Building Capacity in RE Sector

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Building Capacity in RE Sector

• 19th-Apr-2006
• South Asia Conference on Renewable Energy 2006

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Structure for the discussion

• Rationale for building capacity
• Potential and factors impacting Renewable Energy
• Framework for promoting RE
• Renewable Purchase Standards
• Pricing Issues
• Technical issues
• CDM and other issues
• Way forward and challenges

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Rationale for building capacity through renewable
Electricity for all
Environmental benefits
Energy Security

• Both On Off Grid options
• Diverse presence throughout the country
• Promote local Industries Generate rural
  employment
• Household electrification by 2012
• 80.3 of villages electrified and 43.52 of
  households electrified
• 7.28 crore households need to be electrified

• RE offers opportunities to reduce dependency on
  oil, coal, and gas
• Resources available within the country thereby
  no externalities with respect to Access,
  Availability cost
• To achieve self-sufficiency for energy
  requirement
• Natural resources (including Coal) to deplete by
  2050

• Addresses the threats associated with global
  warming
• The cost of pollutants is not charged to the
  conventional generator
• International Energy Prices (UK) Emission costs
  turn out to be 6.7 to 14.7 of electricity
  price.
• World Bank study- Avoided cost for local
  emissions natural resource accounting to a tune
  of 50 paise/kWh

To meet energy gaps/targets through self
sufficiency and environmental protection
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Evolution of Renewable Energy-Internationally

• Last two decades of learning has shown that
  penetration of renewables is
• Dependant on the public policy framework
  regulations
• Dependant on the market models evolved by various
  stakeholders
• Dependant on the technology robustness

• Various governments have implemented incentive
  schemes to stimulate the market to achieve these
  targets
• Feed-in tariffs
• Simplistic, transparent, popular most
  successful
• Fiscal incentives and investment subsidies
• Market based mechanism through certificates,
  quota, higher returns and reducing technology
  cost
• Many governments through public policy have fixed
  targets/goals
• EU 12 by 2010
• India 10 by 2012
• China 10 by 2020

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Potential and status India

• Wind energy
• Well matured industry among the RE sector
• Estimated Gross and Technical potential are
  45,000 MW and 13,390 MW respectively
• 8 states have more than 1,000 MW gross potential
• Installed capacity as on Sep06 is 4,228 MW
• Small Hydro
• Estimated potential in India is 15,000 MW
• 4,026 sites mapped across the country till now
• Installed capacity as on Dec04 is 2,184 MW
• Biomass Cogen
• Estimated potential of 3500 MW
• Potential exists in sugar producing states (UP,
  Mah)
• Installed capacity of 574 MW

• Biomass power
• Estimated potential of 16,500 MW
• Potential existing across the states
• Installed capacity of 760 MW (as on Dec 04)
• Waste to energy
• Estimated potential of 6928 MW
• High potential existing in the country as a
  result of rapid urbanization
• Installed capacity of 151 MW
• Solar photovoltaic
• Potential in India is 20 MW/Km2
• Potential of solar PV generation is among all the
  states of the country
• Installed capacity of 191 MW

Huge potential still untapped
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Factors impacting RE projects- India

• Regulatory framework
• Regulatory Purchase Standards (RPS)
• Tariff for RE projects
• Wheeling charges and loss allocation

• Policy framework
• 80 accelerated depreciation
• Section 80 IA benefits under IT Act
• Electricity Act, Electricity Policy and NTP
• Subsidy for rural electrification

• Infrastructural and other factors
• Grid connectivity/strengthening
• Intermittency issue (Wind)

• CDM framework
• Carbon credits under the Kyoto Protocol
• Sharing mechanism

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Enabling framework
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Provision for renewables under EA 2003- RPS

• EA 2003 provides a special place for renewables
  under Sec. 86(i)e
• Mandatory for all SERCs to fix a minimum
  percentage of procurement by distribution
  companies
• Several SERCs have fixed the quantum for
  renewables and tariffs for renewable energy
  projects as under
• Possible factors for determination of
  trajectory/quota
• Total potential for renewable energy generation
• Quantum of renewable energy being already
  generated
• Tariff for renewable energy
• Projecting energy requirement
• Impact on the overall power purchase cost of the
  Discoms

Methodology for determination of RPS Different
approach followed by different States
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Provision for renewables under EA 2003- RPS

• Factors/issues under consideration
• Common approach/methodology?
• Review of targets according to requirement and
  potential
• One percentage or Minimum and maximum percentages
  to be defined
• Whether DISCOMs/State should be free to procure
  RE power from other DISCOMs/State in case of
  non-availability of RE sources within their own
  distribution area/State
• Should off-grid RETs be included in the RPS?

