K.V.S.Subrahmanyam, General Manager (Power), MSPL Limited
There is an urgent need to promote renewables in the present power sector in a sustainable and eco-friendly manner. Developing infrastructure, meeting energy needs, eradicating poverty and social development have to be achieved without compromising on the environment while maintaining ecological balance along side. Various provisions for promotion of renewable sources of energy in a restructured power sector are imperative in the present context.
Of all the renewable sources of energy, wind energy has an exponential growth in India which has been mainly driven by progressive State level legislation, including policy measures such as the renewable portfolio standards and the feed-in-tariffs.
Approach and Paradigm Shift
Recently, there has been a paradigm shift in the power sector policies which not only emphasizes the overall efficiency of power sector operations but also emphasizes the promotion of renewable energy sources with enactment of various regulations such as the Electricity Act 2003 and the National Electricity Policy 2005.
The Indian Government’s stated target and avowed objective is for the renewable energy to contribute to 10% of the total power generation capacity and have a 4 to 5% renewables share in the electricity mix by 2012. This means that renewable energy should grow at a faster rate than the traditional power generation accounting for around 20% of the total added capacity planned in the 2008 – 2012 timeframe.
Wind Power is one of the most promising sources of renewable energy today owing to its commercially viability. Wind energy can play a key role in helping India attain the 15% renewable energy mark by 2020 as targeted by the National Action Plan for Climate Change.
Wind Capacity Addition
Though the capacity addition has reached a target of more than 12000 MW, the growth of the wind power sector is hampered by the issues such as land acquisition, an uncertain regulatory framework, difficulty in logistics, challenges in grid interfacing.
The 48,500 MW potential of wind power is a conservative estimate and with the growth in unit size of turbines, greater land availability and expanded wind resource exploration, this potential should go-up significantly.
The recent developments in the policy structure auger well for growth of wind industry in the country. The policy and the regulatory push in the form of GBI (Generation Based Incentive) & REC (Renewable Energy Certificate) along with the inclusion of wind generation in the National Grid Code, reinforces the seriousness of the policy makers and regulators in promoting investments in this sector. These developments have already started impacting the Industry structure, which is witnessing more serious players entering the segments.
It is, therefore, important to harmonize Central and State level policies and regulations for the sector to scale-up the capacity at a faster pace.
After setting a steady growth trend in the past few years, the wind power in India reiterated rather disappointing results for 2009 which was quite unexpected. With established manufacturing base and support infrastructure, the industry is well set to take a lead.
We are passing through a period of “wind power rush” driven by the Governments liberal package of incentives, capacity addition through private participation.
Period of Stable Growth
From the beginning of the new millennium, the growth curve of the wind power sector expedited signs of persistent rising. Electricity Act 2003 provided the stimulus for its development. Though, the act became operative not before 2005, its passage itself after prolonged deliberations at Government levels was widely acclaimed and has piqued the enthusiasm of the investing public.
More than half a decade after the passage of Electricity Act 2003, the access to the utilities grid (public supply grid) has not been as easy as expected and calls for long waiting time at many proposed sites. For a fluctuating nature of power supply through wind, different States have different approaches on power banking.
Key factors responsible for the growth of Wind Power
- Low gestation periods for setting-up wind energy projects with quick return.
- Conducive Government Policies.
- Large number of financing options available for capital equipment.
- Increasing awareness among industry that being environmentally responsible is economically sound.
- The significant resources coupled-with the continued Government support makes the need a very attractive location for renewables development.
Main focus areas
- Grid interaction wind energy generation systems.
- Wind energy for urban, industrial and commercial applications.
- Wind energy for rural applications.
Market Energy
Recognizing the enormous potential of renewable energy technologies like wind, the GOI has issued guidelines to all State Governments in India articulating the policies that States’ should follow to attract private sector investment and promote commercial projects in the renewable energy sector.
The GOI is encouraging foreign investors to establish renewable energy based power generation projects on the BOO, ie., Build, Own and Operate model.
The GOI also provides exemptions / reductions in the excise tax duty on the manufacturer of most renewable energy systems and devices. For example, the electricity generator and pumps running on the wind energy.
The GOI provides soft loans on favourable terms to manufacturers and users for commercial and near commercial technologies through the Indian Renewable Energy Development Agency “ (IREDA) ”.
The renewable energy industry is identified as a priority sector by the Reserve Bank of India to obtain loans from banks. The GOI provides a facility for 3rd party sales on renewable energy power.
Government Incentives
State Electricity Regulatory Commissions have been mandated to promote renewable energy through renewable purchase obligations which require discounts to source upto 10 to 20% of their power from renewable energy sources.
