & submit to Central Agency along with enclosures

Registration: Time Line

Procedure for Registration

4.Category of Certificates

Solar and Non-Solar certificates

5. Eligibility and Registration of Certificates

Eligiblity conditions:Obtained accreditation from state agencyNo PPA to sell at preferential tariffSell electricity to distribution lecensee at a price not

exceeding the pooled cost of power purchase of that licensee

6.Revocation of Registration

Central agency based on the report of the Compliance Auditors, shall enquiry and revoke registration under the following conditions

Wilful and prolonged default by eligible entityEligible entity breaks any of the terms & conditions of its accreditation/registrationFails to show that it can fully discharge its responsibilitiesFails to make deposit/ furnish security/ pay fees and charges required for accreditation/ registration

7.Denomination & Issuance of Certificates

Eligible entity to apply to central agency within 3 months after corresponding generation; application for issuance of certificates to be made on fortnightly basis

Certificates to be issued after central agency satisfied on compliance

Certificates to be issued within 15 days from date of application

ISSUANCE OF RECs BY CENTRAL AGENCY

Issuance of RECs Applicability & Scope

Eligible Entities, who have received ‘Certificate of Registration’ from the Central Agency

Central Agency while issuing the REC’S to Eligible Entities

Information Requirement

Renewable Energy Injection Report

The Registration Number issued by Central Agency

Details of Fee and Charges

Compliance Auditor report, if any

Denomination

1 REC = 1 MWh

Issuance of RECs: Timelines

Eligible Entity to apply for issuance of renewable energy certificates within three (3) months of energy injection

The application for issuance of Renewable Energy Certificates may be made on a fortnightly basis

Central Agency to issue the REC to the Eligible Entities within fifteen (15) days from the date of application

Procedure for Issuance

8. Dealing in certificates

Certificates to be dealt only through PE

9. Pricing of CertificatesPrice to be discovered in the PEComission to determine the floor price and the forbearance price in consultation with the central agency anf the FOR

10.Validity of certificatesCertificate to be valid for 365 days

REDEMPTION OF RECs AFTER TRADE IN

POWER EXCHANGE(s)

Redemption of RECs Validity of RE Certificates : 365 days

Applicable to the Eligible Entity that chooses to place the RECs for dealing on the Power Exchange(s)

Bidding in the Power Exchange(s)

Central Agency to verify quantity of valid RECs available with the concerned eligible entity

Extinguishing of the RECs based on the succesful trades culminated in the Power Exchange(s) First-in-first-out order for extinguishing

Procedure for Redemption

11. Fees and Charges

One time application processing fee Rs. 5,000/applicationOne time Accreditation Charges Rs. 30,000/applicationAnnual charges Rs. 10,000/application payable on 10th April or each anniverasry date of initial accreditationRevalidation/extension fee Rs. 15,000/application after 5 yrs

Fees and charges collected by central agency to be utilised for meeting cost and expense towards remuneration payable to compliance auditors, officers , employees, consultants engaged to perform the various functions

12. Funding for Capacity Building of State Agency

Commission to provide for a certain % from sale of certificates for purpose of trg and capacity building of State AgenciesProceeds to be collected by PE and transferred to Commission

13. Appointment of Compliance Auditors

Compliance Auditors to enquire into and report on compliance of these regulations Auditors can be a person or a firm with experience and qualification in the following areas

Finance / accounts/ commerceExperience/ qualification in the field of engg with

specialisation in generation, transmission or distribution of electricity an adequate understanding of the electricity sector, institutions, regulatory commissions, govt. institutions, state agencies, their role and responsibilities

Commission to fix remuneration and charges payable to such auditors

14. Power to give Directions

Commission to issue directions and orders appropriate for implementation of these regulations and for the development of the market in power for RE sources

15. Rower to RelaxCommision may relax any of the provisions of these regulations on its own or on an application made before it by any interested person

Salient Features of REC framework

Renewable Energy Certificate (REC) mechanism is a market based instrument to promote renewable energy and facilitate renewable purchase obligations (RPO)

REC mechanism is aimed at addressing the mismatch between availability of RE resources in state and the requirement of the obligated entities to meet the renewable purchase obligation (RPO).

Cost of electricity generation from renewable energy sources is classified as cost of electricity generation equivalent to conventional energy sources and the cost for environmental attributes.

Salient Features of REC framework

RE generators will have two options i) either to sell the renewable energy at preferential tariff or ii) to sell electricity generation and environmental attributes associated with RE generations separately.

Salient Features of REC framework

The environmental attributes can be exchanged in the form of Renewable Energy Certificates (REC).

REC will be issued to the RE generators for 1 MWh of electricity injected into the grid from renewable energy sources.

REC would be issued to RE generators only.

REC could be purchased by the obligated entities to meet their RPO under section 86 (1) (e) of the Act. Purchase of REC would be deemed as purchase of RE for RPO compliance.

Grid connected RE Technologies with minimum capacity of 250 KW and approved by MNRE would be eligible under this scheme.

RE generations with existing PPAs are not eligible for REC mechanism.

Salient Features of REC framework

SERC to recognize REC as valid instrument for RPO compliance.

SERC would define open access consumers, captive consumers as obligated entities along with distribution companies.

SERC to designate State agency for accreditation for RPO compliance and REC mechanism at State level.

CERC to designate Central Agency for registration, repository, and other functions for implementation of REC framework at national level.

Only accredited project can register for REC at Central Agency.

Salient Features of REC framework

Central Agency would issue REC to RE generators for specified quantity of electricity injected into the grid.

REC would be exchanged only in the CERC approved power exchanges.

Price of electricity component of RE generation would be equivalent to the weighted average power purchase cost of the discom including short term power purchase but excluding renewable power purchase.

REC would be exchanged within the forbearance price and floor price. This forbearance and floor price would be determined by CERC in consultation with Central agency and FOR from time to time.

Salient Features of REC framework

In case of default SERC may direct obligated entity to deposit into a separate fund to purchase the shortfall of REC at forbearance price.

However, in case of genuine difficulty in complying with the renewable purchase obligation because of non-availability of certificates, the obligated entity can approach the Commission for carry forward of compliance requirement to the next year.

Thank You