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Tariff- Philosophy behind tariff determination
for RE projects

• Cost plus method Section 62 of the EA Act
• Simplistic and most widely accepted
• Most of the SERCs relied on Cost-plus method
• SERCs invited petitions for Capex, Opex,
  Performance Financial benchmarks
• NTP mandates CERC to issue tariff guidelines for
  RE projects
• Avoided cost method
• Links the tariff with highest cost of generation
• Competitive bidding
• Section 63 Tariff based on competitive bidding
• NTP also foresees that over the period tariff for
  RE should be based on competitive bidding
• Factors/issues under consideration
• Could avoided environmental cost be included
  while determination of tariff guidelines (may be
  through higher returns)?
• Is it premature to introduce competitive bidding
  for fresh capacity addition in RE projects?

• Different approaches adopted by different States

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Technical Issues

• Scheduling and ABT issues
• Daya-head advance scheduling is not possible
• Nature of demand and supply unknown in case of
  wind generation
• The utility cannot take the capacity availability
  from such plants into consideration
• RE projects could be excluded from ABT and
  banking can continue
• RERC recently allowed banking and exempted RE
  projects from ABT
• Is it possible to integrate small RE power plants
  into the system despatch schedule?
• Infrastructural issues Grid strengthening
• Who (the developer or power purchaser or the
  transmission/distribution company) should bear
  the cost of evacuation facility up to the nearest
  receiving sub-station?
• What should be the approach for deciding the
  technical parameters of interconnection (e.g.
  Voltage level, number of circuits,
  interconnection point, etc)?
• Determination of wheeling and other charges
• Accounting and quantification of TD losses while
  determining wheeling charges

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Clean Development Mechanism

• CDM benefits for GHG reduction
• RE projects could get credit for the emission
  reduction through the flexibility mechanisms as
  per the Kyoto Protocol
• Additionality clause would be critical to address
• Critical factors
• Modalities and procedure still evolving
• Some uncertainty whether the CDM benefits should
  be taken in to consideration while deciding the
  tariff (or using these for financing the
  renewable projects)
• Since, the emissions reductions would give
  additional revenue to the project
• However, this revenue would not be uniform across
  all the projects, as CDM is a project-based
  activity, and the baseline and emission
  reductions vary from project to project
• From the point of view of criteria of
  additionality, all renewable projects may not
  qualify as CDM projects.
• Need for regulatory clarity as regards CDM
  revenues

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Other Issues- Off-grid options

• Innovative decentralised and off-grid models for
  achieving rural electrification targets (RGGV
  Yojna)
• Pricing/economics of off-grid supply Differs
  with size, technology and load factor
• Clubbing of villages- Cluster approach
• Combined generation and distribution schemes
  Option of selling surplus through Grid
  connectivity
• Estimation of subsidy and institutional mechanism
• Capacity to pay and estimation of subsidy
• Monitoring and implementation (performance based
  subsidy)
• Panchayats or Rural association/cooperatives
• Financial mechanism Role of banking sector
• Need to link the banking Sector with subsidy
  delivery mechanisms
• Need to devise bankable schemes which would cover
  the subsidy scheme too
• Perhaps also a Guarantee Scheme to cover Bank
  Finance

Role of Regulator in off-grid generation
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Way forward and challenges

• RPS regulations could be in place in the next one
  year
• For achieving the national goal of 10 by 2010 or
  may be more
• Dynamic and should balance the potential and
  impact on retail tariffs
• The emerging market model of IPP, would see large
  sized projects specially in case of wind projects
  
• CERC guidelines for determination of tariff for
  RE projects
• Would be critical for building capacity in RE
  sector
• Exemption from competitive bidding?
• Clarity regarding technical issues (including
  ABT) and sharing of CDM benefits
• Achieving RE targets through implementation of
  RVVN yojna in true spirit
• In case of Off-grid options the role of the
  Regulator requires clarity
• Challenge is planning, monitoring, financing,
  implementation and institutional issues
  (including in disbursement of subsidy)

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Thank You
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