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ABPS Infrastructure Advisory Private Limited
www.abpsinfra.com
REC Mechanism in Himachal Pradesh Utility Perspective
Ajit PanditDirector, ABPS Infrastructure Advisory Private Limited
ABPS Infrastructure Advisory Private Limited
Outline of the Presentation
• Legal and Statutory Framework for Renewable Energy Development
• Regulatory Initiatives for Development of Renewable Energy Certificate
Mechanism in India
• RE Certificate Mechanism in Himachal Pradesh : Utility Perspective
– Significance of RPO
– Opportunities & Liabilities
– Implementation Issues
– Consequences of non-compliance
• Way forward
18/04/232
ABPS Infrastructure Advisory Private Limited
www.abpsinfra.com
Legal and Regulatory Framework for
Development of Renewable Energy in India
ABPS Infrastructure Advisory Private Limited
Key Drivers for Renewable Energy Development
18/04/234
Source : Ministry of New and Renewable Energy
RE capacity (18 GW) forms ~ 10% of total generation capacity (170 GW) in the country
In energy terms, it constitutes ~ 4% - 5% of total consumption
ABPS Infrastructure Advisory Private Limited
The EA 2003 has outlined several enabling provisions to accelerate the development
of RE based generation:
– (Section 3): National Electricity Policy and Plan for development of power system
based on optimal utilization of resources including renewable sources of energy.
– (Section 61(h)): Tariff Regulations by Regulatory Commission to be guided by
promotion of generation of electricity from renewable energy sources in their area
of jurisdiction.
– (Section 86(1)(e)): Regulatory Commission to Specify Purchase Obligation from
renewable energy sources.
– (Section 66): Appropriate Commission shall endeavor to promote the
development of market (including trading) in power in such a manner as may be
specified and shall be guided by National Electricity Policy in Sec 3
Electricity Act, 2003 : Enabling Provisions
ABPS Infrastructure Advisory Private Limited
Appropriate Commission shall fix RPO and SERCs shall fix its tariff latest by April
1, 2006
Initially Appropriate Commission to fix preferential tariffs for distribution utility to
procure RE
In future, distribution utility to procure RE through competitive bidding within
suppliers offering same type of RE
In long-term, RE technologies need to compete with all other sources in terms of
full costs
CERC to provide guidelines for pricing non-firm power if RE procurement is not
through competitive bidding
Tariff Policy (January 2006)
ABPS Infrastructure Advisory Private Limited
SERCs shall fix separate RPO for purchase of energy by the Obligated Entities
from Solar Energy Sources
Solar RPO to go up to 0.25% by the end of 2012-13 and further up to 3% by
2022
Purchase of energy from non-conventional sources of energy to take place
more or less in same proportion across different states
Renewable Energy Certificate Mechanism may be one of the
mechanisms to achieve such target
It will take some time before non conventional technologies to compete with
conventional technologies and accordingly procurement of renewable energy to
be done on preferential tariff determined by Appropriate Commission
Amendment to Tariff Policy (January 2011)
ABPS Infrastructure Advisory Private Limited
Promotion of Renewable Energy by Policy Design and Regulatory Initiatives
oElectricity Act 2003 (Jun 2003)
oNational Electricity Policy (Feb 2005)
oNational Tariff Policy (Jan 2006)
oNational Action Plan on Climate Change (Jun 2008)
18/04/238
Central Government
o Regulations for Preferential Tariff for RE (Sep 2009)
o Renewable Energy Certificate Mechanism (Jan 2010)
o Implementation Framework (2010 – ongoing)
Central Electricity Regulatory Commission
o Preferential RE Tariff Orders by SERCs (2002–2010)
o Over 19 States have mandated Renewable Purchase Obligations (2004 – 2010)
o Modification to RPO and adoption of REC framework
State Electricity Regulatory Commission
ABPS Infrastructure Advisory Private Limited
A B C
A - Market model based on Open Access/wheeling for self use B - Model based on FIT and RPO for sale to distribution licensee & third party, within StateC- Market model based on instruments with cross border features (REC) catering to National level demand
Evolution of Market Model & Role of Utility
ABPS Infrastructure Advisory Private Limited
Key Challenges in Encouraging Deployment of RE
18/04/2310
Enabling Mechanism for Inter-State sales of Renewable Energy
Cost Effective Mechanism for purchase of Renewable Energy
Nation wide target for purchase of Renewable Energy
Stronger enforcement and penalty mechanism
