Anda di halaman 1dari 185

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration and Combined

Heat and Power in India

Compiled by the United States Energy Association With funding from the U.S. Department of State in support of the Asia Pacic Partnership on Clean Development and Climate

Acknowledgements
The Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India (handbook) is made possible by the generous support of the U.S. government through the Asia-Pacific Partnership on Clean Development and Climate (APP). The contents are the responsibility of the U.S. Energy Association (USEA) and do not necessarily reflect the views of any of the APP partner countries. The author wishes to thank the peer reviewers for their thorough review and constructive recommendations. While these experts provided valuable guidance and information, this consultation does not constitute endorsement by their organizations of this handbook. The following professionals reviewed this document: Vijay Barthwal, Assistant Vice President, PTC India Ltd. Richard Brent, Director, Government Affairs, Solar Turbines and U.S. member of the Renewable Energy and Distributed Generation Task Force of the Asia-Pacific Partnership David Brown, Principal Distribution System Engineer, Distribution Services, Sacramento Municipal Utility District S.P. Gon Chaudhuri, Director, West Bengal Green Energy Development Corporation Lalnunmawia Chuaungo, Managing Director, Gujarat Urja Vikas Nigam Ltd. Rakesh Kumar, Executive Vice President of Corporate Development, PTC India Ltd. Surendra Pimparkhedkar, Senior Research Associate, World Institute of Sustainable Energy Balour Singh, Director, Punjab Energy Development Agency V. Subramanian, former Secretary, MNRE S. Seth Vedantham, Advisor, PTC India Ltd. Barry Worthington, Executive Director, USEA Disclaimer: The information provided in this handbook is intended only to be general summary information to the public. It is not intended to take the place of either the written law or regulations. For documents available from this handbook, the USEA does not warrant or assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed. Some content in this handbook may be subject to copyright by journals and publishers. Use of the copyrighted material is subject to the terms and conditions of use established by the journal or publisher. By using links provided on this site that lead to sites other than the USEA site, the user agrees to hold the USEA harmless from any liability resulting from your use of those sites.

TABLE OF CONTENTS
Acronyms I. Introduction and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Asia-Pacific Partnership on Clean Development and Climate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 B. Renewable Energy and Distributed Generation Task Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Handbook Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 D. Indian Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 E. Promotion of Alternative Energy In India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

II. Assessment of current policies in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


A. Electricity Act 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 B. National Electricity Policy 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 C.Tariff Policy of 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 D. National Action Plan on Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

III. Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A.Cross Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 B. Subsidies for Conventional Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 C. Investment Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 D. Interconnection at 66 kv vs. 11 kv . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 E. Utility Objections Due to Problem of Intermittency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 F. Lack of Programs for Residential Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 G. Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 H. Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 I. Power Sector Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

IV. Policy and Regulatory Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


A. Consistent Rules at National and State Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 B. Clear Rules of Ownership and Control of Alternative Energy Facilities . . . . . . . . . . . . . . . . . . . . . 34 C. Examples of Effective Market Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

V.

Financial Issues and Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


A. Tariff Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 1. Standby Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2. Pricing Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3. Feed-In Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4. Retail Natural Gas Rates for Wholesale Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5. Interconnection Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

6. Utility Rates Too Low for Renewable to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7. Loss of Utility Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8. Retail Buy-back Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9. Payments for Locational Marginal Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 10. Cogeneration Deferral Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 11. Remittance for Line Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 12. Exit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 B. Acquiring Renewable Energy and Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 1. Competitive Bidding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2. Renewable Portfolio Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3. Tradable Renewable Energy Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 C. Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 1. Investment Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2. Production Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3. Clean Renewable Energy Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4. Accelerated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 5. Capacity Payment Tariff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6. Demand Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 7. Buy Down Capital Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 8. Carbon Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 9. Property Tax Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10. Other Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 D. Refund of Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 E. Insurance and Liability Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

VI. Technical Issues and Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87


A. Grid Stability and Protection Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 1. Intermittency and Grid Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 2. Pre-Interconnection Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 3. Unintentional Islanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 4. Synchronization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 5. Isolation Devices and Backfeed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 6. Power Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 7. Monitoring Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 8. Frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 9. Voltage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 10. Voltage Ride-Through Capabilities for Wind Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

11. Area Utility System Fault Detection and Clearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 12. Faults and Reclosing Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 13. Grounding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 14. Momentary Paralleling Allowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 15. Protection from Electromagnetic Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 16. Surge Withstand Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 17. Limitation of DC Injection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 B. Equipment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 1. Isolation Device (disconnect switch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 2. Paralleling Device . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 3. Customer Responsible for Protecting Their Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 4. Requirements for Metering/Meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 5. Telemetering/Communication Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 6. Net Metering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 7. Synchronous Generators Special Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 8. Induction Generators Special Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 9. Static Power Converter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 10. Static Inverters/Inverter Systems Special Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 11. Equipment Pre-certification/Pre-approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 C. Testing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

VII. Approvals and Application Processing Issues and Best Practices. . . . . . . . . . . 138 VIII. Contractual Issues and Best Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
A. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 B. Power Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

IX. Concluding Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Appendix A Appendix B Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Sample Power Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 154

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Acronyms
AC ANSI app AWEA CDM CEA CEC CER CERC CHP CII CPUC CREB CVPS DC DG DR DSIRE FERC GBI GHG Hz IEEE IPP IREDA kV kVA kW kWh LMP MERC MNRE Alternating current American National Standards Institute Asia-Pacific Partnership on Clean Development and Climate American Wind Energy Association Clean Development Mechanism Central Electricity Authority California Energy Commission Carbon Emission Reduction credits Central Electricity Regulatory Commission Combined heat and power Confederation of Indian Industry California Public Utilities Commission Clean Renewable Energy Bond Central Vermont Public Service Corporation Direct current Distributed generation Distributed resource Database of State Incentives for Renewable Energy Federal Energy Regulatory Commission Generation-based incentive Greenhouse gas Hertz Institute of Electrical and Electronics Engineers, Inc. Independent Power Producer Indian Renewable Energy Development Agency Kilovolt Kilovolt-ampere Kilowatt Kilowatt-hour Locational marginal pricing Maharashtra Electricity Regulatory Commission Ministry of New and Renewable Energy

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

MRET MW NRECA NRSE PBR PCC PPA PSE&G PTC PUCT PV RE REC REDGTF RPS Rs SCADA SCCR SCE SDG&E SERC SGIP SMUD SRP TOU TREC UI UL USEA VAr WISE

Mandatory Renewable Energy Target Megawatt National Rural Electric Cooperative Agency New & Renewable Sources of Energy (Policy) Performance-based regulation Point of common coupling Power purchase agreement Pacific Gas & Electric Production tax credit Public Utility Commission of Texas Photovoltaic Renewable energy Renewable energy certificate Renewable Energy and Distributed Generation Task Force Renewable portfolio standard (also called renewable purchase obligation, renewable power purchase obligation, and renewable purchase specification in India) Rupees Supervisory control and data acquisition Short-circuit current ratio
Southern California Edison San Diego Gas & Electric

State Electricity Regulatory Commission Self-Generation Incentive Program Sacramento Municipal Utility District Salt River Project Time of use Tradable Renewable Energy Certificate (also called Renewable Energy Certificate, or REC) Unscheduled interchange Underwriters Laboratories United States Energy Association Volt-ampere reactive World Institute of Sustainable Energy

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Introduction and Summary

I. Introduction and Summary


The United States Energy Association (USEA) received funding in 2008 from the U.S. Department of State as part of the Asia-Pacific Partnership on Clean Development and Climate (APP) to create the Grid Connected Renewable Energy and Distributed Generation Partnership. The main goal of the partnership was to promote policy and regulatory changes and encourage incentives to accelerate the development and interconnection of alternative energy projects into the Indian power system. The partnership had three central components: (1) the Handbook on Best Practices for the Successful Deployment of Renewable Energy, Distributed Generation, Cogeneration and Combined Heat and Power in India, (2) workshops and (3) a site visit to the U.S. Workshops were held in three progressive Indian statesGujarat, Punjab, and West Bengaland focused on specific alternative energy projects and key issues that affect their interconnection. The workshops provided an open forum for regulators and other policy makers, utility executives, and project developers to discuss initiatives and changes that could help promote alternative energy projects. The purpose of the workshops was to promote policy and regulatory changes and encourage incentives to accelerate the development and interconnection of renewable energy, distributed generation, cogeneration and combined heat and power projects into the Indian power system. Panel discussions and keynote addresses in all three states focused on: Successful policies, regulation and incentives for renewable/cogeneration development, Successful renewable energy and cogeneration technologies and projects, Interconnecting to the power grid while maintaining grid reliability and stability, Project financing, and Power purchase agreements. The workshops drew participation from distribution utility executives, project developers, regulators, investors, and government policy makers. The state energy development agencies were critical partners in each workshop. USEA invited the World Institute for Sustainable Development and the regulator, utility and energy development agencies from each state to send one delegate on the U.S. exchange. Participants in the exchange met with leaders in integrating renewable energy and cogeneration in the United States to discuss how utilities successfully integrated various technologies and alternative energy sources into their systems and policies that encourage alternative energy. In addition, the participants visited numerous renewable and cogeneration facilities including: Solano Wind Project (SMUD) Kiefer Landfill (SMUD) PV1, PV2 (SMUD photovoltaic installations) Cal Denier Dairy Manure Digester Project (SMUD) Solar Powered Hydrogen Fuel Station (SMUD) Demonstration Site of Concentrating Solar Power (eSolar) I/95 Energy/Resource Recovery Facility (Covanta waste to energy plant) Central Heating & Refrigeration Plant (U.S. GSA) Discussions at these workshops and the U.S. exchange formed the basis for this handbook.

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Introduction and Summary

Results in Gujarat: The Gujarat Energy Transmission Company accepted the Indian Wind Power Associations invitation to come to Tamil Nadu and meet with the utility and developers to learn how they overcame intermittency and other grid reliability issues related to connecting wind generation to the grid, The Gujarat Urja Vikas Nigam Ltd. requested a pilot project on solar, both photovoltaic and solar thermal, and The workshop created a more open forum between regulators, developers and utilities. Results in Kolkata: Participants agreed to begin to analyze the concept of micro grids and the effects of harmonics, The West Bengal Electricity Regulatory Commission will review current standby and variable rates, The West Bengal Electricity Regulatory Commission and the West Bengal Energy Development Agency agreed to analyze tax incentive schemes, CESC Limited and developers will work towards finding solutions for inverter problems due to frequency fluctuations and islanding issues, The West Bengal Green Energy Development Corporation requested a consultant on waste to energy notably landfill technology to assist them in starting a demonstration project. There is currently no institutional knowledge in India on waste to energy technology or operations of such a facility, and Participants will give greater counseling to potential developers about interconnection rules. Results in Punjab: The Punjab State Electricity Board requested the Punjab Energy Development Agency speak to the Punjab government to encourage the sale of power from IPPs, The Punjab Energy Development Agency requested the Punjab State Electricity Board and the Punjab State Electricity Regulatory Commission streamline their procedures to make it easier for renewable energy and cogeneration to connect to the grid, especially small generators, The Punjab Energy Development Agency will propose a state policy to provide Renewable Energy Credits (REC), The Punjab Energy Development Agency will work with the state government on ways to improve access to biomass fuels and will suggest new policies urging farmers not burn paddy straw prior to collection by biomass generators, The Punjab Energy Development Agency requested Orb Energy an Indian solar project developer to expand its portfolio by developing solar projects in Punjab, The Punjab Energy Development Agency requested additional information from Turbomach India a project developer and manufacturer of medium size gas turbines on their equipment and its potential applications in Punjab, and The Punjab State Electricity Board requested a demonstration project in biomass, possibly using Agripower technology.

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Introduction and Summary

A. Asia-Pacific Partnership on Clean Development and Climate


The APP is a voluntary multinational partnership launched on January 12, 2006, that includes the governments of Australia, Canada, China, India, Japan, the Republic of Korea, and the United States. The goal of APP is to strengthen existing bilateral and multilateral arrangements and create an international framework for cooperation in development, energy, environment, and climate change objectives. The APPs charter states that the purposes of the APP are to: Create a voluntary, non-legally-binding framework for international cooperation to facilitate the development, diffusion, deployment, and transfer of existing, emerging, and longer term cost-effective, cleaner, more efficient technologies and practices among the partners through concrete and substantial cooperation so as to achieve practical results; Promote and create enabling environments to assist in such efforts; Facilitate attainment of our respective national pollution reduction, energy security, and climate change objectives; and Provide a forum for exploring the partners respective policy approaches relevant to addressing interlinked development, energy, environment, and climate change issues within the context of clean development goals, and for sharing experiences in developing and implementing respective national development and energy strategies.

B. Renewable Energy and Distributed Generation Task Force


APP established eight public-private sector task forces including the Renewable Energy and Distributed Generation Task Force (REDGTF) to focus on issues associated with renewable energy and distributed generation (DG) technology. The REDGTFs purpose is to: Facilitate the demonstration and deployment of renewable energy and DG technologies in Partner countries; Identify country development needs and the opportunities to deploy renewable energy and DG technologies, systems, and practices, and the enabling environments needed to support widespread deployment, including in rural, remote, and peri-urban applications; Enumerate financial and engineering benefits of distributed energy systems that contribute to the economic development and climate goals of the partnership; Promote further collaboration between Partner countries on research, development, and implementation of renewable energy technologies including supporting measures such as renewable resource identification, wind forecasting, and energy storage technologies; Support cooperative projects to deploy renewable and DG technologies to support rural and peri-urban economic development and poverty alleviation; and Identify potential projects that would enable Partner countries to assess the applicability of renewable energy and DG to their specific requirements.

Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Introduction and Summary

C. Handbook Outline
This handbook was developed as a tool to assist in the removal of barriers to the deployment of clean energy technologies. The handbook is intended for policy makers, utility executives, regulators, and project developers and is a compilation of open-source documents that are cited and listed at the end of each topic as well as in the bibliography. The handbook compiles information from multiple sources on the major barriers confronting the deployment of renewable energy and distributed generation, cogeneration and combined heat and power (alternative energy) projects into one document. It is not intended to be a comprehensive report on each barrier, but rather an overview with different stakeholder perspectives to facilitate discussion and understanding. Each topic lists the issue; perspectives of the utility, regulator, and developer; best practices; and links for additional information. All links were accessed between January 31 and February 14, 2009, and were functional at that time. The term best practice as used throughout the handbook refers to practices that have been effective in the deployment of renewable energy and cogeneration. Effective policies and practices have a positive impact on a range of factors such as increased installed capacity, reductions in cost and price, technological advances, and public acceptance. The handbook does not advocate one best practice over another nor does it necessarily contain all practices and policies that have been effective. The handbook is divided into eight main sections. Section 1 introduces and summarizes the handbook. Section 2 outlines current laws and policies in India and gives brief assessments. Section 3 discusses the main barriers to the deployment of cleaner energy projects in India. Section 4 analyzes policy and regulatory issues and best practices. Section 5 discusses financial incentives that have been successful in increasing the deployment of renewable energy, distributed generation, cogeneration and combined heat and power. Section 6 outlines requirements to maintain grid stability and protect the system. Section 7 outlines streamlined application processes to reduce the time and cost associated with project development. Section 8 reviews other issues related to contracts and disputes. It is hoped that the handbook will serve as a useful reference for those interested in grid-connected renewable energy, distributed generation, cogeneration and combined heat and power (CHP) and will expedite locating additional information on these topics. Questions regarding this handbook can be addressed to the author Tricia Williams at twilliams@usea.org. A glossary of terms used in this handbook is attached as Appendix A.

D. Indian Energy Scenario


Current power plants in India rely heavily on sources such as coal that increase greenhouse gas (GHG) emissions. Part of the solution to mitigate overall emissions is the increased deployment of alternative energy projects. Viable alternative energy projects could offset the construction of more fossil-fuel-fired power plants, thus reducing further GHG production. However, there are serious barriers to renewable energy, distributed generation, cogeneration and combined heat and power deployment. Energy supply shortages, high energy prices, and unreliable energy service are severe impediments to economic growth in India. The demand for energy in India is increasing faster than production, thereby jeopardizing its continued growth and stability. With an annual gross domestic product growth of 8% projected for the Government of Indias Tenth Five-Year Plan, the energy demand is expected to grow at 5.2% per year. The government of India unveiled an ambitious plan to have power to all households by 2012. In order to fulfill this promise, India must add almost 80,000 megawatts (MW) of power in the next five years. Much of this additional
Handbook on Best Practices for the Successful Deployment of Grid-Connected Renewable Energy, Distributed Generation, Cogeneration, and Combined Heat and Power in India

Introduction and Summary

capacity will need to serve the rural areas, which are often not connected to the grid, necessitating the addition of alternative energy facillities and/or new transmission lines to connect facilities and future consumers to the grid. As part of the national energy plan, in April 2006 India launched a rural energy initiative titled Rajiv Gandhi Grameen Vidyutikaran Yojana to fulfill the commitment of the National Common Minimum Programme to electrify all villages and provide electricity access to all households by 2009. This national energy plan relies heavily on interconnections and extensions of the current transmission system and targets existing utilities to provide power to unserved areas. Each state was required to submit a Rural Electrification Plan by February 2007 to address these issues. In addition, the Indian Electricity Act of 2003 created open access to the grid whereby generators can sell power to entities other than the local utility. However, the actual implementation of this plan has been complicated for even the traditional utilities.
Source: http://www.geni.org/globalenergy/library/national_energy_grid/ india/indiannationallectricitygrid.shtml Though wind projects have achieved some success over the past few years, many other renewable and alternative energy technologies have been much slower to be included in the energy mix. Alternative energy technologies such as reciprocating engines, microturbines, combustion gas turbines, fuel cells, photovoltaics, bagasse cogeneration, waste heat recovery systems, biomass gasification, and waste-to-energy systems have met great challenges in obtaining approvals to build and interconnect. The cost for interconnection and the higher costs to build renewable projects have led to slower deployment of renewable energy projects in India and around the world.

Problems with building and operating renewable, distributed generation, cogeneration and CHP projects can be summarized as follows: Longer cost recovery period due to low tariff rates and higher development costs (for some technologies). Limited access to the transmission grid for the purpose of selling power to a wider consumer base. Lack of interest by transmission utilities in extending the transmission network to the remote areas where most renewable energy projects are located. Absence of grid connectivity standards and grid codes for renewable energy projects. Difficulty in intra- and interstate transfer of renewable energy due to stringent open-access regulations that are basically framed for conventional energy projects.
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Introduction and Summary

Regulated energy policies and tariffs that favor conventional energy sources by not internalizing externality costs. Lack of government policies for distributed generation. Economic viability of projects given the need to recover higher development costs than conventional energy sources at regulated tariff prices. Subsidies and cross-subsidies that mask the true cost of conventional energy. Complicated and lengthy project approval processes. Inconsistent implementation and application process to meet renewable portfolio standards (RPS orders) amongst states. Resistance of major Indian utilities to the integration of significant amounts of power from renewable energy and DG power into their grids due to availability, intermittency, reliability compared to conventional sources, and cost.

E. Promotion of Alternative Energy in India


India has moved rapidly in many areas related to renewable energy, distributed generation, cogeneration, and combined heat and power. India is the only country with a Ministry of New and Renewable Energy (MNRE) and every state has a coordinating state nodal agency (Energy Development Agency) dedicated to advancing alternative energy projects. The broad aim of the MNRE and its nodal agencies is to develop and deploy new and renewable energy to supplement the energy requirements of the country. The MNRE also has several specialized technical and financial institutions: The Solar Energy Centre serves as the technical focal point for solar energy development. The Centre for Wind Energy Technology, an autonomous organisation under the administrative control of the MNRE, has been established in Chennai, Tamil Nadu, and serves as the technical focal point for wind power development. The Sardar Swaran Singh National Institute of Renewable Energy is being established as an autonomous institution to serve as the technical focal point for the development of bio-energy, including bio-fuels, and synthetic fuels. The Indian Renewable Energy Development Agency (IREDA) was established in 1987 to promote, develop, and extend financial assistance for renewable energy and energy efficiency/conservation projects. IREDA is a nonbanking financial institution under the administrative control of the MNRE. The MNRE and the state development agencies have been critical in the increased deployment of alternative energy facilities in India and have very ambitious plans. For instance, the Punjab Energy Development Agency plans to add 500 MW from renewable energy projects in cogeneration, biomass and small hydro in the next two years, more than doubling its current capacity from alternative energy. The chart below outlines the achievements thus far in India.

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Introduction and Summary

NEW & RENEWABLE ENERGY


Cumulative achievements as on 30.09.2008
No. Sources / Systems Achievements Cumulative during 2008-09 Achievements (up to 30.09.2008)

I. Power from renewables A. Grid-interactive renewable power 1. 2. 3. 4. 5. 6. Biomass power (agro residues) Wind power Small hydro power (up to 25 MW) Cogeneration-bagasse Waste to energy Solar power Subtotal (in MW) (A) 50.80 MW 764.80 MW 40.15 MW 193.00 MW 656.60 MW 9521.80 MW 2220.99 MW 993.83 MW 55.75 MW 2.12 MW 13,450.59 MW

1,048.75 MW

B. Off-grid/distributed renewable power (including captive/CHP plants) 7. 8. 9. 10. 11. Biomass power / cogen. (non-bagasse) Biomass gasifier Waste-to-energy Solar PV power plants and street lights Aero-generators/hybrid systems Subtotal (B) Total ( A + B ) 41.70 MW 2.42 MWeq 4.36 MWeq 0.29 MWp 136.70 MW 102.21 MWeq 31.07 MWeq 8.01 MWp 0.72 MW 48.77 MWeq 252/NIL Villages/Hamlets 278.71 MWeq 13,729.30 MW 4237 villages + 1142 hamlets

II.

Remote Village Electrification

III. Decentralized Energy Systems 12. 13. 14. 15. 16. 17. 18. Family-type biogas plants Home lighting system Solar lantern SPV pumps Solar water heating collector area Solar cookers Wind pumps 0.66 lakh 31,754 nos. 27,360 nos. 0.15 Mln. sq.m. 40.32 lakh 4,34,692 nos. 6,97,419 nos. 7,148 nos. 2.45 Mln. sq.m. 6.37 lakh 1342 nos.

IV. Other Programmes 19. 20. Energy parks Akshay Urja shops 18 nos. 516 nos. 269 nos.

Source: MNRE Achievements, <http://www.mnes.nic.in/>

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Assessment of Current Policies and Regulations in India

II. Assessment of Current Policies and Regulations in India


Since 1994, Indias promotion of renewable energy has shifted from MNRE subsidies to fixed tariffs and private investments. The Ministry of Non-Conventional Energy Sources guidelines assumed 199495 as the base year for tariff determination and for that year, the tariff was set at Rs 2.25 per kilowatt-hour (kWh) with a 5% annual escalation (the prevalent avoided cost of thermal power projects) with a provision for escalation of 5% per year for the first 10 years at which point the price of power would stay constant. Currently several different policies and one law address renewable energy at the state level but very little legislation addresses distributed generation, cogeneration and combined heat and power. The World Institute of Sustainable Energy (WISE) drafted a model renewable energy law and submitted it to the MNRE, which is using it as the base for new legislation. Though it is unclear what will ultimately be included in the final legislation, it appears the WISE model has addressed the issues listed below. Some of the highlights of the draft Renewable Energy Law are as follows: Increasing the target for electricity generation from renewables to 10% by 2010 (as against 2012 currently) and 20% by 2020 of the total electricity generated in the country (and not as a percentage of installed capacity). Making solar water heating mandatory throughout the urban areas of the country by 2012 in a phased manner. Demonstration of solar rooftop lighting systems in 10,000 government buildings by 2010 in a time-bound manner, also incorporating building integrated photovoltaics. Conversion of fossil-fuel-based industrial heating to solar thermal heating using new solar concentrator technology or its hybrids. India has at present about 30,000 MW captive generating units (industrial units) of which about 18,000 MW are diesel based. The draft law proposes time-bound conversion of these captive units to biofuel-based generation, thus saving large amounts of diesel. Accelerating biofuel development and transportation energy to displace fossil fuels. A time-bound Renewable Fuel Programme covering ethanol and biodiesel has been proposed. Charting a definite road map for developing a hydrogen and fuel cell economy. Establishing Renewable Energy Development Funds in all states (on the pattern of Maharashtra). Following are the relevant sections from Indian laws as they relate to renewable energy; an assessment of their effectiveness in promoting renewable energy, distributed generation, cogeneration, and combined heat and power; and their impact on the deployment of these systems.

A. Electricity Act 2003


The Electricity Act 2003 was written to combine multiple energy acts related to generation, transmission, and distribution of power. The Act focuses mostly on utilities and regulation but does include a few provisions related to renewable energy and cogeneration: RPS orders, preferential tariffs for renewable energy and cogeneration, and open access.

Renewable Portfolio Standards State Electricity Regulatory Commissions (SERCs) are required to specify renewable energy as a percentage of consumption in the distribution licensees area under Section 86 of the Electricity Act.

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The State Commission shall discharge the following functions. . . . . . (e): promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution license.

Tariff Section 61 of the Act outlines the tariff for cogeneration and renewable energy.
The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely . . . . . . the promotion of cogeneration and generation of electricity from renewable sources of energy.

Open Access The provision mandating open access has important implications for renewable energy and cogeneration facilities. The Act includes the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by a licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission. <http://powermin.nic.in/acts_notification/electricity_act2003/preliminary.htm> Assessment The Act did direct RPS orders but gave no timeline for the SERCs to do so, enabling a large percentage of states to avoid the issue for years. In addition, allowing the individual states to determine the percentages with no minimum requirement has led many states to create extremely low percentages with little to no increases over time. As mentioned in the previous section assessing the Electricity Act 2003, allowances could be made for utilities to purchase renewable power from states with greater resources and thus a lack of resources should not be accepted as a rationale for low RPS.
This act does not use the phrase preferential tariffs mentioned in the Tariff Policy 2006; however, a preferential tariff is implied. The open-access provision is critical for grid-connected renewable energy and cogeneration projects as it mandates the utility must provide nondiscriminatory access and cannot deny valid interconnection requests. At present, most generators are not selling energy via the open-access route as preferential tariffs are payable only if the generator sells to local utilities. However, open access may become more important as the energy market becomes more vibrant and Tradable Renewable Energy Credits become a reality. However, renewable energy facilities are treated the same as conventional energy facilities without consideration for intermittent and low plant load factor characteristics, which is causing dispatch problems. The Federal Energy Regulatory Commission of the United States (FERC) recognized these challenges and issued open access for renewables that created conditional firm service to design imbalance charges that reflect the difference between scheduled and actual energy.

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Assessment of Current Policies and Regulations in India

The difference between scheduled energy and the actual energy is called Unscheduled Interchange (UI) in the Indian Electricity Grid Code and Central Electricity Regulatory Commission (CERC) Tariff Regulations. UI is being used by the distribution utilities to draw their peak energy requirements from the grid. Injecting renewable energy in the grid during off-peak hours will create an imbalance and increase frequency, which will require the State Load Dispatch Centres to give instructions to thermal generating stations to back down their generation during this time, provided the quantum of renewable energy to be injected can be predicted. Therefore, to the extent that the amount of renewable energy can be predicted, it can be accommodated as UI in the state grid. The concept that infirm energy injected by a generator should be treated as UI is currently not in state grid codes and should be included for greater clarity, as it is in the Indian electricity grid code.

B. National Electricity Policy 2005


The National Electricity Policy 2005 includes several provisions related to renewable energy and cogeneration that are quoted below. Section 5.2.20 promotes private participation in renewable energy: Feasible potential of non-conventional energy resources, mainly small hydro, and wind and bio-mass would also need to be exploited fully to create additional power generation capacity. With a view to increase the overall share of non-conventional energy sources in the electricity mix, efforts will be made to encourage private sector participation through suitable promotional measures. Section 5.12.1 promotes the reduction in capital costs of renewable energy technologies: Non-conventional sources of energy being the most environment friendly there is an urgent need to promote generation of electricity based on such sources of energy. For this purpose, efforts need to be made to reduce the capital cost of projects based on non-conventional and renewable sources of energy. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources. Section 5.12.2 directs SERCs to specify appropriate tariffs to incentivize the deployment of renewable energy and cogeneration facilities: The Electricity Act 2003 provides that cogeneration and generation of electricity from non-conventional sources would be promoted by the SERCs by providing suitable measures for connectivity with grid and sale of electricity to any person and also by specifying, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. Such percentage for purchase of power from non-conventional source should be made applicable for the tariffs to be determined by the SERCs at the earliest. Progressively the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be through competitive bidding process. Considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies.

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Assessment of Current Policies and Regulations in India

Section 5.12.3 promotes the benefits of cogeneration: Industries in which both process heat and electricity are needed are well suited for cogeneration of electricity. A significant potential for cogeneration exists in the country, particularly in the sugar industry. SERCs may promote arrangements between the co-generator and the concerned distribution licensee for purchase of surplus power from such plants. Cogeneration system also needs to be encouraged in the overall interest of energy efficiency and also grid stability.
<http://powermin.nic.in/indian_electricity_scenario/national_electri,city_policy.htm> [sic]

Assessment The National Electricity Policy 2005 does mention the benefit of cogeneration and requests that the SERCs promote it and renewable energy. As with other legislation, the SERCs are given full responsibility for promoting alternative energy but have no deadlines, percentages, or penalties for noncompliance, which has allowed some SERCs to move very slowly or not at all on deploying these resources.
In general, India has some feed-in laws, standardized power purchase agreements (PPAs), financing from IREDA, and market supports such as banking and wheeling which have helped make sugar cane bagasse cogeneration successful.

C. Tariff Policy 2006


Section 6.4 of the National Tariff Policy 2006 requires all SERCs to specify minimum percentages of renewable energy by April 1, 2006. (1) Pursuant to provisions of section 86 (1) (e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentages for purchase of energy should be made applicable for the tariffs to be determined by the SERCs latest by April 01, 2006. It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission. (2) Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional sources. In the long-term, these technologies would need to compete with other sources in terms of full costs. (3) The Central Commission should lay down guidelines within three months for pricing non-firm power, especially from non-conventional sources, to be followed in cases where such procurement is not through competitive bidding. (<http://www.orierc.org/new1/documents/National%20Electricity%20Tariff%20Policy.pdf>).

Assessment The policy states that the competitive bidding process should be with suppliers offering the same type of energy source, which will encourage development if a percentage of each renewable energy source is mandated.
While Section 86(1)(e) directed the development of RPS orders and special tariffs for energy, several problems arose. To begin with, there was no penalty or enforcement for the creation of portfolio standards and thus many states still do not have RPS orders two years after the deadline. In addition, allowing the individual states to determine the percentages based on their available sources has led many states to create extremely low percentages (2%) with little to no increases over time. Though some states have more resources than others, allowances could be made

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Assessment of Current Policies and Regulations in India

for utilities to purchase renewable power from states with greater renewable energy production. Because every state may not be able to generate the renewable energy target, the scheme of renewable energy certificates should be implemented so that interstate transfer of renewable power could be settled through a market-based commercial mechanism. The CERC is currently advocating this policy. The Tariff Policy states that the appropriate commission should fix the minimum percentage of energy from cogeneration and renewable energy, taking into account the availability of such resources in the region and its impact on retail tariffs. There is lack of clarity in Tariff Policy 2006 stipulations as to which commission should fix what, as the CERC is responsible for the region and the SERC for the state. The Electricity Act requires SERCs to promote renewable energy and cogeneration, fix the percentage of generation from such sources as a percentage of total consumption of electricity, and fix tariffs within the state under sections 86(1)(a) and (e). Thus, the role of the CERC as per the Tariff Policy seems to be limited to determining the amount of generation from renewable energy and cogeneration within the region or as a percentage of total generation within the region. Past trends in India show that generation of renewable energy and cogeneration takes place more by incentive than penalty mechanisms (UI and response to photovoltaic [PV] solar energy proposals for the first 50 MW under the new incentive scheme). Because the promotion of clean energy technologies is an issue of national importance, there is a need in the initial stages for the central MNRE to provide more financial assistance such as concessional funding and exemption of taxes with the balance cost to be paid for by consumers through billing by distribution companies with the approval of the SERC. Because this is supposed to be a long, drawn-out process, the percentage of renewable energy and cogeneration for each type may have to be increased progressively from year to year, allowing a gestation period for developing such generation resources, both within and across states. The phrase preferential tariffs has been widely interpreted among the individual state commissions and stakeholders. The general interpretation of this phrase is that the tariff should be considerably higher. Commissions are often reluctant to grant high tariff rates for fear they will lead to higher rates for consumers.

D. National Action Plan on Climate Change


The Electricity Act 2003 and the National Tariff Policy 2006 both provide the CERC and the SERC with the authority to prescribe a percentage of total power from renewable energy. The National Action Plan on Climate Change suggested the following enhancements in the regulatory regime on page 43: (i) A dynamic minimum renewable purchase standard (DMRPS) may be set, with escalation each year till a predefined level is reached, at which time the requirements may be revisited. It is suggested that starting 200910, the national renewable standard (excluding hydropower with storage capacity in excess of daily peaking capacity, or based on agriculture based renewable sources that are used for human food) may be set at 5% of total grids purchase, to increase by 1% each year for 10 years. SERCs may set higher percentages than this minimum at each point in time. (ii) Central and state governments may set up a verification mechanism to ensure that the renewable based power is actually procured as per the applicable standard (SMRPS or SERC specified). Appropriate authorities may also issue certificates that procure renewable based power in excess of the national standard. Such certificates may be tradeable, to enable utilities falling short to meet their renewable standard obligations. In the event of some utilities still falling short, penalties as may be allowed under the Electricity Act 2003 and rules thereunder may be considered.

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Assessment of Current Policies and Regulations in India

(iii) Procurement of renewable based power by the SEBs/other power utilities should, in so far as the applicable renewable standard (DMRPS or SERC specified) is concerned, be based on competitive bidding, without regard to scheduling, or the tariffs of conventional power (however determined). Further, renewable based power may, over and above the applicable renewable standard, be enabled to compete with conventional generation on equal basis (whether bid tariffs or cost-plus tariffs), without regard to scheduling (i.e. renewable based power supply above the renewable standard should be considered as displacing the marginal conventional peaking capacity). All else being equal, in such cases, the renewable based power should be preferred to the competing conventional power. (http://pmindia.nic.in/Pg01-52.pdf)

Assessment The recommendations in the plan are consistent with those in this handbook. The minimum renewable portfolio standard of 5% applied to all states will greatly assist India in meeting its overall renewable energy goals. Worldwide, most nations are not meeting their target RPS and one reason is a failure to mandate the percentage at the state level. Most nations state a desired percentage of energy from renewable sources but leave it up to the states to mandate. As an example, India would like to have 10% renewable energy by 2012; however, only four states have an RPS of 10% or higher.
Allowing the procurement of renewable energy through tradable certificates and power trade is an excellent solution for states with low renewable energy resources. The concept of competitive bidding to procure renewable energy is a good option; however, historically, competitive bidding in India has not resulted in anticipated capacity addition for conventional power so further study on this issue is needed. These solutions are outlined in greater detail in the Financial Issues and Best Practices section of the handbook under Acquiring Renewable Energy and Cogeneration.

Sources and For More Information:


Electricity Act 2003: <http://powermin.nic.in/acts_notification/electricity_act2003/preliminary.htm>. FERC Order 890: <http://www.ferc.gov/industries/electric/indus-act/oatt-reform/order-890/fact-sheet.pdf> and <http://www.ferc.gov/ industries/electric/indus-act/oatt-reform/order-890/pro-forma-tariff-nopr.pdf>. Renewable Power Policies-Programme-wise: <http://mnes.nic.in/policy/policy-programme-wise.htm>. National Action Plan on Climate Change: <http://pmindia.nic.in/Pg01-52.pdf>. National Electricity Policy 2005: <http://powermin.nic.in/indian_electricity_scenario/national_electricity_policy.htm>. Tariff Policy 2006: <http://www.orierc.org/new1/documents/National%20Electricity%20Tariff%20Policy.pdf>. Unscheduled Interchange: <http://www.srldc.org/Downloads/Significance_of_UI.pdf> and <http://www.nldc.in/docs/abc_abt.pdf>.

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Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India

III. Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India
Climate change concerns coupled with high oil prices, peak oil and increasing government support are driving increasing alternative energy legislation, incentives and commercialization. However, significant barriers to deployment of alternative energy exist in most countries. USEA organized workshops on grid connected renewable energy, distributed generation, combined heat and power and cogeneration in Gujarat, Punjab and West Bengal to determine the major barriers to their deployment in India. Participants in these workshops identified several key barriers to the successful deployment of alternative energy sources. The barriers can be broken down into four general categories which correspond to the outline of this handbook: financial, regulatory and policy, financial, and technical. This section highlights the key barriers mentioned during these workshops: Cross Subsidies Subsidies for Conventional Fuels Investment Tax Credit Interconnection at 66 kv vs. 11 kv Utility Objections Due to Problem of Intermittency Lack of Programs for Residential Customers Cost Environmental Regulations Power Sector Reform

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Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India

A. Cross-Subsidies
Policy All regulatory commissions in India include cross-subsidies in their tariffs. The cross-subsidization benefits residential consumers. Thus any policy that reduces industrial and commercial consumption will adversely affect the utilitys profits and ability to assist residential consumers. Cogeneration and combined heat and power (CHP) have the potential to be a major problem for Indian utilities for this reason; it takes away their revenue base. In addition, there is a huge problem in India with residential consumers paying their bills but very few problems with industry and commercial payments. Assessment Tariffs are determined based on the average cost of generation for all categories of consumers and the distribution costs and line losses, which are far lower for high-tension industrial consumers than low-tension residential customers. Thus, industrial customers in India carry more than their share of the cost of electricity, which makes CHP look more attractive. In fact, industrial and commercial tariffs are much higher than generating ones own electricity from CHP. If the cross-subsidy were decreased and industrial rates were lowered, CHP would be less attractive, which would reduce the deployment. Eliminating or reducing cross-subsidies would thus assist the utilitys revenue stream if industrial customers added CHP but would conversely decrease the incentive to add CHP. It is clear that subsidies cannot be changed without additional policies to address this conundrum.
If CHP is built solely to sell to the market to address energy shortages and does not take away utility revenue, there is no barrier to CHP development. However, if the industrial or commercial load is partially met through CHP, the reduced revenue would affect the utilitys ability to cross-subsidize residential customers and may not be welcomed.

