Necessary Moves

Recent policy and regulatory measures

During the past year, the central government has undertaken a number of significant policy and regulatory measures, including amendments to the Tariff Policy, 2006 and the notification of guidelines for short-term power procurement. Clearly, the government is focusing on improving the distribution segment (including discom finances, energy efficiency, rural electrification and 24×7 power supply) as well as on ensuring environmentally sustainable power generation through the revival of the hydro segment and renewable energy capacity addition. Besides this, another priority area is ensuring grid stability in the wake of the increasing share of renewable energy in the generation mix. For this, the Central Electricity Regulatory Commission (CERC) has notified regulations for ancillary service operations and the framework for forecasting, scheduling and imbalance handling for variable renewable energy sources.

Amendments to the tariff policy

In a significant policy development, the much-awaited amendments to the Tariff Policy, 2006 were released in January 2016. The amendment focuses on the four Es: electricity for all, efficiency to ensure affordable tariffs, environment for a sustainable future, and ease of doing business to attract investments.

For “electricity for all”, the policy stipulates the formulation of a defined power supply trajectory, jointly by state governments and regulatory commissions; installation of microgrids; and setting up of small washery reject-based plants.

For “efficiency to ensure affordable tariffs”, the policy mandates 100 per cent expansion of existing power plants; award of transmission projects through competitive bidding; and increase in the coverage of smart meters with functions like time-of-day tariffs and net metering.

For “environment for a sustainable future”, the amendments stipulate that by March 2022, 8 per cent of electricity consumption be from solar power; the introduction of renewable generation obligations wherein new coal- and lignite-based plants to set up (or procure) renewable capacity; there be no interstate transmission charges for solar and wind projects, ancillary services to support grid operations for the expansion of renewable energy be developed; waste-to-energy projects and the use of treated sewage water for thermal power plants be promoted; hydro power through long-term power purchase agreements (PPAs) be encouraged; and hydroelectric projects be exempt from competitive bidding till August 2022.

Further, for “ease of doing business”, the amendments lay down that coal-rich states (like Odisha, West Bengal, Jharkhand and Chhattisgarh) would set up plants with up to 35 per cent of power procured by discoms on regulated tariffs; for competitively bid projects, changes in domestic levies, cess, duties and taxes be passed through; and that the CERC determine tariffs for composite schemes where over 10 per cent power is sold outside the state.

Guidelines for short-term power procurement

In order to stimulate the short-term power market and encourage the signing of new PPAs by state utilities, the Ministry of Power (MoP) released the guidelines for power procurement on a short-term basis, in March 2016. These guidelines aim to introduce transparency and fairness in the procurement process through a system of e-tendering and e-reverse auction.  To this end, the government has launched the Discovery of Efficient Electricity Price (DEEP) e-bidding and e-reverse auction portal for the procurement of power. The scope of the portal is expected to be expanded soon to cover medium-term and long-term power procurement as well. Recently, in May 2016, two states – Uttarakhand and Kerala – procured 150 MW each through this portal for May 2016 and July 2016 respectively.

Revised bidding documents

In August 2015, the MoP released the draft standard bidding document (SBD) guidelines for ultra mega power projects (UMPPs). The draft guidelines propose the replacement of  the existing design-build-finance-operate-transfer model with the build-own-operate model for UMPPs based on domestic coal blocks. Besides, the guidelines include a provision for setting up two special purpose vehicles (SPVs), an operating SPV and an infrastructure SPV. While the former will be responsible for the operation of the UMPP, the latter will hold the land, the captive coal block and other infrastructure. Currently, the MoP is at advanced stages of finalising the SBD.

Meanwhile, in May 2015, the MoP had issued revised standard bidding guidelines for Case I projects. The revised document reduced the contract period for long-term power procurement from 25 years to seven years and above (with a maximum period of 25 years) to align the contract period with the existing coal policy. Further, to reduce delays, the new guidelines require deviations in the SBD to be approved by the state electricity regulatory commission instead of the CERC.

Other policy developments

A significant policy development for coal-based plants was the revision of emission norms. Depending on the age of the plant, the revised permissible particulate emissions range from 30 mg per normal cubic metre (Nm3) to 100 mg per Nm3; emissions for NOx range from 100 Nm3 to 600 Nm3 and for SOx from 100 Nm3 to 600 Nm3. The MoP has also tightened water consumption norms at power plants.

Another noteworthy development for coal-based plants was the release of guidelines in February 2016 for the automatic transfer of coal linkages. As per the new guidelines, older coal-based thermal generation units that have completed their “useful” life need to be replaced in a phased manner. In case the new plant is of higher capacity than the old one, the government will prioritise the allocation of additional coal to the new plant, subject to availability. The policy is applicable only to public sector plants that have already been granted letters of assurance (LoAs)/linkages and have been set up prior to the notification of the National Coal Distribution Policy, 2007. The transfer of LoAs is permissible only for supercritical plants being set up in the same state as the old plant. Besides this, the Ministry of Coal is also at advanced stages of finalising guidelines for the auction of coal linkages for the supply of coal to regulated and non-regulated sectors.

For the renewable energy segment, the Ministry of New and Renewable Energy (MNRE) released the National Offshore Wind Energy Policy, 2015 with the objective of promoting the deployment of offshore wind farms in exclusive economic zones. The policy designates the MNRE as the nodal ministry and the National Institute of Wind Energy as the nodal agency. Besides, the MNRE has also issued the draft Policy for Repowering of Wind Power Projects wherein wind turbine generators of less than 1 MW capacity will be eligible for repowering. To this end, the Indian Renewable Energy Development Agency will provide an additional interest rebate of 0.25 per cent, over and above the interest rate rebate available to new wind power projects. Meanwhile, for the solar segment, the MNRE has released guidelines for developing solar parks, under which 25 solar parks with a capacity of 500 MW or more each would to be developed during 2014-19.

Regulatory developments

A significant regulatory development in the past year was the release of the Ancillary Services Operations Regulations, 2015. The regulation aims to restore frequencies within prescribed levels and relieve transmission congestion. As per the regulation, the nodal agency will prepare a merit order stack of unrequisitioned surplus capacities and a region-wise merit order stack factoring in interregional and intra-regional transmission constraints. During periods of low or high frequency, system contingency, etc., the agency would direct the selected reserves regulation ancillary service providers to “regulate up” or “regulate down”. The commission has also issued procedural guidelines for ancillary service operations.

Another regulatory development aimed at ensuring grid stability and security was the release of the Framework for Forecasting, Scheduling and Imbalance Handling for Variable Renewable Energy Sources (Wind and Solar). The framework, applicable to regional solar and wind generators, allows 16 revisions, one for every one-and-half-hour block, effective from fourth time block. Further, no deviation charges are applicable within a tolerance band of ± 15 per cent.

Another key development was the release of the draft Terms and Conditions for Exchange of Energy Savings Certificates [ESCerts] Regulations, 2016. The regulations aim to facilitate the exchange of ESCerts, issued under the Perform, Achieve and Trade scheme, on power exchanges.

Conclusion 

Net, net, in the past 12 months, significant policy measures have been undertaken to improve the overall health of the power sector, especially the distribution segment.  Meanwhile, the decision on some key issues including auction of coal linkages and SBDs for UMPPs has been long awaited. Further, the coal block auction which started off well has hit a roadblock following aggressive bidding by developers. To conclude, besides the swift implementation of newly launched schemes, the resolution of long-standing issues is critical.

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