RE Policy Directives

Several electricity policies in the last few years have talked about the need and priority to promote RE. Foremost amongst them is the Electricity Act (2003) which de-licensed standalone generation and distribution systems in rural areas.  The National Electricity Policy (2005) also stresses the need for urgent electrification. The New Tariff Policy (2006) stated that a minimum percentage of energy, as specified by the Regulatory Commission, is to be purchased from such sources by April 1, 2006.

The Electricity Act 2003

The Electricity Act 2003 has several enabling provisions, with a view to promote accelerated development of non-conventional energy based power generation:

 - Section 86(1) (e), The State Commission shall promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence.

- Section 3 (1), Government of India (GoI) shall, from time to time, prepare the National Electricity Policy and Tariff Policy, in consultation with the State Governments for developing the power system based on optimal utilization of resources such as coal, natural gas, nuclear, hydro, and renewable sources of energy.

- Section 4, GoI shall, after consultation with the State Governments, prepare a national policy, permitting stand-alone systems (including those based on renewable sources of energy) for rural areas.

The National Electricity Policy 2005

The National Electricity Policy 2005 stipulates that progressively the share of electricity from non-conventional sources would need to be increased; such purchase by distribution companies shall be through competitive bidding process; considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the commission may determine an appropriate deferential in prices to promote these technologies.  

- Non-conventional sources of energy being the most environment friendly there is an urgent need to promote generation of electricity based on such sources of energy. For this purpose, efforts need to be made to reduce the capital cost of projects based on non-conventional and renewable sources of energy. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources.

- The Electricity Act 2003 provides that co-generation and generation of electricity from non-conventional sources would be promoted by the SERCs by providing suitable measures for connectivity with grid and sale of electricity to any person and also by specifying, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. Such percentage for purchase of power from non-conventional sources should be made applicable for the tariffs to be determined by the SERCs at the earliest. Progressively the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be through competitive bidding process. Considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies.

- Industries in which both process heat and electricity are needed are well suited for cogeneration of electricity. A significant potential for cogeneration exists in the country, particularly in the sugar industry. SERCs may promote arrangements between the co-generator and the concerned distribution licensee for purchase of surplus power from such plants. Cogeneration system also needs to be encouraged in the interest of energy efficiency and grid stability.

The National Tariff Policy 2006

The National Tariff Policy mandates each SERC to specify a Renewable energy Purchase Obligation (RPO) by distribution licensees in a time-bound manner. The Policy announced in January 2006 has the following provisions:

- Pursuant to provisions of section 86 (1) (e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentages for purchase of energy should be made applicable for the tariffs to be determined by the SERCs by April 2006.

- It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity.  Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission.

- Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional sources.  In the long-term, these technologies would need to compete with other sources in terms of full costs.

- The Central Commission should lay down guidelines within three months for pricing non-firm power, especially from non-conventional sources, to be followed in cases where such procurement is not through competitive bidding.

National Rural Electrification Policies, 2006

- Goals include provision of access to electricity to all households by the year 2009, quality and reliable power supply at reasonable rates, and minimum lifeline consumption of one unit/ household/day as a merit good by year 2012.

- For villages/habitations where grid connectivity would not be feasible or not cost effective, off-grid solutions based on stand-alone systems may be taken up for supply of electricity. Where these also are not feasible and if only alternative is to use isolated lighting technologies like solar photovoltaic, these may be adopted. However, such remote villages may not be designated as electrified.

- State government should, within 6 months, prepare and notify a rural electrification plan, which should map and detail the electrification delivery mechanism.  The plan may be linked to and integrated with district development plans.  The plan should also be intimated to the appropriate commission.

- Gramapanchayat shall issue the first certificate at the time of the village becoming eligible for declaration as electrified.  Subsequently, the Gram Panchayat shall certify and confirm the electrified status of the village as on 31^st March each year. 

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RE Policy Overview

A sound policy framework holds the key to the success of renewable energy (RE) initiatives. Policies are largely financial, fiscal incentives or special directives aimed to encourage/enforce utilities to buy RE power, promoter companies to set up RE projects, equipment companies to manufacture RE equipment or private and government entities to undertake R&D relating to RE.  In India, policy initiatives encourage domestic private as well as FDI investments with a provision of fiscal and financial incentives such as tax holidays, accelerated depreciation and duty rebates. At the central level, policy measures are administered through the Ministry of New and Renewable Sources (MNRE). The state governments contribute by making available infrastructural facilities for wheeling of power and buying power from renewable units. Some of the fiscal incentives provided by the central government are as follows:

Fiscal incentives

-    Industrial clearances are not required for setting-up an RE industry

-    No clearance is required from Central Electricity Authority for generation projects up to Rs 1 billion.