Mechanism for purchase of small quantity of RE by individual Open Access
consumer
FOR Report (Nov 2008) on ‘Policies for Renewables’ recommended:
Need to facilitate ‘Inter-State Exchange of RE Power from National Perspective
Explore feasibility of introduction of REC mechanism as tool to promote RE within
framework of EA 2003
Forum of Regulators (FOR) initiated study to address challenges
ABPS Infrastructure Advisory Private Limited
NAPCC : Guideline for RE Development
National Action Plan for Climate Change (NAPCC)
At National level for FY 2010, target for RE Purchase may be set at 5% of total grid
purchase, to be increased by 1% each year for 10 years
SERCs may set higher target than this minimum at any point in time
Central & State Govts may set up a verification mechanism to ensure that
renewable power is actually procured
Appropriate authorities may issue certificates that procure renewable power in
excess of the national standard. Such certificates may be tradable, to enable
utilities falling short to meet their RPS
Penalties as may be allowed under EA 2003 may be levied, if utilities are still falling
short in RPS
18/04/2311
ABPS Infrastructure Advisory Private Limited
NAPCC has set challenging target for RE Development
18/04/2312
• NAPCC target of 5% for RE Procurement in 2010
• Target to increase by 1% each year to reach 15% by 2020
• Separate target for Solar Energy
• Provides for creation of Renewable Energy Certificate Mechanism
NAPCC identified REC framework to realize annual target of National RPO
Considering that demand for electricity
would increase to 1700 BU by 2020, it would create market for 255 BU units of renewable energy
generation
ABPS Infrastructure Advisory Private Limited
www.abpsinfra.com
Regulatory Initiatives for Development ofRenewable Energy Certificate Mechanism
in India
ABPS Infrastructure Advisory Private Limited
Key Objectives for Introduction of REC Mechanism
18/04/2314
Effective implementation of RPO
Increased flexibility for participants
Overcome geographical constraints
Reduce transaction costs for RE transactions
Enforcement of penalty mechanism
Create competition among different RE technologies
Development of all encompassing incentive mechanism
Reduce risks for local distributor by limiting its liability to energy purchase
In the view of hurdles faced by RE
Development, it appears that these
objectives should take precedence over
others
In Indian Context, following aspects had to be considered for REC design Electricity Market is regulated to great extent (> 90% of electricity volumes continue to be transacted at regulated rate) Preferential RE Tariff regime to continue (Feed-in tariff & REC to co-exist)
ABPS Infrastructure Advisory Private Limited
Concept of REC Mechanism in India
18/04/2315
Avg. PP Costof Host Utility(regulated)
Market Rate as per
Power Exchange
At Tariff Determined by
Regulatory Commission
Renewable Energy
Electricity
REC
DistributionCompany
Renewable Energy
Electricity
REC
DistributionCompany
Obligated Entity
(Buyer)
Existing Mechanism
RECMechanism
OA / TraderBilateral
agreement(de-regulated)
ABPS Infrastructure Advisory Private Limited
REC Pricing Framework
18/04/2316
Renewable Energy
Electricity ComponentREC Component(Environmental
Attribute)
Market Discovered Price(Obligated Entity/Voluntary
Buyer)
AveragePower Purchase Cost
(Distribution Utility)
Andhra Pradesh - Rs
1.78/kWh
Maharashtra - Rs
2.43/kWh
Karnataka - Rs
1.85/kWh
Kerala - Rs
1.46/kWh
Tamil Nadu - Rs 2.62/kWh
Himachal Pradesh - Rs
1.48/kWh
Rajasthan - Rs
2.48/kWh
ParametersNon Solar
RECSolar REC
Forbearance Price (Rs/MWh)
3900 17000
Floor Price (Rs/MWh)
1500 12000
Bilateral Agreement
(de-regulated)
(OA User/Trader)
ABPS Infrastructure Advisory Private Limited
Entities involved to Operationalise REC Mechanism
18/04/2317
Institutional
Framework
Central Entities
State Entities
Forum of Regulators Central Electricity Regulatory Commission Central Agency (National Load Despatch Centre) Power Exchanges Compliance Auditors
State Electricity Regulatory Commission State Load Despatch Centre State Agencies Eligible Entities Obligated Entities
ABPS Infrastructure Advisory Private Limited
Key Role performed by FOR
• Formulated Model REC Regulations for SERCs
• Sought Legal Opinion from Solicitor General on key legal aspects
– Applicability of RPO to Captive Users and Open Access Consumers
– Statutory backing for Enforcement mechanism as regulatory measure
• Introduced Enforcement Mechanism for non-compliance
– Apart from legal provisions under EA 2003, obligated entity has to
contribute a charge to Fund at Forbearance Price.