The key wind energy incentives include a provision for 80% related accelerated depreciation in the 1st year, a 10 year tax holiday, income tax waiver on power sold to utilities on favourable tariffs.
Projects that do not claim accelerated depreciation are entitled to generation based incentive that provides 50 paise per Kwh of power sold for independent power producers with a cap upto 4000 MW.
Exclusive
Most of the pro-active States like Karnataka have accorded an Exclusive Status for Renewable Energy Projects such as Wind Power:
(a) Must Run Status.
(b) Exemption from Merit Order Dispatch.
Policy Network for Renewable Energy Development:
The National Electricity Policy 2005 stipulates that progressively the share of electricity from Non-conventional sources would need to be increased.
Central Government Policy
The spread of various renewable energy technologies have been aided by a variety of policy and support measures by Government. The Prime Minister of India at the All India Full Planning Commission Meet at New Delhi on 1st September 2009 said “A rational energy policy, with an appropriate policies for renewable and non-conventional energy sources is also important for climate change. We need to dovetail our strategy for energy with our National Action Plan For Climate Change ”.
Benefits under Clean Development Mechanism
The Kyoto-protocol has created a favourable climate for international support and mobilization for renewable energy development. The clean development mechanism provides avenues for earning Carbon Credit and mitigation of green house gases under UNFCCC.
As per CERC Notification dated 16th September 2009
(a) 100% of gross proceeds on account of CDM benefits are to be retained by project developer in the first year after the date of commercial operation of the generating station.
(b) In the second year, the share of beneficiaries shall be 10% which shall be progressively increased by 10% every year till it reaches 50% where after, the proceeds shall be shared in equal proportion by the generating companies and the beneficiaries.
It is to be mentioned here that this particular Notification of CERC has an adverse impact on the interests of IPPs rather on the revenues of IPPs.
Policy measures in vogue
A host of fiscal incentives and facilities are available to both the manufacturers and users of renewable energy systems, which include:
- No excise duty on manufacture of most of the finished products.
- No import tariffs for capital equipment and most of the materials and components.
- Soft loans for manufacturers and users for commercial and near commercial technologies.
- Facility for Banking and Wheeling of power.
- Facility for 3rd party sale of renewable energy power.
- Allotment of land on long term basis at token lease rent.
- Special thrust for renewable energy in North-Eastern region of the Country.10% of the planned funds earmarked for North-East towards enhanced special subsidies.
State Government Policies
Consequent to the announcement of policies by Government of India, the State Governments’ have also announced promotional policy packages in the form of Wheeling, Banking and Buy-back Guarantee and considerable tariff escalations for wind and other renewable energy projects. In fact, in may States’, the State Government’s promoted renewable energy development agencies / nodal agencies who are playing a catalyzing role in the development of renewable energy. Some of the States’ like Rajasthan and Karnataka have also set-up single window clearance for renewable energy power projects to facilitate quick and hassle-free approvals and clearances for such projects.
Integrated Policy of India
The Government of India has formulated an integrated energy policy covering all sources of energy including renewable energy sources in December 2008. The policy documents have highlighted the need to maximally develop domestic energy supply options and diversify to alternate energy sources. The main features of the policy include:
Incentives for promoting the renewable should be linked to outcomes (energy generated) and not just to outlays (capacity installed).
Power Regulators should create alternate incentive structures such as mandated feed-in-laws or differential tariffs or specify renewable portfolio percentage in total supply.
We have instances wherein in some of the proactive States like Gujarat, Maharashtra, Rajasthan and Karnataka, the success of IPP projects has been driven by the strong regulatory incentives and a good overall institutional ‘ fit ’ between the regulatory system and the political and the governance institutions in the States.
Laudable efforts of the State Governments:
In keeping with the policies of Government of India, namely, that of MNRE, the efforts of State Governments on core issues as mentioned below are indeed laudable:
- Land identification for renewable energy projects,
- Forest land issues,
- Land development,
- Renewable energy special economic zones,
- Single window clearances,
- Evacuation arrangement,
- Renewable energy obligation,
- Feed-in-tariff,
- Wheeling and Banking facilities,
According to Development Counselors International (DCI), a US marketing company, “ India is the 2nd best country after China for business investments. This is because, India’s labour including its supply, skill levels and cost is the main reason for this positive perception ”.
To get the best out of the wind farms
The annual energy out-put of any wind farm depends on:
- Grid availability,
- Machine availability and
- Array efficiency.
