What Do The Proposed Amendments To The Electricity Act Mean For India’s Solar Market?

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By Akhilesh Magal, Head Advisor – Solar Energy for the Gujarat Energy and Research Management Institute

India’s solar market has largely been driven by grid-connected utility scale projects that are supported through government supported ‘Feed-in-Tariffs’ (FIT). Projects outside government support have been limited to rooftop installations for captive power consumption or land based projects funded by the failed ‘Renewable Energy Certificate’ (REC) mechanism. Although several projects have sprung up based on the REC model and on the captive mode, the uptake has been limited because of lack of clear regulations and strong enforcement.solar-india

India’s private PPA market (where a seller connects to the buyer) is yet to take off, thanks to the control of the grid by the utilities. While the Electricity Act 2003 grants unilateral access to the grid (known as ‘Open Access’) and allows independent transactions between buyer and seller, the act remains only on paper.

The current government wants to change all that. Although the amendments to the Electricity Act 2003 were tabled under the previous government (The United Progressive Alliance (UPA)), the current government (led by the Bharatiya Janata Party (BJP)) wants to push the electricity sector reforms and implement the act in full effect. There are two key changes proposed, which could have significant implications for the independent solar PPA market:

  • Opening up the grid

The separation of the business of maintaining the grid and supplying energy means that the current utilities would no longer be in the business of supplying energy, and would not perceive independent energy transactions as a threat to their business, so long as they are adequately compensated for the grid infrastructure.

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Going by the current government’s strategy, it would want to create a win-win situation for both the ‘grid managers’ and the ‘suppliers’. This would mean that the open access charges are rationalized (quantified for a long period) and might even go up in some cases. But this would also prevent some states (ex: Maharashtra) from setting prohibitively high open access charges. This will open up interesting markets that were otherwise closed off.

Also, it’s fair to expect open access and scheduling charges to be waived off or significantly reduced for renewable energy projects. This could mean that independent PPAs from a solar project over open access could be cost competitive with coal. For solar though, it would mean a direct competition with cheaper wind power. This could severely threaten the open access solar market – especially in wind rich states like Tamil Nadu, Karnataka, Maharashtra and Gujarat (which incidentally have some of the highest grid tariffs in the country).

  • Enforcing Renewable Purchase Obligations (RPO)

Renewable Purchase Obligations (RPO) will now have a legal backing. The previous framework was never enforced strictly. Consequently, not many obligated entities purchased renewable power or RECs. This resulted in a situation of over-supply of RECs and stifled the market. The new act will give teeth to regulators to impose a penalty (likely to be very high). This should get utilities serious on meeting their RPOs. Most utilities would prefer to buy solar power (independently or through state solar policies) as opposed to buying worthless certificates.

If the RPOs are enforced strictly, open access (OA) consumers will also have to procure a percentage (~0.25% and rising) of their energy through solar. This coupled with a unilateral access to the grid (see point 1), will set up a good business case for developers catering to such consumers.

In short, the proposed changes in the electricity act could revolutionize not just the solar market, but also the entire power sector as a whole. Opening up the grid, will ensure efficiencies in grid (read as less power theft), better quality of service (read as less power cuts) and an increased share of renewables in India’s energy consumption. On the flip side, it would mean higher tariffs for the end consumer (due to the increased renewables and decreased political interference in power pricing).

For solar developers though, these are interesting times. On one side opportunities have significantly increased (due to a hopefully better functioning RPO) yet have become riskier (consumers can switch to cheaper suppliers as solar prices continue to fall).

All this is of course contingent to the electricity act being enforced in full spirit. Going by the current political setup, my own hunch is that sunny days are here for the solar industry!

Bridge_to_India_Akhilesh_MagalAkhilesh Magal (akhilesh.m@germi.res.in) is the Head Advisor – Solar Energy for the Gujarat Energy and Research Management Institute (GERMI), an institute dedicated to research in the fields of, solar energy, energy efficiency, environment and petroleum research.

He is an environment engineer from Carnegie Mellon University and is an expert on solar policies and grid integration of renewable energy.

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