– Fund to be utilised for purchase of RECs or creation of RE infrastructure
as directed by SERCs
• Extended scope of RPO applicability to captive users, open access
consumers apart from DISCOMs
• Undertook study for setting RPO targets and long term trajectory
at National level to accomplish NAPCC goals
ABPS Infrastructure Advisory Private Limited
Initiatives for the Implementation of REC Mechanism
18/04/2319
State Level
SERC Regulations for REC Implementation
• Maharashtra• Gujarat• HimachalPradesh• Jharkhand• UttarPradesh• Manipur& Mizoram• Tripura• Orissa• Uttarakhand• MadhyaPradesh• Kerala• Bihar• Tamil Nadu• Rajasthan• Assam(Draft)
• CERCRECRegulations,2010(Jan2010)• FORModelRECRegulationsforSERCs• CERCOrdersfor RECImplementation
• DesignationofCentralAgency(NLDC)(Jan2010)• ApprovalofProceduresfor RECImplementation(Jun2010)• ApprovalofFloorPriceandForbearancePrice(Jun2010)• ApprovalofFees&Chargesforregistration,issuance,redemption(Sep2010)• RECRegistry–Softwaredevelopment,testing&launch(Nov2010)
Central Level
Designation of State Agency
• Maharashtra - (MEDA)• Gujarat - (GEDA)• Himachal Pradesh –
(Directorate of Energy)• Rajasthan -(Rajasthan Renewable
Energy Corporation)• Jharkhand – JEDA• Manipur (MANIREDA)&
Mizoram(ZREDA)• Chhattisgarh (CREDA)• Haryana (HAREDA)• Tripura (TREDA)
ABPS Infrastructure Advisory Private Limited
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Overview of RE Framework in Himachal Pradesh
ABPS Infrastructure Advisory Private Limited
State has vast hydro potential in India
MNRE has identified around 536 sites with a total potential of around 2267.81
MW
The State has installed power generation capacity of around 375.385 MW and
another 132MW is under implementation, predominantly comprising Small
Hydel Power.
Biomass Power Generation Potential comprises of around 415MW (Agro based -
133MW & Forest Residue based – 282MW)
Wind Energy have little or no power generation potential in the State
Renewable Energy in Himachal Pradesh
Source : Ministry of New and Renewable Energy
ABPS Infrastructure Advisory Private Limited
State Commission specified RPPO as 20% for distribution licensee, vide
Notification dated June 18, 2007
5. Quantum of purchase of electricity from renewable sources.-(1) Energy from renewable sources and cogeneration, available after the captive use and third party sale outside the State, shall be purchased by the distribution licensee(s):
Provided that subject to the availability of renewable energy and co-generation within the area of a distribution licensee the quantum of purchase of energy from renewable sources and cogeneration by a distribution licensee, under these regulations shall be minimum 20% of its total consumption during a year;
……………………………………….
(4) Subject to supply constraints or any other uncontrollable factors, the Commission may, at the request of the distribution licensee, waive off the quantum of purchase laid down under sub-regulation(1).