But, unfortunately, in few cases, the perceptions of the developers (suppliers) are totally in variance with that of the promoters of the projects, namely, IPPs, particularly in case of the grid availability and machine availability.
The point to be emphasized here is wrong interpretations on the grid availability, mixing the internal grid with the external grid and also on the machine availability aspect. These issues are in fact leading to perpetual disputes between developers and the promoters of the project forcing the IPPs to take-up the matters in the Courts of law.
Further, Policy initiatives like the Generation Based Incentive (GBI Scheme) and the Renewable Energy Certificates (REC Mechanism) are expected to incentivize future wind capacity addition.
While, States like Karnataka and Tamil Nadu exceeded their RPO targets, most other States did not meet their RPO targets during 2008-10. Therefore, there is a need for a strong enforcement mechanism for the RPO scheme to succeed which in turn will drive the REC market.
REC Framework
The emerging REC framework devised by the Regulatory Authorities provides an alternative to the current Preferential Tariff regime and is based on a market oriented approach to promote Renewable Energy.
The REC regulations stipulate eligibility criteria for participating in REC Trading. The criteria includes:
(1) RE Generators who do not have PPAs or have naturally ended the tenure of the PPA with a Distribution Licensee on a Preferential Tariff.
(2) RE Generators who have a PPA at or less than the pooled power cost of the State Distribution Utility where the project is located.
(3) RE Generators who use Power for captive consumption or sale to a Third party and have not availed any benefits such as Concessional Wheeling and Banking and also those who sell power in the Open Market or Power Exchange.
The key steps for the RE Generator involve:
(a) Accreditation through the State Nodal Agency.
(b) Registration through the National Load Dispatch Centre and
(c) Trading and Redemption through the Power Exchanges.
The entities have to apply within six months before the Commissioning of the Plant while for the renewals of the REC, the application has to be submitted Three months in advance.
Power Exchanges enable Price discovery for RECs due to independent bidding.
Since REC is a new concept that is being adopted, many States are yet to spell-out their minds to crystallize the same.
The financing community is of the view that the Accelerated Depreciation Scheme offers good returns to the developers / promoters. Thus, even though, the GBI scheme which was introduced in December 2009, offers a cost incentive of 0.50 paise per Kwh over and above the feed-in-tariffs for 10 years, it will take some time for the scheme to meet with success as its scope has just recently been widened. Earlier, the benefit under this scheme was available only for a smaller capacity of upto 49 MW, but it has now been extended to 4,000 MW. It is also seen that the GBI scheme is becoming popular with Independent Power Producers like NTPC, Tata Power and CLP.
Conclusion:
Regulatory incentives play a very important role in ensuring the success of the IPPs. It is, therefore, absolutely necessary to ensure proper institutional ‘ fit ’ of the overall regulatory apparatus with the existing institutional endowment of the State which is extremely important. Specifically, a proper regulatory and governance structure that ensures the regulators can perform their task independently with adequate involvement of all the relevant stake-holders has all the priority and significance. They also need to ensure that the regulatory incentives are designed in such a way to make the IPP projects commercially viable.
Author’s introduction
Shri KVS Subrahmanyam has had a consistently brilliant academic career all through with distinctions in BSc & BE.A gold medalist for having secured the 1st rank in Engineering. A power engineer worked through-out in power projects by contributing more than 50 technical papers to various National and International Conferences.
He was the 1st Executive Engineer to start the prestigious project works of the Kaiga Nuclear Power Project of GOI in Karnataka (1983-88). As Chief- Engineer, Projects and Additional Secretary, Energy Department, Govt. of Karnataka (1999-2002), he was largely responsible, as a policy maker, for the implementation of the highly prestigious IPP Projects such as the 220 MW Barge Mounted Combined Cycle Power Project in Mangalore, the Jindal Coal-cum-Corex Gas Power Plant of 2x130 MW at Thoranagallu in Karnataka, the 81 MW Liquid Fuel power Project of Tata Power company at Belgaum.
Awards and distinctions:
He has the unique distinction of being the recipient of Pandit Jawaharlal Nehru Birth Centenary Research award for the year 1994 for his out-standing contribution in the fields of water resources and power.
Also, the recipient of Shri Shivaprakasham Medal for the best technical paper on the power sector development in Karnataka-1993 and the CBIP Gold medal for the best research paper in generation Hydro during 1994.
As Executive Director (Projects) and Special Secretary to Government of Karnataka in the Energy Dept. (2002-2004), his contributions were quite significant for the development of Power Sector in the Karnataka State. Since his Superannuation in 2004, he has been with MSPL and his contributions are quite significant for the present installed capacity of 216 MW of Baldota Group.
