Abstract

India's commitment and efforts towards leading the global transition to clean energy has led to an increase in the country's installed renewable energy ("RE") capacity by 396% in the last 8.5 years.1 As on February 28, 2023, India's installed RE capacity was 1,68,963 MW – which accounts for approximately 41% of India's total installed power generation capacity.2

India now ranks #4 globally in terms of the installed RE capacity (including large hydro projects)3, and has ambitious targets. The Ministry of New and Renewable Energy ("MNRE"), Government of India ("GoI") is aggressively working towards achieving a target of 500 GW of installed capacity from nonfossil sources by 20304, and honoring India's commitments under the Paris climate accord i.e., to reduce emission intensity to 45% below 2005 levels by 2030 and achieve about 50% cumulative electricity power capacity from non-fossil fuelbased energy resources by 2030.5

KEYWORDS: Renewable energy, Clean energy, Exponential growth, Regulatory reforms

The installed capacity figures clearly show that RE generation in India has seen an exponential growth in the last few years. Renewable energy installed capacity was approximately 13% in 2014 (excluding large hydro projects) of the overall installed capacity mix of the country and as of March 31, 2023, it sits at 41%. While this growth can be attributed to a multitude of factors, the incentives provided by the GoI to RE developers, such as accelerated depreciation, generation-based incentives, renewable purchase obligations, waiver of inter-state transmission ("ISTS") charges, income tax breaks, etc., have been some of the key drivers. Further, 100% foreign direct investment in the RE sector being allowed without GoI's prior approval has also been a positive consideration for attracting foreign investment in this sector.

With an aim to keep India on track to achieve its RE targets and with the intention of moving towards a more sustainably developed economy, India has introduced several reforms in the regulatory framework for the RE sector. In this article, we discuss in brief, some of the major recent regulatory reforms introduced by the GoI to promote RE.

Must-run status

Early on, when the push towards RE sector started in India6, power plants based on RE sources were given a "must run" status in the Indian Grid Code. This basically meant that such plants would not be subject to merit order dispatch principles (i.e., they would not be backed down inter alia when cheaper power is available). Despite this initiative the practical reality on the ground was different. To address the curtailment of RE power plants, the Ministry of Power, GoI ("MoP") recently issued the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021 ("Must Run Rules"). The Must Run Rules provide that wind, solar, wind-solar hybrid or hydro power plants or plant generating power from any other source notified from time to time are treated as must-run power plants ("MRPP"). Importantly, the Must Run Rules state that such power plants cannot be subjected to curtailment or regulation of generation or supply of electricity other than on account of technical constraints or for security of the grid.

In the event of a curtailment of supply from a MRPP, compensation would be payable by the procurer to the MRPP at the rates specified in the power purchase/supply agreement. And, in the event of a curtailment from a MRPP on account of any technical constraint in the electricity grid or for reasons of security of the electricity grid, the MRPP would sell the electricity not scheduled by the procurer, in the power exchange. The amount realised by such MRPP from sale of electricity in the power exchange, after deducting actual expenses paid for the sale in the power exchange, would be adjusted against the compensation payable by the procurer.

Modification of bidding guidelines and the power purchase agreement ("PPA")

MOP and MNRE have taken cognizance of the issues faced by the developers over the last decade and have addressed the concerns by amending the power purchase agreements over a period. The bidding documents issued by MOP for solar and wind power procurement and then for procurement of hybrid power (with a mix of solar and wind power) have also evolved since 2017. The concept of compensation to the developer in case of curtailment of power (as discussed in the immediately preceding para) was one such change. Additionally, termination compensation payable to developer in case of the utility default was also a concept introduced over a period to make these power projects/PPAs more bankable.

To address one of the biggest concerns of the developers, the payment security mechanisms (in the form of letter of credits, escrow accounts, tripartite arrangement, etc.) to be issued by Solar Energy Corporation of India ("SECI")/ the discoms were introduced under the PPAs. To further strengthen the concept of timely payment for the power procured and clearance of outstanding amounts due to the developers by discom, the MOP framed the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. These rules inter alia mandated payment of late payment surcharge ("LPS") by SECI to the developer on the outstanding payment at the base rate of LPS i.e., the marginal cost of funds-based lending rate for one year of State Bank of India as applicable on the 1 st April of the financial year in which the period lies, plus 5% (500 bps). For continued delay, this base rate is to be increased as per the prescribed formula under the said rules.

