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POLICIES

ANALYSIS

Regulating the Race to Renewables

Ashwini K Swain

ENEWABLE ENERGY its RE portfolio. The country has set

R
(RE) seems to be a target to raise its RE capacity to 74
considered as a panacea gigawatt (GW) by 2022, including
for global climate 20 GW of solar capacity, and procure
challenge, while it 15 per cent of consumable electricity
is perceived to offer from RE sources by 2020. 2 With
developmental co-benefits like energy renewable installed capacity of
security. Consequently, there is a race about 30 GW, the country is already
among nations to raise their respective a global frontrunner. Over the
renewable portfolios. More recently, 12thFive Year Plan period, it aims to
Regulators must focus on investment on RE capacity addition install additional 30 GW renewable
cost-effectiveness of public has exceeded the investment on capacities with a federal outlay of
additional fossil-fuel based generating around US$4 billion. The country
spending, through proper capacity addition worldwide. Global has certainly set an ambitious target
monitoring and evaluation investment in RE has gone up from for RE development. The underlying
and find ways to let the US$ 39.6 billion in 2004 to US$ 279 objective is to achieve domestic
in 2011. Though it has dropped to energy security while attaining spin-
loser go. It is important to US$ 244.4 billion in 2012, it is largely off benefits like regional development,
recognise the mistakes and because of the drop in investment employment generation, globally
withdraw state support to by developed countries and may be competitive domestic industries,
partly because of the drop in cost of improved energy access and climate
losing technologies before RE technology. However, investment mitigation.3
they become too costly. made by developing countries has been
Moreover, considering progressively increasing over years. In India started its renewable
2012, the gap between the developed energy program in 1981 with the
the social obligations and the developing economies in terms establishment of the Commission for
of a developing country of overall investment shrunk to just Additional Sources of Energy, with the
and low affordability of 15 per cent. By end of 2012, at least responsibility of formulating policies
138 countries had set up RE targets. and programmes, coordinating and
Indian consumers, the In early 2013, 127 countries had RE intensifying research and development
regulators must make support policies in place, more than and ensuring implementation of
sure that high cost of RE two-third of which are developing government policies in regard to
countries1. all matters concerning new and
does not make electricity renewable energy sources. The
service unaffordable to the India’s Approach and Aspiration
Commission resulted in the creation
poor (both connected and Keeping with the global trend, of an independent Department of
unconnected) India has been an active player in the Non-Conventional Energy Sources
race to renewables, seeking to expand in 1982, which was converted to
The author is a Fellow at CUTS Institute for Regulation & Competition, New Delhi. His current research looks into the interface between
energy service needs and climate mitigation goals, and emerging energy-climate governance architecture in India. His other work includes
the political economy of regulation and the rise of the ‘regulatory state’ in India, with a focus on infrastructure.

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an independent Ministry of Non- first approach has forced the state and promote domestic RE technology
Conventional Energy Sources in to implement a partnership model, manufacturing industries.7
1992. In 2006, it was renamed as pairing the public sector with private
Ministry of New and Renewable sector. Even though the rhetoric Stumbling Blocks
Energy (MNRE). Besides, the Indian remains that of market reformism, Are these policy initiatives
Renewable Energy Development with actual implementation done enough to achieve India’s renewable
Agency was established in 1987 by the private players, emerging ambitions? These state initiatives
to provide financial assistance for electricity governance architecture are susceptible to failures and rent-
renewable energy projects, followed seems to be a pragmatic hybrid with seeking, which will affect India’s
by creation of State Renewable Energy the state playing a stronger role of energy security scenario as well as the
Development Agencies to implement steering and guiding. development perspectives, let alone
projects at state level.4 climate mitigation. Considering the
Given its role, the state seeks to
India’s existing RE development promote RE development through current scenario, India’s approach
strategy prioritises wind and solar market players by setting up a appears far from its RE aspirations.
energy technologies. Wind energy has favourable policy environment, with Access to private finance is crucial
a major share in current and future complementary policies, incentive for the development of RE industries,
development as the technology is mechanisms and R&D support. India but current interest rates are too high
well mastered and some of the major has adopted a unique approach to RE and financing institutions remain
global manufacturers are based in development by combining all the reluctant to invest. Moreover, as many
India. Though solar technology has policy and regulatory drivers practised of the lenders are nearing the verge of
contributed less so far, it is expected globally (See Table 2). It offers the their lending share for RE, they may
to be the second contributor to India’s RE producers feed-in tariffs, based withdraw from the market, restricting
RE portfolio by 2022 (See Table 1). on the cost of generation for each further project development. 8 The
technology. Renewable Purchase government does not yet have a
Considering limits of state capacity
Obligation (RPO) is a key policy to comprehensive strategy so that RE
and resources, private sector will play
create demand for RE. Each subnational developers can access money to
a vibrant role in executing India’s
electricity regulatory commission has invest.
RE aspirations. In fact, much of RE
set a specific RPO for the utilities in
development so far has taken place
respective states. 6 The Renewable At the same time, expected
due to the private sector. Under the 12th
Energy Certificate (REC) programme return on equity for the developers is
Five-Year Plan, nearly one-third of the
is being implemented to penalise the significantly low in India as compared
planned investment in infrastructure
utilities who fail to meet their RPO; to other global leaders in RE. Although
sectors has been earmarked for the
they have to compensate by purchasing India has adopted market-based trading
electricity sector, about half of which
equivalent RECs or pay a forbearance mechanism (like REC) and mandatory
is sought from private sector.
price. Furthermore, pursuing its aim to policy (like RPO), it has failed to attract
Proposed mode of private be a RE manufacturing hub, the state investors due to low execution and
participation is an evolvement from has employed policy instruments like participation in these schemes. Since its
the past experiences. Failure of public Domestic Content Requirement (DCR), inception in March 2011, 1,22,44,174
electrification and limits of market- particularly for the solar, to support RECs have been issued to 2,452
Table 1: Estimated Potential and Development of Grid-Connected Renewable Energy in India (in MW)