-    A five-year tax holiday is allowed for RE power generation projects.

-    A 100% depreciation in the first year. Accelerated 80% depreciation on specified projects

-    Soft loans are available through IREDA for RE equipment manufacturing

-    Financial support is available to RE industries for R&D projects in association with technical institutions

-    Import of power projects are allowed

-    Customs duty concession is available for RE spares and equipment

-    Excise duty on a number of capital goods in the RE sector has been reduced or exempted.

-    A 50% subsidy on energy projects based on urban waste.

Foreign Direct Investments

- Foreign investors can enter into a JV with an Indian partner for financial and/or technical collaboration

- Proposals for up to 100 per cent foreign equity participation in a JV qualify for automatic approval

- Government encourages foreign investors to set up projects on Build, Own and Operate (BOO) basis

Policy Framework and Key Incentives for RE Technologies

- Fiscal and financial incentives

- Wheeling, banking, Third party sale,

  Buy-back facility by states

- Capital subsidies and sales tax

   incentives in certain states

- Concessional import duty on specified wind turbine

  parts

- 80% accelerated depreciation

- Customs and Excise duty relief

- Loans through IREDA

- Tax holiday for power generation projects

- Fiscal and financial incentives

- Wheeling, banking, Third party sale,

  Buy-back facility by states

- Capital subsidies and sales tax

  incentives in certain states

- Detailed project report preparation at discounted price

- Capital grant for setting up projects in North Eastern

  states

- Financial support for renovation, modernization and

  capacity up-rating of old SHP stations

- Financial support for development/upgradation of water

   mills

- Soft loans from IREDA for setting up of SHP projects

   upto 25 MW capacity

- Enactment of favorable policy regimes

  at the state as well as the Central

  levels

- Buy-back/Wheeling/Banking of

  generated electricity by the SEBs

- Incentives in the form of sales tax

  exemptions, equity and grants, etc.

- Interest subsidy for commercial biomass power

  projects

- Upto 3% interest subsidy for biomass/bagasse

  cogeneration (commercial projects)

- Capital subsidy for cogeneration projects in Joint

  Venture model/IPP mode in cooperative/public

  sector sugar mills

- Financial assistance under the National Biomass

  Resource Assessment Program (NBRAP)

- Easy allotment of land, supply of 

  garbage and facilities for evacuation,

  sale and purchase of power to

  encourage setting up of waste-to-

  energy projects

- Commercial Projects: Financial assistance as

  interest subsidy for reducing rates of interest

- Demonstration Project: Financial assistance on

  capital cost of the project

- Power Generation at Sewage Treatment Plants:

  Financial assistance on incremental cost for

  generation of power from biogas

- No specific conditions for JV formation

- 100% EOU to set up a manufacturing

  plant

- Technology transfer for the

  manufacture of silicon solar cells and

  PV systems

- MNES financial incentives for solar PV grid  

  connected power projects
- IREDA financial package for solar photovoltaic 

  (power generation systems)
- MNES Financial Incentives for Solar Photovoltaic

  Systems

- Central subsidy to users

- Remuneration to SEWs

- Dealership support to Fair Price

  Shops

- Organizational and infrastructure

  support to implementing agencies

- Technical and training support

- Special incentives are available for turnkey

  entrepreneurs in rural areas

- Loans from commercial and cooperative banks for

  setting up of biogas plants under Agricultural Priority Area

- Automatic refinancing by NABARD

Source: Ministry of New and Renewable Energy, India.

State Specific Incentives

-   A number of states have announced policy packages including banking, third party sale and buy-back. Most states have declared buyback rates with some escalation for each subsequent year.

-   Some states are providing concessions or exemption in state sales tax. These rates vary widely from state to state and between different technologies.

-   Fourteen states have so far announced policies for the purchase and support of electrical energy generated from various RE sources.

-    Maharashtra has set up a “green energy fund” for promoting renewable projects.

-   Eleven state regulators have under the National Tariff Policy 2006 passed orders for a minimum offtake of renewable power by distribution licencees (called RPOs; renewable energy purchase obligations).

