Asia Clean Energy Forum 2011

Manila, Philippines

FeedFeed-in Tariff Experience in India

Balawant Joshi, Director ABPS Infrastructure Advisory balawant@gmail.com, balawant@gmail.com, balawant.joshi@abpsinfra.com

India is at the forefront in harnessing Renewable

RE capacity is ~10% of total generation capacity (164 GW) RE Generation is approx 6% of total consumption Large hydro (>25 MW) is not considered in calculation of RE Including large hydro (37GW), total RE capacity would be 52GW. Total RE capacity including Large hydro ~33% in terms of total generation capacity and 18% of total consumption Total Capacity 17174 MW
Country USA Wind Capacity (GW) (2010) 35.2 26.0 25.8 19.1 12.2

15691 MW

China Germany Spain India

Source: Ministry of Power, Govt. of India, April 2010

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India has the fifth largest wind capacity in the World

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Key drivers for Renewable Energy Development

20000 18000 16000 14000 12000
Emergence of Electricity Regulatory Commissions Policy Announcement by Central Government Policy on Hydro Power Development Enactment of National Tariff Policy Enactment of Electricity Act, 2003 NAPCC, JNNSM Generation Based Incentive

MW

10000 8000 6000 4000 2000 0

Wind
Source : Ministry of New and Renewable Energy

Biomass

Small Hydro

Others

RE

capacity

(17

GW)

forms

10%

of

total

generation

capacity

(164

GW)

in

the

country

In energy terms, it constitutes

~ 5% of total consumption
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Introduction to Feed In Tariffs

A feed-in tariff (FIT), also known as preferential tariff is a policy mechanism designed to encourage the adoption of renewable energy (RE) sources. Under this regime, an obligation is imposed on regional or national electric grid utilities to buy renewable electricity from specified resources at a FIT determined by regulators / law makers. Typically, it includes three key provisions
Guaranteed grid access Long-term Power Purchase Agreements (PPAs) for the electricity produced Purchase prices that are methodologically based on the actual cost of generation.

The cost-based prices therefore enable investors obtain a reasonable return on renewable energy investments. India has practiced FIT regime for nearly two decades now.
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Evolution of Market Model & Role of Utility

Period A
MNES Preferential Tariffs

Period B
Regulated Preferential Tariffs

Period C
REC + Pref Tariffs

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Period A

MNRE Preferential Tariff Policy 1994-95 1994 Way back in 1994-95, Ministry of Non-Conventional Energy Sources (then MNES and now MNRE) According to Policy, State Electricity Boards were required to purchase electricity generated by renewable energy sources at rates prescribed in the policy The rate prescribed was Rs. 2.25 per unit for year 1994-95 to be increased by 5% per annum for next ten years. Further, Policy provided wheeling and banking at 2% to captive and thirds party sales transactions. Various states adopted the guidelines (not uniform) through an executive order (by energy department)

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Period A

Analysis of MNRE Preferential Tariff Policy

As can be seen from earlier graph, though MNRE Policy resulted in increasing renewable energy capacity (4000MW) in the country, primary business driver was Accelerated Depreciation and not FIT. Reasons for the same were:
Though Policy was issued by MNRE, it was not statutorily binding on either state or utilities within State MNRE had very little influence on purchasing utilities Financial health of utilities was very weak Confusion existed on some of the provisions of the policy Awareness about energy security and climate change related issues did not exist at utility and/or consumer level

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Period B

Feed In Tariff Under New Legislation

Electricity legislation in India for the first time specifically seeks to promote the renewable sources of energy National Policy under the act to take into consideration the need to promote the renewable. Regulator has been entrusted with the task of promotion of renewable sources of energy both as off-grid supplier and grid-connected supplier. Regulatory entrusted with the responsibility of setting tariffs for various renewable energy technologies. Retail tariff to consumers need to take into account renewable sources.
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Period B

Electricity Act 2003 : Enabling provisions

The EA 2003 has several enabling provisions to accelerate the development of RE based generation
(Section 3): National Electricity Policy and Plan for development of power system based on optimal utilization of resources including renewable sources of energy, (Section 4): GoI to prepare a National Policy permitting stand alone systems (including those based on renewable sources of energy and non-conventional sources of energy) for rural areas. (Section 61(h)): Tariff regulations by Regulatory Commission to be guided by promotion of generation of electricity from renewable energy sources in their area of jurisdiction. (Section 86(1)(e)): Regulatory Commission to specify purchase obligation from renewable energy sources.
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Period B