Resource Estimated Potential 9th Plan 10th Plan 11th Plan 12th Plan January 2014 13th Plan
(Cumulative Addition Addition Addition (Cumulative (Anticipated
Achievement) Achievement) Cumulative)
Wind Power 1,02,500 1,628 5,464 10,260 1,965 20,298.83 40,000
Small Hydro 19,750 1,434 542 1,419 276 3,774.15 6,500
Power
Biomass 23,700 389 795 2,021 467 3,798.48 7,500
Power
Solar Power 20-30 MW/sq. KM 2 1 938 828 2,208.36 20,000
Waste to 2,700 -- 15 74 7 99.08 --
Energy
Total 1,68,950 3,453 6,817 14,712 3,548 30,178.90 74,000

Source: [Tripathi, 20135; MNRE (www.mnre.gov.in)]

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Table 2: Key Regulatory Policies in India for Promotion of Renewable Energies

Policies Year of Enactment Significant Features/Mandates


Electricity Act, 2003 - Promotion of Renewable Energy by State Electricity Regulatory
2003 Commissions (SERCs). [Section 61(h) & Section 86(1) (e)]
National February 12, 2005 - Encouraging private sector participation.
Electricity Policy - Thrust on procurement of renewable energy through competitive
bidding process.
- Differential tariffs to promote non-conventional technologies.
National Tariff January 6, 2006 - Directions to SERC’s for taking into account, availability of renewable
Policy energy resources in their region and its impact on retail tariffs, while
fixing a minimum percentage for purchase of energy from such
sources.
National June 30, 2008 - Renewable energy procurement to be set at five per cent of the total
Action Plan on grid purchase, which should be increased by one per cent each year
Climate Change for the next 10 years.
(NAPCC)
Policies on November 2008 - Uniformity in regulatory approach to clean energy development.
Renewables: - Promotion of co-generation and generation of electricity from
A Report by renewable sources of energy.
Forum of
Regulators &
CERC
Jawaharlal November 23, 2009 - Enhance indigenous manufacturing capacity of solar energy.
Nehru National - 20 GW grid-connected and 2 GW off-grid solar capacity additions by
Solar Mission 2022.
(JNNSM)
CERC December 3, 2009 - Following a cost-plus approach in deciding the power purchase
Regulations tariff.
on Renewable - Generation based incentives.
Energy Tariff - Sharing clean development tariffs.
- 100% proceeds from CDM to be retained by the developer.
CERC January 2010 - REC was introduced as a tradable commodity and the states deficient
Regulations in renewable energy source can purchase the same to meet their RPO
on Renewable requirement.
Energy - Encourage competition to reduce costs.
Certificates

registered RE generators, but only the state RPO targets fixed by SERCs. in the JNNSM that is much larger than
63,54,206 RECs had been redeemed by Essentially, India lacks an effective legally allowed.12
April 2014.9Nonetheless, 22 out of 29 compliance mechanism within the
states failed to meet their RPO target realm of RPO regulation, which may Need for Regulatory Proactiveness
set by their respective SERCs. Only obstruct further RE development.11 Most of these deterrents can be
seven states have achieved their RPO removed through proper monitoring,
targets since 2009, while six states have Even when finance and
compliance issues are addressed, evaluation and impact assessments.
zero per cent achievement. Whereas
lack of transparency in RE market Any country’s ability to devote
the national target for 2012 was to
can be a major barrier, impeding resources to RE development depends
procure seven per cent of consumable
competitiveness in the sector. The lack on its political-economic context,
electricity from RE sources, the
cumulative achievement for the year of market transparency that prevails in particularly national income level
was 5.01 per cent.10 There is provision the sector may result in rent-seeking and perceived developmental co-
for forbearance price or penalty, but and market distortion. A study by the benefits. For a developing country like
it is neither clear nor being followed. Centre for Science and Environment India, that has to grapple with other
Moreover, national RPO target set reveals how a major conglomerate has developmental agendas, availability
under NAPCC is not coherent with subverted the rules to acquire a stake of external funding (private sector

