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More Laggards than Leaders: State of Renewable Purchase Obligations
Greenpeace calls out for an overhaul of the existing framework of the RPO regulation and sheds light on the current status of its implementation among states
“Powering Ahead with Renewables: Leaders and Laggards”, the new report by Greenpeace is a timely report assessing the success of the Renewable Purchase Obligation (RPO) mechanism in India. Conceived of under the Electricity Act 2003, the RPO system was implemented in 2010 to aid in achieving the National Action Plan for Climate Change (NAPCC) target of 15% of total power requirement being supplied from renewable energy sources by 2020. The NAPCC had prescribed a renewable energy generation target of 5% into the national grid by 2010 with a 1% increase for every year till the target of 15% is met by 2020.
The report broadly reflects on two dimensions: one identifying the performance of states in meeting their RPO targets and the second focused on enhancements required to the mechanism itself and the consequent impacts on the NAPCC targets.
The Central Electricity Regulation Commission (CERC) in 2010 stipulated the minimum amount of renewable based electricity that state obligated entities needed to source. The State Electricity Regulation Commissions (SERCs) in turn set up RPO targets for their individual states. However, the report suggests that one of the starting points of discrepancy resulting in the poor performance by the states has been the absence of clear guidelines by CERC on calculation methodology as to how the RPO target was to be calculated. “Most of the targets which the SERCs set up were around the locally available renewable potential as assessed (at a relatively rudimentary level) by the MNRE. “There were no clear criteria provided for a systematic assessment of the RE potential in every state”, says Abhishek Pratap of Greenpeace and the lead author of the report.
Currently 29 out of 31 states have established their RPO targets. Out of these 29, shockingly, only 7 states have been able to achieve the targets. While states like Meghalaya, Tamil Nadu, Karnataka, Rajasthan, Himachal Pradesh, Uttarakhand and Nagaland were able to hit their RPO targets, a whopping 22 states including Delhi, Maharashtra and Gujarat among others who failed to do so. The report estimates the amount of electricity lost due to non-compliance was 18000 million units. Another glaring disconnect that the report highlights is the mismatch between the cumulative state targets and the overall national target. The overall combined target set by the state regulators adds up only to 5.44% whereas the national target is set at 7%. It is estimated that this deficit of 1.56% translates into a loss of ‘nearly 14,268 million units of electricity from renewable energy projects’. Pratap says, “Lack of performance by the utilities combined with incorrect targets set by SERCs resulted in the failure to generate around 32,000 million units of electricity in 2012 as compared to the targets set under the NAPCC.”
So why did the RPO Mechanism Fail?
According to Pratap, there is a “lack of seriousness on the part of the state utilities/regulators to achieve these targets.” Even though the mechanism is supposed to work on the carrot and stick philosophy, there has been no penalty structure specified for non-compliance. Other than the exception of Maharashtra and Rajasthan, no other state has even a cursory penalty mechanism specified in their RPO regulation; leave aside the actual problem of its implementation. “In case of Maharashtra, where only 50% of the target has been achieved, according to the regulation the penalty should have been 50 paise per unit for every unit that the utility failed to supply from renewables. Of course, this has not been enforced”, says Pratap.
The Renewable Energy Certificates (REC) Mechanism, which was supposed to be the incentivizing tool to promote RPO, also contributed to its failure due to restricted uptake. One of the reasons for this, Pratap says, is the ‘very cumbersome process of buying RECs which completely demotivates people”. Secondly, the report says that the RECs have had ‘virtually no impact on bringing new renewable projects onto the grid as the number of certiﬁcates issued in the ﬁrst year of operation is less than 4% of the technical REC demand potential.’
Deregulating power tariffs: Hiking electricity prices by 15-20%
India is a majorly energy deficit country and the divide between resource distribution is gigantic. According to the report’s recommendations, electricity cannot and should not be subsidized for the entire spectrum of the society. Barring the poorer sections of the society, all other consumers need to pay a higher price for energy than what is being paid now. “Electricity should only be subsidized for the poorer sections of the society. Tariffs for all others need to be linked to market prices. There is also the fact that some higher end sections of the society use disproportionate amounts of electricity to the tune of 4000-5000 units per year which is way more than the average consumption from most of the population. Individual consumers like these need to be charged more than the average tariff”, Pratap observes. The report suggests a hike of at least 15-20% on the current electricity rates.
For bulk consumers like industrial units that consume more than 1MW of electricity, the report suggests there should be a substantially higher tariff and calls for an ‘energy cess’. “The question has always been as to who will take the responsibility of building the clean energy infrastructure of the country. We need to transfer the responsibility of this funding to people who can afford to do so. This is the only way to ensure equity”, he adds.
Equity and the differential system of RPO mechanism
The report proposes a new differential system of RPO regulation on the basis of three key parameters. As of now, RPO targets are set only on the basis of the renewable energy potential of the state. The report suggests that 2 other key areas need to be taken into consideration as well; these being the consumer profile of the state as well as the financial health of the state. For states with higher industrial or commercial consumption, the report suggests a higher target as opposed to consumption focused around domestic or agricultural use. Similarly, for states with less than 4% fiscal deficit, the RPO obligation is proposed to be higher.
Bihar and Gujarat get special mention for showing political will
The report includes a special mention on Bihar and Gujarat, who even though couldn’t hit their targets, showed ‘political will’ to develop renewable energy infrastructure. Pratap says that there has been an “off-grid revolution” in Bihar. Since 2010 the state has cleared almost 300 de-centralized renewable energy projects. In the last 2 years the state has invested 6000 crores on renewable energy (RE) projects, 2000 crores more than its total budget for energy. Pratap says that Bihar has managed to carve a unique financial model wherein the investment for RE was pulled from other departments like fisheries, irrigation, education and health. This resulted in most government schools going the solar roof top way, a fishery scheme called ‘Niche Machli, Upar Bijli’ in which solar powered pumps would be installed on fishing ponds for fish farming and generation of electricity, etc.
One of the other shortfalls of the RPO regulation is that decentralized renewable energy projects cannot be included in the RPO regulation; one of the reasons why Bihar could not achieve its target.
Gujarat also gets a special mention from Greenpeace for making ‘a strong political statement about the government’s intention to position Gujarat as Asia’s Solar Hub’. Pratap says Gujarat’s solar policy is commendable in that it has been very aggressive from the view of attracting investment, even if not necessarily upping the RE generation targets.
While recommendations like increasing the national renewable target to 20% has been highlighted in Greenpeace’s earlier Energy [R]evolution reports, along with change in the differential RPO targets, this report brings to light the many inadequacies of the current regime. Compiling figures of actual implementation of quixotic policies does well to show the mirror on how far and rough the road ahead for renewables in this country is to be.