Many States have taken action

Armed with legislative powers, many State Electricity Regulatory Commissions took constructive action for promotion of renewable energy:
Issued Feed In Tariff Orders for technologies operational in their area of jurisdiction. Issued Renewable Purchase Obligations for Obligated Entities Determined various charges applicable for undertaking transaction of renewable energy Determined / approved principles of long term energy purchase

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Period B

For example wind tariffs across States

States
Madhya Pradesh (Order dtd. 21/11/07) AndhraPradesh (Order dtd. 1/5/2009) Gujarat (Order dated 30/1/2010) Karnataka (Order dated 11/12/2009) Rajasthan (Order dated 16/7/2009) Maharashtra (Order dated 24/11/2003) Kerala (Order dated 27/02/2008) Tamil Nadu (Order dated 20/03/2009) Haryana (Order dated 15/05/2007) Punjab (Order dated 13/12/2007) West Bengal (Notification dtd. 25/3/08)

Wind Energy Tariff Rs. Per Unit

Rs 4.03 in first year, gradually reduced to 3.36 in 5th years and thereafter upto 20 years (to be revised) Rs 3.50 for 10 years Rs.3.56 fixed for 25 years Rs. 3.70 fixed for 10 year Rs. 3.83 : Jaisalmer, Jodhpur, Barmer Distric Rs. 4.03 : Rest of 3 Districts : fixed for 20 years Rs. 3.50 for the first year and thereafter 15 paise escalation every year: for 13 years (to be revised) Rs 3.14 for 20 years Rs 3.39 for 20 years Rs 4.08 applicable for 5 years with annual escalation of 1.5% from 2008-09 Rs. 3.49 (Base Year 2006-07) with annual escalations @ 5% upto 2011-2012 Rs. 4.00 fixed for 5 years and as cap
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Period B

RPO Compliance in India

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Period B

Analysis of Period B Actions

During this Period, i.e. 2004 2010, significant renewable capacity (~13000MW) was added in country. While FIT played a key role, Several new challenges have emerged for large scale renewable deployment.
RE sources are not spread evenly across the country As a result, RPO targets are significantly different Mechanism for inter-state purchase of RE is required Low transaction cost mechanism for OA/Captive consumers SERCs have assumed different parameters for determination of FIT Consequently, some times perverse incentives have got created

As a result, new innovative mechanisms were required.

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Period C

Efforts to normalize Feed In Tariffs

CERC is authorized to determine the tariffs for interstate sale of energy. Further, National Tariff Policy required CERC to come up with guidelines for purchase of infirm power. Under these powers, CERC has developed tariffs for various renewable energy technologies operating in India. It is envisaged that the norms/methodologies used by CERC will be adopted by SERCs to develop feed-in tariffs in their area of jurisdiction. This would help bring synergies in feed-in tariffs across the country.
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Period C

CERC tariffs for Wind & Hydro

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Period C

CERC tariffs for Biomass Power

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Period C

CERC tariffs for Solar Power

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Period C

Renewable Energy Certificate Mechanism

In order to address following problems, CERC in consultation with State Regulators has developed and implemented REC mechanism.
Effective implementation of RPS Increased flexibility for participants Overcome geographical constraints Reduce transaction costs for RE transactions Enforcement of penalty mechanism Create competition among different RE technologies Development of all encompassing incentive mechanism Reduce risks for local distributor by limiting its liability to energy purchase

Mechanism has been implemented with effect from April 1, 2010 and the trading of RECs has started since March 2011.
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Period C

Challenges during Period C

REC mechanism is a market based mechanism while Feed In Tariff is a strong regulatory mechanism. Theoretically both mechanisms can not co-exist. Given evolution of market over last 7-8 years, it is felt that FITs are not required. However, sudden withdrawal of FIT mechanism would cause RE Market to collapse. Therefore, it is necessary that timeline is set for phased withdrawal of FIT and competitive environment compatible with REC mechanism is developed.

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