Energy Storage concept

The Electricity Act, 2003 ("Electricity Act") does not envisage any framework for procurement, appropriation or regulation of storage systems. However, in the past few years, certain regulatory and executive changes have been introduced to implement energy storage systems ("ESS"). Finally, this concern was addressed in 2022 by a clarification of MOP regarding usage of ESS in various applications across the entire value chain of power sector7; it is now clarified that:

  1. ESS is a part of the power system defined under Section 2 (50) of the Electricity Act;
  2. ESS can be utilised either on standalone basis or in complementarity with generation, transmission and distribution;
  3. ESS can be utilised as generator, grid element or network asset. These assets can be developed, owned, leased and operated by a generating company or a transmission licensee or a distribution licensee or a system operator or a standalone energy storage service provider;
  4. The developer/ owner of ESS may sell/ lease/ rent out the storage space in whole or in part to any utility engaged in generation or transmission or distribution, or to a load despatch centre;
  5. The standalone ESS would be: (a) a delicensed activity at par with a generating company, for which purpose, the owner/ developer would need to be registered with the Central Electricity Authority; and (b) granted connectivity under the Electricity (Transmission System Planning, Development and Recovery of Inter-State Transmission Charges) Rules, 2021.

As a further push to energy storage, recently8 , MoP issued the guidelines to promote development of pumped storage projects ("PSPs"). This step was in line with India's aggressive clean energy targets – as various energy storage models are imperative to provide grid stability. As the energy supply from RE sources cannot be fully regulated due to their dependence on factors such as time of day, season and weather; there is a need for flexible energy generation and storage assets.

Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 ("Green Energy OA Rules")

With an aim to promote generation, purchase and consumption of green energy including energy from waste-to-energy plants, the MoP notified the Green Energy OA Rules on June 6, 2022. On January 27, 2023, MoP issued an amendment to the Green Energy OA Rules to inter alia entitle any consumer to apply for procurement of green energy, and not restrict it to consumers who have a contracted demand or sanctioned load of 100 kW or more. Furter, no cross-subsidy surcharge and additional surcharge is applicable for waste-toenergy plants; and for offshore wind projects commissioned upto December, 2025 no additional surcharge would apply.

ISTS Charges – waiver

The MoP on December 2, 2022 announced the waiver of ISTS charges on transmission of electricity generated from hydro power projects ("HPPs"). This waiver of ISTS charges extends to HPPs for which construction work is awarded and power purchase agreement ("PPA") is signed on or before June 30, 2025. Further, in relation to HPPs for which construction work is awarded and PPA is signed post June 30, 2025, ISTS charges would range between 25% to 100% of the applicable ISTS charges, depending on the year in which the construction work is awarded and PPA is signed. The said waiver/concessional charges would be applicable for a period of 18 years from the date of commissioning of the HPP, and would apply only to ISTS charges and not losses.

In addition, Central Electricity Regulatory Commission ("CERC") on February 7, 2023 amended the CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020. Pursuant to this amendment, RE projects based on solar, wind, solar-wind hybrid, hydro pumped storage hydropower and battery energy storage system whose bidding was completed on or before January 15, 2021 and which achieved commercial operation date ("COD") within the date specified in their respective power purchase agreements would be exempt from payment of transmission losses.

Further, waiver of transmission charges for use of ISTS is inter alia proposed as follows:

  1. for RE generating stations ("REGS"), renewable hybrid generating stations ("RHGS") and pumped hydroelectric stations which declare COD by June 30, 2025 for a period of 25 years from COD;
  2. for battery storage systems that are charged using energy from REGS or RHGS with COD before June 30, 2025 for 12 years from COD;
  3. for solar power projects operating under the Solar Energy Corporation of India manufacturing-linked capacity program to sell power to entities with renewable purchase obligations for 25 years from the COD;
  4. for REGS, RHGS, pumped hydroelectric stations, and battery storage systems that achieve COD after June 30, 2025 but before June 30, 2028 to be considered in a staggered manner based on prescribed methodology.

Push to domestic manufacturing - Approved models and manufacturers of solar photovoltaic ("PV") modules

One of the aims of the Jawaharlal Nehru National Solar Mission inaugurated in 2010 was to promote technological innovation and enhance solar manufacturing capability in India. Unfortunately, we have not been successful in achieving this objective. However, last few years have seen a number of regulatory steps to try and push the local solar manufacturing such as imposition of safeguard duties, custom duty etc. on import of solar modules from some of the specific jurisdictions. These steps have, unfortunately, been more of a deterrent for the power plant developers (as against providing impetus to the manufacturing of solar modules).

