The past year was marked by several important developments across various segments in the power sector. In order to help discoms turn the corner, the government recently launched a new big-ticket power distribution scheme with an outlay of over Rs 3 trillion – the Reforms-Based and Results-Linked Revamped Distribution Sector Scheme. The policy and regulatory moves were also aimed at addressing the challenges arising due to the pandemic, including the government’s liquidity infusion scheme worth Rs 1,350 billion as part of the Aatmanirbhar Bharat Abhiyaan under which loans worth Rs 796.78 billion were sanctioned to state-owned power distribution companies. Further, the environment ministry notified revised deadlines for emission compliance by thermal power plants (TPPs) as well as released draft ash utilisation norms.
Indian Infrastructure presents a round-up of the key recent developments in the power sector over the past one year…
In June 2021, the Ministry of Power (MoP) allowed state governments and union territories (UTs) flexibility in utilisation of domestic coal in power generating stations to reduce the cost of power generation. The ministry permitted states to utilise their linkage domestic coal, under flexible utilisation of coal, in the case-2 scenario-4 power plants which will result in a reduction in the cost of power.
In September 2020, the MoP issued the Draft Electricity (Change in Law, Must-run Status and Other Matters) Rules, 2020. The draft lays down rules to allow quick compensation to power plants for additional costs arising due to change in law events or modifications in consents or licences. As per the rules, the pass-through in tariffs due to a change in law will be implemented in an expeditious manner within 30 days. The draft has provided for 75 per cent of agreed PPA tariff in case compensation is not provided for in the PPA.
In April 2021, the Ministry of Environment, Forest and Climate Change (MoEFCC) extended the timelines for complying with the emission norms for coal-based TPPs by three years from one year previously. The amended rules allow TPPs within 10 km of the National Capital Region and those in cities with a population of more than 1 million to comply with the new emission norms by December 31, 2022, and TPPs in non-attainment cities and those within 10 km of critically polluted areas to do so by December 31, 2023. TPPs in other areas have to comply with the norms by December 31, 2024. TPPs declared to retire before December 31, 2025 are not required to meet the specified norms in case such plants submit an undertaking to the Central Pollution Control Board and the Central Electricity Authority for exemption on grounds of retirement. Such plants will be charged environment compensation if they continue to operate beyond the date specified in the undertaking.
In April 2021, the MoEFCC issued a comprehensive draft notification on ash utilisation under the Environment (Protection) Act, 1986, on grounds of “the polluter pays” principle. The draft notification has, for the first time, introduced a provision for imposing a fine on plants that do not comply with the new timelines. It has also extended the deadline for TPPs to ensure 100 per cent ash utilisation by three to five years. In addition, the draft has given 10 years to TPPs to utilise the legacy ash that has been accumulated by gencos over the years.
In June 2021, the MoP announced an extension for waiver of interstate transmission charges for renewable energy generation projects. Now, the waiver on solar and wind generation projects will be available till June 30, 2025 as compared to June 30, 2023 earlier. The waiver will also be applicable for pumped storage hydropower plants and battery energy storage systems if 70 per cent of the electricity produced from these units is generated from solar and wind sources. The order allows waiver of transmission charges for renewable energy trade in the green day-ahead market (as part of the integrated day-ahead market) in future.
In May 2021, the CERC issued the draft Ancillary Services Regulations, 2021 to provide for a regulatory mechanism for ancillary services in the interest of reliability, safety and security of the grid. The objective of these regulations is to provide mechanisms for procurement, through administered as well as market-based mechanisms, deployment and payment of ancillary services for maintaining the grid frequency close to 50 Hz.
In March 2021, the MoP notified the division and demerger of the Central Transmission Utility and Power Grid Corporation of India Limited Transfer Scheme, 2021. Further, the MoP notified that Central Transmission Utility of India Limited, a government company, will undertake and discharge all functions of the CTU pursuant to the provisions of the Electricity Act, 2003 or any regulations or directions of the central commission or authority. Further, Power Grid Corporation of India Limited (Powergrid), which was declared as a CTU vide gazette notification dated November 27, 2003, will continue to be a deemed transmission licensee under the Electricity Act, 2003 and discharge functions incidental and connected therewith.
In July 2021, the government launched a new big-ticket power distribution scheme with an outlay of over Rs 3 trillion. The Reforms-Based and Results-Linked Revamped Distribution Sector Scheme (RDSS) joins the list of many schemes and programmes that have been launched over the past decades to revive the ailing discoms. Unlike earlier schemes, however, the RDSS promises a customised approach for each state rather than a “one-size-fits-all” approach. The central assistance will be based on meeting pre-qualifying criteria and achieving minimum benchmarks by discoms. It envisages a reduction in AT&C losses to 12-15 per cent by 2024-25, separation of 10,000 agricultural feeders and laying of 400,000 km of overhead lines among other things.
In June 2021, the MoP notified a discussion paper on Market Based Economic Dispatch (MBED), which envisages a centralised system to route electricity consumption in all states through power exchanges to discover a national uniform price and ensure that the cheapest available power is despatched. The move is expected to lead to significant savings in procurement costs. According to the draft proposal, MBED can yield around 4 per cent savings on an average in power procurement costs.
In April 2021, the MoP released the draft National Electricity Policy (NEP), 2021, in accordance with Section 3 of the Electricity Act, 2003. The policy is being updated after a long gap of 16 years since the notification of the NEP, 2005. The draft NEP lays emphasis on distribution reforms, power quality and reliability, large-scale integration of renewable energy, flexibility of existing and future generating plants, empowering load despatch centres, light-touch regulation, expansion of power markets, creation of electric vehicle (EV) charging infrastructure, and greater overall reforms at the state level.