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Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India

B. Subsidies for Conventional Fuels


Policy Most world governments subsidize energy; some do so significantly. Global subsidies for conventional energy remain many times higher than those for renewable energy. Even small subsidies for kerosene or diesel can discourage the use of renewable energy. Conventional energy can also benefit from hidden or indirect subsidies such as government energy purchases and exemptions from risk or liability. Assessment Subsidies artificially lower the cost of conventional energy to consumers. Removing these subsidies would lead to consumers paying the true cost of energy and would narrow the gap between the cost of renewable and cogeneration and conventional energy. However, it would increase the cost to consumers overall, which may not be politically feasible in India.

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Barriers to the Successful Deployment of Renewable Energy and Cogeneration in India

C. Investment Tax Credit


Policy India used investment tax credits to incentivize the development of wind projects. These credits allowed investors to reduce their tax liability and gain all the benefits in the first few years following the investment, greatly reducing the risk and cost of investing in alternative energy systems. The scheme, which gives an accelerated depreciation benefit of 80% and other tax incentives for installation of the plants, gave incentives to some cash-rich investors who took advantage of tax benefits and were not serious about generation of power. The credits did stimulate investment but gave no incentive to actually produce power or maintain and operate the equipment after construction. Wind energy accounts for over 6% of Indias total installed power capacity yet just 1.6% of the countrys power. Assessment Investment tax credits give no incentives for maintenance of the facilities or generation of energy and have often led to facilities that do not run, thus hurting the utilitys ability to provide energy to its customers. It can lead to overinvoicing or underinvestment in operation and maintenance by developers looking to make a quick profit and then exit as their profits are received up front with the installation. These practices impact the price of electricity from renewable sources and make it harder for serious developers to compete.
However, in some states investment tax credits were not a detriment to wind development. In states such as Tamil Nadu, the wind energy project developers generate electricity, step it up to grid voltage (220 kilovolts [kV]/132 kV), feed to the grid, and are paid at rates fixed by the relevant SERC, which is the reason for the success of wind energy projects in these states. Although in initial years the developers may not get the required return, in subsequent years they will get an adequate return because the tariff becomes remunerative after the loan is repaid. There is some movement in India away from investment tax credits toward production-linked incentives, as is mentioned in the Planning Commission, Government of India documents and the Integrated Energy Policy and the Central Governments Five-Year Plan. In line with these directives, MNRE declared the Generation-Based Incentive (GBI) for Grid-Connected Wind and Solar Power Projects. The GBI is a Rs 0.50/kWh incentive for the first 50 MW of wind power projects commissioned during 200712 and a maximum Rs 10/kWh and Rs 12/kWh incentive for grid-connected solar PV and solar thermal power projects for the first 50 MW commissioned between 2007 and 2012. The GBI is in addition to the tariff declared by the SERCs and the benefit is available only to those investors who do not avail themselves of the accelerated depreciation benefit.

Practice in the United States The Internal Revenue Service (the entity that gave the investment tax credit) investigated developers who received the credit and instigated legal proceedings to get the money back from those not generating energy.
As of January 1, 2009, the U.S. federal government allows a 30% tax deduction for the entire installed cost of residential systems. The U.S. government removed the up to $2,000 of the installed cost clause; the whole cost of the system is now eligible for the deduction.

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D. Interconnection at 66 kV vs. 11 kV
Policy Every state in India has a grid code that states interconnection standards. Many of them, however, state interconnections only at the 66 kV level. For instance, the Gujarat grid code states that the captive power plant, or cogeneration facility, can be interconnected at the 400/220/132/66/22/11 kV level or as agreed with the transmission utility. However, 22 and 11 kV is the distribution utility level, not the transmission utility level, so it is unclear whether interconnection with the distribution company is allowed. The only other interconnection it mentions for nonutility or non-transmission companies is for extra high voltage consumers of 66 kV or higher. In practice, although it states interconnections can occur at the 22 or 11 kV level, in India they are mostly connecting renewable and cogeneration projects at the 66 kV level. Assessment There are several concerns with the state grid codes with regards to interconnections of renewable energy and cogeneration facilities. The first is that the Electricity Act 2003 does not specify the voltages for transmission and distribution systems. The Indian power sector has adopted the best practices of 66 kV and above as transmission and 33 kV and below as distribution. In some states, transmission utilities also maintain 33 kV lines and some distribution utilities have 66 kV so there is overlap. These voltages should be clearly defined and uniform , between states. One possible definition is that lines that are intrastate or connect different utility service areas are transmission as these tend to be 66 kV and higher.
Some states, such as Gujarat, do allow interconnection at the distribution level, especially for wind and biomass projects. However, interconnection with the distribution system depends on the installed capacity of the generating station, the nature of generation, the electricity demand in that area, and the condition of the distribution infrastructure. The last point is the most problematic as in most cases problems in the distribution system, especially in terms of the availability of capacitor banks, frequent faults, and energy accounting, are a serious deterrent to providing interconnection at the lower distribution levels. Perhaps one of the greatest concerns is that there are no stated standards for interconnecting smaller facilities to the grid. Connecting at the 66 kV level can add significant costs and equipment to a project and may ruin its economic feasibility. The costs in the United States illustrate the problem. Connecting a facility at the 11 kV level or below would simply require at most a small pad-mounted transformer that would cost thousands of dollars. Interconnecting at the 66 kV level requires a single step-up transformer or small substation that costs substantially more ($1 million). A facility that generates only 5 MW or less would find the costs of interconnecting at the 66 kV level unfeasible. In the Central Electricity Authority (CEA) Regulations on Grid Connectivity, the term Distribution System has been defined as the system of wires and facilities between the delivery points on the transmission lines or generating stations and the points of connection to the installation of the consumers and may comprise lines and equipment of any distribution voltage, according to which generation can be at 11kV also. However, in CEAs specification of generating units, it has been stated that all generating units shall have standard protections to protect the units not only from faults within the units and within the station but also from faults in transmission lines, which implies that generating units are connected to the transmission system. There is a need for CEA to suitably amend its regulations to permit small generating stations to be connected to the distribution system and correspondingly SERCs should modify the state grid code to have clarity. Furthermore, the grid code states the cogeneration facility can be interconnected at various levels but leaves it to the utilitys discretion as to which level it will be interconnected. At the USEA-facilitated workshops in India, many utilities and regulator experts expressed the view that 66 kV and above is the transmissionnot the distributionlevel
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in India. Some regulators consider distribution to be part of the grid so codes would apply but clearly there is currently no codification at the distribution level. In addition, interconnection rules at the distribution level are much simpler. When grid problems occur, the connected facilities would simply disconnect from the system, making it possible for them to utilize cheap and simplified radial connected equipment (an underlying concept of Rule 21). At the transmission level, the utility often wants them to stay on the system to try to help, which would require additional equipment such as power system stabilizer for droop compensation, protection requirements for fault/trip, and transfer trips, which can get expensive.

India In Gujarat, 66 kV and above is considered transmission and is owned and operated by the transmission company. The grid code and distribution code of Gujarat allow the injection of small amounts of power from renewable energy at 22 or 11 kV levels and a small number of generators are injecting at the 11 kV level. However, for technical and commercial reasons, the utilities are not promoting injection below 66 kV Participants in USEAs workshops state . that additional regulatory orders are needed to address the concerns of utilities and generators to increase the number of interconnections at lower levels.
The Punjab Energy Development Agency recently issued a PPA for a PV facility that allowed interconnection at the 11 kV level. The Punjab state grid code does state that voltage may be 66 kV 33 kV or 11 kV or as agreed with the , , state transmission utility. However, the choice to use 11 kV or 6 kV is also dependent upon the extent of the grid layout in various parts of the State. In Punjab, the state utilities are now part of the Northern Grid and have to strictly maintain both the frequency and voltage; the shortages in power are met by load shedding which takes place only at 11 kV and never at 66 kV Hence, some DG and renewable energy facilities have no option but to feed power at 66 . kV even though it requires higher capital costs. At the same time, small solar PV power plants at the 1 MW scale would need a special provision to allow evacuation of power at the 11 kV level with the creation of an additional substation near the plant at the states expense.

United States The standard definition of transmission in the United States is operating voltages of 69 kV and up while distribution is less than 69 kV. Sources and For More Information: Central Electricity Authority: <http://india.smetoolkit.org/india/en/content/en/8221/Ministry-of-Power-Notification-No-12-X-STDCONN-GM-CEA-21-Feb-07-The-Central-Electricity-Authority-Technical-Standards-for-Connectivity-to-the-Grid-Regulations2007>. Gujarat grid codes: <http://www.pgvcl.com/regulations/DistributionCode.pdf> and <http://www.pgvcl.com/regulations/GridCode.pdf>. Punjab grid codes: <http://pserc.nic.in/pages/state_grid_code.html>.

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E. Utility Objections Due to Problem of Intermittency


Utilities have two main objections to installing renewable energy on their system because of the issue of intermittency: scheduling when power is not firm (i.e., known day ahead) and system reliability and stability due to fluctuations from wind power in particular. Many executives in India, at both the development board and utility level, are looking for ways to firm up renewable energy to avoid this problem.

Assessment Wind energy is the most intermittent source but with proper planning it can be mitigated. While firming power, such as with a hybrid solar/wind installation, is an alternative, the American Wind Energy Association (AWEA) argues that it is better to look not at firming the individual generator, which is expensive and inefficient, but at how the system as a whole is to be shaped to reliably absorb more variability. AWEA suggests that it is essential to understand that wind is an energy resource, not a capacity resource, and that utilities should take the wind energy when it is available and rely upon other system resources when it is not. Though India is facing a shortage and does not have spinning reserves or capacity to offset generation lost from renewable sources, the concept of Unscheduled Interchange (UI) can be useful. In Tamil Nadu, a state with a large percentage of wind, the State Load Dispatch Centre can balance the load and generation by either backing down thermal generation and/or regulating pumped storage hydro generating stations. The wind energy generating facilities are able to maintain a high power factor by installing automatic capacitance controls which should be utilized in other states as well to address power factor issues. In India many feel there is a need to provide physical and regulatory facilities to facilitate the flow of renewable energy (particularly of wind) beyond a particular state. Gujarat has wind potential of around 10,000 MW, of which 1,300 MW is already harnessed, 500 MW is ready for commissioning, and another 880 MW is in the approval process. In addition, requests for transmission system studies have been received by the Gujarat Transmission Utility for installation of another 4,300 MW of wind. This much capacity has the potential to cause problems for the state utilities in their efforts at commercially sustainable load management unless there is facilitation for export to the regional and/or national grid. Practices for Scheduling Issues Xcel, a large multistate utility serving portions of Colorado, Minnesota, Texas, and other states, will be looking to wind as the major source of new energy for its system, with Xcel eventually becoming dependent upon wind for about 30% of the energy on the system. There are two keys to moving in this direction:
Xcel is relying upon strategically placed high-efficiency gas turbines for about 6% of the new energy added to the systemthis provides the necessary operational flexibility. Xcel is participating in a large regional electric power market, the Midwest Independent System Operator, which allows them to effectively utilize more of a variable resource than a small electric system or control area would allow. Another example is the PJM Interconnection, which can absorb enormous amounts of a variable resource such as wind because of its geographic scope, making wind variability a nonissue within such a complex system. Indias new energy market could help alleviate some of the problems with intermittency.

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Practices for System Reliability Issues A GE Energy executive stated in a USEA-facilitated workshop that India can avoid large voltage variations and uncontrollable power from wind turbines by installing turbines with grid-friendly performance features that regulate voltage and ride-through faults and control power output. Voltage control will regulate the grid voltage at the point of interconnection, regulate total wind plant reactive power through the control of individual turbines, and minimize grid voltage fluctuations even under varying wind conditions. Voltage regulation is very important as the wind generator cannot be in constant power factor mode. Ride-through capability allows the generator to stay online and feed reactive power into the grid through system disturbances while meeting transmission reliability standards similar to those of thermal generators. New technology can support reactive power even when there is no wind but regulators will need to insist on the use of the technology in order for everyone to begin using it. Reactive power drawal should be incentivized or disincentivized based on local voltages, generators should be able to ride through transient faults, and active power control that limits the rate of change in power under varying wind conditions should be utilized based on system frequency. Sources and For More Information:
AWEA:< http://www.awea.org/utility/pdf/Wind_and_Reliability_Factsheet.pdf>. GE:<http://www.usea.org/Programs/APP/Punjab_Workshop/01_GE_Wind.pdf>.

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F. Lack of Programs for Residential Customers


Currently, there do not appear to be very many programs in India for residential customer installation of renewable energy technologies. Solar water heaters are being promoted through a soft loan scheme through IREDA and seven banks where domestic loans are available at a 2% interest rate. However, the capital subsidy is available only for institutions and commercial entities, not for individual consumers. There are currently no programs for residential PV installations, rebates for energy-efficient appliances, or other systems that could address demand and supply energy to residences. Both the IREDA and state-level Renewable Energy Development Agencies do give some incentives such as providing residential consumers with concessional rates for solar water heaters and solar cookers. There are more programs on energy efficiency for residential consumers than for small-scale residential renewable energy systems. The distribution utilities give CFL lights to consumers at concessional rates and the Energy Conservation Act states that manufacturers of electrical appliances such as refrigerators, air conditioners, and room heaters should begin a program to identify high-efficiency appliances. The Bureau of Energy Efficiency has also recently taken many progressive steps in this direction.

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G. Cost
A major issue for all countries, and especially developing countries, is the issue of the higher cost of renewable energy and cogeneration compared to conventional energy sources. Many residential customers in India already cannot pay their energy bills, and increasing the cost by adding expensive alternative energy could strain the society.

Assessment It is undeniable that alternative energy sources cost more than conventional sources as they are currently priced. However, if environmental externalities and diversification values are used instead of discounted cash-flow accounting, then renewable energy is more economical. These are policy decisions that should be addressed at both the central and state level.
Traditional financial analysis using discounted cash-flow undervalues future fuel price risks and ignores environmental and health costs of conventional energy sources. When fuel prices and social impacts are assessed, renewable energy is close toor competitive withconventional energy sources. Even in discounted cash-flow accounting, though, fuel price escalation needs to be taken into account to reflect long-term tariff calculations, which is sometimes neglected because it is a pass through to consumers. Subsidies are another way the cost is artificially lower. Removing these subsidies would lead to consumers paying the true cost of energy and would narrow the gap between the cost of renewable and cogeneration and conventional energy. In addition, the argument that alternative energy sources cost too much is not entirely accurate. Most utilities in India have shortages and are forced to purchase energy on the spot market, where prices are far higher. As an example, it is believed that the cost of a 6% RPS target will increase the consumer tariff in Maharashtra by 2%. Maharashtra was purchasing more costly power from energy traders and found that the cost of purchasing conventional power at the margin was higher than the average 3.32 Rs per unit cost from all renewable energy sources. Procuring power from renewable energy sources at the existing tariff rates will thus not only add to the availability of energy but also be cheaper than power purchased in the market and thus will not adversely affect consumers. One way to address the cost is to establish a market for tradable renewable energy certificates. In this way, states that may have high renewable energy costs could purchase energy from lower cost facilities in other states or utility service areas to meet their RPS. The RPS orders in Maharashtra and Rajasthan both allow for purchasing energy to meet RPS targets but do not include a tradable renewable energy certificate (REC) feature.

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H. Environmental Regulations
Environmental regulations help internalize the social and environmental costs of conventional energy sources, which makes renewable energy and cogeneration more competitive. They are also considered as critical to promote technology transfer to developing countries. Regulations can encourage renewable energy and other clean energy sources indirectly through offset credits (tradable renewable energy credits), or directly as utilities and developers begin to favor cleaner technologies that do not require emissions reductions. However, any environmental regulation must be enforced. China has environmental regulations at the national level but enforcement is low and local governments often do not require coal-fired plants in their territory to adhere to the regulations. India included environmental protection rights and duties in its Constitution and has an elaborate framework of environmental legislation, policy statements, rules and notifications. Key policies and legislation are listed below. National Environment Policy of 2006 National Environmental Appellate Authority Act of 1997 National Environmental Tribunal Act of 1995 National Policy on Pollution Abatement (1992) National Conservation Strategy and Policy Statement on Environment and Development (1992) Public Liability Insurance Act of 1991 Water (Prevention and Control of Pollution) Cess Act of 1977, amended in 1991 Water (Prevention and Control of Pollution) Act of 1974, amended in 1988 Air (Prevention and Control of Pollution) Act of 1981, amended in 1987 Environment (Protection) Act of 1986 (EPA) Despite the exhaustive legislative efforts in environmental regulation, the level of compliance and enforcement is low. According to the Central Pollution Control Board, as of June 2006, 73% of the highly polluting industries were in compliance with environmental regulations, a decrease of 14% from 2004. Small and medium-sized enterprises have a much lower compliance rate and contribute an estimated 70% of the total industrial pollution in India (see <http://www.oecd.org/dataoecd/39/27/37838061.pdf> and <http://www.ijbe.org/table%20of%20content/pdf/vol21/02.pdf>). The lack of enforcement of environmental standards in India may be a barrier to the development of renewable energy and cogeneration. Recommendations to improve enforcement can be found at <http://www.oecd.org/ dataoecd/39/27/37838061.pdf>.

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I. Power Sector Reform


Power sector reform can work against renewable energy/cogeneration development as the unbundled utility no longer has an incentive to fund research and development of new technologies. In addition, there has been increased pressure to measure supply technologies only by the bottom-line price to consumers without taking environmental, energy security, or other benefits of renewable energy/cogeneration systems into account. The World Bank cites the case of Nicaragua which has over 3,000 MW of commercially viable renewable energy that can supply power at a lower cost than conventional energy sources when other factors such as fuel price uncertainty are taken into account. However, the percentage of renewable energy in the national generation mix has decreased over the past 20 years. Because investor risk in power generation systems is mostly driven by capital costs, which are more intensive in renewable energy technologies, and fuel risks are passed directly on to consumers, there is no incentive for renewable energy to be developed even though in the long run it would most likely be more costeffective. The low capital cost of thermal generation is a barrier to renewable energy generation but passing fuel risks on to consumers does help as it increases the cost of thermal generation. Furthermore, fuel charges can fluctuate with the market which also can benefit renewable energy projects as they do not use fuels and thus can offer a set rate.

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IV Policy and Regulatory Issues and Best Practices .


Renewables make up the fastest-growing energy industry in the world and have the potential to meet half the worlds energy needs by 2050. Investment in renewables increased to almost $150 billion in 2007 from $33 billion in 2004. Sustaining the growth momentum, however, requires ambitious, robust climate and energy policies with long-term commitments and concrete targets. Alternative energy has the potential to renew the global economy, and policy-makers have it in their power to drive and shape that renewal. Alternative energy sources can cut greenhouse gas emissions, build energy security, reduce energy costs, improve public health, save water, and protect the local environment. Today, governments are taking a closer look at alternative energy sources and the opportunities they offer for economic recovery and for laying the foundations for future prosperity. The need for enacting policies to support alternative energy is often attributed to a variety of barriers or conditions that prevent investments from occurring. Energy policies must reflect reliable, objective, and up-to-date facts and figures on the cost, performance, and potential of renewable energies. Policies can explicitly promote alternative energy or can indirectly influence incentives and barriers. This section highlights general principles of successful policies and cites examples of policies worldwide that have effectively increased the deployment of alternative energy.

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Consistent Rules

A. Consistent Rules at National and State Levels


Issue: Rules and policies that vary between states or countries increase the costs for developers and lead to higher risk and regulatory uncertainty. Utility Perspective: States have different resources, electrical systems, and financial systems and should have different rules to reflect this. Developer Perspective: Different rules in different states can increase the cost of doing business for renewable energy and cogeneration developers in terms of both time spent reviewing rules and different designs and equipment required. Regulator Perspective: Rules should reflect local (state) realities but federal policies would be more difficult to enforce unless they are sufficiently broad to allow for differences in resources and utilities. For instance, a federal law stating 5% of generation should come from wind may not be feasible in all states. India As there is no national renewable energy law, each state has different interpretations of Section 86(1)(e) which mandates RPS and thus state RPS ranges from 0.5% to 10%. The low RPS percentages or lack of a RPS in some states has led to less renewable energy deployed. The Government of Indias 11th Plan (2007-12) states a target of 78,700 MW installed generation capacity while the Ministry of New and Renewable Energys 11th Plan calls for an additional 14,000 MW of grid connected renewable energy by 2012. MNREs aggressive target equals a national RPS of 17.8% of capacity added during 2007-12. It is difficult to see how India could meet this target when states will average about 4% RPS in 2010 (based on current data for state RPS in 2010). Because India is a federal system and electricity is constitutionally within the state jurisdiction, prescribing and enforcing uniform standards will be difficult. However, entities like the Federation of Indian Regulators (FOIR) could spearhead efforts to create uniform standards and policies in the individual states. A holistic approach and integrated energy planning through Renewable Energy Certificates (RECs) for example, would likely lead to increased development. India is currently working on such a law that is expected to be in place by the end of 2009. Best Practices: Best practices for consistent rules fall into two categories: RPS standards and interconnection standards. Indias proposed renewable energy law suggests a national 5% RPS standard that would compel states to increase their RPS to at least 5%. The national RPS would be a significant boost to renewable energy development and would lead to greater consistency and certainty for investors. On the technical side, there are currently no interconnection standards at the distribution level. The Central Electricity Authority Technical Standards for Connectivity to the Grid (2007) does mention connectivity conditions at the distribution level. However, the standards do not specify equipment and give the utility a great deal of discretion in deciding the design of the interconnected facility. For instance, under protection system and coordination, the standards state that Every element of the power system shall be protected by a standard protection system having the required reliability, selectivity, speed, discrimination and sensitivity yet the standard protection system is not clearly defined.

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It further states that Special Protection Scheme such as under frequency relay for load shedding, voltage instability, angular instability, generation backing down or Islanding Schemes may also be required (pg. 9). This broad latitude given to utilities may create a barrier to interconnection for smaller alternative energy facilities. Individual states and utilities within those states can have different interconnection policies which create uncertainty among investors and can substantially increase costs. To combat this problem in the U.S., the Institute of Electrical and Electronics Engineers (IEEE) created a series of rules including 1547 which is cited in the technical portion of this handbook. IEEE 1547 provides a uniform standard for interconnection of alternative energy facilities with electric power systems and includes requirements relevant to the performance, operation, testing, safety considerations, and maintenance of the interconnection. The creation of a similar set of standards in India may prove useful in removing barriers to interconnecting alternative energy facilities.

Sources and For More Information:


India:<http://www.bakernet.com/NR/rdonlyres/0251961F-DACD-4C9E-9415-A7A24A28485C/44792/RenewableenergyinIndia.pdf >. CEA Technical Standards for Connectivity to the Grid:<http://jameskutty.info/rules/gridconregns_2007.pdf >.

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Clear Rules of Ownership

B. Clear Rules of Ownership and Control of Alternative Energy Facilities


Issue: Utilities may insist on owning or controlling these facilities at least in some form to meet obligations to provide safe and reliable distribution grid infrastructure, with the greatest level of control for alternative energy facilities installed in lieu of a wires upgrade. Currently in India, cogeneration projects are owned mainly by industries such as sugar industries or cooperative societies that produce process steam. Although the distribution utility can generate power to meet its load, not many are involved in cogeneration because heating load is not supplied by utilities in India. So, in general the ownership of cogeneration is not an issue in India at this time. However, this could become an issue in the future if distribution utilities do enter the cogeneration market, so it has been included in this handbook. Utility Perspective: Utilities have argued that, as with other proscriptions against the incumbent utility participating in new markets, limiting utility ownership of alternative energy facilities would relieve competitors from having to compete against what will likely be the most knowledgeable player in the market. Therefore, efficiency will be diminished if utility involvement were minimized or prohibited. Utilities also dispute claims that utility ownership creates market power as market control is mitigated by standardized interconnection requirements that are enforced by both state and federal regulatory authorities. Developer Perspective: For alternative energy facilities on customer premises, some parties, citing market power concerns, contend that utilities should be proscribed from participating in this new market or allowed to own these facilities only through an affiliate with availability of distribution wheeling, a transparent utility planning process for alternative energy facilities and performance-based rate structure for the utility. Regulator Perspective: The California Public Utilities Commission concluded that with sufficient utility control, or physical assurance, over alternative energy facilities installed in lieu of a distribution system upgrade, utility ownership is not required. When the facility serves a customers on-site load, utility ownership or control is not necessary. Best Practices: In setting policy regarding the ownership of the facility, including the role of the utilities in the alternative energy marketplace, policies should be tailored and bifurcated to whether the facility will be used to supply customer needs or to support the distribution system. Utility ownership and operation of the alternative energy facility should be allowed when an emergency exists and the temporary deployment of the facility on a limited basis could restore reliability and ensure safe operation of the distribution grid. Sufficient control and physical assurance is possible for alternative energy facilities such that utility ownership is not necessary for facilities that are developed in order to defer distribution upgrades. If an alternative energy facility is sized, located and installed consistent with the utilitys planning process and provides physical assurance, ownership by the utility is not required in order to provide distribution system benefits. CHP is a more complex set of responses as CHP is applied for multiple benefits. Efficiency at the point of use contributes to economic savings. The utility as owner/operator with industrial and commercial customers is an evolving question to be answered. A carbon market and carbon displacement will be significant factors in the compound answer.

Sources and For More Information:


California:<http://docs.cpuc.ca.gov/published/Final_decision/24136-05.htm>. Thorny Details: <http://findarticles.com/p/articles/mi_qa3650/is_200103/ai_n8948377/pg_1?tag=artBody;col1>.
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Examples of Effective Market Policies

C. Examples of Effective Market Policies


Elements of Successful Policy in the United States State commissioners received current and accurate statistics and data on the rate issues for renewable energy/ cogeneration and their benefits/value to the grid system at the transmission and distribution levels. Commissioned working groups of interested stakeholders developed consensus-based recommendations for rate design. The working groups and/or regulatory commissions analyzed RPS orders and other policies to determine if rates needed to be redesigned. The working groups and/or regulatory commissions monitored utility compliance, the timeliness of new clean energy installations, and the impact on consumers for value. California Assembly Bill No. 1613 This assembly bill has several effective policies for cogeneration and Combined Heat and Power (CHP). Rates for CHP will be time-of-use (TOU) to encourage energy conservation with no separate cost-based TOU standby charges and should encourage the deployment of cogeneration units in areas with transmission constraints. A pay-as-yousave program allows eligible customers to finance all the upfront costs for the purchase and installation of CHP cogeneration units. The customer would repay the costs over time at the difference between what the customer would have paid for electricity and the actual savings. Utilities can receive credits for GHG emissions reductions that result from the cogeneration unit. State-owned buildings are required to update their systems to utilize CHP and all new buildings must incorporate CHP systems whenever it is cost-effective, technologically feasible, and environmentally beneficial. Assessment There is some disagreement over how much the bill increased cogeneration development. Some utilities have found that TOU tariffs negatively impacted investment as their industrial customers tend to use energy during peak time when rates are higher. TOU is beneficial if the cogeneration facility is paid to sell to the grid or uses nonpeak energy. However, if the facility is a net user during peak times, TOU would not be advisable. In addition, CHP sized to thermal demand is a different application than a combined cycle cogeneration facility. CHP is often sized to thermal demand, making it very possible that the facility will not sell electricity back to the grid. India Since the 1973 oil crisis, the use of fuel oil for power generation in India has been restricted to start-up and low-load support of coal-fired thermal generating units and there are incentives by the Ministry of Power annually for the reduction of fuel oil consumption by generating stations. Also, the permissible pass through fuel oil consumption has been progressively brought down by CERC/SERCs over a period of time, thus bringing efficiency levels at par with industry best practices. However, due to a shortage of capacity addition and the unreliability of power supply by the distribution utilities, most industries go for captive power generation based on fuel oil because of the low capital cost of diesel engines, comparatively short gestation period for construction, and relatively simple operation. Denmark Denmark has gone from being 99% dependent on sources of foreign oil to becoming completely energy selfsufficient after 30 years of focused energy policy, implemented after the 1973 oil crisis. Denmark has the highest contribution of new renewable to electricity in the European Union. District heating accounts for 50% of Denmarks heating needs and about 20% of total generation is from wind.
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Examples of Effective Market Policies

Key policies that were effective in promoting alternative energy sources included the following: Energy taxes were kept high and not lowered after fossil fuel prices dropped in the 1980s;

A feed-in tariff requiring utilities to buy all power produced from renewable energy technologies at a rate equal to 70 to 85% of the consumer retail price of electricity in a given distribution area; Environmentally friendly zoning that forced cogeneration units to replace district heating units and prohibited the use of oil, diesel, and coal for many generators; Long-term financing reduced the risk of building larger projects; Open and guaranteed access to the grid where transmission system operators are required to finance, construct, interconnect, and operate the transformer stations and transmission and distribution infrastructure for renewable energy technologies; A general carbon tax on all forms of energy, adding around 1.3 Euro cents per kWh of additional income for renewable energy generators; and Streamlined permitting that made the Danish Energy Authority the one-stop-shop for tendering of bids for renewable energy construction; approval of pre-investigation of sites, environmental impact assessments, construction, and operation; and licenses to produce electricity.
Key Danish laws include the following: Law No. 3 of 3 January 1992 which set up a CHP fund to support the conversion from biomass-based district heating to CHP; Law No. 837 of 7 October 1992 known as the Development and Demonstration Programme for Renewable Energy; and Energy 21, which set long-term planning and targets (1996). United States The Interstate Renewable Energy Council created the Database of State Incentives for Renewable Energy (DSIRE), a comprehensive source of information on state, local, utility, and federal incentives that promote renewable energy and energy efficiency. States with particularly good policies include California, New Jersey, Texas, and Pennsylvania. Australia Australia passed the Renewable Energy (Electricity) Act 2000 to add 9,500 gigawatt hours of renewable energy per year. The act includes a framework titled the Mandatory Renewable Energy Target (MRET) scheme to create, trade, and surrender RECs. The MRET scheme allows renewable energy credits to be created by accredited entities such as utilities that generate renewable energy and traded to others to meet their RPS targets. Australia has found that the cost for MRET compliance per megawatt hour is about 2% higher. Australia has since amended the MRET scheme in two key areas. RECs must now be created within 12 months of the electricity being generated to give clear market signals of availability and make pricing more transparent. RECs can also now be surrendered voluntarily even when not used to meet mandatory targets. China China passed the Renewable Energy Law 2006 with the aim of increasing the use of renewable energy up to 10% by 2020. The law requires transmission companies to provide grid connection to renewable energy facilities and to purchase power from these facilities. In addition, it offers financial incentives such as discounted lending and tax preferences for renewable energy projects. The tariff for renewable energy is set by the National Development and Reform Commission at the national level and is spread out among consumers.
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Examples of Effective Market Policies

European Union In 1997, the European Commission issued a white paper setting targets to increase the renewable share of energy production from 5.3% in 1995 to 12% in 2010. The European Union subsequently issued a Renewables Directive in 2001 with targets for each member state commensurate with their situation and capability. Armed with constitutional authority, the targets issued by the European Union are mandatory. These targets are renewable standards for each country; however, these standards do not obligate any specific producer to achieve them. Germany The Renewable Energy Sources Act of 2004 was created to contribute to the increase in the percentage of renewable energy sources in power supply to at least 12.5% by 2010 and to at least 20% by 2020. The Act outlines procedures for priority connections to the grid for plants generating electricity from renewable energy sources and from mine gas; the priority purchase, transmission, and payment for such electricity by the grid system operators; and the nationwide equalization scheme for the quantity of electricity purchased and paid for. The Act also includes feed-in tariffs and outlines who pays for various interconnection costs.

Sources and For More Information:


Austria: <http://www.erec.org/fileadmin/erec_docs/Projcet_Documents/RES2020/AUSTRIA_RES_Policy_Review_April_2008.pdf>. Australia: <http://www.comlaw.gov.au/comlaw/Legislation/ActCompilation1.nsf/0/BB02A5216D6E1691CA25748A001EE975?Open Document>. Denmark: <http://www.scitizen.com/stories/Future-Energies/2008/03/Is-the-Danish-Renewable-Energy-Model-Replicable/> <http://www.agores.org/Publications/EnR/Denmark%20REPolicy2000%20update.pdf> <http://www.erec.org/fileadmin/erec_docs/ Projcet_Documents/RES2020/DENMARK_RES_Policy_Review_April_2008.pdf>. European Union: <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2001:283:0033:0040:EN:PDF>. Germany: <http://www.bmu.de/files/pdfs/allgemein/application/pdf/eeg_en.pdf> and <http://www.wind-works.org/FeedLaws/Germany/GermanEEG2000.pdf>. India: <http://www.bakernet.com/NR/rdonlyres/0251961F-DACD-4C9E-9415-A7A24A28485C/44792/RenewableenergyinIndia. pdf>. United Kingdom: <http://www.erec.org/fileadmin/erec_docs/Projcet_Documents/RES2020/UK_RES_Policy_Review_April_2008. pdf>. United States: <http://www.climatechange.ca.gov/publications/legislation/ab_1613_bill_20071014_chaptered.pdf> and < http://www.dsireusa.org/>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMD K:20772244~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428~isCURL:Y,00.html>.

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Financial Issues and Best Practices

V Financial Issues and Best Practices .


A major issue for all countries, and especially developing countries, is the higher cost of renewable energy and cogeneration compared to conventional energy sources. It is undeniable that alternative energy sources cost more than conventional sources as they are currently priced. Conditions placed on the alternative energy facility by the utility and regulator can exacerbate the difference in cost. Utilities often lose revenue and consumers when alternate energy facilities are built. In order to offset this loss, they place various fees on the facility, such as a fee for exiting the system. In general, most alternative energy policies address cost-related barriers in some manner. Many policies address the requirements for utilities to purchase renewable energy from power producers and the perceived risks of renewable energy (technical, financial, legal).

This section of the handbook focuses on four areas: A. B. C. D. E. Tariff Pricing, Acquisition of Alternative Energy, Incentives, Refund of Salvage Value, and Insurance and Liability Requirements.

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Tariff Pricing

A. Tariff Pricing
Utilities often add fees and other cost-related barriers to Power Purchase Agreements, increasing the overall cost of the project for the developer. Many policies attempt to compensate for cost-related barriers to alternative energy facilities by establishing special pricing rules and by lowering transaction costs. In this section of Financial Issues and Best Practices, the following tariff practices are evaluated: Standby Charges Pricing Laws Feed-In Tariffs Retail Natural Gas Rates for Wholesale Applications Interconnection Charges Utility Rates Too Low for Renewable to Compete Loss of Utility Revenue Retail Buy-back Rates Payments for Locational Marginal Pricing Cogeneration Deferral Rates Remittance for Line Losses Exit Fees

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1. Standby Charges
Issue: Policy makers want to facilitate the deployment of cogeneration, combined heat and power and renewable energy. Standby charges are levied on renewable and cogeneration projects for the cost of having standby power accessible when their systems are unavailable to cover the additional costs of generating, transmission, or distribution capacity required to supply intermittent service. Utility Perspective: Standby rates should reflect the full cost of service as it does for all other customers and should include all fixed costs for the system capacity to replace the units generation output. System planners cannot presume an alternative energy facility will operate at any given time, especially during peak load; this uncertainty must be mitigated by standby rates. Furthermore, the utility has to plan to serve all standby load on a circuit in the event of a circuit outage and must incur additional distribution infrastructure costs to serve the load. When a circuit is de-energized, the facility is separated from the distribution circuit to prevent backfeed and the utility must be able to supply 100% of its power until the facility comes back online. Utilities are also concerned that when an alternative energy facility does not operate, the entire circuit will have an increase in load. They also argue that the commission cannot take systemwide benefits to all ratepayers into consideration. Until there are multiple facility on a distribution circuit, it will not be possible to assume diversity values due to the radial design of distribution circuits. Developer Perspective: Standby rates often reflect neither the reliability of the facility requiring backup nor the contribution to grid stability through ancillary services which leads to overcharges. As these facilities rarely use backup, they should not be charged as high a rate as the utility wants. When the utility charges for the worst-case scenarioall facilities shutting down simultaneouslycharges are higher than necessary. Developers can offer several types of assurance, including physical assurance, which states that if the facility goes down, the customer will reduce its load accordingly to address the utilities concern about whether a facility will be operating during peak demand. If standby charges are too high, the developer receives an incentive to go off-grid, and the system loses the benefit. The standby rate should charge only the costs the utility had to incur for the facility and should allow maintenance and backup power charges to be assessed separately. The standby rates should be a stand-alone tariff that reflects diversity factors and the systemwide benefit that the facility adds such as deferral of distribution upgrades, extension of equipment life, and the decrease of electricity prices in peak periods to send the correct price signals to potential customers and developers. Standby service should also be adjusted based on the reliability of the facility to reward units for system support during peak periods. Utilities should unbundle the components of the distribution system and assign cost responsibility based on realistic calculations of how often the customers will need to use the system and the load the facility serves. Another option is to make the rates usage-based (demand charge) versus fixed (standby charge) since distribution costs vary with customer usage and usage-based rates encourage demand-response behavior. Standby charges should also have a capacity reservation fee for quantity, firmness, time, and location of use to allow customers to decide how much they need, when and how firm they need it, and how much it is worth to them. Standby charges can greatly impact the payback periods for renewable energy, cogeneration and CHP facilities. For example, an analysis of standby charges in New York State (Energy Nexus Group and Pace Energy Project 2002) showed that for an 800 kW engine with CHP, the simple economic payback ranged from less than two years with no standby charges to six years with the utilitys proposed standby charges.