Towards this end, MNRE on January 2, 2019 issued the Approved Models and Manufacturers of Solar Photovoltaic Modules (Requirements for Compulsory Registration) Order, 2019 ("ALMM Order"). The ALMM Order provides for the enlisting of eligible models and manufacturers of solar PV cells and modules complying with the standards prescribed by the Bureau of Indian Standards and publish the same in the Approved List of Models and Manufactures ("ALMM"). The effective date for the implementation of the ALMM Order was originally fixed as March 31, 2020; which meant that after the effective date, all projects covered by the ALMM Order were to source their modules from models and manufacturers included in the ALMM.

Recently9, to provide some comfort to the developers, MNRE held in abeyance the ALMM Order for the financial year 2023-24. Accordingly, projects commissioned by March 31, 2024 will be exempted from the requirement of procuring solar PV modules from ALMM. Further, on March 22, 2023, MNRE amended the ALMM Order mainly to provide for an exception from the erstwhile manufacturing facility inspection requirement, to the applicants who: (i) have multiple manufacturing sites, or (ii) source the finished product (cells/modules for which the application has been made) from some other manufacturer(s) and sell the same under their own brand name.

Renewable Generation Obligation ("RGO")

Post the concept of RPOs being successful, a similar concept of RGO was being considered for some time. Finally, on February 27, 2023, MoP notified the RGO for thermal power plants pursuant to a resolution which requires generating companies establishing a coal/lignite based thermal generating station to (unless it meets its renewable purchase obligations):

  1. establish RE generating capacity (in MW) i.e., RGO of a minimum of 40% of the capacity (in MW) of a coal/lignite-based thermal generating station or procure and supply RE equivalent to such capacity, for projects expected to achieve COD on or after April 1, 2023;
  2. comply with RGO of 40% by April 1, 2025 for projects having COD between April 1, 2023 and March 31, 2025;
  3. comply with RGO of 40% by COD for projects having COD after April 1, 2025.

Green Hydrogen

On its 75th Independence Day (August 15, 2021), India launched the National Hydrogen Mission to meet its climate targets and with an aim to make India the global hub for manufacturing of, and largest exporter of, green hydrogen. Subsequent to the launch of the National Hydrogen Mission, the GoI issued the Green Hydrogen Policy on 17 February, 2022 ("Policy"). Unfortunately, the Policy (though in line with the past practice of the MOP) was bare bones and sketchy; and did not offer the details, which the industry was expecting. Thereafter, the industry was awaiting the National Green Hydrogen Mission ("Mission") to act as a primer for the development of green hydrogen ecosystem.

The GOI finally issued the Mission document on January 4, 2023; which provides for some broad level construct, though concrete steps required are still missing. The Mission envisages an initial outlay of INR 19,744 crore, including an outlay of INR 17,490 crore for the strategic interventions for green hydrogen transition programme, INR 1,466 crore for pilot projects, INR 400 crore for R&D, and INR 388 crore towards other Mission components (such as skill development).

Conclusion

The GoI recognizes the importance of RE in meeting the country's net-zero emission targets, and has introduced several reforms to promote generation of electricity through RE sources. Despite this, the reality is that we did not achieve the installed RE capacity target of 175 GW by 2022.

GOI is certainly mindful of the regulatory reforms needed for the growth of the RE sector and is making certain initiatives as well. However, what is needed at this stage is thought through and well drafted policy change is introduced. Hopefully, this would be able to address the issues being faced by the developers, investors, manufacturers, technology providers, financiers and all the other stakeholders; and attract sufficient investment (both foreign and domestic) to achieve our aggressive targets.

Footnotes

1. Renewable Energy, see https://www.investindia.gov.in/sector/renewable-energy.

2. Power Sector at a Glance, see https://powermin.gov.in/en/content/power-sectorglance-all-india.

3. Renewable Energy, see https://www.investindia.gov.in/sector/renewable-energy.

4. Ibid.

5. 9 India's Updated First Nationally Determined Contribution Under Paris Agreement, see https://unfccc.int/sites/default/files/NDC/2022- 08/India%20Updated%20First%20Nationally%20Determin ed%20Contrib.pdf.

6. Around 2010 or so.

7. Clarification No. 23/26/2021-R&R dated January 29, 2022.

8. On April 10, 2023

9. On March 10, 2023

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