In April 2021, the MoP issued the draft Bureau of Energy Efficiency (Manner and Intervals for Conduct of Energy Audit (Accounting) in Electricity Distribution Companies) Regulations, 2021. These regulations will be applicable to all electricity distribution companies notified as designated consumers. The draft regulations make it mandatory for every discom to conduct energy audit (accounting) for every financial year within a period of three months from the expiry of the relevant financial year.
In March 2021, the MoP issued guidelines enabling discoms to either continue with or exit from PPAs after the PPA’s term is completed, that is, after 25 years or the period specified in the PPA. As per the guidelines, the first right to take power from central generating stations beyond the term of the PPA will continue to be with states/discoms.
In December 2020, the MoP notified the Electricity (Rights of Consumers) Rules, 2020, laying down minimum standards of service for power supply to consumers across the country. The rules mark a paradigm shift in policy planning in the power sector by putting consumers at the centre. The rules provide for penalties of up to Rs 100,000 on distribution companies for gratuitous load shedding and delays in the grant of a new connection or in addressing complaints regarding a faulty meter. As per these rules, a new connection has to be given within a maximum time period of seven days in metro cities, 15 days in other municipal areas and 30 days in rural areas.
In March 2021, the MoP issued the Electricity Late Payment Surcharge Rules, 2021. With the new rules, the central government has lowered the LPS levied by power and transmission developers on discoms by linking it to the State Bank of India’s (SBI) lending rate. The rules have been notified in view of the prevailing low rates of interest so that the rates of LPS accurately reflect the current cost of borrowing. Recently, the ministry issued a draft amendment to the rules, which will enable gencos to sell power to third parties and recover their cost. This will help reduce the fixed cost burden of distribution licensees.
In September 2020, the MoP drafted a standard bidding document (SBD) for privatisation of state discoms. This is the first time that the government has drafted a guiding SBD for discoms’ privatisation. It is in line with the government’s efforts to improve the operations and finances of state discoms. However, the government move to privatise distribution operations in union territories is moving at a slow pace. After several legal hurdles, Eminent Electricity Power, a part of CESC Limited, emerged as the highest bidder to take over the Chandigarh Electricity Department’s power distribution business for Rs 8.71 billion. In March 2021, Torrent Power emerged as the highest bidder for a 51 per cent stake in the power distribution company in the UT of Dadra & Nagar Haveli and Daman & Diu. However, the Bombay High Court has suspended the tendering process. Meanwhile, the UTs of Andaman & Nicobar Islands, Puducherry and Lakshadweep are at the RfP finalisation stage.
In August 2021, the MoP notified the rules for purchase and consumption of green energy and cover subjects such as renewable purchase obligation (RPO), green energy open access, the procedure for the grant of green energy open access, nodal agencies, banking, and cross-subsidy surcharge. It also has provisions for waste-to-energy plants.
The draft proposes that the tariff for green energy will be determined by the appropriate commission, and it may comprise the average pooled power purchase cost of renewable energy, cross-subsidy charges (if any) and service charges covering all prudent cost of the distribution licensee for providing the green energy.
In July 2021, the Ministry of New and Renewable Energy (MNRE) issued a memorandum to allow a time extension of two and a half months for renewable energy projects with commissioning dates between April 1, 2021 and June 15, 2021. The MNRE has notified the changes that will prevent developers from being charged penalty for delaying commissioning of projects beyond the agreed timelines. In addition to that, the MoP has granted an extension of three months to all interstate transmission projects under construction, with the scheduled commercial operation date falling after April 1, 2021, hit by the Covid-19 pandemic.
In June 2021, the MoP released a discussion paper on redesigning the renewable energy certificate (REC) market, which proposes to make RECs valid in perpetuity instead of having a validity period. REC holders will have complete freedom to decide on the timing of the sale; therefore, forbearance prices will not be required to be specified. The CERC will need to devise a monitoring and surveillance mechanism to ensure there is no hoarding of RECs and artificial rise in market prices. Renewable energy generators will be eligible for REC issuance over a reduced 15-year period from the commissioning date of the project and existing renewable energy projects that are eligible to get RECs will continue getting it for 25 years.
In May 2021, the Union cabinet approved production-linked incentives (PLIs) for advanced chemistry cell or battery storage. The cabinet approved Rs 181 billion for PLI. Further, an investment of Rs 450 billion is expected from the national programme on Advanced Chemical Cell Battery Storage. In April 2021, the MNRE released guidelines for the PLI scheme, National Programme on High Efficiency Solar PV Modules.
In February 2021, the MoP issued a revised trajectory for RPO, including a long-term trajectory for hydropower purchase obligation (HPO) for large hydropower projects commissioned after March 8, 2019. This is in line with the measures announced by the government in 2019 to promote large hydro projects and achieve the target of 30 GW of hydropower by 2029-30. As per the notification, the RPO will be calculated in energy terms as a percentage of total electricity consumption, excluding the consumption met from hydropower sources. The solar RPO target may be met by power produced from solar power projects. Meanwhile, non-solar RPO (excluding HPO) may be met from any renewable energy source other than solar and large hydropower. The HPO benefits may be met from the power procured from large hydropower projects commissioned on and after March 8, 2019, and up to March 31, 2030.