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The most important issue for developers regarding standby rates is that utilities should not be allowed to charge a departing load charge, standby charge, and facility charge as these are all charges for the same thing. Regulator Perspective: Balance must be struck between the utilitys need to set aside generation it could otherwise sell and the developers need to keep costs down so the project is economically viable. Best Practice: In California, on-site generators that begin operations in the next two years are exempt from standby charges for the next ten years except for diesel-fired generators and facilities with capacity over 5 MW. Net energy metering of wind and solar facilities allows some of them to avoid standby costs. When a customer gives physical assurance, the customer should not have to pay for facilities or peak-demand-related costs and should be allowed to opt out of standby service or take only maintenance or nonfirm service. Standby Service Types: Supplemental power should be priced the same as full requirements power, but backup power should be priced higher than maintenance power because it is on-demand and has distribution infrastructure costs associated with it. Maintenance power should be lower as it will be used during times when capacity is available and thus does not need any infrastructure. Backup reservation capacity should be determined by the customer but if the customer goes over the amount in any billing period, the amount the customer used is the new capacity for the next year. Diversity: Because there are so few alternative energy facilities on the distribution system currently, the utility must plan without taking the system-wide benefits into account so standby rates should reflect this reality to avoid promoting cogeneration at the expense of other ratepayers. Standby Rates: Standby rate design should be cost-based and any costs that vary with usage such as peak demand costs should be reflected in a usage-based charge. Utilities can offer nonfirm standby rate offers to those customers who give physical assurance. Cost Allocation: Standby rates should be based on embedded, not incremental, costs of service. California, Massachusetts, and New York exempt standby rates as a policy tool to encourage certain cogeneration facilities. The exemption is based on size (too small to be cost-effective for separate standby tariff) or technology (want to promote environmentally friendliness). Some states also waive standby charges in constrained areas or in cases where the customer will guarantee load reduction.

Sources and For More Information:


CA Rulemaking 99-10-025. <http://docs.cpuc.ca.gov/Published/Graphics/24842.PDF>. Distributed Generation: In a Fair and Competitive Marketplace. <http://www.gasturbine.org/disgen.pdf>. Massachusetts: <http://apps1.eere.energy.gov/states/news_detail.cfm/news_id=8591> and <http://www.nera.com/image/2004_04_21NSTAR_rebuttal_parmesano.pdf>. The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede Its Expansion. <http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf. >. (Pages 130-6). Standby Rates for Customers with Distributed Generation. <http://74.125.113.132/search?q=cache:Ge2N1SJyB9sJ:www.narucmeetings.org/Presentations/elec_chp_shirley_s06 pdf+standby+charges+electricity&hl=en&ct=clnk&cd=6&gl=us&client=firefox-a>. (pages 130-6).
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2. Pricing Laws
In general, pricing laws provide a fixed payment for renewable energy that varies based on technology, load, and location. Germany, Brazil, and China have legislation that combines pricing laws and mandated capacity targets. Pricing laws are especially effective in developing countries where power markets are often small and dispersed, which tends to favor smaller companies and incremental investment. The German Wind Energy Association and the European Renewable Energies Federation both believe minimum price systems perform better and are more efficient than quota systems (such as RPS). The downside to pricing laws is that the tariff is difficult to set as the true costs associated with the project are not always known, and overpayments have often occurred with static feed-in tariffs that increase rates to consumers. In general, pricing laws have increased predictability and consistency in markets and have been responsible for most additional capacity in renewable energy. Sawin provides the following comments on the pros and cons of pricing and quota systems:

ADVANTAGES AND DISADVANTAGES OF PRICING & QUOTA SYSTEMS (SAWIN)


ARGUMENTS IN FAVOUR ARGUMENTS AGAINST

Pricing systems
To date, they have been most successful at developing renewable markets and domestic industries, and achieving the associated social, economic, environmental, and security benefits. Flexiblecan be designed to account for changes in technology and the marketplace. Encourage steady growth of small- and medium-scale producers. Low transaction costs. Ease of financing. Ease of entry. If tariffs are not adjusted over time, consumers may pay unnecessarily high prices for renewable power. Can involve restraints on renewable energy trade due to domestic production requirements.

Quota systems
Promote least-cost projectscheapest resources used first, which brings down costs early on. Provide certainty regarding future market share for renewable (often not true in practice). Perceived as being more compatible with open or traditional power markets. More likely to fully integrate renewable into electricity supply infrastructure. Tend to favor large, centralized merchant plants and not suited for small investors. Concentrate development in areas with best resources, causing possible opposition to projects and missing many of the benefits associated with renewable energy (jobs, economic development in rural areas, reductions in local pollution). Targets can set upper limits for developmentthere are no high profits to serve as incentives to install more than the mandated level because profitability exists only within the quota. Tends to create cycles of stop-and-go development. Source: National Policy Instruments: Policy Lessons from the Advancement and Diffusion of Renewable Energy Technologies around the World. http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf High risks and low rewards for equipment industry and project developers, which slows innovation. Price fluctuation in thin markets, creating instability and gaming.

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Assessment The fixed price over time means that it is difficult to pass on the benefits of increased technological efficiency to consumers. Instead, benefits accrue at the level of the generating plant owner, who may be able to access high rates of return. One possible solution is to lower the tariff rate over time in a transparent manner to minimize investor uncertainty; however, there is no guarantee that reductions will match the actual improvements in the technology.
Though tariff mechanisms fix the price available to renewable energy generators, the level of capacity is subject to the market; there is no way of predicting how many investors will build generation due to the tariff price. This means it is not possible to predict the overall costs of the mechanism in either the short or long term, which can be unattractive to governments and consumers/taxpayers. Distribution network operators are compelled to accept all electricity from renewable generators, regardless of the demand for electricity at the time of generation. This can lead to network balancing issues, and these tend to increase with the level of intermittent generation on the network. This leads to increasing potential for technological problems and to increased costs for the network operator. Compelling network operators to accept all renewable generation means electricity from renewables is always the first to be bought. This effectively interferes with any open market for general electricity generation, and affects the ability of traditional generators to compete in the electricity sector which can be problematic where governments are committed to maximizing competition in markets. Price-setting policies should include the following: Incremental adjustments built into the law that allow for periodic adjustments of the premium to eliminate excess rent payments by the state to renewable energy/cogeneration suppliers, Tariffs based on technology and location that are high enough to cover costs and encourage development, are provided for all developers including the utility, and are for a long enough period of time to ensure rates of return, Costs shared equally across the region or country, and The elimination of barriers to grid connection.

Sources and For More Information:


Mandated Market Policies. <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,content MDK:20772244~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html#Requirements_for_successful_ policy>. Sawin, J. <http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf>.

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Tariff Pricing

3. Feed-In Tariffs
Issue: Feed-in tariffs are a fixed price for every unit of electricity produced by a renewable source that is usually above the tariff rate for conventional sources. They offer investors access to the grid and a fixed minimum price for electricity generated for a specified number of years, which often makes the project more viable. Either the tariff can be paid from a subsidy or the utility can pass the additional cost on to consumers. Investors have a reduced risk with feed-in tariffs as they are guaranteed a price for a fixed time at an economical rate. Furthermore, if a government wishes to support a new technology it can require a tariff specific to that technology and thus encourage it to move closer to market. The balance of evidence suggests that this provides long-term benefits in terms of developing more competitive technologies. Tariff mechanisms have been widely applied in Europe, and have enjoyed particular success in Germany, Denmark, and Spain. Their employment has led to significant increases in renewable electricity-generating capacity, particularly of wind energy. Some have argued that feed-in tariffs might have a greater impact if customers receive TOU rates for energy sold to the grid. However, TOU may not be desirable if customers have to pay TOU for energy bought from the utility. The success in attracting investment in renewable energy/cogeneration depends on limits set on participation, the price paid, grid connection standards, and enforcement mechanisms; net metering alone cannot work without other financial incentives. Utility Perspective: It is impossible to plan generation when neither the amount nor the timing of the alternative energy facilitys excess electricity is known in advance. Developer Perspective: Allowing the alternative energy facility to sell power to the grid greatly changes the economic viability of the project and often makes it possible. Regulator Perspective: The price for renewables may be set too high and the cost to the consumer will be higher than it would have been under a more market-based incentive. However, the market incentives are not always sensitive to the need for open access and low transaction costs. Best Practices: Punjabs New & Renewable Sources of Energy (NRSE) Policy 2006 clearly outlines tariff prices for each type of generation from renewable energy and cogeneration sources with annual escalations for five years. After the declaration of the Generation Based Incentives (GBI) by the MNRE (see section Other Incentives), many state regulatory commissions declared feed-in tariffs for grid-connected solar power projects. The present status is given below:

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Solar Photovoltaic Projects


Solar PV Particulars MNRE Incentives (GBI) RERC (Rajasthan) HERC (Haryana) WBERC (West Bengal) WBERC; Projects not under MNRE Scheme MERC (Maharashtra) TNERC (Tamil Nadu) Incentive/Tariff for Plant commissioned up to Dec 2009 Incentive/Tariff for Plant commissioned after Dec 09 Depreciation benefit under IT Act 1961 Not allowed Not allowed Not allowed Not allowed

Max Rs 12 / kWh Max Rs 11.40 / kWh (GBI + tariff capped at Rs 15/kWh) Rs 15.78 / kWh (Rs 3.78 /kWh wind) Rs 15.96 / kWh (cost plus basis) Equivalent to highest tariff offered from among the various RE in WB (Rs 5/kWh biogas power) Rs 11/kWh Rs 15.18 / kWh Rs 15.16 / kWh GBI will be reduced by 5%

Rs 10/kWh

Allowed

Rs 3.00/kWh (without GBI) Rs 3.15/kWh (without GBI) Equivalent to highest tariff offered from among the various RE in TN (biomass)

GBI will be reduced by 5%

Allowed

Equivalent to highest tariff Not allowed offered from among the various RE in TN (biomass) with 5% reduction

Solar Thermal Projects


Particulars MNRE Incentives Solar Thermal Incentive for Plant Incentive for Plant commissioned up to Dec 09 commissioned after Dec 09 Max Rs 10 / kWh (GBI + Tariff capped at Rs 13/Kwh) Rs 13.78/kWh Not Declared Not Declared Rs 3.00/kWh Max Rs 9.50/kWh Depreciation benefit under IT Act 1961 Not allowed

RERC HERC WBERC MERC (Draft order) TNERC

Rs 13.28/kWh Not Declared Not Declared GBI will be reduced by 5%

Not allowed Not allowed Not allowed Not allowed Not allowed

Rs 3.15/kWh GBI will be reduced by 5% Equivalent to highest tariff offered from among the various RE in TN (biomass)

Notes. GBI = generation-based incentive; IT Act = Income Tax Act; kWh = kilowatt hour; MNRE = Ministry of New and Renewable Energy; RE = renewable energy; RERC = Rajasthan Electricity Regulatory Commission; Rs = Rupees; TN = Tamil Nadu; TNERC = Tamil Nadu Electricity Regulatory Commission; WBERC = West Bengal Electricity Regulatory Commission. Source. Charts courtesy of the World Institute of Sustainable Energy.

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Sources and For More Information:


Identifying Optimal Legal Frameworks for Renewable Energy in India: <http://www.wisein.org/pdf/Backer-and-Meckanzy.pdf>. [sic] India: <http://www.pserc.nic.in/pages/NRSE_orders.html> and <http://www.mnes.nic.in>. Mandated Market Policies: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,conten tMDK:20772244~isCURL:Y~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>. National Policy Instruments: <http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf>. Renewable Energy Policies and Barriers: <http://www.martinot.info/Beck_Martinot_AP.pdf>. United States <http://www.boell.org/docs/Feed-in%20Tariffs%20and%20Renewable%20Energy%20in%20the%20USA%20-%20a%20Policy%20 Update.pdf>.

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4. Retail Natural Gas Rates for Wholesale Applications


Issue: Current gas tariffs may not be designed for cogeneration uses and the existing high tariffs and conditions may be a barrier to cogeneration development. As an example, a developer of high-load factor baseload cogeneration may need the option of a firm high-load factor rate. A few key issues surrounding gas rates include separate cogeneration service classification, customer, demand, and energy charges; frozen rates; separate metering; and system reinforcement cost. Utility Perspective: Natural gas rates for cogeneration facilities for wholesale applications should not be different from those for other users. However, cogeneration facilities must have a separate meter to have accurate measurement and monitoring of the cogeneration facilitys usage. Developer Perspective: The differences between cogeneration facilities and other facilities are not addressed in existing natural gas rates. Current gas rates take neither size nor load factor into account, nor do they reflect cogenerations contribution to system costs. Regulator Perspective (SERC): Retail natural gas rates should encourage cogeneration development. Separate Cogeneration Service Classification Issue: Utilities believe current rates that offer lower charges for larger volume customers are ideal for cogeneration facilities but developers believe there should be different classifications so that the rates address issues such as size and load factor. Customer, Demand, and Energy Charges Issue: The utility and developer disagree over whether customer, demand, and energy charges should be separate. Freezing Rates Issue: The disagreement between utilities and developers over freezing rates is centered on the issue of the fluctuation of gas prices, which might lead to a subsidy and the need for fixed variables whenever possible to create certainty for developers. Separate Metering Issue: Utilities and developers disagree over whether separate metering is necessary to have accurate measurement and monitoring of cogeneration usage. System Reinforcement Costs (Utility Grid) Issue: Utilities insist the developer should pay for any system reinforcement, but developers believe small customers should not pay for more than 100 feet from a main line. Best Practices: New York states the following: Utilities should offer an option with at least a 50% load factor to cogeneration customers as an incentive, and the incentive must be established as a ceiling for at least three years to give firm market signals for cogeneration development. However, to offset potential utility losses, utilities can defer any net lost revenues for later recovery.

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As there are different rates for distributed generation and regular consumption, a separate meter is required for commercial or industrial cogeneration facilities to distinguish the portion of the customers consumption priced at the distributed generation rate from the usage priced at the non-distributed generation rate. Cogeneration customers should pay for any system reinforcements to the electricity grid needed to serve them and should take the expected revenues from the cogeneration unit into account when determining the reinforcement costs. Cogeneration customers can receive firm or interruptible service and are treated in the same manner as any other firm or interruptible customer.

Sources and For More Information:


Connecticut Natural Gas Corporation. <http://www2.cngcorp.com/marketer_services/RATE_DG.pdf>. New Jersey Natural Gas Company. <http://www.state.nj.us/bpu/pdf/boardorders/21134.pdf>. New York Public Service Commission. <http://www3.dps.state.ny.us/pscweb/WebFileRoom.nsf/Web/BD7AAB455FCB712685256DF 10075671F/$File/doc13154.pdf?OpenElement>. The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf. (pages 137-9).

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5. Interconnection Charges
Issue: Utilities charge a cost-based fee for any facility to connect to the grid. In addition, they might charge for the cost of a line to connect to the grid, system upgrades, and separate meters for the facilities. Utility Perspective: Renewable energy and cogeneration facilities must pay to receive permission to connect and operate parallel to the grid as it is not right to force other consumers not benefiting from the facility to pay. Developer Perspective: Renewable energy and cogeneration facilities are often not located close to the grid and the cost of connecting would be prohibitive. As the costs are higher for renewable energy generators due to lower plant load factors and the distance from the grid, interconnection charges can be a significant deterrent. Furthermore, system upgrades might benefit other customers as well and there is no clear methodology for determining the percentage of the total cost each customer should pay. The utility also keeps the upgrades so it is not reasonable to force customers to pay for them. Regulator Perspective: Policies should encourage renewable energy and cogeneration development while not adding to the cost for other consumers. Best Practice: In Germany, the renewable energy/cogeneration developer pays for grid-connection costs and metering; the utility pays for any system upgrades. Similar practices are followed in Gujarat, Maharashtra and Tamil Nadu. Gujarats recent tariff order for demonstration solar power plants stated the following regarding interconnection costs: 6.3 Evacuation Facilities: a. The interfacing line of appropriate capacity and voltage as per the CEA (Technical Standard for connectivity to the grid) Regulations, 2007 shall be provided by the STU/ Distribution Licensee at their cost. The intending generator shall apply to the STU/ Distribution Licensee concerned well in advance. b. The cost of switch gear, metering and protection arrangement at generator end shall have to be borne by the owner of solar generators. (Page 4).

Sources and For More Information:


Report on APP-REDGTF project on renewable energy in India. Prepared by Baker & McKenzie and World Institute of Sustainable Energy. April 2008 (page 33). Gujarat:<http://www.gercin.org/docs/Orders/Other%20orders/Year%202009/Order%201%20of%202009.pdf >.

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6. Utility Rates Too Low for Renewable to Compete


Issue: Conventional energy sources have historically enjoyed very low rates, which are a barrier to renewable energy or cogeneration projects, which tend to be more expensive. Utility Perspective: Ratepayers and shareholders of the utility do not want to buy more expensive power from renewable energy or cogeneration when cheaper power is available. Developer Perspective: Tariff rates for conventional energy sources do not include the cost of pollution, fuel source extraction, or societal impacts, which leads to an artificially lower rate. Regulator Perspective: It is important to promote renewable energy and cogeneration but prices must be kept low for consumers. Best Practices: If environmental externalities and diversification values are used instead of discounted cash-flow accounting, renewable energy is more economical. Traditional financial analysis using discounted cash-flow undervalues future fuel price risks and ignores environmental and health costs of conventional energy sources. When fuel prices and social impacts are assessed, renewable energy is close to, or competitive with, conventional energy sources. At this time, this option is theoretical. Another option is to use a mean variance portfolio analysis that includes the costs and economic risks of all technologies and fuel sources in a portfolio and computes the expected cost of electricity and risks of that cost for the entire portfolio. The portfolio approach accounts for construction and operating costs and fuel risks, and often shows that overall system generation costs decrease with the addition of renewable facilities. Subsidies artificially lower the cost of conventional energy. Removing these subsidies would lead to consumers paying the true cost of energy and would narrow the gap between the cost of renewable and cogeneration and conventional energy.

Sources and For More Information:


Renewable Energy Policies and Barriers. <http://www.martinot.info/Beck_Martinot_AP.pdf>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772234~isCURL:Y ~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>. <http://www.eia.doe.gov/cneaf/electricity/external/external.pdf>

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7. Loss of Utility Revenue


Issue: Cogeneration facilities can represent a potential loss of revenue for the utility as the large customer uses its own generation and thus reduces its purchase from the utility. The perception of a potential loss of revenue often serves as a barrier to cogeneration and CHP facilities. Utility Perspective: The issue of loss of utility revenue is especially problematic in India where large industrial and commercial customersthose most likely to build cogeneration facilitiessubsidize residential customers. Losing these customers will result in lower revenue for the utility and will force them to raise rates on other consumers, especially residential. In addition, there may also be losses related to transmission lines and other expenditures and system upgrades the utility paid for to connect the customer to the grid. Developer Perspective: The utility may lose some revenue; however, cogeneration and CHP facilities sized to thermal load may not provide all the electricity needed, so some will still be purchased from the utility. Regulator Perspective: Encouraging cogeneration development is important as it could decrease the need for additional transmission lines and thus utility costs. However, the regulator has a responsibility to ensure low rates for the consumer and the economic health of the utility. Best Practices: The utility can build, own, operate, dispatch, and maintain the customer/load sited cogeneration system and bill the customer for the beneficial value from the facility, passing through fuel costs and capital recovery. The charge is not rate based. In this way, the utility makes its money back from the system and keeps its customer. The utility can acknowledge the systems benefits of customer sited systems through rate designs. Revenue-based performance-based regulation (PBR) can remove the disincentive for customer-side distributed resources. The utilitys revenue and profits are tied to customer growth instead of sales (price-based PBR). Revenue-based PBRs have been adopted in Australia, the United Kingdom, and several U.S. states. Distributed resources credits are a system of geographically de-averaged credits that give consumers better price signals to install alternative energy facilities in areas with high transmission and distribution costs. The utility issues a financial credit for facilities in a certain location based on the distribution cost savings from deferring distribution upgrades. Distributed Resources Development Zones are designated areas with high transmission and distribution costs that are eligible for economic incentives for projects built there. Symmetrical pricing flexibility forces the utility to increase prices in areas with high transmission and distribution costs if it lowers prices to discourage projects that are not cost-effective. Regulators can create a tariff for distribution companies that does not link its revenues to volumetric charges. Developers can locate the alternative energy facility on the utility side of the meter.

Sources and For More Information:


Distributed Generation and Cogeneration Policy Roadmap for California, March 2007. <http://www.energy.ca.gov/2007_ energypolicy/documents/2007-05-07_workshop/public_comments/ELECTRICAL_POWER_RESEARCH_INSTITUTE_2007-05-21. PDF>. Profits and Progress Through Distributive Resources. <http://www.raponline.org/showpdf.asp?PDF_URL=Pubs/General/ ProfitsandProgressdr.pdf>.

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The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion.

<http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf.> (pages 129-30).


Quantitative Assessment of Distributed Energy Resource Benefits. <http://www.eere.energy.gov/de/pdfs/quantitative_benefits.pdf>.

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8. Retail Buy-Back Rates


Issue: Renewable energy and cogeneration facilities may have power to sell back to the grid. Receiving payment for this power can be a key component of the projects economic viability. Utility Perspective: Power from renewable energy and cogeneration facilities is usually not firm power and creates scheduling problems when it is not known how much power the utility will receive from these facilities. Developer Perspective: The revenue from power sold back to the grid can be a critical component of the projects economic viability and should be allowed. Regulator Perspective: The competitive market includes the value of both the energy and the transmission service. Cogeneration in particular will often be less costly than purchasing power in the spot market and thus should be encouraged. India: Many Indian states currently have buy-back rates. Best Practices: In an open market, the buy-back rates are at the utilitys avoided cost for the next dispatchable generating unit. For example, if a utility would be required to purchase power at 12 Rs in the spot market during peak, then the cogeneration or renewable energy facility should receive 12 Rs during that time. States can direct resources to their most highly valued uses to more fairly compensate alternative energy facilities for the system benefits it can provide. Net metering may actually be more beneficial to the developer than buy-back rates, depending on specific circumstances.

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Indian Renewable Power Policies-Programme-Wise


S.No. 1. 2. 3. 4. 5. 6. State / UT Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Gujarat Haryana Wind Power 3.37 fixed for 5 yrs 3.37 fixed for 20 yrs Small Hydro Power 2.69 (200405) 2.25 (199495) Buy-back rate: Rs/unit Biomass Power 2.63 (200506) Esc @ 1% for 5 yrs 2.71 (0506) 3.00 No escalation. 4.00 biomass 3.74 cogen. Esc. @ 2% (base 2007-08) 2.74 cogen. 2.88 biomass Esc @1% for 10 yrs (base 2004-05) 2.80 (2000-01) Esc @ 5% for 5 yrs 3.335.14 Esc @ 0.030.08 for 20 yrs 3.05 cogen. 3.043.43 biomass Esc @ 1% for 13 yrs 3.01 (200102) esc @ 3% for 5 yrs limited to 3.48 3.603.96 water- and air-cooled 2.73 (200001)* Esc @ 5% for 9 yrs 2.86 existing plants 2.98 new plants Esc @ 0.04/yr

7. 8. 9. 10.

Himachal Pradesh J&K Jharkhand Karnataka

3.40 fixed for 10 yrs 3.14 fixed for 20 yrs 3.973.30 3.50 Esc @ 0.15 per yr 2.91 Esc@0.05 for 10 yrs 2.70 (fixed)

2.50 2.90

11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh

2.25 2.25 (19992000) 2.73 (199899) 2.75 (199899) 2.25

*Rs 2.48 per unit at 5% escalation (esc) for 9 years (2000-01) for off-season power generation using coal/lignite (subject to ceiling of 90% of high-tension tariff). Source: http://mnes.nic.in/policy/policy-programme-wise.htm

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Sources and For More Information:


Australia: <http://www.mce.gov.au/assets/documents/mceinternet/CenDEPCSIRO20060405135055.pdf>. International Energy Agency: <http://www.iea-pvps.org/products/download/rep1_02.pdf>. The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. <http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf> (pages 141-3). Q&A on Higher Buyback Rates for Electricity from Renewables. <http://renewmediacenter.blogspot.com/2008/12/buyback-rates. html>. U.S. Environmental Protection Agency: <http://www.epa.gov/cleanenergy/documents/gta/guide_action_full.pdf> and <http://www. epa.gov/cleanenergy/energy-programs/state-and-local/state-best-practices.html>.

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9. Payments for Locational Marginal Pricing


Issue: With locational marginal pricing (LMP), some of the financial benefits of cogeneration and combined heat and power (CHP), such as reduced generation losses and lower line losses, are included in the tariff design. Marginal pricing is the idea that the market price of any commodity should be the cost of bringing the last unit of that commoditythe one that balances supply and demandto market. In electricity, LMP recognizes that this marginal price may vary at different times and locations based on transmission congestion. Electric grid congestion develops when one or more restrictions on the transmission system prevent the economic, or least expensive, supply of energy from serving the demand. For example, transmission lines may not have enough capacity to carry all the electricity demand required to meet the demand at a specific location. This is called a transmission constraint. LMP includes the cost of supplying the more expensive electricity in those locations, thus providing a precise, market-based method for pricing energy that includes the cost of congestion. LMP provides market participants with a clear and accurate signal of the price of electricity at every location on the grid. These prices, in turn, reveal the value of locating new generation, upgrading transmission, or reducing electricity consumptionelements needed in a well-functioning market to alleviate constraints, increase competition, and improve the systems ability to meet power demand. Many facilities request a reduction in their tariff allowing for the benefit of on-site generation. India is not currently considering Locational Marginal Pricing; however, it is a best practice that encourages the development of distributed generation, cogeneration and combined heat and power so it has been included in this handbook for future reference. Utility Perspective: LMP would give incentive to future siting of generation near load and thus may reduce congestion. However, applying LMP to existing facilities could increase the cost to consumers. Developer Perspective: On-site generation has many system benefits and may reduce generation and line losses but utilities may pay wholesale rates only for the power that does not capture the true locational value of the generation. These integrated resource portfolios benefits should be part of the tariff if there is no LMP. Regulator Perspective: LMP highlights transmission congestion and incentivizes distributed generation, combined heat and power, and cogeneration in congested areas, thereby helping the grid. Best Practices: One way to incentivize locating alternative energy facilities near the load is full net metering credits minus shrinkage. Every transformer the cogeneration facility passes through causes a 2% loss so the utility could assess a 2% shrinkage fee for each transformer. The facility would receive 100% for net metering; if the facility passed through two transformers, it would receive 96%. Central Vermont Public Service Corporation (CVPS) offers a production incentive to farmers who own anaerobic digesters to generate electricity. CVPS purchases electricity and renewable energy credits at 95% of the LMP of generation published by ISO New England (roughly avoided cost), plus an additional $0.04 per kWh. Some argue that the ability for cogeneration and CHP to participate in the wholesale market will solve the problem of a lack of LMP pricing. Indias energy market is over a year old and growing steadily. In time, this might be a viable solution in India.

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Sources and For More Information:


DSIRE database. Vermont - CVPS - Biomass Electricity Production Incentive: <http://www.dsireusa.org/library/includes/ summtabsrch.cfm?Incentive_Code=VT05F&Back=fintab&state=VT&type=Production&CurrentPageID=7&EE=1&RE=1>. Nodal Pricing for Distribution Networks. http://www.cba.ufl.edu/purc/purcdocs/papers/0520_Sotkiewicz_Nodal_Pricing_for.pdf. The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. <http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf> (page 143). Renewable Energy Policies and Barriers. <http://www.martinot.info/Beck_Martinot_AP.pdf>.

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10. Cogeneration Deferral Rates


Issue: Some argue that excess capacity can increase retail rates, but deferral riders, which allow utilities to offer lower rates to customers who might otherwise turn to cogeneration, distributed generation or combined heat and power, may optimize existing generating capacity. Utility Perspective: Traditional utilities often defend their cogeneration deferral ratesgiving a discount to an industrial customer if the customer promises not to build cogenerationon the basis of preserving revenues and load so that remaining customers do not carry a greater portion of the fixed costs. They also argue that cogeneration in many cases is not cost-effective when compared to the utilitys marginal cost of supply and appears to be less only because retail prices are above the marginal cost. Developer Perspective: Offering a lower rate to keep the customer is a barrier to alternative energy development and discounts its many benefits to the grid and environment. Regulator Perspective: The major concern with offering lower rates to one customer is whether other customers rates increase to cover the difference. Regulators must determine whether there are any, or a sufficient level of, net system benefits to justify the discounted rates. Best Practices: Deployment of cogeneration should be considered in the context of least-cost provision of service, and the revenue question should be dealt with separately. Regulators may allow pricing flexibility in low-cost areas of the distribution system only if the utility increases rates in high-cost areas. In this way, high-cost areas due to transmission constraints receive incentives to develop distributed generation, combined heat and power or cogeneration.

Sources and For More Information:


The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. <http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf> (page 145). Profits and Progress Through Distributed Resources. <http://www.raponline.org/Pubs/General/ProfitsandProgressdr.pdf>. Why cogeneration developers should support cogeneration deferral riders by Scott Spiewak (April 1, 1987).

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11. Remittance for Line Losses


Issue: Cogeneration facilities can reduce the utilitys line losses as they are generating and using energy on-site. Developers would like tariff rates to reflect this decreased cost for the utility. Utility Perspective: Determining the extent a facility reduced line losses is extremely difficult and the reduction is not significant enough to warrant a reduction in the tariff for cogeneration facilities. As line losses are location- and time-specific, the cogeneration facility is just as likely to increase line losses as reduce them so a tariff reduction is not justified. Net metering will show if the facility is reducing the losses. Developer Perspective: The cogeneration facilitys tariff should reflect the decreased line losses by the utility to more accurately reflect the true costs and benefits of cogeneration to the system. Regulator Perspective: Tariffs should reflect the true cost of energy and incentivize the deployment of renewable energy and cogeneration. Adjusting the tariff to take into account reduced line losseswhen confirmedwould achieve these goals. Best Practices: For retail situations, regulators could incorporate savings in line losses provided by cogeneration into the regulated prices to be paid for surplus output. For wholesale situations and regional markets, expansion to incremental loss calculations would provide the correct price signal to distributed generators with surplus output to sell. Several Independent System Operators/Regional Transmission Operators (ISO/RTO) in the U.S., specifically MISO, PJM and the NYISO, use an incremental-losses method that is based on calculating the cost for the ISO or RTO to provide the last MWh of loss supply. The loss calculation is used within the Locational Marginal Pricing (LMP) process to give both incremental and locational value of where losses are supplied and used. The ISO or RTO then dispatches generation to provide the losses, load customers pay incremental costs for the losses, and generators are paid for the incremental losses.

Sources and For More Information:


The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf. Page 145-146. FERC: http://www.ferc.gov/eventcalendar/Files/20080505161320-ER08-358-000.pdf Nodal Pricing for Distribution Networks: Efficient Pricing for Efficiency Enhancing Distributed Generation. http://www.cba.ufl. edu/purc/purcdocs/papers/0520_Sotkiewicz_Nodal_Pricing_for.pdf.

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12. Exit Fees Issue: Many utilities assess exit fees on departing load to recover the fixed costs associated with the stranded asset the load no longer uses. Utilities argue that without these exit fees, other customers would have to pay for these costs. However, many factors can affect utility rates and revenue and it is not necessarily true that a reduction in load will result in cost increases.
Utility Perspective: The utility built its distribution network and contracted for generation based on the load. Large-load customers (1 MW or larger) are those most likely to build cogeneration facilities, and their reduction of load on the system will increase the stranded asset, forcing either the remaining customers to pay more or the utility to take a loss. Developer Perspective: Exit fees can be prohibitive, especially when it is a small cogeneration facility. While it is understood the utility will not recover all its stranded assets when a customer leaves its service, the utility should receive additional gains in the form of system reliability, a decrease in transmission congestion, and a reduction in system expansion that should make up for these losses. Regulator Perspective: Renewable energy and cogeneration projects must be encouraged as RPS orders must be met. At the same time, it is the regulators responsibility to keep rates low, fair, and reasonable for all consumers. Best Practices: Regulatory commissions should include a requirement of proof that an asset is actually being stranded, resulting in higher costs to the utility. India Regulators are required to provide these charges in the form of an additional surcharge. However, in view of the large capacity shortages, most regulators have not added this charge. United States Some U.S. states have exempted CHP and renewable energy projects from the exit fees in recognition of their positive impact on grid congestion and reliability enhancement benefits. California: Systems smaller than 1 MW that are net metered are exempt from exit fees, as are zero-emitting, highly efficient (>42.5%) systems. Illinois: Utilities could assess exit fees but only until December 31, 2006. However, a departing customers facility must be sized to meet its thermal and electrical needs and must use all the energy produced. Massachusetts: Exit fees can be assessed for facilities over 60 kW but renewable energy and fuel cell technologies are exempt. Utilities cannot charge exit fees unless there is a significant revenue loss, but significant is not defined, which has led to problems.

Sources and For More Information:


Clean Energy EnvironmentGuide to Action. <http://www.epa.gov/cleanenergy/documents/gta/guide_action_full.pdf>. The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede its Expansion. <http://www.oe.energy.gov/DocumentsandMedia/1817_Study_Sep_07.pdf> (pages 136-7).

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B. Acquiring Renewable Energy and Cogeneration Capacity


Quantity-setting policies (RPS orders and competitive bidding) promote the least-cost projects, provide certainty for market share for renewable energy, are more likely to integrate renewable energy into the grid, and lead to development in areas with the greatest resources. However, the World Bank states that policy makers should take care in drafting policies to ensure they do not favor large plants over small investors; produce high risks and low rewards for developers and equipment manufacturers, which slows innovation; or include targets that set the upper limit thus discouraging further development beyond the target. Best Practices for Quantity-Setting Policies: Laws apply to a large segment of the market. Set different bands for different technologies. Contracts are long-term to reduce uncertainty and include specific purchase obligations and end dates. Penalties are in place for noncompliance and enforcement. No time gap exists between quotas for competitive bidding.

Sources and For More Information:


Identifying optimal legal frameworks for renewable energy in India. <http://www.wisein.org/pdf/Backer-and-Meckanzy.pdf>. National Policy Instruments: Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World. <http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf>. World Bank RE Toolkit:

<http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772244~isCURL:Y ~menuPK:2069939~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>.

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1. Competitive Bidding
Issue: Competitive solicitations specify a target or share of generation and allow developers to submit bids. Utility Perspective: The main concern with competitive bidding is that projects will be underbid and thus never built, affecting the utilitys ability to serve load. Alternatively, all the bids could be higher than expected, leading to higher rates passed on to consumers. Developer Perspective: Competitive bidding can lead to bids below cost to obtain contracts that are often not financially feasible. These low bids hurt developers with more reasonable costs; reasonable bidders fear making realistic bids and losing to low-quality bidders. Regulator Perspective: Competitive bidding can be a valuable tool in increasing renewable energy development, but policies must be in place to ensure the projects are built according to their contract. India Competitive bidding has not been very successful in India to date even for conventional power projects and some believe it is too early to introduce it. In India competitive bidding for conventional power projects (coal, gas) is not encouraging and did not resulted in the anticipated capacity addition. Since 1992, only a few thermal-gas-based power projects have been commissioned via competitive bidding. However, competitive bidding for renewables has been suggested in Andhra Pradesh by the Andhra Pradesh Electricity Regulatory Commission. Best Practice: California uses an incentive program based on competitive bidding that uses a system benefit charge. It also has production-based incentives that can be paid over a five-year period at most and has a cap of 1.5 cents per kWh. Projects that come online early receive a 10% bonus on top of their incentive bid to be no more than 1.5 cents total and also receive 10% reductions in the incentive payment if there are project delays. If the project is delayed one year, the incentive payment is reduced 50% and if it is over a year, there is no incentive payment. Competitive bidding has been more successful in Ireland and California because they apply very stringent criteria for prequalifying bidders, ensuring the quality of bidders is at a similar level and ensuring the bidders they can make more realistic bids and not lose to a low-quality bidder. The bid process is also designed so that the tariff is set at the second lowest bid price. Competitive bidding is practiced in Canada, China, and the United Kingdom.

Sources and For More Information:


R.E. Policy Revvs Up Across the Globe. <http://www.wisein.org/pdf/GEPDF/GE-July-Aug-08.pdf>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772244~isCURL:Y ~menuPK:2069939~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html#Competitive_Bidding>.

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2. Renewable Portfolio Standards


Issue: RPS orders are a policy measure that mandates a percentage of total generation comes from renewable energy sources. Utility Perspective: Some utilities recognize the need to reduce emissions but do not feel a mandatory RPS is the answer as many regions do not have adequate renewable resources. In addition, renewable energy is more expensive than conventional energy, increasing the cost to consumers. Incentives for the development of renewable energy projects when economically and technically viable, combined with programs to assist in the mitigation of emissions from conventional plants, would be a better approach. Developer Perspective: RPS orders are critical for the development of renewable energy and cogeneration projects. The RPS also provides market stability to all participants by reducing regulatory risk for generators and utilities and improves the ability to obtain long-term finance. Regulator Perspective: RPS orders are a key method to increasing the deployment of cleaner energy technologies, but any RPS must take into account the availability of renewable sources in the area and the impact of renewable energy on the retail tariff. India As of December 2008, 17 of Indias 28 states had RPS. The RPS minimum percentages in these states range from 1% in Delhi to 10% in Tamil Nadu. Most states specified these percentages for three years although some specified percentages for only one year or as many as six years. Karnataka and Rajasthan also placed an upper cap on the amount of renewable energy (10% in Karnataka); however, on January 23, 2008, the Karnataka Electricity Regulatory Commission removed the upper ceiling on the procurement of renewable energy.

