July 24, 2015

Proposed RE Act in India Gives Sweeping Powers to the Centre

The proposed National Renewable Energy Act, 2015—the draft of which has been put up for public comments—seeks to give sweeping powers to Government of India to develop the renewable energy industry in India.

Under the first chapter—on ‘Institutional Structure’—the Act says that the Central government “shall have the power to take all such measures as it deems necessary or expedient” for the purpose of development of renewable energy in the country.

The government will also “issue guidelines” to the state governments on how to formulate ‘state level renewable energy policies’ and ‘state level renewable energy plans’ and provide “necessary support” to the state governments.

The state government “shall” from time to time formulate, monitor and implement state level renewable energy policy and ‘state level renewable energy plan’, in doing which it “shall” take into consideration the National Renewable Energy Policy and the National Renewable Energy Plan as well as the “appropriate guidelines issued by the Central government”.

The Act makes a distinction between what a state government “shall” do and what might do, because elsewhere in the Act it uses the word “may”, indicating grant of option to the state government.
For instance, it says that the state government “may” establish a State Green Fund and “may” develop policies for the promotion of renewable energy.

Industry’s wishes granted
The proposed legislation grants two major wishes of the renewable energy industry—the ‘deemed generation’ benefit, which says the generator of renewable energy will be paid even if the grid is not available to evacuate the power, and the enforcement of the legislation that forces certain specified classes of consumers to buy specified quantities of renewable power.

On ‘deemed generation’, the Act says that (even) if the grid is not available for power evacuation, the power produced by a renewable energy plant that is already operational will be “considered to be generated and sold”. The charges will be paid to the energy generator.

“It is a wonderful thing,” says S Venkatachalam, Managing Director and CEO, Orient Green Power, a Chennai-based renewable energy producer. However, Venkatachalam would like to see what rate the policy prescribes as payment for such deemed generation.

Loss of revenue due to the grid not being available is an issue seen the most in Tamil Nadu, where wind power producers have been losing heavily because the grid operator is unable to evacuate the power.

At the peak wind periods, the grid is unable to handle the rich but unpredictable flow of wind power and the electricity distribution company prefers not to buy electricity from the wind power companies. The generators are put to a loss. Deemed generation will compensate them for such a loss.

The President of the Indian Wind Power Association, K Kasturirangaiyan, points out that the conventional power projects already enjoy the deemed generation benefits—they are paid ‘capacity charges’ whether or not the power they produced is bought. The Act brings the renewable energy sector on par with the conventional power industry, he says.

RPO compliance
The Act grants the industry the other long standing demand—that the renewable purchase obligation should be enforced. ‘Obligated entities’ (mostly, large consumers and electricity distribution companies) are required by law to buy a certain portion of their energy needs from renewable sources. The respective electricity regulatory commissions of states are expected to enforce this obligation.

However, most of the obligated entities have not been meeting their statutory obligations. The proposed Act prescribes stiff penalties for non compliance and says that the state electricity regulatory commissions “shall ensure” that the tariff for renewable energy shall be paid by the obligated entities in a timely manner.

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