Applicability of RPPO was for 3 years
Past Initiatives for Promotion of RE and impact on DISCOM
During 2009, RPPO achievement was around 4% against target of 20%
During 2010, RPPO achievement increased to 7%
Renewable Energy is essentially available from SHP
ABPS Infrastructure Advisory Private Limited
May 2010, HPERC had specified Regulations recognising REC as valid instrument
for compliance of RPPO by ‘Obligated Entity’
RPPO shall be applicable to, Distribution Licensee
Person consuming electricity generated from Conventional Captive Generating Plant
having capacity 1MW and above for his own use
Person consuming electricity procured from conventional generation through Open Access
Quantum of ‘minimum’ Renewable Power Purchase,
Commission may suo-motu or on request of a licensee, revise the targets in
supply constraints and factors beyond control of licensee
Solar Obligation shall be fulfilled through purchase of solar energy or by Solar
REC only
Change in Scenario : Recent Initiatives RPO REC Regulations
Year Non Solar RPO Solar RPO Total
2010-11 10% - 10.0%
2011-12 11% 0.1% 11.1%
2012-13 12% 0.1% 12.1%
ABPS Infrastructure Advisory Private Limited
Distribution Licensee may purchase renewable energy or renewable
energy certificates for compliance with the RPPO targets
Distribution Licensee to indicate the estimated quantum of purchase for
the ensuing year in tariff/annual performance review
Estimated quantum shall be in accordance with the RPPO
Unable to fulfil the obligation, the shortfall of the specified quantum of that
year would be added to the specified quantum for the next year but credit
of excess RE purchase shall not be adjusted
If fulfilling the RPPO through Purchase of Certificates Solar RPPO shall be
fulfilled by purchase of Solar REC only
Certificates under respective category shall be purchased from Power
Exchange(s) operating under the guidance of CERC only
Obligated Entity should deposit Certificates with the Commission as per the
procedure specified by CERC to show compliance with RPPO
Duties of Distribution Licensee
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Non fulfillment of RPPO in any year through procurement of RE or through purchase the
respective RECs, Commission may direct ‘Obligated Entity’ to create and maintain
separate fund
Obligated Entity to deposit an amount determined on the basis of shortfall in units in
RPPO and Forbearance Price determined by CERC
Fund shall be utlilised on the direction of Commission for purchase of RECs and partly for
the development of infrastructure for evacuation of power from RE generating stations
Obligated Entity may be liable for penalty under Section 142, if fails to comply with the RPPO
In case of genuine difficulty in compliance with RPPO, the Obligated Entity may
approach Commission to carry forward the compliance requirement to next year
Section 142 shall not be invoked if Commission has consented to carry forward the
compliance requirement
Section 142 (Punishment for Non-Compliance of Directions by Appropriate Commission) the Appropriate
Commission may after giving such person an opportunity of being heard in the matter, by order in writing,
direct that, without prejudice to any other penalty to which he may be liable under this Act, such person
shall pay, by way of penalty, which shall not exceed one lakh rupees for each contravention and in
case of a continuing failure with an additional penalty which may extend to six thousand rupees for
every day during which the failure continues after contravention of the first such direction
Recent Initiatives : Consequences of Non Compliance
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Impact on DISCOM for Compliance of RPPO using RECs
Description FY 11 FY 12 FY 13 FY 14 FY 15
Energy Requirement (MU) 6692.87 7016.90 7356.61 7712.78 8086.18
Non Solar RPO (%) 10% 11% 12% 13% 14%
Solar RPO (%) - 0.10% 0.10% 0.10% 0.10%
Non Solar RPO (MU) 669.29 771.86 882.79 1002.66 1132.07
Non Solar RE Available (MU)* 639.21 739.21 839.21 939.21 1039.21
Non Solar Shortfall (MU) 30.08 32.65 43.58 63.45 92.86
Solar RPO (MU) - 7.02 7.36 7.71 8.09
Solar Available (MU)
-
-
-
-
-
Solar Shortfall (MU) - 7.02 7.36 7.71 8.09
* Note : assumed additional availability of at least 100 MU p.a. of non-solar RE power
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Impact on DISCOM for Compliance of RPPO using RECs
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Status of Accreditation and Registration of Projects
18/04/2328
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Status of Transaction of RECs
18/04/2329
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REC mechanism offers alternative to fulfill RPO targets by Obligated
Entities.
Obligated Entities can plan to meet their RPO targets in efficient
manner.
Long term visibility of Floor Price and Forbearance price is
necessary to ensure regulatory certainty for Utility as well as RE
project developers.
Impact on Avg. power purchase cost of Utility is not very significant.
Utility /SERCs may develop Model Power Purchase Agreement for
procurement of electricity from RE projects at APPC.
Bilateral transactions of RECs as & when enabled would provide
larger flexibility and liquidity for REC market, which is the need of
the hour.
Way Forward
ABPS Infrastructure Advisory Private Limited
www.abpsinfra.com
ABPS Infrastructure AdvisoryPractical Solutions to Real Life Problems
ABPS Infrastructure AdvisoryA-309, Kohinoor City
Kirol Road, off LBS MargKurla (West), Mumbai 400 070
Ph: +91 22 6124 0400/ 6124 0444Fax:+91 22 6124 0499
Email: [email protected]