Renewable Portfolio Standards in India by State


State Andhra Pradesh Chhattisgarh Gujarat Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal West Bengal 2007-08 5% 10% 1% 3% 20% 7-10% 5% 10% 4% 3% 1% 4% 10% 7.5% 5% NA 2008-09 5% 10% 2% 5% 20% 7-10% 5% 10% 5% 3.5% 1% 55 10% 7.5% 5% 2-4.8% 2009-10 NA 10% 10% 10% 20% 7-10% 5% 10% 6% 4% 2% 6% NA 7.5% 8% 4-6.8%

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Only Maharashtra and Rajasthan have penalties for noncompliance with the RPS percentages. In West Bengal, Andhra Pradesh, and Maharashtra, distribution companies can waive the penalties if they can prove the renewable energy is not available. Assessment The different RPS orders in India make the cost of power different in each state. This difference could favor industries in the states with lower RPS as the price of renewable energy is usually higher than conventional energy sources. While there are inherent discrepancies in pricing between states based on costs, forcing one state and not others to purchase higher power could increase the discrepancy and lead to discord or states refusing to increase RPS to maintain a competitive advantage for their industries. A central-governmentmandated RPS could alleviate this potential problem. In a report titled Identifying Optimal Legal Frameworks for Renewable Energy in India funded by the APP, the authors found some minimum requirements for effective RPS schemes:
SERC orders setting out Renewable Portfolio Standards need to cover resource availability, present and future capacity addition (both conventional and renewable), eligible renewable energy sources, implementation, operating and settlement mechanisms and the impact of RPS on retail electricity tariff. In this respect the MERC and Rajasthan Renewable Energy Corporation Standards [sic] are good model orders for other SERCs. SERCs should specify aggressive short and medium term targets for renewable energy (keeping in mid climate change, shortage of electricity in the country and the environmental attributes of renewable energy) to establish policy and regulatory stability and to promote investment in renewable energy. Heavy penalties such as those specified in the MERC order provide financial incentives for Distribution Companies, captive users and open access consumers to comply with minimum percentages. Resource studies detailing the potential for all sources of renewable energy within the State are required. Existing resource studies upon which most States have based their RPS calculations are out of date and therefore underestimate the potential of renewable energy. (pp. 3031) Best Practices: RPS percentages should increase slowly each year and should specify aggressive short- and medium-term targets to establish stability and encourage investment. No maximum limits should be set; anything over the minimum RPS should be encouraged if economically viable. In addition, the RPS should not specify a particular renewable resource or a percentage of energy from a particular resource, such as 5% from wind generation. Utilities should also be allowed to procure the renewable energy if the resources are not available in their service territory. Maharashtra In Maharashtra, the RPS increases by 1% each year for four years to increase the amount of renewable energy from 3 to 6% by 2010 with no specific limit for each renewable energy resource within the overall RPS percentage. In order to promote regulatory certainty and create an effective RPS policy framework, the applicable tariffs must also be specified. The Maharashtra Electricity Regulatory Commission (MERC) stated the multiyear tariff for renewable energy will last three years. Heavy penalties for noncompliance such as those in Maharashtra will incentivize renewable development, but enforcement should be introduced gradually, especially when the RPS framework is still evolving. RPS compliance

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penalties have been levied by the state regulatory commissions in Maharashtra, Rajasthan, and Gujarat. In Maharashtra, the Maharashtra Energy Development Agency has issued penalty notices to the distribution licensees who do not meet the RPS obligation in 200708. Penalties levied on utilities for noncompliance in renewable energy procurement will not be allowed as a pass through expense in their Annual Revenue Requirement. It is believed that the cost of a 6% RPS target will increase the consumer tariff in Maharashtra by 2%. In addition, the cost of purchasing conventional power at the margin is higher than the average 3.32 Rs per unit cost from all renewable energy sources. Procuring power from renewable energy sources at the existing tariff rates will thus not only add to the availability of energy but also be cheaper than power purchased in the market and thus will not adversely affect consumers.

Sources and For More Information:


Identifying optimal legal frameworks for renewable energy in India. <http://www.wisein.org/pdf/Backer-and-Meckanzy.pdf>. MERC: <http://www.mahaurja.com/PDF/MERC_RPS_ORDER_16-08-06.pdf>. National Policy Instruments: Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World. <http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf>. United States: <http://www.dsireusa.org/>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772244~menuPK:2 069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>.

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3. Tradable Renewable Energy Certificates


Issue: There are a number of different schemes to procure renewable energy including the Tradable Renewable Energy Certificate (TREC)sometimes called Renewable Energy Certificatewhere the portfolio standard or target is met with some form of certified renewable energy that is purchased or traded. An electricity supplier that generates electricity above its RPS can create TRECs from the excess generation that can be sold to another entity or third party to meet its RPS requirements. If the market is properly designed, the transaction costs are low, and there is sufficient competition and price discovery, the TREC scheme should achieve the required renewable energy capacity with the least possible impact on electricity consumers. As of the time of publication, the MNRE has hired a consultant to develop a TREC scheme in India. Advantages of TRECs: Lower cost renewable energy as TRECs allow development in areas with the highest potential for production regardless of the location of load Market-set incentive is more efficient Separate tradable instruments are more flexible Cover grid-connected and off-grid facilities Overcome issue of uneven distribution of renewable energy resources Overcome cost/skill differentials Overcome different market types Can be combined with other measures

Desired design features of TRECs: Sufficient duration of scheme to provide investment certainty given a 15- to 30-year payback time frame Large enough TREC target that it cannot be met in the short term Penalties for noncompliance Market that is large enough to be liquid and competitive Coverage of small generation plants Identical transmission and distribution costs across jurisdictions Available data on renewable resources Exchange of information on the total amount of electricity that has been generated and the amount generated from renewable resources Limited and reasonable transaction costs Renewable energy verification standards Utility Perspective: The TRECs could assist the utilities in meeting mandatory RPS goals, but only if renewable energy is available for purchase. Developer Perspective: TRECs can create a market for renewable energy and may improve revenue opportunities that are central to the deployment of renewable energy.

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Regulator Perspective: In theory, policy-driven TREC schemes could assist utilities in meeting their RPS goals. However, care should be taken to ensure fines are sufficiently large to avoid utilities simply electing to pay the penalty, which would not achieve the goal of increased deployment of renewable energy. Best Practices: TREC schemes are effective if they are well designed to ensure harmonization with existing measures, domestic laws, and local context; efficient with low transaction costs; and mandatory and enforceable. Australia The electricity generator requires regulator accreditation to be eligible to gain accreditation under the mandatory scheme. The electricity that the generator produces from renewable energy sources must then also be recognized in accordance with the scheme rules, so that the TRECs can be registered for each megawatt hour of electricity that is generated by the generator. The Australian mandatory RPS set a contained legal framework for the creation and surrender of RECs. United States Under the model used in some states, TRECs might not be registered under the state law. The retailer must ensure that the benefit of the renewable energy purchased comprises electricity that meets scheme requirements. The scheme might set minimum requirements for electricity that is entitled to be included in the renewable energy portfolio. Some U.S. states adopted a flexible framework that allows TRECs to not be formally accredited as long as they meet prescribed criteria.

Sources and For More Information:


Identifying optimal legal frameworks for renewable energy in India (pages 64-72). <http://www.wisein.org/pdf/Backer-and-Meckanzy.pdf>. [sic] Massachusetts: <http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=MA10F&state=MA&CurrentPageID=1&R E=1&EE=1>. Renewable energy certificate improve commercial viability of RE electricity. DailyIndia.com. <http://www.dailyindia.com/ show/287344.php>. Report on APP-REDGTF project on renewable energy in India. <http://www.bakernet.com/NR/rdonlyres/0251961F-DACD-4C9E9415-A7A24A28485C/44792/RenewableenergyinIndia.pdf>.

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C. Incentives
Renewable energy projects are typically small with disproportionately high transaction costs (feasibility studies, etc.) with higher capital costs but lower operational costs than traditional energy sources. The large upfront costs require high external financing that must be amortized over the life of the project. Developers usually find incentives are necessary to make alternative energy projects competitive with conventional energy sources. Utilities do not object to incentives as long as they do not affect the utilitys finances. Best Practices: There are five general design principles to follow when developing and implementing effective funding and incentive programs: Develop specific target markets and technologies based on technical and economic analyses. Use funding and incentives as part of a broader policy to encourage renewable energy and cogeneration development. Establish specific financial and technical criteria for investments in renewable energy and cogeneration. Track and evaluate details of program participation, costs, savings, and production to improve the program and ensure goals are met. Create a stable and long-term program (over five years) to remove the barrier of uncertainty. Types of incentives can vary but the most common are investment tax credits, production tax credits (PTCs), accelerated depreciation, capacity payments, demand credits, buy-down capital costs, carbon credits, and property tax and other tax incentives. These incentives will be discussed in the next section.

Sources and For More Information:


Financing Options for Renewable Energy Environmental Financing May 2004 http://www.environmental-finance.com/2004/0504may/financ.htm. Clean Energy EnvironmentGuide to Action. http://www.epa.gov/cleanenergy/documents/gta/guide_action_full.pdf (pages 3-72). U.S. Environmental Protection Agency:<http://www.epa.gov/cleanenergy/documents/gta/guide_action_full.pdf > (page 3-72).

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1. Investment Tax Credit


Issue: Investment tax credits allow investors to reduce their tax liability and gain all the benefits in the first few years following the investment, greatly reducing the risk and cost of investing in alternative energy systems. Investment tax credits are effective only when an entity has profits that are taxable. Utility Perspective: The utility expects a certain level of energy from these alternative energy facilities. Investment tax credits give no incentives for maintenance of the facilities or generation of energy and have often led to facilities that do not run, thus hurting the utilitys ability to provide energy to its customers. Developer Perspective: Investment tax credit does not stimulate investment or give incentive to produce power or maintain facility as the credit is linked to capacity installed, not energy generated. It can lead to overinvoicing or underinvestment in operation and maintenance by developers looking to make a quick profit and then exit as their profits are received up front with the installation. There is no real incentive to operate or maintain the facility, especially if tariffs are not sufficient to see a profit. Developers who do not operate their facilities impact the price of electricity from renewable sources and make it harder for serious developers to compete. Investment tax credits should be removed and replaced with one of the following solutions. Regulator Perspective: Investment tax credits can be effective for household systems such as solar water heaters or PV panels but do not provide the right incentives for grid-connected renewable energy facilities. Best Practice: For grid-connected renewable energy facilities, a PTC is a better incentive for generation of energy. However, investment tax credits are effective at the household level.

Sources and For More Information:


World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772245~menuPK:2 069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>.

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2. Production Tax Credit


Issue: Production Tax Credits (PTCs) link performance or energy generation output with the amount of tax credit. PTCs have been supplied in Denmark and at the federal level in the United States; they are most effective when there is also some other form of support, most notably a quota mechanism. The advantage to PTCs is that they have been effective in stimulating capacity and have reduced uncertainty and capital costs. Utility Perspective: PTCs are better than investment tax credits, as they incentivize the developer to actually produce needed energy with the least amount of downtime cost. Developer Perspective: PTCs are preferred over investment tax credits, as they increase the rate of return, thus reducing the payback period for the project, and promote the desired outcome of additional renewable energy generated. Regulator Perspective: These credits encourage investors to purchase the most reliable systems and to maintain them to produce the maximum amount of energy. PTCs reward those developers with high load factor equipment and durable and sustainable hardware that minimizes downtime for maintenance. Best Practice: Production tax credits in the United States have actually been offset by income taxes on corporate profits and workers income, as well as tax revenues from the projects after the PTCs run out. According to a General Electric study, PTCs cost the U.S. Treasury $2.5 million for 5.2 gigawatts of wind farms built in 2007 but resulted in a net present value of $2.75 billion for a 5% internal rate of return. Due to uncertainty about the credits continuation in the future, their promising potential to increase capacity diminishes substantially. Thus any production-based tax credit should be designed to decline as costs are reduced for a minimum length of 10 years in order to be effective and negate the uncertainty that the political climate will shift with a new government.

Source and For More Information:


Impact of 2007 Windfarms on U.S. Treasury. http://www.geenergyfinancialservices.com/press_room/press_releases/PTC_ StudyFinal.pdf. World Bank RE Toolkit: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772245~menuPK:206 9918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html.

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3. Clean Renewable Energy Bonds


Issue: A Clean Renewable Energy Bond (CREB) offers the equivalent of an interest-free loan to finance energy projects for a limited term. CREBs have comparable incentives to PTCs although the benefits from a PTC are received only after the facility is financed and electricity is generated, whereas under a CREB, benefits are received up front. The electric utility or government entity issues the CREBs and sells them to bondholders who receive a tax credit from the government in lieu of the utility paying interest to the bondholder. The bondholder takes the amount of the tax credit as a credit against its regular income tax liability and alternative minimum tax liability. Repayment of principal to the bondholder occurs on a level annual repayment basis, meaning equal payments each year of the term of the bond, commencing in the first year of issuance. The value of the CREB to a bondholder for any year is equal to the credit, less the amount of tax payable on the credit. In February 2008, the Internal Revenue Service announced the second round of volume cap allocations, which included 342 applications from 33 states, pertaining to 395 projects. Approximately $477 million of CREB volume cap was available for allocation to qualified issuers. Applications ranged in size from $15,000 to $38.5 million. Governmental borrowers submitted applications totaling $728 million to finance 367 projects with an average project size of about $2 million. Governmental borrowers in 28 states received $263 million of volume cap allocations ranging from $15,000 to $2.95 million. Approved projects of governmental borrowers included 138 solar facilities, 88 wind facilities, 41 landfill gas facilities, 12 hydropower facilities, three closed-loop biomass facilities, three trash combustion facilities, and one open-loop biomass facility. Cooperative borrowers submitted applications totaling about $170 million to finance 28 projects with an average project size of about $6.1 million. Cooperative borrowers received about $143 million of volume cap allocations for projects in 13 states ranging from $300,000 to $30 million. Approved cooperative projects included 14 wind facilities, four landfill gas facilities, six hydropower facilities, one solar facility, and one open-loop biomass facility. A complete list of the recipients can be found on the Internal Revenue Service website. Utility Perspective: As long as the CREBs are not funded through the utility and do not increase tariff prices, they are not an issue for the utility. Developer Perspective: CREBs can assist with financing renewable energy and cogeneration projects and should be encouraged. Regulator Perspective: CREBs are a good way to finance renewable energy and cogeneration projects and should be encouraged. Best Practice: In February 2008, the Internal Revenue Service (IRS) announced the second round of volume cap allocations, which included 395 projects from 33 states. Approximately $477 million of the CREB volume cap was available for allocation to qualified issuers. Applications ranged in size from $15,000 to $38.5 million. Governmental borrowers in 28 states received $263 million of volume cap allocations ranging from $15,000 to $2.95 million. Approved projects of governmental borrowers included: 138 solar facilities, 88 wind facilities, 41 landfill gas facilities, 12 hydropower facilities, three closed-loop biomass facilities, three trash combustion facilities and one open-loop biomass facility. Governmental borrowers included: Altoona School District Altoona - $875,000 for a wind project The City of Cloverdale, CA - $644,000 for a solar project The City of San Diego, CA - $1,215,000 for a landfill gas project Koochiching County, Minnesota - $1,700,000 for a trash combustion project
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Los Angeles County Sanitation District 15 - $2,621,080 for a landfill gas project Merced Irrigation District - $1,340,000 for a hydropower project Regents of the University of Minnesota - $1,500,000 for an open-loop biomass project Electric cooperative borrowers received about $143 million of volume cap allocations for projects in 13 states ranging from $300,000 to $30 million. Approved electric cooperative projects included: 14 wind facilities, four landfill gas facilities, six hydropower facilities, one solar facility and one open-loop biomass facility. Electric cooperative borrowers included: New Ulm, MN Public Utilities - $2,975,000 for a wind project Wabash Valley Power Association Inc. - $4,500,000 for a landfill gas project CFC, National Rural Utilities Cooperative in Livingston, TX - $10,200,000 for a hydropower project CFC, National Rural Utilities Cooperative in Park Rapids, MN - $30,000,000 for an open-loop biomass project CFC, National Rural Utilities Cooperative in Tavernier, FL - $1,000,000 for a solar project A complete list of the recipients can be found on the IRS website (http://www.irs.gov/pub/irs-tege/creb_2007_disclosure.
pdf).

CREB issuers must spend 95% of the proceeds within five years for that project, or they may not receive any tax credits.

Source and For More Information:


DSIRE database: <http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=US45F&State=federal&currentpageid=1 &ee=0&re=1>. Internal Revenue Service: <http://www.irs.gov/irb/2007-14_IRB/ar17.html> and <http://www.irs.gov/pub/irs-tege/creb_2007_ disclosure.pdf> (list of recipients). NRECA: <http://www.nreca.org/documents/publicpolicy/cleanrenewableenergybonds.pdf>. Public Renewables Partnership. <http://www.repartners.org/webcast/4%20RECs%20Lieberman.pdf>. USDA Section 9006 grants: <http://farmenergy.org/documents/S9006NOFA2008.pdf>.

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4. Accelerated Depreciation
Issue: Accelerated depreciation is similar to investment tax credits in that it allows renewable energy developers to receive their tax benefits much sooner. However, as with the investment tax credits, allowing accelerated depreciation can lead to investments with lower capacity factors. Utility Perspective: Accelerated depreciation must take long-term operating performance and maintenance into account to ensure capacity factors are not lower. In addition, the developer could take all the credits, and then not operate the facility. This has happened with a few wind projects in India. Developer Perspective: Accelerated depreciation greatly decreases the risk associated with projects and is a great way to incentivize the development of renewable energy projects. Regulator Perspective: Care must be taken to ensure renewable energy projects are correctly incentivized to maximize capacity and minimize cost. India: Section 32 Rule 5 of the Income Tax Act currently allows accelerated depreciation at the rate of 80 to 100% on a written-down value basis for various renewable energy items. Best Practice: Germany included technical standards and certification requirements that must be met by developers to ensure capacity factors were not lower. In the United States, business can recover investments in renewable facilities by depreciating them over a period of five years instead of the more typical 15 to 20 years. Depreciation schedules should account for technology improvements and societal values such as carbon reduction.

Sources and For More Information:


CII paper Promotion of Renewable Power Projects in India Through Generation Based Incentives. <http://www.cii.in> Report on APP-REDGTF project on renewable energy in India: <http://www.bakernet.com/NR/rdonlyres/0251961F-DACD-4C9E9415-A7A24A28485C/44792/RenewableenergyinIndia.pdf>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMD K:20772245~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>.

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5. Capacity Payment Tariff


Issue: Alterative energy facilities can provide firm power to the utility during peak periods. Higher tariff rates to cogeneration facilities that provide energy during these times can help meet system shortages by incentivizing these facilities to sell energy to the grid. Utility Perspective: As long as capacity payment tariffs are not higher than the market price to purchase the additional power during peak periods, they can be an effective way to address shortages. Developer Perspective: Developers believe their tariff should include capacity payments to recognize their assistance to the utility and grid during peak periods. Regulator Perspective: A capacity payment tariff can incentivize generation in areas of transmission congestion and is an important tool in meeting generation shortages. Best Practices: The Orange and Rockland Utilities, Inc. (now a part of Consolidated Edison), instituted a tariff that recognized the capability of distributed generation, cogeneration and combined heat and power to provide capacity during peak periods. The capacity payment tariff increased the tariff rate given to the distributed generator for generating during the four peak summer months. The higher capacity payment incentivized cogeneration to increase capacity in constrained areas and assisted the utility in meeting demand. However, regulators must ensure utilities do not seek to alter the tariffs in such a way that it negates the benefits. Examples include modifying tariffs so customers cannot capture savings, shifting high peak demand charges on standby service so revenue recovery is on the backup peak demand, or shirting peak demand charges to the standby tariff to receive additional revenue from the cogeneration facility. These types of standby penalty approaches have lead to cogeneration facilities disconnecting from the grid, thus losing the system benefits.

Sources and For More Information:


Making Connections <http://www1.eere.energy.gov/femp/pdfs/28053.pdf> (Page 17).

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6. Demand Credit
Issue: Demand credits are credits given to the cogeneration facility based on previous generation capability. Cogeneration can provide capacity during peak periods, reducing demand charges from the supplier that increase with peak demand. Utility Perspective: Any firm capacity that can assist during peak periods is welcome. Developer Perspective: Demand credits are very beneficial to the financial viability of a project. Regulator Perspective: Demand credits can encourage cogeneration, combined heat and power and distributed generation that may benefit the grid, especially during peak times. Best Practices: The United Kingdom created a demand credit to encourage cogeneration in areas with transmission congestion. This reduces the congestion on the system and negates the need for the utility to build costly new lines or substations. The MERC, in its Order dated 25 January 2006, in Case No. 29 of 2005, in the matter of Confederation of Indian Industry (CII) Proposal to use captive power to mitigate load shedding in Pune Urban Circles of MSEDCL, ordered as follows on page 2: a) Considering that the demand-supply gap is expected to prevail to a certain extent for the next five years at least, there is an urgent need to see how best the situation can be mitigated. The CII proposal to utilise surplus captive power during peak hours and making available the grid power for supply to other consumers is a well intentioned proposal to mitigate the load shedding in certain areas of the State, provided all the incremental cost is internalized by the consumers residing within those areas. Based on the responses received from stakeholders in writing as well as during public hearing, the Commission has observed that a broad majority of consumers have welcomed this CII initiative. Considering the current and expected demand-supply gap, the Commission accepts the CII proposal to utilise surplus captive power during peak hours and making available the grid power for supply to other consumers. However, all the incremental costs of this proposal need to be internalized by the consumers of Pune Urban Circle. . . . e) The Commission will adopt the principles of normative pricing, in relation to the fuel used and the heat rate, to determine the cost at which the captive generators would be generating the electricity. The price of fuel will be benchmarked to publicly available data on fuel prices from sources such as IOC, HPCL, BPCL, RIL, etc. The difference in the peak hour variable tariff applicable to the industrial units and the normative price of generation determined above, will be payable to the captive generators, for the reduction in the quantum of electricity consumed from the grid (which will also correspond to the quantum of electricity generated by the captive unit). The peak hours for the purpose of this computation will be 0900 to 1200 hours in the morning and 1800 to 2200 hours in the evening. f) As the approval of additional charge to be levied on the consumers of Pune Urban circle to mitigate this load shedding is a tariff design issue, the Commission will address this issue while approving the ARR and Tariff of MSEDCL.

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This MERC Order, also called the Pune Model, helped save 90 MW of power during peak time. Consumers with monthly consumption of more than 300 units paid a reliability charge of 42 paise per unit.

Sources and For More Information:


A&N Electric Cooperative: <http://www.anec.com/yourbill/rate_pdfs/LP_A_U.pdf> (page 3). Making Connections <http://www1.eere.energy.gov/femp/pdfs/28053.pdf> (Page 17). MERC Draft Order: <http://mercindia.org.in/pdf/21_Order_CN_01%20of%202006_DRAFT.pdf> (page 2). Pune Power Model-A successful example of PPP pattern. <http://businessstandard.com/india/storypage.php?autono=327438>.

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7. Buy-Down Capital Cost


Issue: A buy-down program levies a small charge on every kilowatt hour of electricity sold and the money collected is used to subsidize or buy down the purchase of renewable energy systems. This program is often used to encourage small residential installments. Rebates can also be considered a buy-down. Sacramento Municipal Utility District (SMUD) of California gives a $12/watt rebate to home developers for installed solar photovoltaic systems. Utility Perspective: Rebates and other buy-down programs are not an issue as long as the cost is part of tariff rates for all customers and is not a utility expense. Developer Perspective: Buy-down programs and rebates are essential to decrease the cost of smaller systems and incentivize their deployment. Regulator Perspective: These programs will raise the rates on all consumers slightly but are a great tool to encourage the deployment of smaller renewable energy systems, especially PV . Best Practices: The American Wind Energy Association listed several key features of effective buy-down programs: The rebate or grant is easy to apply for and is received quickly. Minimum requirements for eligible systems are set to ensure equipment is up to standard. Rebates are high enough to incentivize consumers to participate (AWEA recommends 50% of system cost initially with gradual phase-out over time). Rebates are limited to a certain level per watt of capacity of the system (AWEA recommends $34 per watt to ensure manufacturers and dealers do not raise prices). Rebates should be given only to grid-connected systems as they improve the utilitys performance and are more expensive than stand-alone units. Rebates should be part of a broader policy that includes net metering laws that make the economics of residential systems more attractive. Twenty-two states in the United States offer a rebate program. As an example, Nevada offers a rebate of $3 per watt (in 2006) for grid-connected PV installations in residences, small businesses, schools, and public buildings. California also has a very robust rebate system that covers a broad range of renewable energy technologies. Japan has investment subsidies through rebates for PVs through its Solar Roofs program. These rebates, combined with low interest loans and net metering, led to 420 MW of PV installed during the program from 1994 to 2002.

Sources and For More Information:


Database of State Incentives for Renewable Energy. <http://www.dsireusa.org>. American Wind Energy Association:<http://www.awea.org/pubs/factsheets/buydwn_fs.PDF > National Policy Instruments: Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World. <http://www.renewables2004.de/pdf/tbp/TBP03-policies.pdf>. U. S. Environmental Protection Agency:<http://www.epa.gov/cleanenergy/documents/gta/guide_action_full.pdf>.

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8. Carbon Credits
Issue: The Clean Development Mechanism (CDM) is a facilitating mechanism under the Kyoto Protocol that was designed to assist countries to meet GHG emission reduction targets and achieve sustainable development targets. The CDM is intended to be, among other things, a vehicle for investment and technology transfer between developed countries and developing countries including India. The book Wind Energy Development in India notes in Chapter 13 (Carbon Credits as an additional revenue source) that CDM in developing countries can: attract foreign capital for projects that assist in the shift to a more prosperous but less carbon-intensive economy; encourage and permit the active participation of both private and public sectors in sustainable Projects; provide a tool for technology transfer if investment is channelled into projects that replace old and inefficient fossil-fuel technology or create new industries in environmentally sustainable technologies; and help define investment priorities in projects that meet sustainable development goals. Utility Perspective: The utility should receive the carbon credits, especially if it granted the facility a rebate. In fixing the renewable energy tariff, the regulator already assures that a return of 50 to 100% of the carbon credits should go to the utility. Developer Perspective: Many renewable energy projects that may be eligible under the CDM have had difficulty attracting financial support due to lower emissions reduction potential of renewable energy projects and the long lifespan of facilities that can extend beyond Kyotos commitment period. Transaction costs associated with CDM projects, such as the costs of registration and legal fees, may be prohibitively high compared to the volume of Carbon Emission Reduction credits (CERs) expected to be generated by the projects. Regulator Perspective: The carbon credits belong to the facility that creates them but that facility can sell them to the utility (California Commission view). India To qualify as a CDM project, a project activity must demonstrate that GHG emissions were reduced against the baseline scenario, a representation of GHG emissions under normal circumstances. However, Indian policies and regulations encouraging renewable energy are not to be taken into account when calculating the baseline scenario (this is known as Type E additionality under the CDM rules). The baseline is calculated as the hypothetical scenario without the regulations being implemented. This benefits developers in India because it is easier to meet the requirement of additionality. India designated one authority to clear all projects, the Indian Designated National Authority for the CDM, which decreases the length of the evaluation process. According to the REIL report, variations between the number of wind power CDM projects in different Indian states illustrate that CDM alone will not be sufficient to fully develop renewable energy. A tradable renewable energy credit could help overcome the difficulties of variations between States.

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Estimated Transaction Costs of CDM Projects


ACTIVITY COST (Rs. 100,000)

Preparation of PIN/PDD Host-country approval Validation Registration Verification Certification cost

Identification of buyers and sale of CERs

11.5 + 5% success fee (of the CER revenue) depending on consultant chosen 34 (one-off) See table below. 23 (yearly) 2% deduction of CER + $0.10 per CER for adaptation fund and administration expenses of the CDM executive board 12% of CER volume

Source: Wind Energy Development in India, Chapter 13, Carbon credits as an additional revenue source.

CER Registration Costs


Average Tonnes of CO Reduction per Year 2 15,000 or less 15,000 to 50,000 50,001 to 100,000 100,001 to 200,000 >200,000
Source: WISE 2007.

US$ 5,000 10,000 15,000 20,000 30,000

Best Practices: The international CDM rules now allow the bundling of large-scale projects (not just small-scale projects) to further reduce transaction costs. This additional flexibility in the CDM rules should reduce transaction costs for renewable energy projects. In addition, many contractors now exist to facilitate CDM who receive a fee only if they succeed in capturing CDM credit. Programmatic CDM involves the aggregation of a number of small GHG reduction activities into a larger program, which is then submitted to the CDM Executive Board as a single activity (using one baseline and monitoring methodology) to overcome the cost barriers to smaller projects.

Sources and For More Information:


Identifying optimal legal frameworks for renewable energy in India (pages 88-94). <http://www.wisein.org/pdf/Backer-and-Meckanzy.pdf>. Wind Energy Development in India, Chapter 13, Carbon Credits. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMDK:20772245~menuPK:2 069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>.

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Incentives

9. Property Tax Incentives


Issue: Renewable energy projects have higher investment costs for improvements to facilities, which would lead to higher property taxes since they are based on the installed cost of improvements. Utility Perspective: The utility has no issue with property tax incentives. Developer Perspective: Property tax incentives are an important way to reduce the cost of a project. Regulator Perspective: The regulator has no issue with property tax incentives. Best Practices: United States More than 24 U.S. states implement property tax incentives by partially or fully excluding them from property taxes, awarding tax credits that offset the property tax, or capping the value of the property at the value of a similar conventional energy system. India Many Indian cities have property tax rebates for solar hot water systems.

Solar Hot Water System Initiative in Indian States


Sr No Name of State That Issued the GOs Name of the Municipal Any Other Incentive Offered for Amendment of Building By-laws Authorities/State Housing by the State Government for Mandatory Use of SWHS Development Authority That Has Amended the Building By-laws for Mandatory Use of SWHS Chhattisgarh Korba Municipal Nil Corporation Raipur Municipal Corporation Chhattisgarh Housing Development Board Residential building having plinth area 1,0001,500 sq ft 2. 3. Uttarakhand Rajasthan Nil Jaipur Development Authority Residential building developed on plot area 500 sq m and above Nil Nil Rebate in electricity tariff Rs 75/month for each 100 LPD installation. Rebate in electricity tariff 15 paise/unit to domestic consumer using SWHS.

1.

4. 5.

Punjab Andhra Pradesh

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6. 7.

Kerala Uttar Pradesh

Nil Lucknow, Bareilly, Saharanpur, Muradabad Gorakhpur Development Authority Residential building having plot area 500 sq m Bangalore Municipal Corporation

Incentive of Rs 1500 to domestic user of SWHS from ANERT. Subsidy of Rs 4,000 per 100 LPD SWHS installation in govt and semi-govt establishments by NEDA.

8.

Karnataka

Rebate in electricity tariff 50 paise/unit to a max of Rs 50 per installation to domestic consumer using SWHS Rebate in electricity bill Rs 100 /100 LPD up to Rs 300/LPD to users of SWHS

9. 10.

Harayana Maharashtra

Nil

Pune, Thane, Nagpur, BMC, Bhivandi, Nashik, Amravati, Kalyan, Pimpri Chinchwad, Jalgaon Municipal Corporation 11. West Bengal Durgapur Rebate in electricity tariff 40 paise/unit up to max of Rs 80 per installation to domestic consumer using SWHS for first two years. 12. Delhi Residential/commercial building developed on plot area 500 sq m and above 13. Tamil Nadu Nil 14. Madhya Pradesh Nil 15. Himachal Pradesh Nil 16. Chandigarh Nil 17. Nagaland Nil 18. Dadar & Nagar Haveli Nil Source: World Institute of Sustainable Energy, http://www.wisein.org

Sources and For More Information:


DSIRE database: Personal Tax Incentives. <http://www.dsireusa.org/library/includes/type.cfm?EE=1&RE=1>. World Bank RE Toolkit: <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/EXTRETOOLKIT/0,,contentMD K:20772245~menuPK:2069918~pagePK:64168445~piPK:64168309~theSitePK:1040428,00.html>. World Institute of Sustainable Energy. < http://www.wisein.org>.

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Incentives

10. Other Incentives


Tax Incentives Other tax incentives include income tax exemptions on sales of renewable energy; tax exemptions for equipment purchases; reductions or exemptions from import taxes on equipment or components; personal and corporate income tax credits; exemptions from sales, excise, and property taxes; and production tax credits.

Sources and For More Information:


DSIRE database. Personal Tax Incentives. <http://www.dsireusa.org/library/includes/type.cfm?EE=0&RE=1>.

Generation-Based Incentive (India) The MNRE of India released a GBI for solar and grid-connected wind power in spring 2008. These incentives are in addition to any feed-in tariffs given by the SERCs and are given through IREDA. Generators cannot receive accelerated depreciation if they receive these incentives. These incentives are available only for a maximum of 50 MW for solar.

Solar
Eligibility Over a certain size commissioned prior to 31 December 2009 Photovoltaic commissioned after 31 December 2009 Solar thermal Incentive Rate Rs 12 per kWh Rs 11.40 per kWh Rs 10 per kWh Limit on Incentive (power tariff Length of Incentive (yrs) plus incentive payment) No more than Rs 15 per kWh for photovoltaic and 10 yrs Rs 13 per kWh for solar thermal plants Slightly less than Rs 15 per kWh Slightly less than Rs 13 per kWh 10 yrs 10 yrs

Notes: kWh = kilowatt hour; Rs = Rupees.

Source: MNRE, http://www.mnes.nic.in

Grid-Connected Wind Incentive MNRE provides a feed-in tariff of Rs 0.50 per kWh for projects over 5 MW for a period of 10 years. Eligible project investors include Independent Power Producers (IPPs), registered companies, nongovernmental organizations, trusts, academic and research institutions, and state nodal agencies. This tariff will be reviewed after 49 MW of capacity has been installed. Assessment Because they are new and untested, it is impossible to assess the impact of these incentives on the increased deployment of solar and wind projects. In theory they appear to be a powerful incentive to developers as the average tariff in India is about Rs 3. There has been some concern in India that the solar energy incentive is so high that it might attract less qualified developers interested in profits. In addition, India has as much as 600,000 MW of solar potential but as of 2007 has only 18.2 MW of installed solar capacity. While a 50 MW addition through this incentive would more than double the current installed capacity, it is a very small percentage of the total potential solar capacity. It is not clear whether the wind power scheme will continue after 49 MW of capacity is installed. 49 MW is a very small amount given that India currently has 7,660 MW of wind energy and has 45,195 MW potential.

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Incentives

California Public Utilities Commission Self-Generation Incentive Program In September 2000, Assembly Bill 970 (AB 970) was approved, which called for the creation of more energy supply and demand programs. As a result, in March 2001, the California Public Utilities Commission (CPUC) issued a decision creating the Self-Generation Incentive Program (SGIP) to offer financial incentives to their customers who install certain types of distributed generation facilities (in the U.S. these are grid connected) to meet all or a portion of their energy needs. This program initially provided incentives for customers of investor-owned utilities to use microturbines, small gas turbines, wind turbines, photovoltaics, fuel cells, and internal combustion engines to provide some or all of that customers electricity. As of January 1, 2008, the SGIP offers incentives only for wind and fuel cell projects; internal combustion engines, microturbines, and small and large gas turbines can no longer receive incentives through this program. Generation must be certified to operate in parallel with the electric system grid (not backup generation) and meet other criteria established by the CPUC. While residential customers are not barred from the program, it was designed primarily with business and large institutional customers in mind. The California Energy Commission (CEC) offers a similar program that is available to customers who install renewable generation, such as fuel cells and wind turbines, less than 30 kW in size. The SGIP is one of the largest DG incentive programs in the United States, with nearly 1,200 projects online and an average rate of 43 MW per year. By the end of 2007, the total online capacity of SGIP projects was 300 MW. Cogeneration technologies represent over 50% of that online capacity, while PV represents 40%. The following table describes the incentive payments and maximum incentive and system size limits. Please note that the CEC also has a program similar to Level 1 and consumers may qualify for incentives with the CEC and the CPUC program but up to a maximum of $4.50/W: The incentive levels for 2008 are as follows:
Incentive Levels Level 2 Renewable Level 3 Nonrenewable
Notes: MW =megawatt.

Eligible Technologies Wind turbines Renewable fuel cells Nonrenewable fuel cells

Incentive Offered Minimum ($/Watt) System Size $1.50/W $4.50/W $2.50/W 30 kW

Maximum System Size 5 MW

Maximum Incentive Size 1 MW

None

5 MW

1 MW

For projects that are greater than 1 MW up to 3 MW, the incentives identified above decline according to the schedule below:
Capacity 0 1 MW >1 MW 2 MW >2 MW 3 MW 100% 50% 25% Incentive Rate (% of Base)

Source: http://www.pge.com/mybusiness/energysavingsrebates/selfgeneration/equipment/

California Energy Commission Emerging Renewables Buy-down Program The buy-down program is available to customers of Californias investor-owned utilities. Technologies: Photovoltaics, small wind (less than 10 kW), fuel cells (renewable fuels only), solar thermal electric.
Incentives: $3.00/W for small residential systems (under 10 kW), up to a maximum 50% of system cost. $2.50/W for larger systems (over 10 kW), up to a maximum of 40% of system cost.
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Project Limits: Renewable energy systems installed under this program must be interconnected with the utility grid. A system should primarily offset part or all of the customers electrical needs, but must not be sized greater than 200 percent of on-site peak demand. The maximum buy-down amount is $2.5 million for a single project. Buy-down Process: Customers make a reservation of funds with the CEC prior to construction of the project. This reservation will expire after 9 months for smaller systems (under 10 kW) or 18 months (all other systems). Once the system is completely installed and operational, customers then request the buy-down payment by submitting the required documentation to the CEC. Within 30 days of receipt of a completed claim form, the CEC will issue the incentive payment. This completes the buy-down process.

California Energy Commission Solar Energy and Distributed Generation Grant Program California residents who are purchasers, sellers, owner-builders, or owner-developers of eligible solar energy or DG systems are eligible to apply. Technologies: Solar domestic water heating systems, solar swimming pool heating systems, battery backup for PV systems, DG.
Incentives: $750 for solar water heaters, $750 for PV system battery backup, $250 for solar pool heaters. Up to $2,000 or 10% of system cost, whichever is less, for the following DG systems: Microcogeneration Gas turbines Fuel cells Reciprocating internal combustion engines Electricity storage (other than for eligible solar energy systems)

Sources and For More Information:


California Energy Commission Emerging Renewables Buydown Program <http://www.energy.ca.gov/greengrid>. California Energy Commission Solar Energy and Distributed Generation Grant Program <http://www.consumerenergycenter.org/solaranddg>. California Public Utilities Commission Self-Generation Incentive Program (SGIP) <http://www.cpuc.ca.gov/NR/rdonlyres/98A75D73-5684-45DF-A647-D869D6183D0B/0/CenterforSustainableEnergy10_08REPRIN T.pdf>. DSIRE database. Personal Tax Incentives. <http://www.dsireusa.org/library/includes/type.cfm?EE=0&RE=1>. SGIP Evaluation Highlights. <http://www.cpuc.ca.gov/NR/rdonlyres/783F30E1-4894-42FD-BC74-449E17283F3E/0/ SGIP_7thYearImpactEvalReport_Highlights_2.pdf>.

