The recent amendments to the National Tariff Policy have come as a shot-in-the-arm for the renewable energy sector. The policy impetus for the Country’s pet sector is there for all to see but the implementation impedance could prove to be a drag 

The Central Cabinet on January 20, 2016 approved the amendments to the National Power Tariff Policy  that aims at promoting clean energy, support Swachh Bharat Programme, better regulation of power distribution companies and faster rollout of investments in the sector

Power Minister Piyush Goyal had recently said: “Now that we have a challenge to add 1.75 lakh MW of renewable energy, we are also bringing in certain more elements in tariff policy which will promote renewable energy”

Here, we look at the key amendments considered to promote clean energy

Increased RPO to support proliferation of Solar Capacity
The amended tariff policy proposes to increase the Renewable Purchase Obligation (RPO) from Solar to 8% of electricity consumption by 2019 from the earlier target of 3% by 2022. This increase could potentially support 80GW solar capacity, assuming sustained 8% annual demand growth in FY16 - 22. The increase in RPO was necessary to complement the government’s ambitious 100GW solar capacity addition target

However, with discoms under UDAY scheme due to weak finances, implementation of renewable projects could be impacted

Exemption from inter-state transmission charges and losses
The policy seeks to exempt solar and wind power from inter-state transmission charges and losses till such period notified by GoI. The amendment now makes it financially viable for project developers in a wind resource rich state to target PPAs in another state. This would also encourage a large concentration of solar plants in resource rich states, such as Rajasthan and Gujarat provided the transmission capacity is sufficiently boosted. Green corridors to evacuate renewable power are already in active planning stages

The key challenge in addition to transmission would be the willingness of the state to encourage projects in other states thereby foregoing revenues that would accrue should the project have been set up in the home state

100% procurement from Waste-to-Energy plants
Another significant change is the “Compulsory procurement of 100% power produced from all the Waste-to-Energy plants by Distribution Companies”. This serves twin objectives of the Swachh Bharat Mission as well as providing a boost to another source of renewable energy. According to the MNRE, there exists a potential of ~1700 MW from urban waste and ~1300 MW from industrial waste. However installed capacity from waste sources till November 2015 was less than 150 MW

Procurement of renewable energy on competitive bidding process
The tariff policy envisages that procurement of renewable energy, as far as possible, will be done on a competitive bidding basis. Further, “an appropriate bid-based tariff framework for renewable energy, allowing the tariff to be increased progressively in a back-loaded manner over the life cycle of such a generating plant” is planned. The back-loaded manner could imply costs are kept low at present so as to minimize cost burden on the Discom’s, to be increased over the life of the project

Renewable Generation Obligation (RGO) on new coal/lignite based thermal plants
The amendment proposes that all coal-fired power plants installed after a specified date will have to be accompanied by a renewable power plant for at least 10% of their coal generating capacity (tariffs of which will be determined on a cost plus basis). Conventional power generators have an obvious advantage over renewable IPPs in terms of scale and existing evacuation infrastructure. Now, with the added advantage of being able to directly pass through costs for solar on a regulated cost-plus basis, these players might get a significant advantage over renewable IPPs going forward

However RGO would have limited impact in the short term as private sector companies are presently focused on completing their existing projects rather than setting up new capacity

 



As shared with IFIN Panorama Editorial Team




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