Bridge India

REC Regulations – Dark clouds preventing a sunny market

REC Regulations – Dark clouds preventing a sunny market

Mr. Shivansh Tyagi specializes in project development policy and project finance as Consultant in the Solar Project Development team at BRIDGE TO INDIA.

Under the National Action Plan on Climate Change (NAPCC), the government has made it mandatory for particular obligated consumers to consume a part of their total consumption from renewable sources under Renewable Purchase Obligations (RPOs). The RPO creates demand for renewable energy in the market. In order for the obligated entities to meet these RPOs, the government has introduced the Renewable Energy Certificates (REC) mechanism. The RECs create a supply push needed to complement the demand pull from the RPOs.

  • The REC mechanism has significant potential to reach more than 1GW by 2017
  • However, there is no clarity on the regulatory framework that surrounds the REC mechanism at this point
  • It is important for these regulations to be clarified in order the REC market to become viable in India

The RECs provide a simple way for obligated entities to fulfil their RPOs, especially for small Open Access (OA) consumers and captive power plants. They otherwise have to maintain three different power purchase agreements, one conventional energy supply and two others for solar and non-solar renewable power to fulfil their RPOs. The obligated entity can simply buy the RECs from the exchange. The CERC had formulated the regulations for RECs in 2010. Even though the regulations are quite detailed, there is a lack of clarity on issues regarding (a) defining minimum size of projects eligible for REC, (b) new grid connection regulations for REC projects allowing smaller projects, such as up to 500kW, to be connected on the lower voltage side and (c) new intra state distribution open access regulations for renewable power projects.

The regulations states that the minimum size of a project under the REC scheme should be determined by the SERC which in turn leaves the decision onto the state nodal agencies i.e.
renewable development authority.Only four state nodal agencies have notified the minimum
size allowed for REC projects. However, there are cases where projects lower than the
specified capacity of 250kWp have been accredited.

 

The following table lists the minimum size regulations in various states across India:

State REC cap
Andhra Pradesh No Cap
Assam No Cap
Bihar No Cap
Chhattishgarh No Cap
Delhi No Cap
Gujarat No Cap
Haryana No Cap
Himachal Pradesh No Cap
Jammu & Kashmir 250 kW
Goa & UT No Cap
Jharkhand No Cap
Kerala NA
Madhya Pradesh No Cap
Maharashtra 250 kW
Manipur and Mizoram No Cap
Meghalaya No Cap
Nagaland NA
Orissa 250 kW
Punjab No Cap
Rajasthan No Cap
Tamil Nadu No Cap
Tripura No Cap
Uttar Pradesh No Cap
Uttrakhand No Cap

 

Secondly, the regulations are silent on a separate grid connection rules for REC projects. As for REC eligibility, the project is required to be grid connected thus grid connection become a necessity. The current grid connection rules according to Indian Electricity Grid Code (IEGC) – applicable to wind and solar projects in general – states that the injection points should always be at the higher voltage side of distribution or transmission network. The grid rules are made in context to large power plants where per unit cost of step-up transformer for connection to the grid is very low due to high energy generation. However these additional costs make small REC projects unviable.

Recently in the state of Maharashtra, Tata Power Renewable Energy filed a petition in Maharashtra Electricity Regulatory Commission MERC to allow connection at low voltage side for their 500kW solar rooftop plant at Tata Motors. The commission expressed its inability to give any judgement as the regulation is yet to be framed. The MERC referred the case to the CEA and CERC, which in turn replied that they are in consultation to formulate new grid connection rules for such small scale solar projects referring to the FOR meetings, leading to which the petition was withdrawn (Petition order).

The open access charges for conventional energy are between INR 1 per kWh to INR 3.5 per kWh, which makes the sale of solar power through OA unviable even with the REC upside. Some states like Maharashtra give concession on OA charges but most states to do not have a separate regulation on open access charges. Further, the transmission and distribution losses are very high in India and a generator has to bear such charges if they are selling power through open access. It is possible to install a solar power plant on the consumer’s roof itself, so that the generator and consumer are not using the infrastructure of the area’s distribution company (DISCOM). In such cases DISCOMs should not charge any losses to the generator.

If the REC market must be successful the government should address these difficulties as soon as possible and ask all nodal agencies to come up with clear regulations on RECs and grid connectivity. The REC market has the potential to reach more than 1 GW by 2017. We believe that this can only be achieved through clarity on the regulation that surrounds this mechanism.

Senior Consultant, Akhilesh Magal will be speaking at REaction2012 on ‘Viability of REC projects in India’ today, July 26th 2012 in Chennai, India.

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