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Refund of Salvage Value

D. Refund of Salvage Value


Issue: Developers and utilities disagree over who should pay for facilities and interconnections and whether the utility or the developer/operator is the ultimate beneficiary of the facilities. Utility Perspective: The electric utility and its ratepayers should not have to pay for special facilities to connect to its system, especially given that they may have no use for them. Facilities and equipment for renewable and distributed generation units should be addressed as part of the regulatory commissions approved line extension policies, procedures and practices. Developer Perspective: The utility often insists that the developers pay for special facilities, such as transmission lines, at a significant cost. These facilities may eventually become the property of the electric utility with no payment made to the developer for the costs associated with building them. Regulator Perspective: If the developer pays for upgrades and leaves the system at some point, the developer should receive some money back for the upgrades that are now owned by the utility, provided that the upgrades offer system benefits. Best Practice: In California, the electric utility will at a minimum issue a credit for the net salvage value of the renewable energy/ cogeneration units special facilities if the energy/cogeneration unit either paid the installed costs or constructed and transferred them to the electric utility.

Source and For More Information:


California Rule 21: <http://www.energy.ca.gov/distgen/interconnection/RULE_21_MODEL_RULE_02-2006.PDF.>

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Insurance and Liability Requirements

E. Insurance and Liability Requirements


Issue: Many utilities insist any facility connecting to their grid carry additional liability insurance, which adds to the cost of a project. Utility Perspective: The utility is seen as having major assets and would be likely to be brought into a claim due to the perception of having plenty of cash. In addition, the generators are a greater risk than appliance and electric loads and thus should carry additional insurance with the utility as the beneficiary. Developer Perspective: Risks from facilities that use Underwriters Laboratories (UL)-rated equipment that are installed per Institute of Electrical and Electronics Engineers, Inc. (IEEE) procedures are minimal and comparable to the risk from other small equipment that is routinely interconnected without insurance. Existing laws are adequate to allocate liability if there is an accident. The insurance costs are often too high for small developers and can block the project. Regulator Perspective: If the developer follows all the utilitys guidelines for interconnection and equipment, the risk to the grid should be low and insurance should reflect the lower risk. Best Practice: Texas, New York, and California scale insurance requirements based on the relative size of generator, the nature of interconnection, and physical potential for impact to provide the greatest balance between real financial liability and added project costs. SMUD changed its practice on insurance. If the developer followed SMUDs rules and those rules were not sufficient, the utility is equally liable for not creating sufficient rules. The belief is that SMUD should not be indemnified against its own mistakes. The Interstate Renewable Energy Council model states: An electricity provider shall not charge a customer-generator any fee or charge; or require additional equipment, insurance or any other requirement not specifically authorized under this sub-section or the interconnection rules in Section [[reference state interconnection rules here], unless the fee, charge or other requirement would apply to other similarly situated customers who are not customer-generators. (p. 2)

Sources and For More Information:


Making Connections <http://www1.eere.energy.gov/femp/pdfs/28053.pdf > pg. 13. IREC Model Net-Metering Rules: <http://www.irecusa.org/fileadmin/user_upload/ConnectDocs/NM_Model.pdf>. The Potential Benefits of Distributed Generation and the Rate-Related Issues That May Impede Its Expansion: <http://www. oe.energy.gov/DocumentsandMedia/1817_Report_-final.pdf>.

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VI. Technical Issues and Best Practices


To assist in overcoming the barriers related to small generation technical interconnection procedures, the Institute of Electrical and Electronics Engineers (IEEE), through industry Standards Coordinating Committee 21, developed and published two standards (1547 and 1547.1) related to interconnecting distributed resources with the electric power grid (IEEE Std. 1547-2003; IEEE Std. 1547.1-2005). These standards documents were developed through a broad stakeholder consensus process approved by the American National Standards Institute (ANSI) and now provide the basis upon which most (if not all) U.S. utilities and states develop their specific set of rules and requirements. These IEEE interconnection standards and standards in several U.S. states are the basis for this section on Technical Issues and Best Practices. The section is divided into Grid Stability and Protection and Equipment Requirements. These practices are only relevant at lower voltages and are effective ways to simplify interconnections for small-scale renewable energy, distributed generation, cogeneration, and combined heat and power facilities.

Sources and For More Information:


Interconnection Guidebook: http://www.energy.ca.gov/distgen/interconnection/guide_book.html Public Utility Commission of Texas: http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf China: http://74.125.47.132/search?q=cache:Abi0-4eRZPUJ:www.inive.org/members_area/medias/pdf/ Inive%255CIAQVEC2007%255CWu.pdf+STUDY+ON+THE+DEVELOPMENT+STATUS+AND+TREND+OF&hl=en&ct=clnk&c d=1&gl=us DSIRE Database: http://www.dsireusa.org/library/includes/type.cfm?EE=1&RE=1 Improving Distribution System Reliability By Means Of Distributed Generation: http://www.cired.be/CIRED07/pdfs/CIRED2007_0070_paper.pdf The NRECA Guide to IEEE 1547: http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf Stability of Power Systems with Large Amounts of Distributed Generation www.diva-portal.org/diva/getDocument?urn_nbn_se_ kth_diva-46-1__fulltext.pdf Supplemental Recommendation Regarding Distributed Generation Interconnection Rules http://www.energy.ca.gov/reports/2000-11 -07_700-00-014.PDF Standard Interconnection Agreements & Procedures for Large Generators http://www.ferc.gov/industries/electric/indus-act/gi/stnd-gen.asp Standard Interconnection Agreements & Procedures for Small Generators http://www.ferc.gov/industries/electric/indus-act/gi/smallgen.asp Standard Interconnection Agreements for Wind Energy and Other Alternative Technologies http://www.ferc.gov/industries/electric/ indus-act/gi/wind.asp

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Grid Stability and Protection Requirements

A. Grid Stability and Protection Requirements


1. Intermittency and Grid Stability
Issue: Renewable energy resources are intermittent energy sources whose power output can vary widely, even within the hour, and potentially cause grid instability. Utility Perspective: A utility must be confident that power needs can be met on a second-by-second basis and therefore, intermittent power sources cannot be relied on to meet load. The utility must still generate or purchase sufficient power to meet peak demand. Developer Perspective: The developer should be able to generate and sell power to the grid when it can. Furthermore, when enough renewable energy facilities are connected to the grid, the likelihood of all of them being offline at the same time diminishes and, thus, at least some percentage of alternative energy facilities could be considered dependable. Furthermore, alternative energy facilities benefit the grid by adding generation and by spreading generation capacity throughout the system, which can help stabilize grid operations. Regulator Perspective: Renewable energy sources are critical to reduce greenhouse gas emissions and improve energy security. However, care must be taken to ensure the transmission grid is stable and electricity supply is not disrupted due to intermittency problems. Best Practices: One way to alleviate the problem of intermittency is to connect alternative energy facilities to the grid to enhance the reliability of the system. On a system with numerous small generating facilities, the loss of one generator will have a much smaller effect on the system. As more facilities connect to the system, intermittency becomes less of an issue. In fact, some countries are dealing quite successfully with the question of intermittency and grid stability. For example, approximately 20% of the Danish electricity consumption is met with wind power and the Danish Wind Industry Association is working to increase that to 35% by 2015. The Danish Wind Industry Association recommends the following three steps to deal with fluctuating supply: Conventional power plants should have a clear incentive to regulate production as the wind changes. Electricity consumption should be flexible, so automatic systems can move consumption to windy periods from less windy periods. Effective short-term markets should efficiently balance wind power in the electricity system.

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Sources and For More Information:


Beyond Free Market Assumptions: Addressing Barriers to Distributed Generation <http://www.energytoday.com.au/docs/CUAC-B eyondFreeMarketAssumptionsFinalReport.pdf>. Danish Wind Industry Association: <http://www.windpower.org/en/futuresupply.htm>. Effect of Large Scale Wind Farms On the Egyptian Power System Dynamics <http://www.icrepq.com/icrepq-08/216-el-sayed.pdf>. Energy Cost Optimization Through The Implementation of Cogeneration and Grid Interconnection. <http://www.cired.be/CIRED07/pdfs/CIRED2007_0004_paper.pdf.> Impact of Renewable Distributed Generation on Power Systems <http://www.pserc.wisc.edu/ecow/get/publicatio/2000public/ CSSAR01.PDF>. Report on Distributed Generation Penetration Study <http://www.nrel.gov/docs/fy03osti/34715.pdf>. System integration of Non-Thermal generation (SYNTER) <www.nottingham.ac.uk/esrnetwork/Systems%20Integration%20of%20 non-thermal.doc>. Wind Energy Forecasting Technology Update: 2004 <http://my.epri.com/portal/server.pt?space=CommunityPage&cached=true&parentname=ObjMgr&parentid=2&control=SetCommuni ty&CommunityID=277&PageID=0&RaiseDocID=000000000001008389&RaiseDocType=Abstract_id>.

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2. Pre-interconnection Studies
Issue: Utilities and developers often disagree over whether a pre-interconnection study is needed to consider the distributed generators impact on the regional power system and the grid as a whole. Utility Perspective: Prior to connecting distributed generators, the utility must conduct a pre-interconnection study to determine if the facility will create any adverse effects on the distribution system and whether any upgrades or additions to the system are needed to interconnect the facility. The cost of these studies should be borne by the developer of the facility because, without its facility, the upgrades and expenses would not be necessary. Simple studies for small generators could be provided for free. Developer Perspective: Pre-interconnection studies are usually prohibitively expensive and can take too much time. There often are no limits to the amount of time a utility can take to complete the study or how much money it will cost. Furthermore, most alternative energy facilities are so small that they would have a negligible effect on the distribution system and thus the study is unnecessary and may be a tactic to block the developer from completing the project. Regulator Perspective: The utility should conduct a study if deemed necessary to ensure system reliability. The developer seeking the interconnection should pay for the study as he is its sole beneficiary. Best Practices: Different states in the United States are taking slightly different approaches, but typically, the type of study required depends on the size of the proposed cogeneration facility. New York For systems of 15 kW or less, utilities are not permitted to charge applicants for completion of the Preliminary Review or the Coordinated Electric System Interconnection Review. For systems exceeding 15 kW, the applicant pays a $350 nonrefundable application fee. This fee can be refunded/ recovered under certain circumstances. The utility has five days to inform the applicant if it has provided all necessary information and then has five more days to finish the preliminary review. If the proposed interconnection is viable, the utility provides a cost estimate for the completion of the Coordinated Electric System Interconnection Review. Texas In Texas, if the proposed site is not on a networked secondary, no study fee may be charged to the applicant if all of the following apply: Proposed equipment is precertified Proposed capacity is 500 kW or less Proposed facility is designed to export no more than 15% of the total load on feeder (based on the most recent peak load demand) Proposed facility will contribute not more than 25% of the maximum potential short-circuit current of the feeder

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Certain aspects of secondary network systems create technical difficulties that may make interconnection more costly. If the proposed site is serviced by a networked secondary, no study fee may be charged to the applicant if Proposed equipment is precertified Aggregate generation, including the proposed system, represents 25% or less of the total load on the network (based on the most recent peak load demand) and either Proposed facility has inverter-based protective functions, or Proposed facility rating is less than the local applicants verifiable minimum load. Otherwise, the transmission and distribution utility may charge the applicant a fee to offset the costs of the interconnection study. The transmission and distribution utility must advise applicants requesting interconnection on secondary networks about the potential problems and costs before initiating the study. Texas also requires that interconnection studies not take more than four weeks to complete and the utility must give the developer an estimate of the cost prior to beginning. The study must include both the costs and benefits of the interconnection to the utility and a copy of the findings must be given to the developer.

Sources and For More Information:


Ohio: <http://www.puco.ohio.gov/emplibrary/Distributed_Generation_Screening_Process.pdf>. New York: <http://www.dps.state.ny.us/08E1018/SIR_Require_11_04.pdf>. Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>.

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3. Unintentional Islanding
Issue: Islanding occurs when a section of the grid with both load and generation is separated from the larger grid. If a facility is located at the end of a long radial feeder and the breakers at the base of the feeder open, the facility and all the customers from the open breaker to the end of the feeder will be islanded. Islanding creates a number of very serious dangers to the system, as a whole, and to the cogeneration facility. Utility Perspective: The biggest concern utilities have about adding cogeneration to their system is unintentional islanding. Utilities must protect against islanding and usually do so by using mechanical relays and transfer switches to automatically isolate a generator from the grid when the grid is de-energized. This also helps avoid damage to the cogeneration facility when it is reconnected to the local grid. Developer Perspective: The cost of mechanical relays and transfer switches is too expensive for small generators and the insistence that they be included prohibits alternative energy facilities from being integrated into the grid. Furthermore, new electronic circuitry can now be integrated into inverter components of the facility at a substantially reduced cost. This equipment is just as effective and there is a functional test for the anti-islanding circuitry and IEEE standards that ensure adequate system protection. Regulator Perspective: To ensure the grids protection, regulators will usually defer to the utilities, as they have the most experience in technical matters of protection. Best Practices: The risk of unintentional islanding can be minimized by using induction generators, by installing proper protective equipment, and by sizing and operating the facility to avoid the situation. (More specific solutions are offered below in the appropriate sections.) Texas To make sure that power is not exported to the grid, without the use of explicit nonexport protective functions, the capacity of the facility must be less than or equal to the customers verifiable minimum annual load. Even when generation levels are below this threshold, anti-islanding equipment may still be required to ensure worker and equipment safety. Avoiding unintended islands is more complicated when the facility supports load beyond the point of common coupling (PCC). Rules in Texas specify a threshold to address these concerns. Facilities cannot generate more than 15% of the total load on a single radial feeder. The total load, in this case, is defined as the maximum load of the feeder over the previous 12-month period. This threshold, expressed in equation form, is as follows: DGexport max 0.15 FeederLoad max As long as the facility meets this criteria, it is assumed that the facility will not cause the complications listed above and it can export power without incurring costly system changes. If a facility exceeds this threshold, a thorough study may be required to determine whether it could cause islanding or adverse power flows.

Sources and For More Information:


Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>. Unintentional Islanding in Distribution Systems with DG. <http://www.iset.uni-kassel.de/dispower_static/documents/highlight028.pdf>.

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4. Synchronization
Issue: In order to reconnect an islanded portion of the grid to the larger system, various parameters of the power on the separated portion must match those on the larger grid. Closing in (reconnecting) two mismatched systems can cause catastrophic damage to equipment. Utility Perspective: Synchronization matches voltage magnitude, frequency, phase rotation, and phase angle of the DG facility with the utility prior to closing the paralleling device. When systems are paralleled out of phase, very high torques in rotating machines can occur, which can damage both the utilitys system and the distributed generator equipment. Out-of-range voltages, particularly low voltages, can cause motors, semiconductors, and controls to malfunction, and may create dangerous situations for utility personnel because they can extinguish mercury vapor and fluorescent lamps. It is imperative that the alternative energy facility can parallel the utilitys system without causing a voltage fluctuation of more than +/-5% at the PCC and can meet the flicker requirements. Developer Perspective: Synchronization is mostly a major concern for synchronous generators. Induction generators may be driven to near synchronous speed by the prime mover before closing the paralleling device, but they will connect very similarly to an induction motor before actually generating a voltage of concern. Most inverters will simply start generating voltage when the power is present on the utility system. Regulator Perspective: Power from the alternative energy facility must be in synch with the utility for safe and reliable operations. Best Practices: When synchronicity is an issue, use automatic synchronization devices instead of manual devices, because manual synchronization requires a highly skilled operator and unsuccessful synchronization can be quite damaging. Types of automatic synchronizers include the following: Synch-check relays check the voltages of the utility and generator and close a contact when the voltages are within certain limits for a particular period of time. These are the least costly and simplest devices to operate and may also be used as a signal to automatically close the breaker at the PCC. Automatic synchronizing relays and electronic transducer combination packages have adjustable ranges to monitor and control the synchronism, frequency, phase or power factor, and the voltage levels of the distributed generator. They can also include dead bus relays. Manual synchronization equipment is very rare and used only on generator equipment that is less than 100 kW or as a backup to an automatic system. Electric power systems over 10 kW that could potentially be islanded and rely on manual synchronization should have, at a minimum, the following equipment: two voltmeters, two frequency meters, and a synchroscope. Both the utility and the generator can monitor the system with one of the volt and frequency meters. The synchroscope will check the phase angle between the two systems and ensure they are in phase. Synchronizing lights may substitute for the synchroscope.

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The California Interconnection Guidebook requires the following: If the short-circuit current ratio (SCCR) 0.05 (small relative to the size of local distribution system), then the generating facility can use either manual or automatic synchronizing methods. If the SCCR > 0.05 (large relative to the size of the local distribution system), the generating facility must use automatic synchronizing methods. In this case, the generating facility must be equipped with loss of synchronism protective functions. California does not allow manual synchronizing when the generating facility is large, compared to the local distribution system, because of the risk of severe voltage problems during synchronization that has the potential to damage equipment.

Sources and For More Information:


California: <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. The NRECA Guide to IEEE 1547: <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Synchronizing Renewable Energy Sources in Distributed Generation Systems. <http://www.icrepq.com/full-paper-icrep/334-ramos. pdf>.

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5. Isolation Devices and Backfeed


Issue: Backfeed occurs when a portion of the electrical system is cut off from a utility but a nonutility generator is still feeding power into the system. Utility Perspective: The facility must be able to disconnect every power source from the grid. The larger the generation source, the greater the danger and the more important it is that the generator and its load can be separated from the grid. Some installations have fuses or breakers that can be energized from two directions, so an isolation device, usually a disconnect switch, must be present. An isolation device with a visible break that is lockable and readily accessible must be located between the facility and the utilitys system. Simply informing the utility that the generator is offline (not producing power) during an outage is not sufficient protection. A lineman working on the system, who believes it is completely de-energized, could easily be injured or killed. In this way, the utility can guarantee that no power can flow from that generator while utility personnel are performing maintenance or other activities that require a de-energized system. Without this ability to disconnect, a generator can inadvertently inject power into the grid and backfeed sections of the grid that need to be deenergized. Backfeed jeopardizes utility equipment, personnel, the public, and other operating sources. Furthermore, the disconnect equipment should be labeled to warn utility personnel that the load-side contact may still be energized even if the switch is in the open position. This isolation device and warning labels are critical for employee safety and safe work practices. Since backfeed poses a real and serious risk, protection devices built into alternative energy facilities are often not recognized by the utility and utility personnel are not usually comfortable with using such equipment in place of tried and true methods. Developer Perspective: The isolation device is not needed when an inverter is installed. Inverter technologysuch as the nonislanding invertercan now ensure that the generator is not able to produce electrical energy, if the utilitys line leading to the inverter is not energized. This technology negates the need for an isolation device. Regulator Perspective: Energy from distributed resources is critical to energy diversity, but all safety measures must be in place to ensure worker safety. Best Practices: Several solutions to the problem of backfeed exist, including manual disconnect switches, direct transfer trips, automatic bus transfer switches, and nonislanding inverters. A manual disconnect switch that can be locked is an effective way to ensure the system is de-energized beyond the PCC. The direct transfer trip of the grid tie can remotely disconnect multiple sources at one time. The automatic bus transfer switch can be used to detect a loss of power beyond the PCC and open switches between the generator and the utility to avoid transferring power to the utilitys network beyond the PCC. Nonislanding inverters are a new technology that have performed well thus far, but do not yet have a long track record of reliability. Some utilities do not require an isolation device if the facility is using nonislanding inverters. For projects less than 10 kW, such as small PV units, the isolation device requirement can be met by a plug (or twistlock plug), if it can be plugged back into the system only by utility personnel.
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For larger units without the new inverter technology, an isolation deviceusually an electrical disconnect switchis required and should adhere to the following guidelines: The distributed resource (DR) owner should use an external, visible, gang-operated disconnect switch that meets all applicable standards and is readily accessible, at all times, for operation and locking by the utility. The switch should be externally operable without exposure to live parts. A power-operated switch should also have manual capabilities (can be opened manually). The disconnect switch should be within 10 feet of the PCC or between the DR and the PCC with a map showing the location of the switch permanently mounted near the PCC. The switch must be rated for the DR facilitys voltage and current requirements. The switch must be clearly marked Disconnect Switch in large permanent letters. If the switch is energized from both sides, it must have a marking indicating such. The switch should be installed, owned, and maintained by the owner of the DR facility. The operation of this switch is the utilitys responsibility. However, the utility must give appropriate notice defined in its contractto the facility prior to operation. If the utility concurs, a draw-out circuit breaker can be used as an isolation device if it has pad locking at the draw-out position. In Texas, various types of disconnecting devices are required.

Distributed Generation Interconnection Requirements


Closed Transition Feature PUCT Rule Reference 10 MW 25.212(g) SinglePhase Three-Phase

Capacity 50 kW 10 kW 10 kW 500 kW 25.212(d) 25.212 25.212 (e)(3)(A) (e)(3) (B)

500 kW 2 MW 25.212 (e)(3)(C)

2 MW 10 MW 25.212(e) (3)(D)

Interrupting devices (capable of interrupting maximum available fault current) Interconnection disconnect device (manual, lockable, visible, accessible) Generator disconnect device
either redundant or listed devices.

[4]

X X

X X

X X

X X

X X

X X

Notes: kW = kilowatt; MW = megawatt; PUCT = Public Utility Commission of Texas; X = Required feature; [4] = Systems exporting shall have

Source: PUCT Distributed Generation Interconnection Manual 05/01/0, p. 3-3.

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Sources and For More Information:


Consequences of Fault Currents Contributed by Distributed Generation. <http://www.pserc.org/cgi-pserc/getbig/publicatio/ reports/2006report/nimpitiwan_s20_report.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>.

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6. Power Quality
Issue: Power quality is a major technical concern for utilities and their customers. Clean power is necessary for the proper operation of electronic equipment and appliances. Dirty power can damage equipment, cause equipment to malfunction or fail, and/or shorten equipment life. Some power quality issues include transients, harmonics, power factor problems, direct current (DC) injection, and voltage fluctuations. Transients are short, nonrepeating fluctuations in voltage or current. These are typically created by switching or other momentary disruptions. Harmonics, on the other hand, repeat in each cycle. Harmonics are typically created by nonlinear loads that switch current on and off. This discontinuous current draw is independent of the voltage and creates overlapping sinusoids that can deform the fundamental waveform.

Power factor is the ratio of true electric power (watts) to apparent power (kilovolt-ampere [kVA]). A power factor of less than (or more than) 1 means the current and voltage waveforms are out of synch. DC injection occurs when direct current is injected into an alternating current (AC) system by nonrotating generators. This can damage transformers. The problem can be prevented by proper inverter design. IEEE 1547 limits DC injection to 0.5% of the inverters current output. Voltage fluctuations reveal themselves in the form of flicker, or the periodic flickering of incandescent light sources. This typically occurs when cogeneration plants start up or shut down. IEEE 1547-2003 allows for a 5% voltage fluctuation, but also notes that regardless of the standards, cogeneration operations should not create objectionable flicker for other customers. Utility Perspective: Utilities are concerned about voltage and frequency disturbances, voltage flicker, and waveform distortion, so they require that cogeneration facilities install over/undervoltage and over/underfrequency relays and other protective devices. Developer Perspective: All these protective devices are unnecessary and too costly. New technology, notably in the generators themselves, meets all power quality requirements. Inverter manufacturers and others design their products according to IEEE standards (519-1992). Utilities simply do not have the knowledge or experience with the new equipment to recognize it is safe to interconnect to their system without additional protective devices. Regulator Perspective: Power quality must be maintained at reasonable levels.

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Best Practices: Aspects of power quality, such as harmonic distortion, voltage sag, and flicker, are discussed in more detail in their appropriate sections. Overall, though, two points are repeatedly made in interconnection plans. First, cogeneration facilities shall in no way degrade the reliability or power quality of the distribution system. Second, it is the utilitys responsibility to make sure the cogeneration facility is connected in a way that will prevent power quality problems. The utility has the obligation to serve all its customers, and it must therefore make sure that generators connected to their system do not interfere with the power quality or operation of the system. IEEE Standard 929-2000, Recommended Practice for Utility Interface of Photovoltaic (PV) Systems provides guidance to insure compatibility of photovoltaic equipment that is connected in parallel with the electric utility. By compatibility, IEEE means ensuring personnel safety, equipment protection, power quality, and utility system operation.

Sources and For More Information:


California: <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2115.pdf>. Energy Quality in Voltage, Current and Power Signals. <http://www.icrepq.com/icrepq-08/228-yebra.pdf>. Power Quality Impacts of Distributed Generation, Technical Report, <http://my.epri.com/portal/server.pt?space=CommunityPage&cac hed=true&parentname=ObjMgr&parentid=2&control=SetCommunity&CommunityID=277&PageID=0&RaiseDocID=000000000001 008507&RaiseDocType=Abstract_id>.

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7. Monitoring Provisions
Issue: If an alternative energy facility is exporting power to the utility, utilities must monitor the status of the generator to properly operate the system and to protect workers. Monitoring is less necessary when the facility does not export power to the utility and when reverse power relaying and/or power inverter logic prevents power export. Specific types of monitoring equipment will be discussed in their appropriate sections below (e.g., frequency, voltage, and harmonics). Utility Perspective: Facilities must be monitored for their connection status, real power output, reactive power output, and voltage at the point of connection to ensure personnel safety and to avoid operating problems, especially if the facility is exporting power to the utility. Developer Perspective: Utilities often insist on performing the monitoring themselves and since there is a fee associated with the monitoring, it increases the cost to develop the project. Furthermore, utilities are not always familiar with the equipment and insist that familiar and more expensive monitoring equipment be used. Utilities do not realize that most modern alternative energy facilities have multifunction microprocessor-based control systems with the capacity to log and store data around fault conditions. Regulator Perspective: Monitoring of equipment is important to maintain system integrity and is included in the contract or tariff between the developer and the utility. Best Practices: No monitoring is required for units under 200 kW. Units between 200 kW to 1 MW do not require monitoring if protective relaying prevents the facility from injecting energy into the utilitys network. All units over 1 MW require monitoring. The monitoring arrangement should include remote terminal units that provide supervisory control and data acquisition (SCADA), communications equipment, telephone circuit protection equipment, transducers, potential and current transformers, electrical energy and demand information, reactive power information, voltage information, and alarms. The monitoring should display two seconds of data from before and after any fault and should keep data for the past 10 fault conditions. The utility should also be able to receive signals for remote monitoring of the isolation device status and normal voltage and frequency levels and notice that the distributed generator is unable to connect to the utility network.

Sources and For More Information:


Distributed generation: Its all a matter of control <http://pepei.pennnet.com/Articles/Article_Display. cfm?Section=CURRI&ARTICLE_ID=183681&VERSION_NUM=1&p=6>. The NRECA Guide to IEEE 1547 (page 37). <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. IEEE P1547.3: <http://grouper.ieee.org/groups/scc21/1547.3/1547.3_index.html>. Power Quality and Equipment Monitoring in Distributed Generation of Multiple Wind Farm Sites for Hydro-Qubec. <http://www. cooperpower.com/library/TheLine/pdf/08_08/Line_08_08_HQ.pdf>.

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8. Frequency
Issue: Maintaining frequency within acceptable limits is critical to the proper operation of the grid. Higher or lower frequencies can lead to improper operation of customer equipment. Programmable logic controllers can malfunction and cause dangerous and/or costly problems in plants. Changes in frequency even for small parts of AC waveform can cause catastrophic damage to transformers and capacitors, leading to their failure. In AC systems, the impedance of nonlinear loads is dependent on frequency. Therefore, changes in frequency can change system loading and therefore affect voltage levels. Utility Perspective: All sources of power must be able to maintain proper frequency levels. To ensure that proper frequencies are maintained, utilities use under/overfrequency sensing devices to de-energize circuits that threaten system frequency stability. Developer Perspective: Facilities that are less than 30 kW have less impact on system operations and reliability. These facilities can also quickly disconnect from the utility. Furthermore, facilities over 30 kW actually improve the utilitys reliability and should receive some credit for this function. Regulator Perspective: Frequency changes that can affect system operation or customer equipment must be avoided. Best Practices: In New York, the cogenerating facility must have, as a minimum, an automatic disconnect device that is operated by over/undervoltage and over/underfrequency protection. For three-phase installations, the over/undervoltage protection should be included for each phase and the over/underfrequency protection on at least one phase. All phases of a generator or inverter must disconnect when voltage or frequency problems are detected. In general, frequency and voltage trip pickup settings for induction generators and static power converters can be relaxed by the utility if they create too many nuisance trips for the facility. Frequency trip points should be adjustable in increments, with a setting resolution of 0.5 hertz (Hz) or better. In Texas, cogenerating units must not deviate more than +0.5 Hz or 0.7 Hz from a 60 Hz base. The generator must automatically disconnect its equipment from the utility system within 15 cycles if these limits cannot be maintained. The customer may reconnect when the utility system voltage and frequency return to normal range and the system is stabilized. Trip times for frequency fluctuation are based on a 60 Hz system and the assumption that there is a relatively low penetration of alternative energy facilities. The generator should follow the voltage and frequency imposed by the utility and should disconnect under abnormal conditions as defined in the table below. Since the generator is not regulating voltage or current, the allowable operating ranges are relatively wide. If the facility is separated from the utility (tripped offline) due to a voltage or frequency issue, the facility can reconnect once the utility voltage and frequency have returned to normal and have stabilized for two minutes (or a shorter time if such an agreement is in place).

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Voltage/Frequency Disturbance Delay & Trip Times


Range (Frequency in Hz) <59.3 59.3 60.5 >60.5 0.25 Trip Time 0.25 15 (Trip) Normal Operating Range 15 (Trip)

Source: Public Utility Commission of Texas Distributed Generation Interconnection Manual 05/01/02, p. A7-5.

Sources and For More Information:


New York: <http://www.dps.state.ny.us/08E1018/SIR_Require_11_04.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Texas: <http://www.puc.state.tx.us/rules/subrules/electric/25.212/25.212ei.cfm> and <http://www.puc.state.tx.us/electric/business/dg/ dgmanual.pdf>.

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9. Voltage
Issue: On any utility grid, set voltage levels must be maintained to prevent damage to utility and customer equipment. Current levels rise or fall depending on the demand for power, but voltage levels are constant. Utilities have equipment to detect and de-energize circuits that have voltages above or below acceptable levels. Utility power systems are designed to deliver power from main circuits to outlying areas. When cogeneration plants are added, power may flow back along feeders. To address this fundamental change, detailed engineering analysis may be needed. For example, voltage regulators are placed on lines to control voltage levels, which typically decline the further the line extends away from a substation. But, if a cogeneration plant is injecting power into the utilitys system, voltage levels near the end of a line may be higher. As a result, voltage protection schemes may need to be modified to protect the utility and maintain voltage levels. Utility Perspective: Correct voltage levels must be maintained. Voltage sensing equipment is used to identify voltage problems. Developer Perspective: Small generating plants and plants that never or rarely export power to the utility will have minimal or no effect on the utility. Complicated studies can be expensive and delay installation of generator facilities. Regulator Perspective: Proper voltage levels must be maintained, but studies and system modifications are not needed in all situations. Best Practices: There are several ways to look at the issue of voltage stability. The National Rural Electric Cooperative Agency (NRECA) Guide to IEEE 1547 focuses on voltage set-points, voltage monitoring, and concerns about nuisance tripping. If other fault detection equipment is in place, the abnormal voltage protection trip times can be set longer than default values, which will reduce nuisance trips. Voltage Set-Points Voltage set-points can be fixed or field-adjustable. Field-adjustable set-points give the utility operator some discretion. Set-points cannot be changed or modified by either party at any time. Distribution resources with a peak capacity of less than or equal to 30 kW will have fixed or field-adjustable setpoints. Distribution resources more than 30 kW will have field-adjustable set-points.

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Voltage Detection The voltages shall be detected at the PCC, if any of the following occurs: Aggregate capacity of the facility is less than or equal to 30 kW; The DRs interconnection equipment is certified to pass a nonislanding test for the utilitys system; or If export of real or reactive power is not allowed and the aggregate capacity is less than 50% of the utilitys minimum annual integrated electrical demand for a 15-minute time period. Self-excited induction generators should have an overvoltage trip level below the equipment insulation level with an instantaneous trip. For transformers connected to the utility system by grounded wye-wye or single-phase installations, phase to neutral voltage shall be detected. For all other transformer interconnections, each phase-to-phase voltage shall be detected.
Interconnection Type Single-phase Three-phase, three-wire Four-wire grounded Three-phase, four-wire grounded Measure Phase-to Ground X X X Measure Phase-to-Phase X

Three-phase facilities must have over- and undervoltage detection on all three phases. In Australia, renewable energy facilities may have more latitude when it comes to voltages at the PCC. Steady-State Voltage The connection of wind power generation to a transmission network can affect voltage levels at the point of common coupling. Utilities require that this steady-state voltage be within certain percentage limits of the normal voltage to ensure that sensitive equipment not fail, malfunction or trip. In Australia, these steadystate limits range from 6% to 10%, depending on the value of the normal voltage and whether or not the location is rural, according to the Distribution Code 2006 and the Victorian Electricity System Code. There are a number of methods for controlling steady-state voltage, which include: on-line tap changing (OLTC) transformers; switched capacitors and reactors to provide reactive power support; or flexible alternative current transmission system (FACTS) devices, such as static VAr compensators (SVCs), synchronous condensers or static compensators (STATCOMs). As wind power generation output can vary widely and at times relatively quickly, the impact on local voltages needs to be managed within allowable ranges, and traditional tap changer transformers are generally too slow to compensate. (Capacity of the Victorian Electricity Transmission Network to integrate Wind Power, prepared by Vencorp December 2007, p. 53.) In Texas, trip times for frequency fluctuation are based on a 60 Hz system and the assumption that there is a relatively low penetration of alternative energy facilities.

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The generator should follow the voltage and frequency imposed by the utility and should disconnect under abnormal conditions as defined in the table below. Since the generator is not regulating voltage or current, the allowable operating ranges are relatively wide. If the alternative energy facility is separated from the utility (tripped offline) due to a voltage or frequency issue, the facility can reconnect once the utility voltage and frequency have returned to normal and have stabilized for two minutes (or a shorter time if such an agreement is in place).

Voltage/Frequency Disturbance Delay and Trip Times


Range Percentage <70% 7090% 90105% 105110% >110%
[1] Voltage shown based on 120V nominal. , [2] Trip times for voltage excursions were added for completeness by the Public Utility Commission of Texas Project No. 22318 Precertification Working Group as the intent of 25.212. Source: Public Utility Commission of Texas Distributed Generation Interconnection Manual 05/01/02, p. 3-2.

Trip Time[2] Voltage[1] <84 84108 108126 126132 >132 Seconds 0.166 30.0 & 0.166 Normal Operating Range 30.0 & 0.166 0.166 1800 (Delay) & 10 (Trip) 10 (Delay) & 10 (Trip) Cycles 10 (Delay) & 10 (Trip) 1800 (Delay) & 10 (Trip)

Sources and For More Information:


Capacity of the Victorian Electricity Transmission Network to Integrate Wind Power, <http://www.vencorp.com.au/index. php?action=filemanager&folder_id=926&pageID=7790&sectionID=8246>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>.

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10. Voltage Ride-Through Capabilities for Wind Generation


Issue: Ride-through is the ability of a device or system (in this case, a generating facility) to continue operating despite experiencing a voltage excursion due to a system fault. In the past, the resiliency of a generating facility was not a big issue, since alternative energy facilities provided only small amounts of power to the grid. However, facilities have become larger and now can supply more substantial power, creating the need for utilities to be sure that minor disruptions in power will not trip generating facilities offline. Utility Perspective: Utilities must have some level of confidence that large facilities will not be lost unnecessarily during fault conditions. Careful analysis of a large part of the utility grid may be necessary to properly coordinate protective relays and prevent facilities from tripping offline unnecessarily. Developer Perspective: If it is left up to the utilities, there will be no end to the number of studies required to connect a generating plant to the system. Small generating plants, whether they can ride through significant faults or not, will have little impact on the grid if they trip offline and therefore should not be subject to expensive and timeconsuming studies. Regulator Perspective: Ride-through studies may be warranted, if the loss of a large facility could have a significant impact on grid stability. Best Practices: A wind generating plant shall be able to remain online during voltage disturbances up to the time periods and associated voltage levels set forth in the standard below. The LVRT [Low Voltage Ride Through] standard provides for a transition period standard and a post-transition period standard. (United States of America Federal Energy Regulatory Commission, 18 CFR Part 35 [Docket No. RM05-4-000 Order No. 661-A], Interconnection for Wind Energy, Appendix B)

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Sources and For More Information:


ERCOT: <http://www.nrel.gov/wind/systemsintegration/pdfs/2005/muljadi_wind_ride_through_capability_predictions.pdf>. Federal Energy Regulatory Commission: <http://www.ferc.gov/industries/electric/indus-act/gi/wind.asp#skipnavsub>. IEEE: <http://www.uni-due.de/ean/downloads/papers/feltes2008b.pdf>. Western Electricity Coordinating Council:

<http://www.wecc.biz/documents/library/TSS/Voltage%20Ride-Through%20White%20Paper_6-13-07.pdf>.
Wind Power and Grid Reliability. <http://www.amsc.com/newsroom/documents/AMSC_Wind%20Power%20and%20Grid%20 Reliability_0208.pdf>.