Minimum  specification:

- 2006-07: 1%

- 2007-08: 1%

- 2008-09: 2%

September 2005

Minimum percentage:

- 2007-08: 3%

-  2008-09: 5%

- 2009-10 & thereafter: 10%

RPOs vary for different licensees:

- WBSEB: 1.9% in 2006-07 and 3.8% in 2007-08

- CESC: 1.02% in 2006-07 and 2.03% in 2007-08

- Durgapur Projects Ltd: 0.72% in 2006-07 and 1.4% in

  2007-08

- DPSC Ltd: 0.43% in 2006-07 and 0.95% in 2007-08

State Specific Incentives

A number of states have introduced policies for purchase of electricity from Biomass, wind energy, and small hydro power projects. Here is a summary

Biomass

+Rate in Rs per unit

*Rs.2.48 per unit at 5 % escalation for 9 years (2000-01) for off-season power generation using coal/lignite (subject to ceiling of 90% of HT tariff). Note: Policies for wheeling/ banking/ third part sale vary from state to state.

Source: Ministry of New and Renewable Energy, India.

Policy-Level Challenges

Despite India being the only country with a dedicated Ministry for renewable energy, and an extensive set of policies, the renewable energy sector is witnessing slow growth. Key reasons include multiplicity of agencies, skewed incentive structure, and poor implementation capability.

Multiplicity of Agencies

There is multiplicity of government-led agencies (including ministries) in the RE sector, leading to lack of accountability towards the growth of the sector. For instance, while MNRE plans, implements, and manages incentives and support; Department of Science and Technology is responsible for research and development. Further, Ministry of Power (MoP) is responsible for designing policies for grid-connected power supply from RE projects. Also, all states have different policies regarding renewable energy projects. This is a big deterrent as promoters have to separately negotiate with each state departments, and project feasibility depends on state policies.

Skewed Incentive Structure

MNRE bases its incentives on capacity installations and not on actual performance, which is a deterrent for smaller players to take adequate benefits of the incentives. Majority of the incentives benefit public sector entities (or at best entities in the joint sector) or demonstration projects and not projects running on commercial grounds.

Poor Implementation Capacity

Even though MNRE has an extensive policy structure in place, it is constrained by implementation capacity since the nodal agencies are under-staffed and often ill-equipped.

Proposed Renewable Energy Policy

An exclusive and comprehensive policy on RE has been proposed, aiming to raise RE capacity to 100,000 MW by 2050, but so far the policy is only in the drawing boards. The government has released versions/drafts of the policy from time to time. The proposed salient features of the new policy are:

-    To support and accelerate power generation from renewables to meet the minimum energy needs.

-    Provide supportive fiscal regime, single window clearance, leveraging  additional budgetary resources from other departments, preferential prices for renewable electricity.

-    Increase the target for electricity generation from renewables to 10 per cent by 2010 (as against 2012 currently) and 20 per cent by 2020, of the total electricity generated in the country (and not as a percentage of installed capacity).

-    Remove some ambiguities or amplify some provisions in the Electricity Act, 2003, relating to provisions dealing with renewable electricity generation.

-    Make solar water heating mandatory throughout the urban areas of the country by 2012, in a phased manner.

-    Initiate a time-bound program of demonstration of solar rooftop lighting systems in 10,000 government buildings by 2010, also incorporate building integrated photo-voltaics.

-    Time-bound conversion of the present about 18,000 MW diesel-based captive generating units (industrial units) to bio-diesel-based units.

-    Provision for small biomass based energy systems for rural areas.

-    Initiate a time-bound Renewable Fuel program covering ethanol and bio diesel; backward and forward linkages of the program to facilitate employment and rural livelihood improvements.

-    Define a definite road map for developing a hydrogen and fuel cell economy.

-    Set up three separate time-bound Technology Missions (Solar Energy, Bio fuels and Hydrogen) to achieve the objectives of energy independence.

-    Involve National Research Laboratories, IITs, Universities, Industry, Specialist, Non-Government Institutions and User Groups actively in RE decision making and research efforts.

-    Set up a national level apex body called the Renewable Energy Council with the Central Minister for NRE as its Chairman; the Council to have 15 members drawn from the Government (only 5), Industry, Academia, Non-Government Institutions, Researchers and User-Groups.