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investment and transfers from relevant parties and receive appropriate 3 Swain, A. K. &Charnoz, O. (2012):
developed countries) would be a key response. ‘India’s Clean Energy Paradox’,
driver for RE development. Although Business Standard, 7th December, New
India has been able to adopt favourable The governments are usually Delhi.
policies with incentive mechanisms engaged in designing macro policies
4 Charnoz, O. & Swain, A. (2012):
that cannot be expected to identify and
for RE developers, RE development ‘High Returns, Low Attention, Slow
address all micro issues pertaining to
is plagued by low execution of these Implementation: The Policy Paradoxes
specific RE technology. In that case, it
policies. This calls for a stronger role of India’s Clean Energy Development’,
is the responsibility of the regulators
to be played by the sector regulators. AFD Working Paper 125, Paris:
to craft rules (or micro policies) while
However, the role of regulators in AgenceFrançaise de Développement.
addressing specific cases or disputes
facilitating RE would depend on the 5 Tripathi, A. K. (2013): ‘Three Decades
as part of their regulatory functions.
laws and policies established by the Though the issues associated with each of Renewables in India’, AkshayUrja,
government. RE technology varies, the regulators 6(5&6): 10-17.
While the existing policy need not become specialists in each 6 The national target was set at 5 per
instruments for RE promotion are technology. Nevertheless, they need cent for the FY 2009-10 and to be
being executed by the sector regulators, to be aware of the strengths and limits increased by 1 per cent for the next 10
of each technology as policies are years, with the aim to procure 15 per
there is a need for their proactive
developed and employed. cent of consumable electricity from RE
engagement in monitoring, evaluation
sources by 2020. The policy also makes
and impact assessment.Since the Finally, the governments often a provision for solar-specific RPO set at
policies are not self-implementing, tend to pick ‘winners’, by favouring 0.25 per cent in 2012 and to be raised
the independent electricity regulators a particular technology and make to 3 per cent by 2022.
would emerge as key facilitators (or mistakes in selecting winners. The
blockers). The regulators have crucial 7 In the second phase of JNSSM, 50
regulators must focus on cost- per cent of the capacity addition is
roles to play in implementing these effectiveness of public spending, allocated for projects with DCR, where
policies and would affect the pace and through proper monitoring and the developers are required to procure
pattern of transition from a fossil-fuel evaluation and find ways to let the Indian made solar cells and modules.
driven electricity sector to RE based loser go. It is important to recognise the
electricity sector. 8 Nelson, D., Shrimali, G., Goel, S.,
mistakes and withdraw state support to
Konda, C., & Kumar, R. (2012): Meeting
losing technologies before they become
Moreover, private participation India’s Renewable Energy Targets: The
too costly. Moreover, considering the
will depend upon the extent to which Finance Challenge, San Francisco &
social obligations of a developing
private sector shares the state goals and Hyderabad: Climate Policy Initiative
country and low affordability of Indian
the way they are organised and their consumers, the regulators must make
& Indian School of Business.
capacity for collective action. At the sure that high cost of RE does not 9 R e n e w a b l e E n e rg y C e r t i f i c a t e
same time, the state needs to build the make electricity service unaffordable Registry of India, available at www.
confidence that private activities will to the poor (both connected and recregistryindia.nic.in, accessed on 07th
be supported and rent-seeking will be unconnected). April 2014.
avoided. Being apolitical institutions, 10 Greenpeace (2013): Powering Ahead
the sector regulators can play a crucial Regulating the race to renewables with Renewables: Leaders & Laggards,
role of an arbitrator and help to instil will require creative manoeuvres and Greenpeace India.
confidence among the private actors. bundling of interests and policies,
11 Ascertaining the situation, recently
However, to be an effective arbitrator, and may help to build private sector
MNRE has issued a letter to Ministry
the regulators need to build their capacity and foster state-business
of Power (MoP) suggesting to make
credibility and legitimacy of their relations. If successful, India could lay
it mandatory for states to meet their
decisions among the investors, utilities out a path for promotion and regulatory
RPO targets, in order to receive central
and consumers. governance of RE in other developing
assistance for financial restructuring
countries.
As discussed earlier, low level of their discoms. However, MoP is yet
of transparency is a major hurdle in Endnotes to accept the suggestion. In July 2013,
Indian RE market that promotes rent- Maharashtra Electricity Regulatory
1 However, as the sector has matured,
Commission has directed all discoms
seeking and affects competitiveness. there is an increasing trend of revisions
to meet their RPOs in the past four
The sector regulators must address it by to existing RE policies than adoption of
years by March 2014, or else pay a stiff
ensuring real-time, credible and usable new policies and targets.
penalty.
information dissemination through 2 The target includes only grid-connected
periodic progress reports that the 12 Bhusan, C. &Hamberg, J. (2012): ‘The
RE capacity. However, India has
stakeholders can trust. In that regard, Truth about Solar Mission’, Down to
separate off-grid RE targets, including
the regulators must be authorised by Earth, 20 (16). q
two GW off-grid solar capacities by
the state to request information from 2022. (E-mail :ashwini@ashwiniswain.net)

32 YOJANA May 2014

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