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11. Area Utility System Fault Detection and Clearing


Issue: Alternative energy facilities can have a considerable impact on the utility systems fault-clearing capabilities, depending on the size and type of the facility. Once an alternative energy facility is connected to the utilitys circuit, it is capable of supplying current to a fault in the utilitys circuit. During fault conditions, it is essential that the facility be disconnected from the utility. There are four types of faults: single-phase-to-ground, phase-to-phase, double-phase-to-ground, and bolted threephase. The larger the fault-current contribution, the easier the fault is to detect. It is possible for a fault to occur that draws little power from the cogeneration facility. These types of faults may go undetected and that is why it is critical that the cogeneration plant be carefully integrated into the utilitys grounding system. Furthermore, if the alternative energy facility contributes fault current to the utility, the utilitys coordination of protective devices could be adversely affected and the fault current could damage equipment. It may be necessary to reconfigure protection schemes far beyond the point of common coupling (PCC). There are three main ways a facility can detect and respond to faults: local detection of the utilitys fault at the facility and isolation of the facility; remote detection of the utilitys fault and isolation of the facility via direct transfer tripping; and local detection of the fault due to the utilitys response to the fault and isolation of the facility. The manner in which the alternative energy facility can detect a fault depends on the transformer winding configuration between the alternative energy facility and the utility. The most common receiving transformer connections are either delta-grounded wye or floating wye-delta. These connections do not contribute directly to primary ground current and require potential transformers or another source of ground current to detect ground faults. Utility Perspective: The alternative energy facility must stop energizing a circuit when a fault (including a ground fault) is detected, in order to protect the utilitys equipment and personnel and maintain system reliability. Developer Perspective: The alternative energy facility will cease to energize the utilitys lines when a fault is detected, but should not be responsible for responding to faults that cannot be detected, such as a low impedance fault on an adjacent feeder that causes a perceptible voltage drop. Furthermore, most utilities fault-detection devices detect most of their own faults and can even detect persistent faults in the cogeneration facilitys circuits, so additional protection is not necessary. Regulator Perspective: System reliability and safe work practices must be maintained. Best Practices: The alternative energy facility must have adequate protection and control equipment. At a minimum, this should include an interrupting device with sufficient capacity to interrupt the maximum available fault current at the location, sized to all standards and installed according to all codes.

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The various fault protection devices and the coordination between them should be reviewed to minimize the amount of the system that must be isolated for faults. Coordination works best when the protective devices have similar operating characteristics. If the facility relies on the utilitys fault detection devices, communication from these devices to the facilitys interconnection system is critical and can be achieved with a dedicated communication channel, like the ones used in a direct transfer trip scheme. However, for small facilities with low fault-current contributions, the cost of adding a dedicated communication channel is prohibitively expensive. In this case, the cogeneration facility can use an indirect detection method. The utility detects a fault and islands the cogeneration facility and the fault. The alternative energy facility then detects the island and stops energizing the circuit. The main difference between the direct and indirect fault detection is the time lag (up to two seconds) for the island or open-phase detection. Generator/Inverter The type and setting of the interrupting device depend on the nature of the alternative energy facility, the type of technology used, and the method of integration with the utilitys system. Synchronous Interconnections A synchronous generator requires special protective equipment to isolate it from the utility under fault conditions. Synchronous generators can produce fault currents for extended periods of time and they can be as high as six times the generator full-load current. Protective relays to detect multiphase faults should be located on the generator or generator breaker. The relays can be either voltage-controlled or voltage-restrained overcurrent relays. Induction Interconnections Whether an inductor can provide fault current during a sustained fault depends on how it is configured and excited. If the only source of excitation is the utility system, the induction generator will not be able to produce phase fault current, but may be able to supply phase-to-ground current. If the VArs (reactive volt-amperes) are supplied by the induction generator, it may supply phase fault current and will likely require protection like that used for synchronous generators. Inverter Interconnections Inverters are unable to supply excessive currents under fault conditions, and fault detection schemes that rely on overcurrent principals are not effective. The facilities with inverter interconnections must use other detection schemes to isolate from the fault such as voltage-sensing circuitry within the inverter or detection of off-frequency operation.

Sources and For More Information:


Effect Of Adding Distributed Generation To Distribution Networks Case Study 3: Protection coordination considerations with nverter and machine based DG. <http://canmetenergy.nrcan.gc.ca/fichier.php/codectec/En/2006-147/2006-147e.pdf>. Impacts Of Distributed Generation On Earth Fault Protection In Distribution Systems With Isolated Neutral. <http://www.cired.be/CIRED07/pdfs/CIRED2007_0107_paper.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. SRP: <http://www.srpnet.com/electric/pdfx/gen_guidelines.pdf>.
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12. Faults and Reclosing Coordination


Issues: Utilities often use automatic reclosing devices such as reclosers and circuit breakers to limit the disruption to customers. Since most faults on the overhead distribution circuits are temporary, they can normally be cleared quickly if the affected circuit is quickly disconnected from the system. When the affected area is de-energized, any arcing created by the fault will extinguish and service can be quickly restored. It is critical that the alternative energy facility quickly stop energizing the affected circuit prior to reclosure by the utility to ensure the fault completely clears, to avoid out-of-synchronism conditions, and to limit fuse trips and equipment damage. Coordination is thus critical to prevent damage to both the utilitys and alternative energy facilitys equipment. Reclosing is coordinated when one or more of the following are met: The alternative energy facility is designed to stop energizing the utility system before reclosing. The utilitys reclosing device will not begin until the alternative energy facility has stopped energizing the system. The voltage phase-angle separation magnitude across the isolation device of the alternative energy facility is less than one quarter of a cycle when reclosing, such as through a synchrocheck function in the relaying scheme. Utility Perspective: Alternative energy facilities on the utilitys distribution network can energize it and may interfere with the attempts to reclose and restore the circuit, which could lead to a much longer and larger outage for consumers. An out-of-phase reclose can lead to Severe electromechanical torques that can damage equipment; Severe transient overvoltage surge on the feeder which can lead to a failure of surge arresters and customer surge protectors, and customer load device damage; and Large magnetic inrush currents in transformers and motors connected to the feeder, which can cause unwanted operation of fuses and circuit breakers in the utility and customer systems. The installation of distributed resources negatively impacts normal reclosing practices; however, it is not possible to change these practices without lowering the level of service to customers. The only way to integrate distributed resources is to modify the system, and the developer should pay for these modifications. Furthermore, energizing an area the utility de-energized could jeopardize personnel safety. The utility faces an additional problem of liability for damage to consumers equipment and reduced reliability. Developer Perspective: Utilities have different reclosing practices and the timing of the reclosing can vary widely. The lack of standardization can lead to uncertainty when designing the DR facility and, depending on the type of reclosing device, could lead to damage of the generating equipment. The faster the reclosing device operates, the more impact it will have on the alternative energy facility. Many utilities insist the alternative energy facility pay for unnecessary and expensive modifications to their systems, particularly with reclosers and protection, prior to interconnecting. Distributed resources impact on the utility depends on the size and type of the unit. Small units will have limited to no impact on the utility and onerous and expensive protection schemes should not be required. Regulator Perspective: Coordination of protective devices, like reclosers, is imperative to protect the utilitys, developers, and customers equipment.
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Best Practices: IEEE 1547 requires that the alternative energy facility must stop energizing any utility circuit to which it is connected, if the utility de-energizes the circuit. This requirement allows the alternative energy facility to ignore faults seen on other circuits and relieves it from responding to faults the utility does not see. Synchronous Interconnections If the fault involves multiple phases, the synchronous interconnections can have fault currents for extended periods of time. Induction Generators Induction generators will usually cease to produce current during a fault due to the loss of VArs. Transfer Trips If the control devices at the distributed resource cannot separate from the feeder prior to the feeder reclosing, additional protection may be required. Direct transfer trips, undervoltage permissive relaying at the feeder breaker, or automatic line sectionalizing devices can all be used. Synchrocheck relaying is another option; however, it can increase the reclosing time, so it might not be a good option for all facilities. Feeder Reconfiguration Many utilities use loop designs for their feeders by joining two feeders with a normally open recloser. This configuration creates problems when connecting distributed resources as coordination must now be maintained at all feeders, raising the price for the developer. One way to avoid the additional cost, while protecting feeders, is to prohibit the facility from generating on the alternate feeders. Reclosing Scheme Modification Utilities can modify their reclosing schemes to ensure the alternative energy facility has been isolated prior to reclosing. One way to do this is by controlling the circuit breakers and reclosers by monitoring the voltage on the load side of these devices. In this way, the utility can determine if voltage is present and delay the reclose until it detects next-to-zero voltage. Voltage monitors are necessary only if the alternative energy facility could possibly energize an unintentional island prior to the first attempt to reclose. A study will be needed to determine the utilitys ratio of peak to minimum load to compare it with the size of the alternative energy facility. In general, rural lines in the United States typically have a 5:1 ratio of peak to minimum load, suburban lines are 4:1, and urban lines are 3:1. The utility will then apply a safety factor so that the remaining load isolated with the alternative energy facility is two to three times more than the maximum generation, which will lead to rapid overload of generation and operation of protection.

Sources and For More Information:


California Interconnection Guidebook. <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2134.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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13. Grounding
Issue: Incorrect grounding can cause overvoltages or disrupt the coordination of the ground fault protection of the utilitys system. The concern is that during temporary islanding conditions, the generating facility may have damaging phase-to-ground voltages during the time the island forms and when it is detected and de-energized by the facility operator. If a generation island that serves customers on a faulted system develops, customers on unfaulted phases could see massive voltage increases, which could damage customer equipment. Utility Perspective: Utilities also want to be sure the cogeneration facility can detect ground faults and avoid resulting problems. Developer Perspective: An interconnection that is effectively grounded can significantly desensitize the ground fault protection on the utility distribution system. Regulator Perspective: Proper and coordinated grounding schemes are necessary to ensure safe and reliable operation. Best Practices: Grounding practices can be quite complex, but there are several good sources of information. The Application Guide for Distributed Generation Interconnection: 2006 Update, The NRECA Guide to IEEE 1547 discusses grounding at length. Some recommendations follow. For multigrounded neutral systems, all facilities large enough to sustain an island must be an effectively grounded source, as this design will limit voltage swells during a fault. For interconnections to primary feeders of three-wire grounded or ungrounded systems, there should be no metallic path to ground from the primary feeder except through suitably rated surge arresters, high-impedance devices used only for fault detection purposes, or both. For installations with both parallel and isolated operating modes, the grounding system should be designed to be effective in both modes as per IEEE 446-1995. Consolidated Edisons Handbook of General Requirements for Electrical Service to Dispersed Generation Customers also provides specific guidelines on pages 21 and 22: In order to assess the generators grounding as it appears to the [utilities] distribution system the generator grounding design must include details describing the neutral grounding arrangement of the generator and the winding configuration/grounding arrangement of any interface transformers. In cases where the customer wishes to use its existing step-down transformer that has been serving their load as the interface to the [utility] distribution system, it is important to recognize that an existing transformer that is perfectly suitable for serving load at a site may not always be satisfactory to serve as a generator interface transformer because it may not provide proper grounding with respect to the company distribution system. The installation of a generator at a customer site may necessitate changing out the existing transformer with a new transformer that has appropriate grounding or adding a second transformer that is meant just for the generator.

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Another important consideration is that the generator installation, depending on where it ties into the customers system, will need to provide grounding that complies with all applicable requirements of the National Electrical Safety Code (NESC), National Electric Code (NEC) and the [utility]. The proper method of generator system grounding to be used with a particular power system interconnection point is unique for each installation. Table [below] indicates the [utilitys] distribution system grounding methods.

Consolidated Edisons System Grounding Methods


System Nominal Voltage* 120 / 208 208Y / 120 265 / 460 480Y / 277 2,400 / 4,160 4,160Y / 2,400 13,800 27,000 33,000
*Refers to transformer secondary side. **Transformer wye neutral grounded via reactor. Source: Handbook of General Requirements for Electrical Service to Dispersed Generation Customers File: Application And Design Manual No. 4 Field Manual No. 16, Section 4, p. 74.

Phase / #Wire

Transformer Connection Primary / Secondary Delta / wye-ground Delta / wye-ground Wye-ground / wyeground Delta/ Wye** Delta / Wye** Delta / Wye **

Grounding Method Multigrounded Solid neutral Multigrounded Solid neutral Multigrounded Solid neutral Unigrounded Unigrounded Unigrounded

3 Phase / 4 Wire 3 Phase / 4 Wire 3 Phase / 4 Wire 3 Phase / 4 Wire 3 Phase / 4 Wire 3 Phase / 4 Wire

Sources and For More Information:


Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2134.pdf>. The NRECA Guide to IEEE 1547. (pages 22-24): <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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14. Momentary Paralleling Allowed


Issue: Momentary paralleling occurs when a customers load is transferred from the utilitys system to the backup generator or vice versa. During the transfer, the load is momentarily supplied by both sources. This is done to ensure that power is continuously supplied to the load. For example, a facility with cogeneration capabilities might want to run the generator to lower its peak and switch to its own generation. Utility Perspective: Some facilities may not require additional protective equipment to allow momentary paralleling. Furthermore, the generator must provide all necessary equipment and procedures to eliminate the risk of long-term paralleling, unless the generator already has in place equipment to do so safely. Developer Perspective: Momentary paralleling should be permitted. Regulator Perspective: The technical issues concerning momentary paralleling should be worked out as part of the pre-interconnection study. Best Practices: While system protection during paralleling is required, it does not have to be as rigorous as other system protection schemes, as long as paralleling is limited to one second or less. For example, regulations in Texas clearly state that paralleling requirements do not apply to paralleling that occurs for only a brief period of time.

Sources and For More Information:


Conectiv: <http://www.delaware-energy.com/Download/NEM.pdf>. Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>.

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15. Protection from Electromagnetic Interference


Issue: Hand-held transceivers such as cell phones used near a static protective relay can produce high field-strength electromagnetic radiation that can affect the relays performance. Utility Perspective: All static protective relays should be able to withstand electromagnetic interference of 35 volts per meter as stated in IEEE Std C37.90.2-1995. The tests should be applied to all interconnection system equipment with protective or control components such as relays, programmable logic controllers, and computers. Developer Perspective: Standard equipment already meets these requirements. Regulator Perspective: Equipment used by the cogenerating facility must meet these standards. Best Practice: When designing equipment for protection against electromagnetic interference, use discrete frequency steps throughout the test frequency range as an alternative to continuous sweeps of the pertinent frequencies.

Sources and For More Information:


The NRECA Guide to IEEE 1547 (pages 43-44): <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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16. Surge Withstand Performance


Issue: Voltage and current surges in AC power circuits can cause operational problems and failures in systems and equipment. Surge voltages occur from lightning on the power system and system switching transients. More sensitive equipment and technologies such as semiconductor devices have become much more common in recent years, leading to greater concern over the ability to withstand surges. Furthermore, newer technology inverters based on pulse-width modulation can set up standing waves with reflected harmonics from the operation of the inverter (the reflections are additive). These inverters operate at much higher frequencies, which create the standing waves that have been known to cause inverters and other equipment to fail. Utility Perspective: The alternative energy facilitys interconnection system must be held to the same standard of performance as generators, protective relaying, and other electrical equipment to protect the utilitys distribution network and equipment. Developer Perspective: Costs to install alternative energy facilities should be kept to a minimum. Regulator Perspective: Reliability must be preserved. Best Practices: Several steps are needed to address potential problems caused by surges. First, the system (including the alternative energy facility) should be designed so harmonics do not cause voltage/current spiking. This can be accomplished by changing the operating frequency of the inverter, or applying filters, capacitors, or inductors to change the system tuning. Second, the alternative energy facility and utility system must be properly protected from direct and nearby lightning strikes. Third, switching transients are created in numerous ways and result in surges of various intensities. The owner of the equipment being switched is responsible for system protection. Most states require that facilities meet existing ANSI/IEEE standards. For example, Consolidated Edisons Handbook of General Requirements or Electrical Service to Dispersed Generation Customers states on page 19: Equipment rated less than 1000 volts shall be tested in accordance with the Guide on Surge Testing for Equipment Connected to Low Voltage AC Power Circuits, ANSI/IEEE C62.45, to confirm that the surge withstand rating is capability is satisfied for the products surge level rating as defined in Recommended Practice on Surge Voltages in Low Voltage AC Power Circuits, ANSI/IEEE C62.41.2. Equipment rated greater than 1000 volts shall be tested in accordance with manufacturer or system integrators designated applicable standards. For equipment signal and control circuits use Standard Surge Withstand Capability (SWC) Tests for Protective Relays and Relay Systems, IEEE C37.90.1.

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Sources and For More Information:


Consolidated Edison Company Of New York, Inc.: <http://q050-w5.coned.com/dg/specs_tariffs/EO-2115.pdf>. New York: <http://www.dps.state.ny.us/08E1018/SIR_Require_11_04.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Recommended Practice on Surge Voltages in Low Voltage AC Power Circuits, ANSI/IEEE C62.41.2. Standard Surge Withstand Capability (SWC) Tests for Protective Relays and Relay Systems, IEEE C37.90.1.

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17. Limitation of DC Injection


Issue: Alternative energy facilities with inverters without transformers may inject DC current into the utility circuits. This increases the peak to half of the AC waveform (decreasing the peak to the other half) and can cause transformer saturation. Even small amounts of direct current can lead to dangerous magnetic saturation of transformer cores and cause significant heatingpotentially leading to transformer failure or greatly shortening the operational life of the transformer. Utility Perspective: DC injection must not damage utility equipment. Developer Perspective: DC injection is a concern only with inverters, which can be tested by the manufacturer. Regulator Perspective: The facility must not negatively impact safe and reliable operation of the utility system. Best Practice: IEEE 1547 (Section 4.3.1) requires that DC injection not exceed 0.5% of the full rated output current of the facility where it connects to the utility system.

Sources and For More Information:


The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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B. Equipment Requirements
Issue: The equipment necessary to successfully operate and integrate an alternative energy facility with a utility grid varies from site to site, but all aspects of a facilitys installation can be greatly simplified when standard equipment is used. Utility Perspective: Utilities require that the developers equipment meet certain standards (IEEE, National Electrical Code, etc.), but some leave the overall design of the facility up to the developer. Other utilities create specific lists of the types of equipment the facility must have, usually based on generator output. Once a list of required equipment is created, the utility can proceed with more confidence that the system will work reliably. Developer Perspective: While developers may not agree that all the listed equipment is really necessary, all developers will be on equal footing as they all have to have the same types of devices. Regulator Perspective: Using a standard equipment list simplifies the application/approval process and provides an incentive to developers to use pre-approved equipment. For example, the Public Utility Commission of Texas specifies what type of interconnection equipment is required for generators based on output which eliminated arguments about necessary equipment and simplified engineering plans. Distributed Generation Interconnection Requirements
Closed Transition Feature PUCT Rule Reference 10 MW 25.212 (g) SinglePhase 50 kW Three-Phase Capacity 10 kW 10 kW 500 kW 25.212 (e)(3) (B)

500 kW 2 MW 25.212 (e) (3)(C)

2 MW 10 MW 25.212 (e)(3)(D)

25.212(d) 25.212 (e) (3)(A)

Interrupting devices (capable of interrupting maximum available fault current) Interconnection disconnect device (manual, lockable, visible, accessible) Generator disconnect device Overvoltage trip

[4]

X X X

X X X

X X X

X X X

X X X

X X X

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Undervoltage trip Over-/underfrequency trip Synchronizing check (A: Automatic, M: Manual) Ground overvoltage or overcurrent trip Reverse power sensing If exporting, power direction function may be used to block or delay underfrequency trip Automatic voltage regulator Telemetry/transfer trip

X X A [2]

X X A/M [1]

X X A/M [1]

X X A/M [1] [2] [3]

X X A [1] [2] [3] [2] [3]

X X A [1]

[1] X

[1] Required for facilities with stand-alone capability. [2] May be required by TDU; selection based on grounding system. [3] Required, unless generator is less than applicant minimum load, to verify nonexport. [4] Systems exporting shall have either redundant or listed devices. Notes: kW = kilowatt; MW = megawatt; PUCT = Public Utility Commission of Texas; X = Required feature; blank = not required. Source: PUCT, http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf, p. 3-3.

Some interconnection requirements list specific manufacturers and devices that meet requirements. For example, New York State has a list of certified equipment that must meet all functional requirements of IEEE Std. 1547 and must be protected by utility-grade relays using utility-approved settings.

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Following are two examples from the equipment list:


Manufacturer Model No. Date of Approval Firmware Version Testing Agency Test Report Date of Report Device Description Beckwith Electric M-3520 10/22/03 D0060V03.00.06 to D0060V03.99.99 Underwriters Laboratories E128716-03CA33157 9/24/03 Intertie/Generator Protection Relay

Manufacturer Model No. Date of Approval Testing Agency Device Description

Capstone Turbine 65 7/26/06 Underwriters Laboratories, Nemko 65kW, 480V, Three-Phase Microturbine

Source: http://www.dps.state.ny.us/08E1018/SIRDevices.pdf.

Sources and For More Information:


Distributed Generation Interconnection Manual Public Utility Commission of Texas. <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>. Public Utility Commission of Texas. Technical Requirements for Interconnection and Parallel Operation of On-Site Distributed Generation 25.212. <http://www.puc.state.tx.us/rules/subrules/electric/25.212/25.212ei.cfm>. New York, Department of Public Service Certified Interconnection Equipment. <http://www.dps.state.ny.us/08E1018/SIRDevices. pdf>.

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1. Isolation Device (disconnect switch)


Issue: The facility must be able to disconnect every power source from the utility to avoid jeopardizing utility equipment, personnel, the public, or other operating sources. Utility Perspective: Some installations have fuses or breakers that can be energized from two directions; therefore, an isolation device, usually a disconnect switch, must be present to disconnect from all sources. A visible-break, lockable, and readily accessible isolation device must be located between the facility and the utilitys grid to allow the circuit to be closed when the utility has maintenance or other activities that need a de-energized system. Furthermore, it should be labeled to warn utility personnel that the load-side contact may still be energized even if the switch is in the open position. This isolation device and warning label are critical for employee safety and safe work practices. For small, residential generation, the meter can act as the disconnect switch. Regulator Perspective: Although energy diversity hinges on the utilization of distributed resources, all safety measures must be in place to ensure worker safety. Developer Perspective: The isolation device is not needed when an inverter is installed. Inverter technologysuch as the nonislanding invertercan now ensure that the facility is not able to generate electrical energy if the utilitys line leading to the inverter is not energized. This technology negates the need for an isolation device. Best Practices: The particular configuration of the equipment necessarily designates which type of disconnecting device is most appropriate; however, four principles should be considered. 1. 2. 3. 4. Dependability: A high probability of clearing faults that occur on the utilitys system. Security: A low probability of interrupting the circuit unnecessarily. Selectivity: Ability to discriminate, so as not to isolate any area beyond the PCC. Speed: Operation as rapidly as possible, consistent with coordination requirements, to minimize damage.

If the alternative energy facility has a nonislanding inverter, an isolation device is not necessary. For projects less than 10 kW, such as small PV units, the isolation device requirement can be met by the meter. For larger units without the new inverter technology, an isolation deviceusually an electrical disconnect switch should adhere to the following guidelines: The facility owner should use an external, visible, gang-operated disconnect switch that meets all applicable standards and is readily accessible for operation and locking by the utility at all times. The switch should be externally operable without exposure to live parts. If the switch is power operable, it should also be able to be opened manually. The disconnect switch should be within 10 feet of the PCC or between the facility and the PCC with a map showing the location of the switch permanently mounted near the PCC. The switch must be rated for the DR facilitys voltage and current requirements. The switch must be clearly marked Disconnect Switch in large permanent letters. Also, a warning label must be installed for the benefit of firefighters. If the switch is energized from both sides, it must have a marking indicating such.
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The switch should be installed, owned, and maintained by the owner of the facility. The operation of this switch is the utilitys responsibility. However, it must give appropriate noticedefined in its contractto the facility prior to operation. If the utility concurs, a draw-out circuit breaker can be used as an isolation device if it has pad locking at the draw-out position.

Sources and For More Information:


Improving Distribution System Reliability By Means Of Distributed Generation. <http://www.cired.be/CIRED07/pdfs/CIRED2007_0070_paper.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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2. Paralleling Device
Issue: Parallel operation occurs when the generating facility produces AC power while electrically interconnected with the utility distribution network. A parallel connection allows the customer to serve its load either with its own generator, with utility power, or from both sources simultaneously. To operate in parallel, the generating facility must match the voltage and frequency of the utilitys distribution system. Most distributed generators and all renewable energy facilities, which can be either exporting or nonexporting facilities, will operate in parallel. Nonexporting facilities consume all energy created to meet the customers load, while exporting facilities send some power to the grid. The paralleling device is located at the PCC where the two systems meet and coordinates with other protective devices to ensure that voltage and frequency do not deviate from the utility distribution system. Utility Perspective: In order to protect the system from damage due to voltage, a paralleling device must be installed. The device should have consistent opening and closing times to limit damage and provide better coordination with the utility. A synch-check device must be installed on synchronous generators. Developer Perspective: Paralleling equipment is necessary only when synchronous generators are used. Regulator Perspective: Paralleling devices are critical to the safe operation of the system and must be carefully selected so that they meet all requirements. Best Practices: The paralleling device should have consistent opening and closing times and must be able to withstand 220% of the rated voltage across the open contacts. On synchronous generators, a digital, auto paralleling system should be in place and it should be supervised by synch-check relays.

Sources and For More Information:


The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>. Technical Requirements for Interconnection and Parallel Operation of Distributed Generation: Single Phase less than or equal to 25kW, Three Phase less than or equal to 300kW. <http://www.puco.ohio.gov/emplibrary/files/smed/Technical_Requirements.pdf>.

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3. Customers Responsible for Protecting Their Equipment


Issue: When an alternative energy facility is connected to a utility system, numerous situations can occur that could potentially damage the alternative energy facilitys equipment. For example, if a developers synchronous generator is islanded and then reconnected out of phase, catastrophic damage to the generator can result. Utility Perspective: The utility specifies what equipment is necessary for the protection of its system. The facility is responsible for protecting its own system. Developer Perspective: Excess protective equipment/procedures are costly. Regulator Perspective: It is the facilitys responsibility to protect its own equipment. Best Practices: The alternative energy facility should be solely responsible for protecting its own equipment. In California, Rule 21 only covers those Protective Functions that serve to protect the utility, not those that protect the Generator or owners facilities. Even though Rule 21 does not cover Generator protection, the manufacturer should incorporate general protection and safety practices in the Generating Facility design in order to protect the Generating Facility, personnel, and other equipment. The Conectiv guidelines concur: The Generator Owner will be responsible for protecting its own generating and interconnection equipment in such a manner so that Company system outages, short circuits, single phasing conditions or other disturbances including zero sequence currents and ferroresonant over-voltages do not damage the Generator Owners generating equipment.

Sources and For More Information:


California Interconnection Guidebook.: <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Conectiv: <http://www.delaware-energy.com/Download/NEM.pdf>.

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4. Requirements for Metering/Meters


Issue: In order to properly account for energy exported to and imported from the utility system, alternative energy facilities must have proper metering. Standard meters accurately measure only power sold to the customer, not power exported to the utility system. Utility Perspective: Facilities must have reliable meters for their facilities, and the utility should be responsible for the installation, reading, and maintenance of those meters. Developer Perspective: Proper metering is important, but developers should have some latitude in selecting the type of meter. Regulator Perspective: The issue of metering should be part of the application process. Best Practices: CA Rule 21 states that all facilities must be metered and that the ownership, installation, operation, reading, and testing of these meters must be done by the electric utility, unless the regulatory commission authorizes another party. Larger generation facilities will require more complex metering. The Salt River Project (SRP) requires reactive metering for generators greater than 50 kW. Facilities that will be selling power back to the utility will require additional metering equipment. Additional metering is also required for TOU contracts. When large generating facilities are involved, metering can become quite complicated and may require the installation of potential transformers, current transformers, fuses, etc. In these cases, detailed metering schemes will have to be created by the utility for the cogeneration facility. The facility is responsible for providing, installing, and maintaining all the wiring and miscellaneous equipment for the metering, but not the actual metering equipment (meters, metering transformer, etc).

Sources and For More Information:


California Interconnection Guidebook: <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Generating Your Own Electricity: Net Metering, Public Utilities Commission of Ohio. <http://www.puco.ohio.gov/PUCO/Consumer/Information.cfm?id=8510&terms=metering&searchtype=1&fragment=False>. Handbook Of General Requirements For Electrical Service To Dispersed Generation Customers. <http://Q050-W5.Coned.Com/Dg/ Specs_Tariffs/Eo-2115.Pdf>. SRP: <http://www.srpnet.com/electric/pdfx/gen_guidelines.pdf>.

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5. Telemetering/Communication Channels
Issue: Telemetering is the electronic transmission of real-time metering data to the utility. For larger generating facilities, utilities may require alternative energy facilities to communicate real-time information about generator status. Utilities want this information to better assess the ongoing operation of their system. Utility Perspective: This information is necessary to properly integrate the alternative energy facility into the grid. Since telemetering is a necessary part of cogeneration, the developer should pay for it. Developer Perspective: Telemetering is just another unnecessary expense as there are other ways to collect operations data and properly assess charges. Regulator Perspective: Whether or not telemetering is required varies, and the issues (cost, ownership, access to, and operation of equipment) are complicated. Best Practice: For large generators, telemetering may be required. SRP requires telemetering any time a transfer trip scheme is necessary. This includes generators (or an aggregate of generators) that can supply the minimum load of the feeder or support an islanded section of the feeder. Telemetering is also necessary if the generator sells power to the grid or is remotely controlled or dispatched by SRP. Likewise, California may require telemetering for large generators, allowing the utility to better monitor their impact on the distribution system.

Sources and For More Information:


California Interconnection Guidebook. <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. SRP: <http://www.srpnet.com/electric/pdfx/gen_guidelines.pdf>.

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6. Net Metering
Issue: Net metering is a term used to describe the netting of excess electricity that a facility generates with that of those electrons consumed in a contractual relationship with the utility. If a facility generates more electricity than it uses, the electricity is credited to the facilitys account. Utilities may or may not pay for net excess power provided to the grid. In California, only solar electric and wind generators less than 1 MW in size are eligible for net metering. In addition, there is a common misconception that the utility will pay customers for the amount of the excess energy. Instead, excess electricity from the PV system is banked with the utility, effectively spinning the customers meter backward. When the customer consumes more electricity than is produced (i.e., takes electricity from the grid), the meter spins forwardso the utility grid acts as a bank for the energy. The transaction occurs at the retail rate or the appropriate TOU rate for customers with TOU meters, which record their time-of-day usage (and thus they are billed for energy at different rates on that basis). At the end of a yearly billing cycle, any net excess energy sent to the utility system is zeroed out and credited to the utility; the customer is not paid for this energy. Some utilities, like SMUD, do pay for excess power. SMUD cashes out net power supplied to the grid by some customers. These customers are paid a wholesale rate. Note that SMUD is not under Californias net metering law. Utility Perspective: Standard net metering programs can be created to simplify the billing/accounting process. Also, net metering is a subsidized program and therefore should have defined limits. Developer Perspective: Net metering is desirable and should be offered for all facilities, not just renewable energy sources. Regulator Perspective: Net metering encourages the installation of cogeneration, and standard contracts can be created. Best Practices: Different utilities deal with this issue in different ways. Having a net metering standard will simplify the situation. West Bengal Net metering has been adopted for rooftop solar PV systems in West Bengal. The West Bengal Electricity Regulatory Commission allows net metering in its latest order on solar power. The order states that the slab tariff shall be applicable for the net energy supplied by the licensees in a billing period if the supplied energy by the licensees is more than the injected energy by the roof-to-solar PV sources of the consumers, after taking into account the amount of energy carried forward from an earlier billing period of that financial year. The regulator may consider mandating the installation of a generator meter or import-export meter to determine compensation payable to the investor. Due to the lower tariffs for residential consumers in comparison to commercial and industrial tariffs, net metering needs to be studied in detail as an option for such consumers in the future. SDG&E 100% of total annual consumption of energy can be stored on the grid. At this time, any stored surplus energy cannot be sold back to SDG&E at the end of the 12-month cycle. This annual program automatically renews at the end of each 12-month cycle.

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SCE Generating facility customers may be required to install net generating output meters to evaluate, monitor, and verify output; determine applicable standby and nonbypassable charges as defined in SCEs tariffs; satisfy applicable California Independent System Operator reliability requirements; and plan and operate distribution systems. However, a generating facility does not need to install these meters if less intrusive and/or more cost-effective options are available, as long as the meter can provide the appropriate generator data to SCE. The generating facility may opt to have SCE estimate its load data in accordance with SCEs applicable tariffs to determine or meet applicable standby and nonbypassable and other applicable charges and tariff requirements. However, if a generating facility objects to SCEs estimate, the customer may elect to install the net generating output meters, or have SCE install one at the customers expense. Whatever meter is chosen, it must meet the SCEs Rule 22 requirements. If it does not, SCE has the right to install a utility-owned net generating output meter at the customers expense. Some things to consider when choosing a meter, especially the more expensive net generating output meter: Data requirements in relation to the need for information Cogenerators decision to install equipment that adequately addresses SCEs operational requirements Accuracy and type of required metering consistent with purpose of collecting data Cost of metering relative to the need for and accuracy of the data The generating facilitys size relative to the cost of the metering/monitoring Other means of obtaining the data (e.g., generating facility logs, proxy data, etc.) Requirements under any interconnection agreement On a quarterly basis, SCE reports to the California Public Utilities Commission and explains its rationale for requiring net generating output meters at each facility, along with the size and location of the facility.

Sources and For More Information:


DSIRE database: <http://www.dsireusa.org/library/includes/type.cfm?EE=0&RE=1>. Generating Your Own Electricity: Net Metering, Public Utilities Commission of Ohio, <http://www.puco.ohio.gov/PUCO/Consumer/Information.cfm?id=8510&terms=metering&searchtype=1&fragment=False>. PGE, Distribution Interconnection Handbook. <http://www.pge.com/mybusiness/customerservice/nonpgeutility/generateownpower/ distributionhandbook/>. SCE <http://www.sce.com/NR/sc3/tm2/pdf/Rule21.pdf>. SDGE <http://www.sdge.com/business/netMetering.shtml>. West Bengal: <http://wberc.net/wberc/regulation/under_2003_Act/index.htm>.

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7. Synchronous Generators Special Requirements


Issue: A synchronous generator rotates at a constant speed that matches the frequency of the utilitys system. Most distributed generators are synchronous. The field excitation of a synchronous generator is supplied by a separate motor-generator set, like a directly coupled self-excited DC generator, or a brushless exciter. Unlike the induction generator, the synchronous generator does not need to be connected to the utility to function. It can be used as a stand-alone generator or can be connected to the grid. Utility Perspective: Utilities understand the operation of synchronous generators well; therefore, they are more comfortable with this technology. Synchronous generators can supply sustained fault current under nearly all operating conditions and, therefore, special protective equipment is necessary to isolate the generator from the utility during fault conditions. Developer Perspective: Because synchronous generators must match the utilitys frequency, they require more complex controls. Unlike an induction generator, synchronous generators also need controls to properly maintain field excitation. Synchronous generators can provide power to a facility even when the grid is de-energized (i.e., backup generators). Also, facilities can adjust the power factor by adjusting the DC field current. Regulator Perspective: The type of generator being used is up to the developer but must be properly integrated into the utility system. Best Practices: California has numerous requirements for connecting a three-phase synchronous generator to the utility system. 1. Three-phase circuit breakers must be used and have electronic or electromechanical controls. If high currents are detected on any phase, the breaker must open 2. Synchronous generators must automatically regulate power factor with operating in parallel. The utility is responsible for voltage control of the utilitys system and the generator is not used for voltage control. 3. For generators less than 10 MW, power system stabilization is not required. 4. If the Short Circuit Current Ratio (SCCR) must be less than or equal to 0.05 (small relative to the size of the utility system), the generators synchronizing function may be either manual or automatic. 5. If the SCCR is greater than 0.05 (large relative to the size of the utility system), synchronizing must be automatic and the generator must be able to detect a loss of synchronism. With this size SCCR, manual synchronization is not permitted. 6. Before starting the synchronous generator up to speed it must be brought up to speed and carefully synched to the utility system. If the prime mover (turbine or internal combustion engine) gets its starting power from the utility, there is a possibility that voltage irregularities (flicker) may result. Therefore, starting the synchronous generator must be done in such a way as to avoid flicker related problems.

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Sources and For More Information:


California Interconnection Guidebook: <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2115.pdf>. SRP Interconnection Guidelines For Distributed Generators December, 2000. <http://www.srpnet.com/electric/pdfx/gen_guidelines.pdf>.

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8. Induction Generators Special Requirements


Issue: An induction generator is asynchronous (i.e., does not spin at the same speed as the frequency of the utility). This type of generator needs an external power source to run and, therefore, must always be operated in parallel with the utility, a synchronous generator, or a capacitor. Only in rare instances will an induction generator continue to produce power when the utility system is de-energized, which greatly reduces the risk of back-energization. Utility Perspective: An induction generator draws reactive power from the utility and may adversely affect the voltage regulation on the interconnected circuit. As the induction generator is absorbing VArs from the utilitys system, it is necessary to add capacitors to improve power factor and reduce reactive power draw. Also, under certain circumstances, an induction generator may continue to run even if the power source is de-energized. This is called self-excitation. Developer Perspective: Induction generators are fairly simple to operate, need a basic control system, synchronize with the utility automatically (so no synchronization procedures or equipment are needed), and will usually stop operations when an outage occurs. When some types of induction generator are connected to the utility system at speeds significantly below synchronous speed, potentially damaging inrush currents and associated torques can result. Regulator Perspective: The type of generator used is the developers choice, but must be properly integrated into the utility system. Best Practices: The speed of the induction generator must be within 5% of the synchronous speed before it is connected to the utility system. Since induction generators will usually not support a fault, the anti-islanding protection will also provide fault detection, unless there is sufficient capacitive reactance to supply the VAr requirements of the induction generator field. In this case, it may be necessary to provide for direct detection of faults in a manner similar to synchronous generators. An induction generator can cause voltage fluctuations on the utilitys system when it starts. One solution is the installation of capacitors, but this must be done with care. Corrective capacitors can cause ferroresonant voltages, which can damage sensitive equipment. A step-switched capacitor or some other solution to voltage fluctuations may be necessary.

Sources and For More Information:


Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2134.pdf>. Generating your Oown Electricity: Advice for Getting Started, Public Utilities Commission of Ohio.

