The Renewable Energy ("RE") space has been a sunrise sector in India in the recent past. It not only addresses climate change concerns but also helps capitalize on the tremendous clean energy potential. The Government of India has a renewable energy target of 175 GW to be set up by 2022, of which 100 GW is planned for solar and75 GWfor wind and other RE sources. This is expected to attract investments of up to US$ 80 billion in the next four years.
The development of grid interactive RE power took off with the Electricity Act, 2003 and the policies framed there-under, which provide for regulatory interventions through preferential feed in tariff, specifying RE purchase obligations, trade in RE Certificates, facilitating grid connectivity, development of RE market in India, granting must-run status, providing tax benefits, etc. The electricity governance framework is federal in nature. However, the Act provides that the state regulators in discharging their functions shall be guided by the policies framed by Government of India and the central regulator.
The industry has reacted favourably to such policies, powering growth in the sector and bringing India closer to achieving its climate change pledges and the goal of sustainable development. More than US$ 42 billion has been invested in the sector since 2014.In 2012, the contribution of RE to overall generation was only 12%, while the CEA predicts that RE will contribute over 57% by 2027, substantially more than India's obligation of having 40% contribution of RE by 2030 under the Paris Agreement.
Sustainable investment in the sector rides on regulatory certainty and absence of litigation. The Honorable Supreme Court has also held that certainty of policy is a rule of law. Despite the various promotional measures by the government, recent events suggest that the road ahead for RE developers may not be unhindered. The perilous health of distribution licensees and the preferential tariffs given to RE initially led to a backlash from state regulators and distribution licensees in various forms. Not only are distribution licensees in certain states like Tamil Nadu, Madhya Pradesh, Telangana, Andhra, Maharashtra and Rajasthan delaying payments to RE generators by 6-12 months, state regulators too are dragging their feet in taking timely corrective actions. This is threatening the financial viability of RE generators, especially smaller entities with limited cash reserves.
The most prominent moves against RE have been seen from the Government of Andhra Pradesh, along with the state commission. The tariffs that were adopted during the previous feed-in tariff regime ranged from Rs. 3.50/kWh to Rs. 5.45/kWh. However tariff of Rs. 2.43/kWh had been discovered in certain bids around the country. This led to ample heartburn amongst licensees who in turn petitioned the commission to take away a subsidy given by the Central Government (GBI) for promotion of RE and pass it to the procurers instead. They further sought curtailing the duration of executed PPAs (Power Purchase Agreement) having higher tariff. Meanwhile, the Andhra Pradesh Government announced its intention to review all such PPAs signed and issued notices to solar and wind projects for reduction in tariff and/or cancellation of PPAs. The stand of the state government had been adamant despite directives by the Central Government to refrain from taking such actions. Understandably, there has been considerable opposition, with the judiciary granting well deserved injunctions in time. However, after the injunctions were granted, the state government has now stated it had planned to review only those PPAs which were fraudulently executed.
Further, there have been reports of SLDCs (State Level Despatch Centre) issuing backing down instructions to RE generators for reasons other than purely grid congestion. Recently, Tamil Nadu's SLDC had been issuing such instructions randomly, which invited a strong rebuke from the State Commission. Worryingly, the same pattern is being seen in Andhra and Rajasthan. This has led the Central government to issue clarifications that backing down instructions cannot be issued to RE generators except for grid constraints and directed SLDCs to work together to resolve such issues.
Madhya Pradesh Commission had even proposed taking away the 'must run' status granted to RE generators. In the face of considerable opposition that viability of projects already commissioned would be affected, it relented on its stand. Instead, the Commission imposed additional charges of wheeling etc. which were exempted when the tender for RE projects was first floated. Indeed, it is now being argued that this is against the spirit of sanctity of executed contracts, which were partly premised on the exemption of such charges. A similar tale is set to play out in Maharashtra, where the state distribution licensee had petitioned the Commission to redraw wind classification zones, which is the basis for tariff in many PPAs signed and in force. The Commission has now directed state discom to file a fresh Petition after considering the MEDA report on the issue and the objections of the stakeholders.
Although there is strong foundation laid down in the regulatory framework for promotion of RE, if India has to maximize its RE potential, continue to attract investments and achieve the targets set out, the state bodies ought to act in line with the national policy to bring in regulatory certainty and discourage any attempt to act in a different manner.
Abhishek Munot is a Partner and Samikrith Rao Pusukuri is an Associate with J.Sagar Associates. Views expressed are solely that of the authors and should not be construed as the official take of this publication.