Solar policy vs. DISCOMs – Round One

One group in India that has so far not shared the enthusiasm about the country’s solar ambitions is utilities. Their immediate concerns relate to how the transmission and distribution grid is used and paid for. At a more fundamental level, they are wondering about whether the growth of solar will restrict or change their role in India’s future electricity system. While some DISCOMs have been more proactive, viewing solar as an opportunity, others have been dragging their feet. This has been a key determinant of whether or not solar has take off in different states. Andhra Pradesh is one of the most solar enthusiastic states in India – but the state’s DISCOM is now challenging that. The Eastern Power Distribution Company of AP Limited (APEPDCL), has petitioned the state electricity regulatory commission, APERC, to review exemptions from wheeling charges for renewable energy (refer).

  • Andhra Pradesh was a leading state in announcing a waiver of wheeling charges and has since been followed         by several others
  • Regulatory changes after the investment has been made can be very damaging to the investment climate. The          petition in Andhra Pradesh is a reminder of the uncertainties of the business.
  • BRIDGE TO INDIA supports fair compensation for use of infrastructure but that should not be confused with         seeking to protect distribution monopolies

State DISCOMs impose wheeling charges on the use of their transmission infrastructure. A waiver from wheeling charges is an incentive for the renewables sector, essentially a subsidy. APEPDCL argues that it is currently losing revenue due to such waivers and will have to bridge the revenue gap by hiking tariffs for non-solar customers. For this reason, it has asked for the waiver to be scrapped. We expect many more such challenges to solar in India.

Andhra Pradesh was one of the first states in India to announce a waiver of wheeling and some other open access charges for captive use/private sale of power from utility scale solar projects. This decision was hailed by the solar industry and similar policies with full or partial waiver of various open access charges were announced in Karnataka, Madhya Pradesh, Tamil Nadu, Punjab, Uttarakhand and Punjab. The trend so far was towards expanding this model. The central government, for instance, has proposed changes to the National Tariff Policy 2005 to allow free interstate transmission of renewable power.

With falling solar prices and rising grid power tariffs solar power has become an attractive choice for more and more customers. This has prompted several developers to look at private solar parks and other such business models seriously. According to BRIDGE TO INDIA’s project database, over 100 MW of off-site, private sale of power sola projects have been built. Many developers are currently looking at such opportunities through the solar parks being built in Madhya Pradesh, Telangana, Rajasthan, Tamil Nadu and Andhra Pradesh.

A key concern investors and especially banks have had with such projects has been the longevity and stability of waivers from various charges announced as part of ambitious state policies. Despite grand vision statements, actual regulations can change quickly and in India, they are almost never protected by a ‘grandfathering’ clause (refer). Regulatory changes after the investment has been made can leave investors in a lurch. The petition in Andhra Pradesh is a sharp reminder of such uncertainties.

BRIDGE TO INDIA is of the opinion that DISCOMs should be fairly compensated for use of their infrastructure. However, this compensation should not be used to shut out new entrants and maintain monopolies. If states want to provide such incentives to the solar sector, then DISCOMs should either be allowed to pass these costs on to other customers or the government should compensate them for it.Otherwise, similar policies in other states, especially policies such as Karnataka’s 10 year waiver on wheeling and other charges, will not be sustainable. So the issue needs to be addressed keeping in mind the interests of all stakeholders. It is equally important, however, to build investor trust in the Indian market and from that perspective, overturning any policy for existing projects should be a strict no-no.

3 comments

  • Electricity cost from solar projects has come down drastically, so much so that it is lower than the grid electricity cost to ht industrial consumers in many states..This has been possible due to various policy level incentives declared by govt.THESE INCENTIVES AND AVAILABILITY OF NATURAL RESOURCES IN CERTAIN STATES HAVE ATTRACTED VARIOUS DEVELOPERS TO INVEST IN THOSE STATES. HOWEVER, IF RETHINKING IS DONE BY govt or its instrumentality for withdrawal of these incentives or upward revision of charges on account of sharing THE INFRASTRUCTURAL FACILITIES AFTER THE PROJECT HAS BEEN PUT UP OR THE FUNDING HAS BEEN MADE ,THE SAME WILL HAVE NEGATIVE IMPACT ON FUND FLOW OF THE PROJECT DEVELOPERS, RESULTING INTO REDUCTION IN REPAYMENT CAPACITY AS WELL AS POOR INVESTMENT SENTIMENT. IT IS ALSO FACT THAT FINANCIAL HEALTH OF DISCOS IS ALSO OF VITAL IMPORTANCE, IN SUCH A CASE, THE DISCO MS CAN BE SUITABLY INCENTIVIZED/SUBSIDIZED BY THE RESPECTIVE GOVT, FAILING WHICH THE SOLAR SOLAR SECTOR, WHICH HAS JUST STARTED TAKING OFF, WILL BE BADLY JOLTED. SOLAR SECTOR STILL NEEDS HAND HOLDING IN FINANCIAL AND REGULATORY MATTERS.

  • ‘State DISCOMs impose wheeling charges on the use of their transmission infrastructure’.

    But State DISCOMS own distribution infrastructure and STU actually owns Transmission Infrastructure. Right? This sounds trivial but i have always been foxed by it.

  • it is desirable that all mw projects are owned by discoms or generating stations so that they can JUDICIOUSLY distribute solar power and this will also help in future planning of power requirements. differential tariff as in the west, is another incentive for discoms as they can get more revenue.
    medium range power users such as 100 kw/ 200 kw etc., who mostly use power during the day time, such as offices, banks, institutions etc., use power mostly within their premises and grid connection is needed from technical considerations, hence they need not be burdened with wheeling charges. in fact this power discoms can sell for other customers at higher tariff. this will be BENEFICIAL both ways.
    above all renewable energy should be viewed from environmental and futuristic considerations, which needs education and participation by all concerned and the people at large.

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