<http://www.puco.ohio.gov/emplibrary/files/media/Publications/Fact_Sheets/generating%20your%20own%20electricity%20-%20 advice%20for%20getting%20started.pdf>.
The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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9. Static Power Converter


Issue: The electric power converter provides an interface between non-synchronous energy output by the alternative energy facility and the utility. Non-synchronous output voltages can be direct or alternating current, which can be converted by a DC-to-AC or AC-to-DC power converter. Static power converters create large nonlinear loads, which can result in harmonic distortion of the waveform. The severity of the potential problem depends on the converter, but most new designs already address this issue. There are two types of converters: some operate only while the utility system is energized and some will operate while the utility system is de-energized. Utility Perspective: Few static converters need relays to check synchronization between the facilitys rotating generators and the grid. The energy contribution from a static power converter during a fault is much lower than from a comparably sized induction or synchronous generator. Developer Perspective: Solid-state converters offer several advantages. There are more options for protective relaying, coordination, and communication. They also operate at much higher efficiencies and are often more reliable than rotating machine converters. Regulator Perspective: The type of generator being used is up to the developer, but it must be properly integrated into the utility system. Best Practices: Converters must be tested and in compliance with ULs most current applicable version of UL1741, Inverters, Converters and Controllers for Use in Independent Power Systems. The frequency and voltage trip pickup settings for static power converters may be relaxed at the utilitys discretion if the facility experiences too many nuisance trips. If the converters internal microprocessor protection provides acceptable levels of accuracy, external relaying may not be necessary. However, external test ports should be included so the utility can perform periodic trip pickup testing.

Sources and For More Information:


Consolidated Edison: <http://m020-w5.coned.com/dg/specs_tariffs/EO-2134.pdf>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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10. Static Inverters/Inverter Systems Special Requirements


Issue: An inverter is a device that converts DC to AC power. From an interconnection standpoint, one of the most important characteristics of inverters is their inability to supply excessive currents under fault conditions. Therefore, standard fault detection schemes cannot be used. Equipment that can detect abnormal voltages can be effective. Harmonic problems can arise from the use of inverters, as they can create standing waves that can be reflected. These reflective waves can add up to high levels. Newer inverters with pulse width modulation operate at higher frequencies and are more likely to create harmonic problems but typically generate very clean output and normally satisfy IEEE 1547 requirements. There are two types of inverters: Line-commuted inverters rely on a second source of generation to provide a clocking signal. This type of inverter will shut down if a fault occurs on the utility system. Self-commuted inverters provide their own clocking signal and can supply fault current, but the current is fairly constant and is usually 1.2 to 1.5 times the rated load current of the inverter. Most new inverter designs are based on newer solid-state technology that uses pulse width modulation to generate the injected alternating current. Utility Perspective: Inverters provide significantly less fault current than do some other types of equipment. IEEE 1547, UL1741-tested, active anti-islanding inverters usually qualify for simplified interconnections. Developer Perspective: Inverters are convenient to use. Regulator Perspective: As long as it can be successfully and safely interconnected, the type of equipment used is up to the developer. Best Practice: Inverter systems have two classifications: utility-interactive and non-utility interactive or stand-alone. Utility interactive inverter systems have their own internal synchronizing software and thus do not require separate synchronizing equipment. This software allows them to synchronize and also prevents improper synchronization. If the generating facility uses a non-utility interactive inverter, the facility cannot be in parallel operation with the utilitys distribution network. Inverters do not require separate synchronizing equipment, but in order for an inverter to be classified as utilityinteractive, it must have its own on-board synchronizing software that will allow it to synchronize with the utility system and prevent it from improperly synchronizing. In California, Rule 21 specifically prohibits nonutility-interactive (stand-alone) inverters from operating in parallel with the utility system.

Sources and For More Information:


California Interconnection Guidebook. <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. The NRECA Guide to IEEE 1547. <http://www.nreca.org/Documents/PublicPolicy/DGApplicationGuide-Final.pdf>.

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11. Equipment Precertification/Pre-approval


Issue: Installing alternative energy facilities can be expensive and the approval process and additional requirements placed on the developer by the utility can make a proposed facility financially untenable. One way to simplify the process (and therefore make it less expensive for the developer) is to have a list of precertified/pre-approved equipment. Utility Perspective: Any alternative energy facility that ties in with the local grid must meet operational and safety requirements. Untested and unfamiliar technologies can jeopardize the system. Developer Perspective: Installing an alternative energy facility should be as simple and as inexpensive as possible. Most generating technologies have been tested and used successfully. Utilities are slow to embrace new ideas. Regulator Perspective: Having a list of certified equipment and configurations will simplify the approval process and help ensure the proposed alternative energy facility will integrate well with the utility system. Best Practices: There are numerous examples of precertified equipment and configurations. Californias Rule 21 is a good example. In order to encourage the addition of small generation facilities, simplified interconnections were made a priority and interconnection devices and protection equipment that were tested and approved by independent labs were preapproved. Rule 21 Certification is set up as a series of tests that may be run by an independent testing laboratory (called a Nationally Recognized Testing Laboratory, or NRTL). If the applicant makes use of a Generator/ interconnection equipment package that has passed these tests, the application will pass Initial Review screen 3. Rule 21 Certification is designed to allow the purchaser of a Rule 21 Certified Generator/ interconnection equipment to avoid the delay of utility field-testing of the units protective functions. All utilities that have adopted Rule 21 accept the results of Rule 21 Certification for a particular manufacturers make and model, in lieu of testing every Generator and every piece of interconnection equipment individually. (FERC may also accept Rule 21 certified equipment under its small generation interconnection process.) Rule 21 Certification may apply to either a pre-packaged system or an assembly of components that perform the necessary functions. (p. 15, California Interconnection Guidebook) These simplified interconnections often apply to small-capacity generators but can apply to larger facilities, because the importance of generator size is relative to the capacity and design of the distribution system to which it will be connected. Size is often used as a surrogate of the real parameters of interest, such as short-circuit duty. In Texas, precertification can also speed up the approval process and reduce costs to developers. Generation units that are precertified can be installed without further review of their design (approved interconnection and protection schemes are necessary). If the generation unit is not precertified, the utility can take up to six weeks to perform a certification study and may charge the developer for that study.

Sources and For More Information:


California Interconnection Guidebook. <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. Texas: <http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf>.

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C. Testing Requirements
Issue: When an alternative energy facility is being connected to the utility system, four kinds of testing are required: Type testing makes sure the equipment meets specifications. Production testing includes voltage and frequency variation tests. (See UL1741, Manufacturing and Production Tests, Section 68.) Commissioning testing is done the first time the facility operates in parallel with the utility system or when equipment or software that could affect the operation of the interconnection is changed. The utility may require that its representative is present during commission testing. This testing can include (if applicable) Over- and undervoltage testing Over- and underfrequency testing Nonislanding function testing Nonexporting function testing Testing inability to energize dead line Testing time delay on restart after utility source is stable Utility system fault detection testing Testing synchronizing controls Other testing required by the interconnection agreement Periodic testing is specified by the equipment manufacturer and must be performed every four years or more frequently. Utility Perspective: Testing is critical to ensure the safe and reliable operation of the system. Precertified equipment reduces the number of tests the utility must observe, reduces liability, and streamlines the approval process. Developer Perspective: In order to keep costs down, testing should be kept to a minimum. Regulator Perspective: Appropriate testing must be performed to ensure the stability of the grid but should be kept to a minimum cost. Best Practices: Different utilities have their own specific testing requirements, but most are consistent with IEEE 1547. SRP, for example, requires the protective devices to be calibrated and field-tested by qualified personnel prior to witness testing. Results of the field test have to be sent to SRP at least five days prior to the witness test.

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Witness/Commissioning Test Requirements: On the day of witness testing, the Customer shall demonstrate, in the presence of SRP personnel that: (a) Relay settings are consistent with the written calibration tests previously provided by the Customer. (b) Operation of each protective output contact results in the desired operation of the appropriate protective device (usually a breaker or contactor). For static inverters rated less than 50 kW, a triptiming test with simulated loss of voltage will be sufficient. (c) The [distributed generator] DG is capable of synchronizing with the SRP grid. (d) The DG properly disconnects from the SRP system under simulated disturbance conditions. (e) SRP remote visibility or control of any devices associated with the DG function[s] properly, if applicable. (f) Settings of programmable logic devices are correct, if applicable. (Page 9-1, SRP Interconnection Guidelines for Distributed Generators, December, 2000)

Sources and For More Information:


California Interconnection Guidebook. <http://www.energy.ca.gov/distgen/interconnection/guide_book.html>. SRP: <http://www.srpnet.com/electric/pdfx/gen_guidelines.pdf>.

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VII. Approvals and Application Processing Issues and Best Practices


Considerable disagreement exists between utilities and developers over what approvals should be required prior to interconnecting to the grid and the application process. The utility believes the approval and application process is essential to ensure the grids reliability and safety. The developer feels the approval and application processes are often lengthy and do not clearly define what tests and studies are needed. In addition, multiple agencies with jurisdiction over the project create delays and increase costs. In India, different approvals are required for renewable energy projects of different types and sizes, and in some cases approvals from both Central and State governments are required in India. The project developer must obtain no objection certificates from several different government departments to obtain approval of the project. This could be streamlined by requiring the state energy development agency to obtain these certificates once the developer has provided sufficient project information. As an example, since land, water, mining rights and the environment are the states responsibility, clearances relating to these issues have to be obtained from the relevant ministries of the State Government where the project is to be implemented. However, if part of the land happens to fall under the category of forest, clearances have to be obtained from both State and Central Government ministries. The Central Government has recently delegated certain powers to the States to expedite the implementation of small projects. Many U.S. states have developed streamlined application processes to address this issue. According to California Rule 21, all facilities that plan to have net energy metering have no application or interconnection study fees. Those facilities without Net Energy Metering have an initial review fee of $800, half of which is refunded if the application is rejected or pulled by the developer; a $600 supplemental review fee, and interconnection study fees specified by the utility. This section highlights the streamlined application processes in California and PSEG.

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Permitting Process California


The California Energy Commission released a report in December 2000 titled Distributed Generation: CEQA Review and Permit Streamlining. This report describes the permitting processes conducted by city and county governments and air districts for small-scale electricity-generating facilities. California has already instituted a number of guidelines and programs to streamline the permitting process in order to encourage alternative energy. For example, the State Permit Streamlining Act imposes the following time limits, once a permit application is accepted as complete: One year for environmental impact reports Six months for negative declarations of mitigated negative declarations Developers of alternative energy facilities may apply for all required permits at the same time, but the sequence of permit application usually follows this order: 1. Air permits;
2. Land-use approvals, such as conditional-use permits; 3. Building permits; and 4. Interconnection.

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Application Requirements California


The application process for interconnection of alternative energy devices to the electric grid involves a number of standardized steps: 1. Applicant initiates contact with the electrical corporation: Upon initial request, the utility will provide all relevant applications, forms, documents, and technical requirements for grid interconnection of the distributed resource. The utility will establish an individual representative as the single point of contact for the applicant. 2. Applicant completes an application document. The applicant completes and files a standardized application for interconnection. The utility will acknowledge receipt of the application and verify that it has been adequately completed. 3. Electrical corporation performs an initial review and develops preliminary cost estimates and interconnection requirements: The utility will perform an initial review to determine the type of interconnection for which the applicant qualifies. a. Simplified Interconnection: If the applicant qualifies for simplified interconnection, the utility will provide the applicant with a written description of the interconnection requirements, in addition to a draft interconnection agreement. b. Interconnection Subject to Additional Requirements: The initial review will require a supplemental review if the applicant does not qualify for simplified interconnection. The supplemental review provides either i. Interconnection requirements that may include additional requirements beyond simplified interconnection and a draft interconnection agreement. A cost estimate and schedule for an interconnection study. In this case, the applicant and utility shall enter into an interconnection study agreement. After completion of an interconnection study, the utility will provide the applicant with specific requirements, costs, and a schedule for interconnection.

ii.

4. Applicant and electrical corporation enter into a generation interconnection agreement: The utility provides the applicant with an executable version of the interconnection agreement, net energy metering agreement, or PPA (whichever is appropriate for the technology used and its mode of operation). 5. Applicant installs or constructs the generating facility to interconnect with the electric grid: The applicant interconnects in accordance with the provisions of the interconnection agreement, net energy metering agreement, or PPA.

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6. Applicant arranges for and completes testing of the distributed resource (DR) device: Before operating in parallel with the electric grid, the DR device and associated interconnection equipment must be tested to ensure compliance with the safety and reliability provisions of the CPUC-approved rules and regulations. 7. Electrical corporation authorizes interconnection: The applicants DR device may commence parallel operation with the utilitys electric grid. The flow chart below outlines the initial review process for applications to interconnect DR devices.

Networked Secondary System? NO Power Exported? NO Equipment Certified? YES


Aggregate Capacity < 15% of Line Section Peak Load

YES

YES

NO

NO
SUPPLEMENTAL REVIEW

YES Starting Voltage Drop Screen Met? YES kVA 11 of Less? NO Meets short Circuit Current Contribution Screen? YES YES Meets Line Configuration Screen? YES NO NO NO

Does supplemental review determine requirements?

YES
QUALIFIES FOR INTERCONNECTION SUBJECT TO SUPPLEMENTAL REQUIREMENTS

NO
UTILITY PROVIDES COST ESTIMATE AND SCHEDULE FOR INTERCONNECTION STUDY

QUALIFIES FOR SIMPLIFIED INTERCONNECTION

Source: California Distributed Energy Resource Guide, http://www.energy.ca.gov/distgen/interconnection/application.html

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Application Process PSE&G


1. Initial Communication from the Applicant. The applicant should supply as much technical information as possible. PSE&G shall determine whether the proposed installation is an application for qualified net metering or a conventional form of DG. 1A. Expedited Application Process for Qualified Net Metering Installations 100 KW or Less. 1) Prior to installation of a qualified net metered system (100 kW or less), applicants must submit a fully completed first page of the net metering application to PSE&G, with the $100 application fee. 2) PSE&G will review the application and inform the applicant if the applicant can proceed with the interconnection or if a more detailed interconnection study is required (see Step 4 below). 3) After the applicant has received permission to interconnect from PSE&G, has completed the installation, and has received the appropriate municipal inspection, the applicant must submit a fully completed and signed application (all pages) to PSE&G. 4) The following sections apply to net metering 100 KW or less installations: a) 4.2 Metering b) 4.2.1 Net Metering c) 4.3 Grounding d) 4.6 Disconnect switch or device e) 4.7 Power Quality f) 4.10.1 A Compliance with IEEE 929-2000 g) 4.10.2 Verification Testing h) 4.12 Connections to Network Systems 2. Review by PSE&G to Determine the Nature of the Project. A PSE&G representative shall discuss the scope of the project with the applicant to determine what specific information and documents (such as technical requirements and metering requirements) will be required. All such information, and a copy of this application, will be sent to the applicant no more than five business days following the initial communication from the applicant. A PSE&G representative will serve as the single point of contact for the applicant in coordinating the project. 3. Filing an Application. The filing must include a completed application form and/or other information as indicated above and nonrefundable application fees of $100 for units of 100 KW or less or $500 for units larger than 100 KW. Within 10 business days of receiving the application, PSE&G will notify the applicant of receipt and whether the application has been completed adequately. 4. Preliminary Coordinated Interconnection Review and Cost Estimate Development. PSE&G will conduct a preliminary coordinated interconnection review and will inform the applicant of any necessary PSE&G system additions/modifications, and of any license requirements that PSE&G may require for interconnection. The applicant will be provided with an assessment of the technical feasibility of the proposed interconnection, a preliminary schedule, and a good-faith detailed estimate of the interconnection costs, if applicable.

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A full coordinated interconnection review may not be needed if The aggregate generation is less than 50 KW on a single-phase branch of a distribution circuit; or The aggregate generation is less than 150 KW on a single three-phase distribution feeder; or The proposed installation is not interconnected to a network system; or The proposed generator has no power export capability. Note: Units without export capability must either be sized for 50% or less of peak facility load or be equipped with reverse power relays to prevent power export into the PSE&G system. Framework for standardized interconnection study costs for net metered qualified systems that do not meet the criteria outlined above: For requests to interconnect single-phase systems on single-phase branches ( total aggregate generation is greater than 50 KW but less than or equal to 100 KW) or single-phase and three-phase systems on three-phase feeders (total aggregate generation is greater than 150 KW but less than or equal to 300 KW), the study cost may be up to, but not exceed, the cost of three man-days of study labor at the current PSE&G loaded labor rate. Requests to interconnect any generation up to 100 KW for network service installations may incur a maximum study cost based on five man-days of study labor at the current PSE&G loaded labor rate. Study costs for proposed installations that fall outside of the standards will be estimated for the facility owner before any work is performed and billed at PSE&Gs loaded labor rate. 5. Applicant Commits to PSE&Gs Coordinated Interconnection Review of the Project Design. If discussions with the applicant, review of the application, or review of the proposed design indicate a major impact on the interconnected PSE&G facilities, the applicant will be required to Provide PSE&G with a cost-based advance payment for the PSE&G review of the proposed generator. Submit a detailed design package. Confirm with PSE&G a mutually agreeable schedule for the project based on the applicants work plans and the discussions with the utility. Additional exchanges of information between PSE&G and the applicant may be required to complete the design package according to PSE&Gs technical requirements for interconnection. 6. PSE&G Review of Applicants Design Package PSE&G will Conduct a review of the design package to ensure that the plans/design satisfy the technical requirements for interconnection. Upon completion of the review, notify the applicant of its final acceptance of the applicants design or an explanation of the technical requirements the design fails to meet. For type-tested systems, will complete its initial review in 10 business days.

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7. Applicant Commits to PSE&G Construction of PSE&Gs System Modifications The applicant will Execute a standardized interconnection agreement or commit in writing to the applicable tariff requirements. Provide PSE&G with an advance payment for PSE&Gs estimated costs associated with system modifications, metering, and on-site verification. 8. Project Construction The applicants facility will be constructed in accordance with PSE&G-accepted design. PSE&G will commence construction/installation of system modifications and metering requirements. 9. The Testing of the Applicants Facility in Accordance with PSE&Gs Technical Requirements The applicant will develop a written testing plan to be submitted to PSE&G for review and acceptance. This testing plan will be designed to verify that the facility complies with the applicants PSE&G-accepted drawings and details of the interconnection. The final testing will be conducted at a mutually agreeable time, and PSE&G shall be given the opportunity to witness the tests.

Sources and For More Information:


California: <http://www.energy.ca.gov/distgen/interconnection/application.html>, and <http://www.energy.ca.gov/distgen/interconnection/SUP_REV_GUIDELINE_20050831.PDF>. Distributed Generation CEQA Review and Permit Streamlining (Report 700-00-019). <www.energy.ca.gov/distgen/documents>. PSEG: <http://www.pseg.com/customer/home/save/pdf/PSEG_Intercon_Stds.pdf>. Taking the Red Tape Out of Green Power: How to Overcome Permitting Obstacles to Small-Scale Distributed Renewable Energy. <http://www.newenergychoices.org/uploads/redTape-rep.pdf>.

<http://www.bakernet.com/NR/rdonlyres/0251961F-DACD-4C9E-9415-A7A24A28485C/44792/RenewableenergyinIndia.pdf>.
(pages 6 and 80).

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Contractual Issues and Best Practices

VIII. Contractual Issues and Best Practices


In order to connect alternative energy facilities to the grid, the developer must first sign a contract with the utility that outlines interconnection procedures and tariff prices. These contracts are essential for project financing and reduce uncertainty over the facilitys long term economic viability. This section highlights two key contractual issues that are critical to alternative energy developers: dispute resolution and Power Purchase Agreements.

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Dispute Resolution

A. Dispute Resolution
Issue: Utilities, developers, and alternative energy facilities often have disputes over payments, operations, and interconnections. Utility Perspective: A formalized procedure to address disputes is necessary to ensure fairness and address issues quickly. Developer Perspective (Operator of facility): A formalized procedure to address disputes is necessary to ensure fairness and address issues quickly. Regulator Perspective: A formalized procedure to address disputes is necessary to ensure fairness and address issues quickly. Best Practices: California Rule 21 states that the regulatory commission has the authority to interpret, add, delete, or modify any agreements between the utility and the renewable energy/cogeneration facility to implement the tariff and to resolve disputes over the renewable energy/cogeneration facilitys performance of its obligations under its tariffs. For disputes over the facilitys performance, the procedure begins with a letter from the aggrieved party to the other party with all relevant known facts, the specific dispute and the relief sought, and notice that it is officially opening a dispute. Each party must designate a representative responsible for reviewing this dispute within seven calendar days. If no resolution has been reached within 45 calendar days of the original dispute letter, either party can request an additional 45 calendar days to continue negotiations or request the commission mediate. With agreement from both parties, mediation can be through a third party with costs shared equally between both parties. If the dispute is not resolved within 90 calendar days, either party may file a formal complaint with the commission. Minnesota Minnesotas statute states that either party may request that the commission decide the dispute but that the burden of proof is on the electric utility. If the utility prevails and the renewable energy/cogeneration facilitys claims were made in bad faith, or were a sham or frivolous, the renewable energy/cogeneration facility must pay the utilitys costs and attorneys fees. However, if the renewable energy/cogeneration facilitys claims were reasonable, it will not have to pay the utilitys costs even if the utility prevails. If the renewable energy/cogeneration facility prevails, the utility must pay its costs and attorneys fees.

Sources and For More Information:


Rule 21 Model Rule Draft to Implement D.05-08-013 (pages 18-19). <http://www.energy.ca.gov/distgen/interconnection/ RULE_21_MODEL_RULE_02-2006.PDF>. 216B.164, Minnesota Statutes 2007. <https://www.revisor.leg.state.mn.us/bin/getpub.php?pubtype=STAT_CHAP_SEC&year=2007& section=216B.164>.

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Power Purchase Agreements

B. Power Purchase Agreements


Issue: Long-term Power Purchase Agreements (PPAs) are critical to alternative energy projects for obtaining financing and determining the value of the unit. Standardized PPAs reduce the transaction costs for the developer and utility and create a level playing field for both parties. IPP developers are sometimes referred to as small power producers in some Asian countries. The PPA provider secures funding for the project, maintains and monitors the energy production, and sells the electricity to the host at a contractual price for the term of the contract. Contract terms can range from 5 to 25 years. In some renewable energy contracts, the host has the option to purchase the generating equipment from the PPA provider at the end of the term or renew the contract with different terms, or can request that the equipment be removed. By clearly defining the output of a generating asset and the credit of its associated revenue streams, a PPA can be used by the owner of the asset to raise nonrecourse financing from a bank or other financing counterparty. Developers feel that neutral and objective PPA and tariff design is essential to successful program implementation. If one seeks to attract private capital, the program design, PPA, tariff structure, and implementation must satisfy the standards of lenders. India In India, the PPAs are only for the sale of surplus energy at the sole discretion of the alternative energy facility. Therefore, these PPAs outlined only the most rudimentary concepts, and the rights of the parties are much less secure. Where one party is a monopoly with a state sanction and is the only entity to whom power may be sold, this lack of specificity works to the disadvantage of the facility. These nonfirm Indian contracts are very friendly to the alternative energy facility as there are no performance obligations and energy can be delivered at the will of the facility. However, the price for this is that the facility is paid only for energy and gets no capacity credit, even if reliable capacity is provided by the facility, as the contract is for excess energy produced by a cogeneration facility whose output varies seasonally. Best Practices: PPAs should be standardized with the avoided cost concept which is generally considered to be the point where the utility gets power at its opportunity cost of alternative power supply. In systems experiencing current and projected shortages of grid-connected power resources, payment of long-term full avoided cost (including capacity and energy) for renewable energy and small power development can accelerate the deployment of renewable facilities utilizing free fuel (e.g., solar, wind, flowing water, or agricultural waste) that otherwise is wasted. See Appendix B for sample PPAs.

Sources and For More Information:


Small Power Purchase Agreement Application for Renewable Energy Development: Lessons from Five Asian Countries. <http:// siteresources.worldbank.org/INTEAPREGTOPENERGY/Resources/Power-Purchase.pdf>.

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Concluding Comments

IX. Concluding Comments


Several key barriers to the deployment of alternative energy in India were highlighted during the three workshops held in India and the executive exchange to the U.S. USEA has addressed these issues in this handbook but recognizes that further discussions with Indian counterparts has been requested and may be necessary. Participants at the workshops highlighted the following issues for future APP activities in India: Interconnecting renewable energy and cogeneration facilities at the 11 kv level, rather than the 66 kv level. Ways to firm up power or other alternatives to address intermittency issues Hybrid systems such as wind/solar Carbon fees Creating policies that mandate wind technology with reactive power capabilities Renewable Energy Credits Benefits, technical specifications, and costs of net metering Landfill technology and waste-to-energy facilities This handbook was funded by the U.S. government through the Asia-Pacific Partnership on Clean Development and Climate. It is available on the internet at http://www.usea.org/Programs/APP/APP_home.htm and is intended to be a living document. Due to the breadth of the subject matter, only a few best practices could be highlighted. While the handbook was compiled for India, the subject matter is germane in all countries and should be used accordingly.

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Glossary of Terms

Appendix A: Glossary of Terms


Active Anti-Islanding Scheme: A control scheme installed as part of the generating or interconnection facility that senses and prevents the formation of an unintended island. Applicant: A customer or entity that intends to apply or has applied to an electric utility for interconnection. Certification Test: A test that verifies conformance of certain equipment with approved performance standards in order to be classified as certified equipment. Certified Equipment: Equipment that has passed all required certification tests. Cogeneration: In India, cogeneration refers to electricity and steam production from bagasse at sugar mills. This handbook uses the Indian definition and lists combined heat and power separately. Combined heat and power (CHP): CHP is defined as the sequential production of electricity and thermal energy from a single primary energy source. CHP provides on-site generation of electrical and/or mechanical power; wasteheat recovery for heating, cooling, dehumidification, or process applications; and seamless system integration for a variety of technologies, thermal applications, and fuel types into existing building infrastructure. The overall efficiency of energy use can be up to 85% and above in some cases. Commissioning test: A test performed during the commissioning of all or part of a generating facility to achieve one or more of the following: Verify specific aspects of its performance; Calibrate its instrumentation; or Establish instrument or protective function set-points. Customer: The entity that receives or is entitled to receive distribution service through the distribution system. Dedicated transformer; dedicated distribution transformer: A transformer that provides electricity service to a single customer. The customer may or may not have a facility. Disconnecting device: Either a physical device such as a relay or switch, or a computer-controllable capability in electronic power equipment, designed to isolate a portion of the utility system and/or generator. Distributed generation (DG): Electricity production that is on-site or close to the load center and is interconnected to the utility distribution system. In India, distributed generation refers only to isolated generation systems that distribute power to consumers (like smart/mini grids) and are not connected with the grid. These DG systems may use even fossil fuels such as oil, gas, or coal. For the purpose of this handbook, the term distributed generation refers to interconnected systems. Distributed resource (DR): Synonym for distributed generation. Both terms can be used interchangeably. Distribution feeder: An electric line operated at voltages below 60 kV that serves to deliver power from a utility substation or other supply point to customers.

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Distribution service: All services required by, or provided to, a customer pursuant to the approved tariffs of the utility other than services directly related to the interconnection of a facility. Distribution system: All electrical wires, equipment, and other facilities owned or provided by the utility, other than interconnection facilities, by which the utility provides distribution service to its customers. Electric utility (utility): A person or authority that owns or operates equipment or facilities to produce, generate, transmit, distribute, sell, or furnish electricity for compensation; excluded from this definition are municipal corporations, power generation companies, exempt wholesale generators, power marketers, electric cooperatives, and retail electric providers. The utility can be vertically integrated or unbundled. Facility: A grid-connected electrical generating installation consisting of one or more on-site generation units. In this handbook, the facility can be renewable energy, distributed generation, cogeneration, or combined heat and power. Field testing: Testing performed in the field to determine whether equipment meets the utilitys requirements for safe and reliable interconnection. Generator: A device converting mechanical, chemical, or solar energy into electrical energy, including all of its protective and control functions and structural appurtenances. One or more generators comprise a facility. Harmonic distortion: Nonlinear distortion of a system or transducer characterized by the appearance in the output of harmonics other than the fundamental component when the input wave is sinusoidal. Host load: Electrical power that is consumed by the customer at the property on which the facility is located. IEEE: The Institute of Electrical and Electronics Engineers, Inc. In-rush current: The current determined by the in-rush current test. Interconnection; interconnected: The physical connection of a facility in accordance with the requirements so that parallel operation with the utilitys distribution system can occur (has occurred). Interconnection agreement: An agreement between the utility and the producer that gives certain rights and obligations to effect or end interconnection. Interconnection facilities: The electrical wires, switches, and related equipment that are required in addition to the facilities required to provide electric distribution service to a customer to allow interconnection. Interconnection facilities may be located on either side of the point of common coupling, as appropriate to their purpose and design. Interconnection facilities may be integral to a facility or provided separately. Interconnection study: A study to establish the requirements for interconnection of a facility with the utilitys distribution system. Inverter: A machine, device, or system that changes DC power to AC power.

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Island; islanding: A condition on the utilitys distribution system in which one or more facilities deliver power to customers using a portion of the utilitys distribution system that is electrically isolated from the remainder of the utilitys distribution system. Isolation device: A device in one circuit that prevents the malfunctions in one section of the circuit from causing unacceptable influences in other sections of the circuit or other circuits. kV: kilovolt, an amount of voltage equal to 1,000 volts. kW: kilowatt, an amount of power equal to 1,000 watts. Metering: The measurement of electrical power flow in kW and/or kWh, and/or energy in kWh, and, if necessary, kVAr at a point, and its display to the utility, as required. Metering equipment: All equipment, hardware, software including meter cabinets, conduit, etc., that are necessary for metering. Momentary parallel operation: The interconnection of a facility to the distribution system for one second or less. MW: Megawatt, an amount of power equal to one million watts. Nationally recognized testing laboratory (NRTL): A laboratory accredited to perform the certification testing requirements. Net generation metering: Metering of the net electrical power or energy output in kW or energy in kWh, respectively, from a given facility. This may also be the measurement of the difference between the total electrical energy produced by a generator and the electrical energy consumed by the auxiliary equipment necessary to operate the generator. Nonexport; nonexporting: Designed to prevent the transfer of electrical energy from the facility to the utility. Nonislanding: Designed to detect and disconnect from a stable unintended island with matched load and generation. Parallel operation: The operation of on-site distributed generation by a customer, while the customer is connected to the utilitys distribution system, either on a momentary or on a continuous basis. Periodic test: A test performed on part or all of a facility at a predetermined time or operational intervals to achieve one or more or the following: 1) verify specific aspects of its performance; 2) calibrate instrumentation; and 3) verify and re-establish instrument or protective function set-points. Point of common coupling (PCC): The transfer point for electricity between the electrical conductors of the utility and the electrical conductors of the producer. Point of interconnection: The electrical transfer point between a facility and the distribution system. This may or may not be coincident with the point of common coupling.

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Power factor: The ratio of the resistance to the impedance at power frequency of an equivalent circuit supposed to be formed by an inductance and a resistance in series. Power purchase agreement (PPA): An agreement for the sale of electricity by the producer to the utility. Precertified equipment: A specific generating and protective equipment system or systems that have been certified as meeting the applicable parts of this section relating to safety and reliability by an entity approved by the commission. Pre-interconnection study: A study or studies that may be undertaken by a utility in response to its receipt of a completed application for interconnection and parallel operation with the utility system. Pre-interconnection studies may include, but are not limited to, service studies, coordination studies, and utility system impact studies. Producer: The entity that executes an interconnection agreement with the utility. The producer may or may not own or operate the facility, but is responsible for the rights and obligations related to the interconnection agreement. Protective function(s): The equipment, hardware, and/or software in a facility (whether discrete or integrated with other functions) whose purpose is to protect against unsafe operating conditions. Reactive power: The reactive power is defined as the square root of the square of the apparent power minus the square of the active power. Reactive power is developed when there are inductive, capacitive, or nonlinear elements in the system. Reclosing: The act of automatically re-energizing a line in an attempt to quickly restore power to customers.

Renewable energy: Energy derived from natural processes that are replenished constantly. In its various forms, it derives directly from the sun, or from heat generated deep within the earth. In India, renewable energy includes electricity and heat generated from solar resources, wind, ocean, hydropower (up to 25 MW), biomass, waste-to-energy, geothermal resources, and biofuels.
SCADA (supervisory control and data acquisition): A smart distribution system, including remote terminal unit sensors, telemetry, or other communication capability and automated control of distribution system components. Stabilization; stability: The return to normalcy of the utilitys distribution system, following a disturbance. Stabilization is usually measured as a time period during which voltage and frequency are within acceptable ranges. Switchgear: An enclosed metal assembly containing components for switching, protecting, monitoring, and controlling electric power systems. Synchronous speed: The speed of rotation of the magnetic flux, produced by or linking the primary winding. System integrity: The condition under which a distribution system is deemed safe and can reliably perform its intended functions in accordance with the safety and reliability rules of the utility. Telemetering: The electrical or electronic transmittal of metering data in real-time basis to the utility.

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Total load: The sum of all customer loads on a distribution feeder. Transfer switch: An automatic or nonautomatic device for transferring one or more load conductor connections from one power source to another. Transfer trip: A protective function that trips a facility remotely by means of an automated communications link controlled by the utility. Unintended island: The creation of an island, usually following a loss of a portion of the utilitys distribution system, without the approval of the utility. Unsafe operating conditions: Conditions that, if left uncorrected, could result in harm to personnel, damage to equipment, loss of system integrity, or operation outside pre-established parameters required by the interconnection agreement. Utility grade relays: Relays specifically designed to protect and control electric power apparatus, tested in accordance with ANSI/IEEE standards. Visible disconnect: An electrical switching device that can separate the facility from the utilitys distribution system and is designed to allow visible verification that separation has been accomplished. This requirement can be met by opening the enclosure to observe the contact separation.

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Appendix B

Appendix B: Sample Power Purchase Agreements


Punjab
DRAFT POWER PURCHASE AGREEMENT FOR PURCHASE OF POWER FROM SOLAR PHOTOVOTAIC POWER PROJECTS (IPP) BEING SET UP UNDER NRSE POLICY-2006 FACILITATED BY PEDA I. This POWER PURCHASE AGREEMENT (hereinafter referred to as Agreement) is made on the_____ day of __________2006 at Patiala, Punjab (hereinafter referred to as the Effective Date) by and between M/s ------------------------------(hereinafter referred to as the Generating Company) which expression shall unless repugnant to the context or meaning thereof include its successors, administrators or permitted assigns as party of the first part and Punjab State Electricity Board , a body constituted under the provisions of the Electricity (Supply) Act-1948 having its head office at The Mall, Patiala (hereinafter referred to as the Board) which expression shall unless repugnant to the context or meaning thereof include its successors and assigns as party of the second part. Each of Board and Generating Company shall be referred to as a Party and collectively as Parties. II. WHEREAS, the Generating Company has been selected by Punjab Energy Development Agency (PEDA) Government of Punjab (GOP) to design, construct, own, operate & maintain _______ MW Solar Photovoltaic based Power Plant (hereinafter referred to as Project) in _________District __________in the State of Punjab, with an aggregate capacity of _____ MW as per details given in Annexure-I and has executed and signed a MOU dated ___________and an Implementation Agreement dated________ with Punjab Energy Development Authority (PEDA) to this effect for sale of the energy generated from the Project to the Board under the New & Renewable Sources of Energy (NRSE) Policy 2006 notified by the Government of Punjab. WHEREAS, the Punjab State Electricity Regulatory Commission (PSERC) has vide its order dated 13.12.07 approved the purchase of power by the Board from the NRSE projects located in the State of Punjab on the terms and at the rates approved in the said order under NRSE policy, 2006. III. WHEREAS the Company desires to sell to the Board electric energy generated in the Companys facility and the Board agrees to purchase all such energy offered by the Company for sale, upon the terms & conditions set forth therein. NOW, THEREFORE, in consideration of premises and mutual covenants and conditions set forth herein, it is hereby agreed by and between the Parties hereto as follows:1.0.0 DEFINITIONS In this Agreement unless the context otherwise requires or implies the following expressions shall have the meaning herein respectively assigned to them: Act means the Electricity Act, 2003 and includes any amendment thereof. Agreement means this Agreement together with all Annexures and Schedules and any amendments thereto made in accordance with the provisions herein contained. Approvals means the consents, licenses, permits, approvals and registrations by or with any Government agency or any other authority as may be necessary for setting up and operating the Project including but not limited to the approvals from GOP, Punjab Pollution Control Board (PPCB), Punjab Irrigation Department (PID), State Nodal Agency(s) for promotion of NRSE Projects, Punjab State Electricity Regulatory Commission. Board means the Punjab State Electricity Board. Boards Grid Sub-station means 66 or 132KV grid substation located at ______set up by the Board. Boards Load Despatch Centre means the State Load Despatch Centre located at 220KV Grid S/Stn. PSEB, Ablowal Patiala or such other Load Dispatch Centre authorized to issue Despatch Instructions to the Generating Facility of the Generating Company.

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Appendix B

Commencement of commercial operations means the date on which the project is capable of delivering Active Power and Reactive power on regular basis after having successfully completing the commissioning tests as per Prudent Utility Practices. Commission means the Punjab State Electricity Regulatory Commission. Conventional Source of Energy means sources conventionally used to generate electricity including interalia, coal, coke or any petroleum product, natural gas or any other similar source. Dispute means any dispute or difference whatsoever arising between the parties, out of or relating to the construction, meaning, scope, operation or effect of this Agreement, or the validity, breach or termination thereof. DPR means the Detailed Project Report prepared by the Company and as approved by PEDA or any revision thereof approved by PEDA. Debt Component means the Debt proposed to be raised from the Financial Institutions/Banks for financing a part of the project cost as per the D.P.R. Due Date means 30 days after receipt of invoice from the Board or the generating Company as the case may be. Duration of the Agreement means 30 ( thirty) years from the date of Commissioning of the project as per clause-12 of the agreement.Effective Date means the date of signing of this Agreement. Energy Unit means one Kilo Watt Hour (KWh) of electrical energy. Financial Closure means the first business day on which sufficient funds are available for the implementation of the project including Debt component. Generating Facility means the ___MW generating station comprising of ______units of _______MW capacity each located at __________. GOP means the Government of Punjab and includes all agencies and authorities under its control/ regulation including but not limited to PEDA, PID, and PPCB. GOI means Government of India and includes all agencies, authorities under its control/ regulation including but not limited to Ministry of non Conventional Energy Sources. Grid means the total system of electrical transmission circuits, transformers, switchgear and other equipment (including Interconnection Facilities) on the Boards side of Interconnection Point. Interconnection Facilities means all the facilities to be installed by the Generating Company on the Boards side of the Interconnection Point to enable the Board to provide stable and adequate start up power to the Generating Company and to receive and utilize power from the Project in accordance with this Agreement. Interconnection Point means the point at which interconnection is made between the Generating Companys Generation Facility and the Grid of the Board and shall be located on the High Voltage (HV) side of the Generating Facility of the Generating Company. Installed Capacity means ____MW which is the installed capacity of the Project as per the D.P.R. Invoice Date shall have the meaning ascribed to in Article 3.3.0 Monthly Invoice means the invoice required to be prepared in line with Article 3.2.0 of the Agreement. NRSE Policy, 2006 means the policy notified by GOP to incentivize the generation of power from new and renewable sources of energy and any amendment there to. Non Conventional source of Energy means sources other than conventional sources which are set out in NRSE Policy, 2006. Project means ____MW Solar Photovoltaic Power Project (Generating Facility) including all the land, civil structures, residential colony, electrical and mechanical plant and equipment, 11or 66KV switch yard (as the case may be) including transformer, breaker, CT/ PTs , wave traps, structures, isolators etc., dedicated telephone lines, telephone and wireless system, components, appurtenants, communications, access road off the village road, foot paths, carriage ways etc located at Village _________.

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Appendix B

Project Cost means the cost of setting up the project as per DPR. Prudent Practices means the Prudent Utility Practices applicable to Solar Photovoltaic Power Projects. Prudent Utility Practices means those practices, methods, techniques and standards as adopted from time to time that are generally accepted for use in electric utility industries taking into account applicable law, conditions in India and commonly used for the designing, construction, testing, operation and maintenance of the Generating Facility, lawfully, safely, efficiently and economically as applicable to the generating stations of the size, service and type being set up by the Generating Company and those generally conform to the manufacturers operation and maintenance guidelines. Site means village _____________ in District ________ where the Project is located. Scheduled Date of Synchronization means the date on which the project shall be synchronized with the Grid for first time, which shall be______days (______years) from the date of signing of this agreement (to be provided as per the MoU / Implementation Agreement signed with PEDA). State Grid Code: - State Grid Code notified by the Commission to which the generating utility has to comply in respect of its various sections. Term means the time period set out in Clause-12 of this Agreement. 2.0.0 ENERGY PURCHASE AND SALE 2.1.0 Sale of Energy by Generating Company. 2.1.1 The Board shall purchase and accept all energy made available at the Interconnection Point from the Generating Companys Facility, pursuant to the terms and conditions of this Agreement at the rate approved by the Commission in its order dated 13.12.07, which is set out below: (i) Rs. 7.71/-per unit (for the year2008-09) with 5% annual escalation up to 2011-12. At the end of the above specified escalation period, the tariff payable shall be the last escalated tariff for the year 20112012 and shall remain in force during the remaining term of the PPA. Any enhancement in tariff after the last escalation shall be as determined and approved by the Commission. (ii) This escalated tariff will be applicable from 1st day of April, 2008. The rate would be uniform throughout the day for the entire year. No additional payment shall on any account, be payable by the Board. 2.1.2 The Generating Company shall also generate matching MVARs corresponding to 0.88 PF lagging, so that there is no adverse effect on Boards system. Monthly average PF shall be computed from the ratio of KWH to KVAH injected into Boards system during the month. 2.1.3 In order to protect the interest of the Board and the consumers in general, the Generating Company shall continue to supply whole of the generated power to the Board at the rate prescribed in Article 2.1.1 above during the term of the Agreement. Further, the Generating Company will lay transmission line to the Boards Grid Sub Station only and will not be allowed to erect radial feeders to any other Distribution Licensees/Consumers/Sister Concern from its Generating Facility. 2.2.0 PURCHASE OF ENERGY BY GENERATING COMPANY 2.2.1 During construction of the project, the Generating Company shall purchase power from PSEB as per the then prevailing instructions for similar consumers of the Board. 2.2.2 The energy supplied to the Generating Company during the shut down/ start up and synchronization of the plant in any month, as measured at the Export Meter of PSEB (Import Meter of Generating Company) shall be set off from energy generated during that month and billing will be for the net energy sold to the Board. In case, there is no generation in the month, then energy exported to the Generating Company shall be set off from the energy generated during next month. But, if, there is no generation, even in the next month, then the energy exported to the Generating Company will be billed by the Board at the tariff applicable to LS Industrial consumers (General Category) or sale rate of energy generated from the Project applicable for that period, whichever is higher.

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Appendix B

3.0.0

BILLING PROCEDURE AND PAYMENTS: 3.1.0 The designated representative of the parties shall record joint readings of the meters at the Interconnection Point and at premises of third parties to whom power is being wheeled. The meter reading in the first instance shall be at the time of synchronization and thereafter at 12.00 Hrs. on the first day of every calendar month. Readings will also be recorded at 12.00 Hrs. on the dates the change of tariff becomes effective. Readings will be taken by Senior Executive Engineer (Sr. Xen)/Asstt. Executive Engineer/ Asstt. Engineer operation and CBC (to be specified at the time of signing of this Agreement depending upon the capacity of the project) in charge of the area, under which the Generating Facility and the premises of third parties fall. It will be the responsibility of the Sr.Xen(s) in charge of the area to designate two more officers for taking the reading in the event Sr.Xen(s) in charge of the area is not available. However, in the event Sr.Xen(s) in charge do not make themselves present, the Generating Company shall also contact SE(s) of the area who would ensure taking of the joint reading either by one or two of the designated officers or by himself. 3.2.0 Monthly energy account shall be prepared by the Board. This account shall depict energy delivered to the Board at the Interconnection Point, energy imported by the Generating Company during shut down/ start up of the Project and net energy sold to the Board during the month. In case wheeling and banking of power is undertaken by the Board under Clause 14.00 and 15.00 of this Agreement, then the monthly energy account will also include the quantum of power delivered by the Generating Company for wheeling, the quantum of power set off towards charges payable to the Board for wheeling the power and quantum of energy banked by the Generating Company, which shall be determined in terms of the agreement executed under the said clauses. In the event monthly energy account depicting energy delivered to/ supplied by Board, is not prepared and provided by the Board within two (2) working days then the Generating Company will be entitled to prepare the monthly energy account of its own under intimation to Board for the purpose of raising necessary invoices. However, if the monthly energy account involves accounting of energy wheeled and/ or energy banked, then in that case if the monthly energy account is not prepared by Board within four (4) working days then the Generating Company shall be entitled to prepare monthly energy account of its own under intimation to Board. Preparation of monthly energy account by the Generating Company in such case shall be subject to adjustment of verification of facts. 3.3.0 The monthly invoice pursuant to Clause 3.2.0 shall be delivered by the Generating Company to the Board at its designated office on or before the fifth day of the month hereinafter called the Invoice Date. However, if the energy account involves Wheeling/ Banking of energy, then the Monthly invoice shall be raised by the Generating Company on or before the seventh day of the month. If the Invoice Date i.e. fifth or seventh day of the month, as the case may be, happens to be a holiday then the Monthly Invoice will be submitted on the next working day. The Board shall make full payment of such Monthly Invoice within 30 days of receipt of the Monthly Invoice hereinafter called the Due Date On request of the Company in writing for early payment for a particular period, payment shall be made by PSEB within 7 days from the date of receipt of invoice for which a rebate of 2% on full payment shall be availed by the Board. All payments shall be made by Cheque payable at Patiala. 3.4.0 In case there is no Generation at the Generating Facility, the Monthly Invoice Pursuant to Clause 2.2.3 shall be delivered by the Board to the Generating Company at its designated office on Invoice Date and shall be paid by the Generating Company by the Due Date by cheque payable at Patiala. 3.5.0 In case the payments are delayed beyond the Due Date, the Board and the Generating Company would be liable to pay interest for the delayed amount as per State Bank of India short term Prime Lending Rate as applicable from time to time plus 2% for the actual period of delay.

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3.6.0 Board will provide to the Generating Company, an irrevocable and revolving Letter of Credit (LC) issued by any Nationalized Bank equal to one months bill amount, calculated in accordance with terms set out in Clause 3.7.0 of this Agreement, subject to the condition that all kinds of LC charges will be borne by the Generating Company. 3.7.0 For the first year of the operation of the Generating Facility, after synchronization, the amount of quarterly LC shall be determined on the basis of the quarterly designed energy of the Generating Facility, as per the detailed Project Report.. Thereafter the amount of quarterly LC shall be based on the monthly average of the bills for three (3) months for the corresponding period last year. 3.8.0 The Board reserves the right to make direct payment of any bill by cheque before or on the Due Date of payment in which case, the Generating Company shall not present the bill for payment against the Letter of Credit. 4.0.0 PARALLEL & INTEGRATED OPERATIONS 4.1.0 The Board shall allow the Generating Company to interconnect its Generating Facility and operate it in parallel with the Boards system subject to the terms and provisions of this Agreement. The Generating Company shall run the Generating Facility as a part of the integrated system to generate power in parallel with the grid and shall inject three phase 50 Hz (nominal) AC Supply into Boards system at 11/66KV The Generating Company shall be under an obligation to comply with directions received . from the Boards Load Dispatch Centre. 5.0.0 GENERATION FACILITIES-OPERATION & MAINTENANCE 5.1.0 The Generating Company shall be responsible for obtaining and keeping in force at its own cost, all consents, clearances and permits required for establishing and operating the Generating Facility viz clearances from National Airport Authority, Competent Authority for Environment & Forests, Chief Electrical Inspector etc. required for keeping each unit of Generating Facility in operation in accordance with the terms of this Agreement through out its operation period. 5.2.0 The Generating Company shall be responsible at its own expense for ensuring that the Power Station is operated and maintained in accordance with all legal requirements including the terms of all consents/clearances /permits and Prudent Utility Practices within the acceptable technical limits so as not to have an adverse effect on the Grid system or violation of applicable law or violation of any provision of State Grid Code. 5.3.0 The terms and conditions of employment of Personnel employed by the Generating Company shall meet all applicable laws, rules, regulations and requirements in force from time to time in the State of Punjab/Union of India. 5.4.0 Board shall have the right to designate from time to time its officers/officials who shall be responsible for inspecting the Generating Facility for the purpose of verifying the Generating Companys compliance with this Agreement. 5.5.0 The details of the following procedures and requirements shall be supplied by the Generating Company to the Board as soon as possible, but in no event later than 30 (Thirty) days prior to the Scheduled Date of Synchronization:i) Detailed procedure for synchronization of the Generating Facility with the Boards Grid under different conditions of operation. ii) Shut down and start-up procedures. 5.6.0 The Generating Company shall carry out regular maintenance and overhauls of the Generating Facility as per recommended schedules and procedures of the equipment suppliers. The schedule of maintenance and overhauls which require a shut down of the Generating Facility shall be intimated to the Boards Load Dispatch Centre to which the Generating Facility is attached. However, capital maintenance/major overhaul of the Generating Facility shall not be scheduled in Paddy Season i.e. 15th June to 15th October of any year as far as possible.

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6.0.0

7.0.0

The Generating Company shall supply the particulars of the generator as well as Generator Transformer and control gear to the Board for examining stability of Generating Facility. The Generating Company shall also install and whenever required, augment the equipment at its own cost to match it with the fault level of Boards system during the tenure of this Agreement. 5.8.0 The Generating Company shall use all reasonable efforts to give advance notice to the Board to the extent possible of any unscheduled outage and shall provide the Board with an estimate of duration and scope of such outage. 5.9.0 For matters relating to grid operations and load dispatch, the directions of the Boards Load Dispatch Centre or any other officer which may be authorized by the Board shall be strictly complied with by the Generating Company. Any dispute on this account shall be referred to Chief Engineer In Charge System Operation & Communication Organization whose decision shall be final. 5.10.0 Open Access and Other Charges:The Open Access and other fees, charges, Surcharges, if any shall be leviable as per Open Access Regulations as approved by PSERC for NRSE Projects. SYNCHRONISATION AND INTERCONNECTION FACILITIES. 6.10 The synchronization equipment will be installed by the Generating Company at its Generating Facility at its own cost. Generating Company shall synchronize its system with the Boards system only after the approval of synchronization scheme is granted by Chief Engineer (C.E), Sub-Station of the Board and checking/verification is made by the concerned Senior Executive Engineer (Sr. Xen), Protection of the Board. The Generating Company shall, immediately after each synchronization/ tripping of generator, inform the grid substation to which the Generating Facility is electrically connected. 6.2.0 The Generating Company shall provide step up transformers, panels, kiosks, protection & metering equipment at the Generating Facility and fully equipped line bay(s) in its switch yard for termination of interconnecting transmission line(s) of the Board. The Generating Company shall also provide proper and reliable communication between the generation facility and Grid Sub-Station of the Board where power is to be delivered by the Generating Facility. The cost of these works will be borne by the Generating Company. 6.3.0 The Generating Company shall provide and maintain at its own cost required transmission line(s) from the Switch Yard of the Generating Facility to the nearest technically feasible Boards Grid Sub-Station. Associated equipment (s) at Boards Grid Sub-Station for accepting energy from the Generating Facility shall be provided and maintained by the Board. However, the Board may take up as deposit work, construction of transmission line/works for evacuation of power on behalf of the Generating Company on their specific request for which the cost of transmission line/works shall be deposited by the Generating Company within one month from the date of achieving financial closure of the Project. 6.4.0 The Generating Company and the Board shall consult with each other and jointly decide on the scheme for protection of the interconnection line (s) and of the facilities at both its ends. All electric equipments installed shall be consistent with the orders of the Chief Electrical Inspector, Government of Punjab. 6.5.0 Notwithstanding the provisions of this Agreement, the Board will not be responsible for any damage that may occur to the Generating Facility with the Boards system. PROTECTIVE EQUIPMENT & INTERLOCKING 7.1.0 The Generating Company shall provide necessary protective equipment and interlocking devices at Generating Facility, so co-ordinated that no adverse effect is caused to Boards Grid System. The Generating Company shall obtain approval of the Board for the protection logic of the generator system and synchronization schemes and any modification thereto subsequent to commissioning of the Generating Facility.

5.7.0

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8.0.0

9.0.0

The Generating Company shall energize its equipment/synchronizing scheme only after the approval of the Chief Engineer (C.E) Protection & Maintenance of the Board at the time of commissioning and thereafter and rectification of the defects/observations pointed out by him. Routine checking/ testing shall be carried out of the Generating Companys substation/equipment on the same basis as is being done for Boards Sub-Station. 7.3.0 Testing charges shall be borne by the Generating Company for commissioning as well as routine checking. 7.4.0 Notwithstanding such checking/verification in any event, the Board shall not be responsible for any damage caused to the Generating Facility on account of any mistake in such checking/verification. LIAISON WITH AND ASSISTANCE FROM THE BOARD 8.1.0 The Generating Company shall closely liaise with the Boards Load Dispatch Centre and/or other designated officers/officials of the Board during the Term of this Agreement. During the term of this Agreement the Generating Company shall give seven (7) days prior intimation of synchronizing programme for the first time, after completion of its annual maintenance programme and also furnish in the last week of every month supply plan indicating the total quantum of electricity likely to be delivered in the next month. 8.2.0 The Generating Company shall also inform the date of commencement of delivery of power, one month in advance and arrange for testing and commissioning of the protection system before synchronization. METERING 9.1.0 ABT compliant Energy Meters (export and import) of 0.2S class or better accuracy meeting with the specification laid down in State Grid Code for use on IPP/CPP generating plants shall be installed at Interconnection Point by the Generating Company, capable of recording and storing 15 minutes averages of all the Electrical Parameters for a minimum of 45 days (hereinafter called Main Meters). Similar meters, (export and import) of the same accuracy shall be installed by the Generating Company at the Grid Substation of PSEB where power is received (hereinafter called Check Meter). Dedicated Current Transformers (CTs) and Potential Transformers (PTs) of 0.2S class or better accuracy shall also be made available by the Generating Company at the Interconnection Point. 9.1.1 One set of metering equipment having 0.2S or better accuracy class and features identical to those described in Clause 9.1.0 above should also be provided in the premises of each of the third parties. 9.2.0 All the Meters, CTs and PTs described in Clause 9.1.0 above shall be jointly inspected and sealed on behalf of both Parties and shall not be interfered with except in the presence of the representatives of both Parties. For testing and calibration of meters, a notice of at least seven (7) days shall be given by the Party requesting for the testing, to enable the authorized representatives of both the Parties to be present. 9.3.0 All meters, CTs & PTs shall be checked in Boards Laboratory and effectively sealed by Board and the Generating Company jointly for accuracy prior to commissioning and once in every six (6) months by both Parties and shall be treated as working satisfactorily so as long the errors are within the limits prescribed for such meters. 9.4.0 Meter readings of the Main Meters will form the basis of billing, so long as the half yearly checks there of are within the prescribed limit. If either of the meters is found to be defective during these checks they will be immediately calibrated. 9.5.0 Where the half yearly check indicates errors in the Main Meters beyond the prescribed limit but no such error is noticed in the Check Meters, billing for the month up to the date & time of such test check will be done on the basis of Check Meters and the Main Meters will be re-calibrated immediately. Billing for the period after the Main Meters are calibrated shall be as per the calibrated meters.

7.2.0

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9.6.0 If during the half yearly checks, both the Main Meters and the Check Meters are found to be beyond permissible limits of error, the meters shall be immediately re-calibrated and the correction shall be applied to the consumption registered by the Main Meters to arrive at the correct consumption of energy for billing purposes for the period of the month up to the time of such check, billing for the period thereafter till the next monthly meter reading shall be measured by re-calibrated Main Meters. 9.7.0 Corrections in billing, whenever necessary, shall be applicable to the period between date and time of the previous last test calibration and the date and time of the test calibration in the current month when the error is observed and this correction shall be for the full value of the absolute error. For the purpose of the correction to be applied the meter shall be tested at 100, 75, 50, 25 and 10 percent load at unity, 0.85 Lag and 0.75 lag power factors. Of these fifteen values, the error at the load and power factor nearest the average monthly load served at the point during the period shall be taken as the error to be applied for correction. 9.8.0 The billing will be normally done on the basis of readings recorded by the meters installed at the interconnection Point (Main Meters). In case, the metering equipment at the Interconnection Point becomes defectives, the billing shall be done on the basis of meter readings of the meters installed at Boards Grid substation. The defective metering equipment shall however be replaced by the Generating Company within two (2) months of the detection of the defect by either party. 9.9.0 If both the Energy Meters located at the Interconnection Point and Boards Grid Substation fail to record the electricity supplied then the electricity supplied will be computed from the log sheets maintained at Boards Grid Substation for that period of defect which shall be final and binding on both Parties. 9.10.0 For the purpose of test and calibration, the sub standard meter shall be got calibrated and sealed from a reputed Govt. testing Laboratory. This meter shall be calibrated once in every 2 years. 9.11.0 In addition to the above metering clauses the Generating Company has to comply with the State Grid Code (Meter Section). 10.0.0 COMMISSIONING OF GENERATING FACILITY 10.1.0 The Generating Company shall commission the Generating Facility and synchronize with the Boards Grid which shall be______days (______years) from the date of signing of this agreement (to be provided as per the MoU / Implementation Agreement signed with PEDA). 11.0.0 CONTINUITY OF SERVICE 11.1.0 The Board may require the Generating Company to temporarily curtail or interrupt deliveries of energy only, when necessary in the following circumstances;11.1.1 For repair, replacement and removal of the Boards equipment or any part of its system that is associated with the Generating Companys facility. However, as far as practicable such an event shall be scheduled during the annual shut-down period of the Generating Facility. 11.1.2 Load crash in Boards Grid System due to wide spread rains, cyclones or typhoons. 11.1.3 Conditions leading to over - loading of interconnecting transformers, transmission lines and Switchgears due to outage of some equipment at the Boards interconnecting Grid. 11.1.4 If the Board determines that the continued operation of the Generating Facility may endanger the safety of the Boards personnel or integrity of the Boards electric system or have an adverse effect on the electric service to the Boards other customers. 11.1.5 Under Force Majeure Conditions of the Board. 11.1.6 In line with directions received from the Boards Load Dispatch Centre. 11.1.7 Instructions for the disconnection of the Generating Facility from the Boards system shall be notified by the Boards Load Dispatch Centre for the period/ duration indicated by it. However, the Board shall take all reasonable steps to minimize the number & duration of such interruptions, curtailments or reductions.

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12.0.0 TERM OF THE AGREEMENT 12.1.0 Except where terminated by default, this Agreement shall remain in force for a period of 30 (Thirty) years from the date of commissioning of the Project, which could be extended through mutual agreement. 13.0.0 EVENTS OF DEFAULT AND TERMINATION 13.1.0 The occurrence of any or combination of the following events at any time during the term of this Agreement shall constitute an Event of Default by the Generating Company:a) Failure to pay to the Board any amount payable and due under this Agreement within sixty (60) calendar days after receipt of Monthly Invoice, or b) Failure on the part of the Generating Company to use reasonable diligence in operating, maintaining or repairing, the Generating Facility, such that the safety of persons and property, the Boards equipment or the Boards service to others is adversely affected, or c) Failure or refusal by the Generating Company to perform its material obligations under this Agreement, or d) Failure to use Solar Photovoltaic Energy Sources for generation of power as per NRSE Policy 2006. e) Abandonment of its Generating Facility by the Generating Company or the discontinuance by the Generating Company of service covered under this Agreement unless such discontinuance is caused by Force Majeure or an event of default by the Board. 13.2.0 The occurrence of any of the following at any time during the term of this Agreement shall constitute an Event of Default by the Board: a) Failure to pay to the Generating Company any amount payable and due under this Agreement within sixty (60) calendar days after receipt of Monthly Invoice, or b) Failure to use reasonable diligence in operating, maintaining or repairing the Boards interconnecting facilities, such that the safety of persons or property, the Generating Companys equipment or the Generating Company is adversely affected, or c) Failure or refusal by the Board to perform its material obligations under this Agreement. 13.3.0 Except for failure to make any payment due within sixty (60) calendar days after receipt of Monthly Invoice, if an Event of Default by either party extends for a period of sixty (60) calendar days after receipt of any written notice of such Event of Default from the non-defaulting party, then the non defaulting party may, at its option, terminate this agreement by delivering written notice of such termination to the party in default. (i) If the default pertains to the Board, then provisions of Article 14.0.0 and 15.0.0 below shall apply. (ii) If the default pertains to the Generating Company the Board may at its option: a) Require the Generating Company to cure the default and resume supply to the Board within sixty (60) days of receipt of notice from the Board. b) If the Generating Company is unable to cure the default and resume supply within the stipulated time frame and in consequence thereof, the Project is sold or transferred or assigned to any third party, in compliance with the provisions of any agreement(s) executed by the Generating Company with any third party for raising equity/debt for the Project or in terms of the Implementation Agreement executed with PEDA, require such third party to cure such Generating Company Default and resume supply from the Generating Facility to the Board for the remaining Term of the Agreement. c) Terminate the Agreement. iii) The parties agree that all third parties, successors and permitted assigns of the Generating Company shall be bound by the provisions of this Agreement which shall be binding and have full force, and effect on such third parties.

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If the supply is not resumed at the Generating Facility by the Generating Company or by the third party (who takes over the Generating Facility from the Generating Company) in accordance with Clause 13.3.0 (ii) (b) of this Agreement, the Board shall be well within its rights to approach PSERC for deciding the compensation payable to Board for purchase of costly power from the Generating Facility in the initial years of this PPA and not supplying power to PSEB for entire period of the Agreement in line with PSERC decision dt. 13.12.07. 13.4.0 The non-defaulting party may also institute such legal action or proceedings or resort to such other remedies as it deems necessary. 13.5.0 Failure by either the Board or the Generating Company to exercise any of its rights under this Agreement shall not constitute a waiver of such rights. Neither Party shall be deemed to have waived any failure to perform by the other unless it has made such waiver specifically in writing. 13.6.0 Either the Board or the Generating Company may terminate this Agreement upon notice to the other party, if the Generating Facility fails to begin producing electric energy within three (3) years from the planned commercial operational date. 14.0.0 WHEELING OF POWER 14.1.0 Only in the event of default by the Board as provided under clause 13.3.0 (i) of this Agreement, the Board will subject to and in accordance with directions, orders or regulations issued by the Commission provide access to its Transmission and Distribution System for wheeling of power generated at the Generating Facility to the third parties under separate tripartite agreement among, Generating Company, Board and third party and at a uniform wheeling charges @ 2% of the energy injected into Boards Grid, for wheeling purposes. These wheeling charges will be applicable irrespective of the distance of the third party from the Generation Facility. The Generating Company would not sell power at any time to any third Party consumer(s) at a rate lower than the Boards tariff/rate applicable to such consumer(s). The third Party shall be existing 11 KV or high voltage consumers of the Board having a minimum load of one (1) mega watt (MW) and shall include only those consumers to whom open access has been allowed by the Commission and who are entitled to enter into agreement for supply or purchase on mutually acceptable conditions. 14.2.0 The tripartite agreement for sale of power to third parties shall be initially for a period not exceeding 6 months extendable for 6 months each time until the default is cured by the Board. After rectification of the default, the Board shall inform the Generating Company. The Generating Company in such an event shall resume power supply to the Board after the expiry of the then existing tripartite agreement. 14.3.0 The Generating Company shall also bear transmission and distribution losses, surcharges, operation charges, additional surcharges, UI Charges and reactive energy charges and/or any other charge/cess specified by the Commission as per Open Access Regulations framed by the Commission for such wheeling of power to third parties from New & Renewable Sources of Energy (NRSE) based power projects. 14.4.0 The quantum of energy towards charges for wheeling of power as per clause 14.1.0 and 14.3.0 above shall be deducted from the energy delivered to the Board system for wheeling as measured at the Interconnection Point and monthly energy account pursuant to clause 3.2.0 shall be prepared by the Board accordingly. 14.5.0 For the energy delivered by the Generating Company and wheeled to third parties, the Generating Company shall raise Monthly Invoices on the party(ies) directly. For the energy sold by the Board to third parties, bills shall be raised by the Board directly on third parties as per applicable commercial instructions issued by the Board and the applicable tariff.

iv)

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14.6.0 Out of the energy delivered by the Generating Company to the Board for wheeling to consumers, the quantum of energy not used by the consumers, shall be treated as energy banked with Board in terms of Clause 15.0.0. 14.7.0 The third Parties would continue to be governed by commercial instructions in respect of their agreements with Board already executed including monthly minimum charges. 15.0.0. BANKING OF POWER Only in the event of default by the Board as provided under Clause, 13.3.0 (i), facility for banking of the power generated shall be allowed to the Generating Company for a period of one year by the Board. Further, the Generating Company willing to avail facility of banking of Power would indicate every month the energy offered to Board for wheeling and to be banked. During the period starting from 15th June to 15th October of every year, no drawl of energy will be allowed. Chief Engineer (C.E.), In charge of the System Operation Organization of the Board may allow drawl of banked energy during this period at his option and if Board does not allow drawl of banked energy, during the whole or part of the said period, the period of one year will be extended accordingly. 16.0.0 DISPUTES AND ARBITRATION 16.1.0. Both Parties shall comply with the provisions of this Agreement and discharge their respective obligations. In the event any Dispute arises out of or in connection with any of the terms of this Agreement between the Parties, hereto, the Parties shall attempt resolving the Dispute by mutual discussions, to be held between designated representatives of the Generating Company and the Chief Engineer In charge/System Operation& communication Organization or any other officer authorized by him. In case the Dispute remains unresolved, it shall be resolved in accordance with the provisions of Clause 16.2.0. 16.2.0 All Disputes between the Parties arising out of or in connection with this Agreement which the Parties are unable to resolve by mutual discussions in terms of procedure set out in Clause 16.1.0, shall be determined by arbitration, by such person or persons as the Commission may nominate in that behalf on receipt of application by either party (unless it is otherwise expressly provided in the license issued to the Board or its successor entity) in terms of provisions of the Electricity Act, 2003. The venue for arbitration shall be Patiala, Punjab. 16.3.0 The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act 1996 as amended from time to time. 16.4.0 Notwithstanding the existence of any question, disputes and difference referred to arbitration the Parties hereto shall continue to perform their respective obligation under this Agreement and the payment of any bill preferred shall not be with held by the Board for any reason whatsoever including the pendency of the arbitration. 17.0.0 INDEMNIFICATION 17.1.0 The Generating Company shall indemnify, defend and hold harmless the Board and its Members, Directors, Officers, employees and agents and their respective heirs, successors, legal representatives and assigns from and against any and all liabilities, damages, costs expenses (including attorneys fees), losses, claims, demands, action, cause of action, suits and proceedings of every kind, including those for damage to property of any person or entity (including the Co.) and/or for injury to or death of any person (including the Generating Companys employees and agents) which directly or indirectly result from or arise out of or in connection with negligence or willful misconduct of the Generating Company. 17.2.0 The Board shall indemnify and hold harmless the Generating Company and its Directors, Officers, employees and agents and their respective heirs, successors, legal representatives and assigns, from and against any and all liabilities, damages, costs, expenses (including outside attorneys fees), losses, claims, demands actions, cause of action, suits and proceedings of every kind, including those for

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damage to the property or any person or entity (including the Board) and/or injury to or death of any person (including the Boards employees and agents) which directly or indirectly result from partial/ total grid failure or arise out of or in connection with the negligence or willful misconduct of the Board. 18.0.0. ASSIGNMENT 18.1.0 This Agreement may not be assigned by either the Board or the Generating Company, without the consent in writing of the other party, except that either party may assign its rights under this Agreement, or transfer such rights by operation of law, to any corporation with which or into which such party shall merge or consolidate or to which such party shall transfer all or substantially all of its assets provided that such assignee or transferee shall expressly assume, in writing, delivered to the other party to this Agreement, all the obligations of the assigning or transferring party under this Agreement. 19.0.0 FORCE MAJEURE 19.1.0 If any party hereto shall be wholly or partially prevented from performing any of its obligations under this Agreement by reason of or on account of lightning, earthquake, fire, floods, invasion, insurrection, rebellion, mutiny, civil unrest, riot, epidemics, explosion, the order of any court, judge or civil authority, change in applicable law, war, any act of God or public enemy or any other similar cause or reason reasonably beyond its control and not attributable to any negligent or intentional act, error or omission, then such party shall be excused of its obligations/liabilities under this Agreement and shall not be liable for any damage, sanction or loss resulting there from to the other party. 19.2.0 The party invoking this clause shall satisfy the other party of the existence of any Force Majeure event and give written notice within seven(7) days of the occurrence of such Force Majeure event to the other party and also take all reasonable and possible steps to eliminate, mitigate or overcome the effect and consequence of any such Force Majeure event. 19.3.0 In the event of a Force Majeure event or conditions, any payment due under this Agreement shall be made as provided herein and shall not be withheld. 20.0.0 AUTHORITY TO EXECUTE 20.1.0. Each respective party represents and warrants as follows:20.2.0 Each respective party has all necessary rights, powers and authorities to execute, deliver and perform this Agreement. 20.3.0 The execution, delivery and performance of this Agreement by each respective party will not result in a violation of any law or result in a breach of any government authority, or conflict with or result in a breach of or cause a default under any agreement or instrument to which either respective party is a party or by which it is bound. No consent of any person or entity not a party to this Agreement, including and government authority is required for such execution, delivery and performance by each respective party. 21.0.0 LIABILITY AND DEDICATION 21.1.0 Nothing in this Agreement shall create any duty or standard of care with reference to or any liability to any person not a party to it. 21.2.0 No undertaking by one party to the other under any provision of this Agreement shall constitute the dedication of that partys system or any portion thereof to the other party or to the public or effect the status of the Board as a public utility or constitute the Generating Company or the Generating Facility as a public utility.

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22.0.0 NODAL AGENCY OF THE BOARD 22.1.0 Chief Engineer In charge/System Operation Organization of the Board shall act as a nodal agency for implementing this Agreement. 23.0.0 AMENDMENTS 23.1.0 Any waiver, alteration, amendment or modification of this Agreement or any part hereof shall not be valid unless it is in writing and signed by the Parties. 24.0.0 BINDING EFFECT 24.1.0 This Agreement shall be binding upon and enure to the benefit of the Parties hereto and their respective successors, legal representatives and permitted assigns. 25.0.0 NOTICES 25.1.0 Any written notice provided hereunder shall be delivered personally or sent by registered post acknowledgement due or by Courier for receipted delivery with postage or courier charges prepaid to the other party at the following address: Board: Before commissioning of the Project: Chief Engineer (Hydel Projects) (Investment Promotion Cell) A-4, Shakti Vihar, PSEB, Patiala 147001. Ph: 0175-2215415/2220784 Telefax: 0175-2207753/2220784 After commissioning of the Project Chief Engineer/System Operation & Communication, SLDC Building, 220 KV Grid Sub-Station, PSEB, Ablowal, Patiala. Phone: 0175-2366007 Fax: 2367490 Generating Company: M/S Phone

E-mail:

Notice delivered personally shall be deemed to have been given when it is delivered to the Generating Company at address set forth above and actually delivered to such person or left with a responsible person in such office. Notice sent by post or Courier shall be deemed to have been given on the date of actual delivery as evidenced by the date appearing on the acknowledgement of delivery. 25.2.0. Any party hereto may change its address for written notice by giving written notice of such changes to the other party hereto. 26.0.0. EFFECT OF SECTION HEADINGS 26.1.0. The headings or titles of the several sections hereof are for convenience of reference and shall not effect the construction or interpretation of any provision of this Agreement. 27.0.0. NON-WAIVER No delay or forbearance of either party in the exercise of any remedy or right will constitute a waiver thereof and the exercise or partial exercise of remedy or right shall not preclude further exercise of the same or any other remedy or rights.

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Appendix B

28.0.0. RELATIONSHIP OF THE PARTIES 28.1.0 Nothing in this Agreement shall be deemed to constitute either party hereto as partner, agent or representative of the other party or to create any fiduciary relationship between the Parties. 29.0.0. ENTIRE AGREEMENT 29.1.0 This Agreement constitutes the entire understanding and Agreement between the Parties. 30.0.0. GOVERNING LAW 30.1.0 This Agreement shall be governed by and construed in accordance with applicable laws of the State of Punjab. 31.0.0.NO PARTY DEEMED DRAFTER The parties agree that no party shall be deemed to be drafter of this Agreement and that in the event this Agreement is ever construed by arbitrators, or by a court of law, they shall not construe this agreement or any provision hereof against either party as the drafter of the Agreement. The Board and the Company acknowledging that both parties have contributed substantially and materially to the preparation of this Agreement. 32.0.0. USE OF NON CONVENTIONAL ENERGY SOURCES: 32.1.0. The Generating Company will produce power using only Solar Photovoltaic energy sources for which the project has been approved. A suitable proforma shall be devised at least one month before commissioning of the Project through which Generating Company shall report on a monthly basis the continuous use of non-conventional sources(s) for which the Project has been approved for the power generated and sold to the Board. Occasional checks shall be executed by the Board to ensure the use of non-conventional source usage. In case the Generating Company is found using sources other than these, Board shall be well within its right to get the tariff rates revised suitably by making reference to Commission. 33.0.0. APPROVAL 33.1.0. Wherever either Board or Generating Company approvals are required in this Agreement, it is understood that such approvals shall not be unreasonably withheld. 34.0.0. FURTHER INSTRUMENTS 34.1.0. Each of the Parties agrees to execute and deliver all such further instruments and to do and perform all such further acts and things, as shall be necessary and required to carry out the provisions of this Agreement and to consummate the transactions contemplated hereby.

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Appendix B

35.0.0. INTERPRETATION 35.1.0 The headings used in this Agreement are inserted for convenience of reference only and shall not effect the interpretation of the respective clauses and paragraphs of this Agreement. (a) This Agreement has been executed in the English language only and thus the English language shall be the controlling language for interpretation thereof. (b) This Agreement together with the Annexure constitutes the whole and only Agreement as at the date hereof between the Parties with respect to the subject matter described herein. IN WITNESS WHERE OF, the Board and the Generating Company have executed this Agreement as of the____ day of_________, in the year 2008. For the Generating Company by For the Board by

Its

Its

Witness by: Name: Designation Address:

Witness by: Name: Designation Address:

ANNEXURE-I DETAILS OF _________________SOLAR PHOTOVOLTAIC POWER PROJECT. S.No. Name of Project District Capacity (MW) Commissioning Schedule Feeding Grid of Board Remarks.

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Appendix B

United States
PG&E Schedule E-SRG and a Small Generator PPA for purchases of renewable generation for eligible facilities. <http://www.pge.com/tariffs/tm2/pdf/ELEC_SCHEDS_E-SRG.pdf>. Power Purchase Agreement Between Del Marva Power and Light Company and Bluewater Wind Delaware LLD. <http://www.ocean.udel.edu/Windpower/DE-Qs/Delmarva-Bluewater-PPA-10-December-07.pdf>.

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References

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Websites:
American National Standards Institute http://www.ansi.org/ American Wind Energy Association http://www.awea.org Danish Wind Industry Association http://www.windpower.org/en/futuresupply.htm Database of State Incentives for Renewables and Efficiency http://www.dsireusa.org IEEE http://www.ieee.org Interstate Renewable Energy Council http://www.irecusa.org/ Mid-Atlantic Distributed Resources Initiative (MADRI) http://www.energetics.com/madri/ Ministry of New and Renewable Energy http://mnes.nic.in Reegle - the Information Gateway for Renewable Energy and Energy Efficiency http://www.reegle.info Solar Energy Industries Association http://www.seia.org World Institute for Sustainable Energy (WISE) http://www.wisein.org

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