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Renewable Energy Certificates to boost Green Power, Shri R V Shahi, Former Secretary, Ministry of Power

In preparations for the Copenhagen Conference on Climate, environment issues are hoting up all over the world. In India, this subject has been under intense debate for last about an year and a half, pursuant to the Fourth Report of the Inter-governmental Panel on Climate Change (IPCC). India and China have been under particular focus because of the massive capacity addition programmes, both these countries are pursuing, most of which are based on fossil fuels. There is pressure on these two countries, by several groups of countries, to contain, to the extent possible, the carbon emissions. India's position so far has been that since India is very favourably placed in terms of per capita CO2 emissions, and since it has to go a long way in energy development programmes to provide to its people a reasonable level of energy, it may not be possible for India to accept any emission cuts nor is it justified. This consistent view has been appreciated by all such countries which are also in similar or worse situations of relatively poor levels of energy consumption. Developed countries, on the other hand, have been having a different view on India's position, and it is this which has been causing considerable pressure on India.

The National Action Plan on Climate Change is a very comprehensive document and it has captured all the issues and initiatives that the country could consider and take to mitigate the climate change concerns. The targets fixed in the National Action Plan themselves are very tough to achieve, atleast in the time frames which have been stipulated. Yet, while there are many takers of India's approach, there are others who seem to think that India should also, like other advanced countries, accept emission cuts. For the first time, today's newspapers have carried a piece on India's Environment Minister himself advocating that India should consider taking emission cut targets. The Environment Minister has said that a letter from him to the Prime Minister is a privileged document and that it is surprising how it has reached the Press. There has been no contradiction from him that such a suggestion has not been made by the Environment Ministry. Therefore, a substantial shift in India's consistent position on this issue appears to be reaching near a reality unless it is protested and resisted by all concerned in the country.

In any case, it is in the long term interest of the energy development programmes in India that appropriate actions are taken, so that generation of CO2 emissions is minimised. Inevitability of enlarging the electricity generation in the country over next 25-30 years at a rate of growth of 8-10% cannot be questioned. Similarly, the fact that there is no alternative than to diversify various energy sources and harness all sources of energy is also imperative. It has been established that even though India's electricity generation programmes aim at harnessing all available potentials from water energy, gas, nuclear, wind etc., the power generation programmes continue to remain fossil fuel centric. Therefore, the next best that needs to be done, and is planned to be done, is that even from the fossil fuels including coal, the best available technologies, in a cost effective manner, are attempted to be deployed in the power generation process.

In the short and medium term, the capital cost and, therefore, cost of power that can be produced from various renewable energy sources would be higher. We need to, therefore, incentivise all such organisations as commit themselves to get into electricity generation from these resources. So far various Policies of the Government have been structured aiming at such an objective and with reasonably good degree of success. Considering that our electricity generation programmes are entering a different orbit of growth which may be following a graph the level of 8-10%, we need to revisit our Incentive Schemes on renewable energy, so that they continue to catch up with the conventional power generation process. In the existing power sector profile, in terms of capacity, excluding hydro electric projects, the renewable power constitutes about 10%, and inclusive of hydro electric power capacity, the proportion is about 35%. However, we need to take note of the fact that the proportion of power generation from hydro projects is about 17% (compared to capacity of 25%), and in case of other renewables the percentage of generation is 3% (compared to capacity of 10%). How to ensure that there is no slide in the shares of hydro and other renewable generation, in a longer term time frame, is really a challenge. As a matter of fact, attempts have to be made, so that these proportions are enhanced.

It is in the above background that Infraline Energy organised a Round Table on 'Renewable Energy Certificates: Opportunities and Challenges' on 14th October, 2009. I co-ordinated these discussions. The instrument of Renewable Energy Certificates has the potential to promote renewable energy generation. The Central Electricity Regulatory Commission, on the basis of a comprehensive study carried out by a consulting organisation, has come out with a draft approach paper on the subject, which needs to be debated and discussed, so that an appropriate policy framework emerges. The National Action Plan on Climate Change has set a target of 5% renewable energy purchase for the year 2009-10 and the target is to increase it by 1% every year for next ten years. Thus, in a ten year time frame the percentage of renewable energy purchase as compared to the total is targeted to be 15%. Obviously, in these targets the power generated from hydroelectric plants has not been included. During discussion on the subject it was also the consensus that India, after a lot of efforts, has succeeded in many global fora that hydroelectric projects provide renewable electricity generation and, therefore, they should be recognised as such irrespective of the size of projects and also irrespective of the fact whether these are run-of-river or storage projects. In the National Action Plan, not including hydroelectric generation under the category of renewable energy could go counter to the above position of India. Therefore, perhaps we could have two classifications under the renewable energy generation - (a) power from hydroelectric projects, and (b) power from other renewables. Hydroelectric generation also needs to be encouraged and incentivised.

Promoting renewable energy is also one of the objective of the Electricity Act 2003. In accordance with Section 86 of the Act, Regulatory Commissions are expected to specify purchase obligations from renewable energy sources, to be complied with by the distribution companies. The Commissions are also expected to fix preferential tariffs for procurement of electricity by distribution companies from generators of renewable energy.

There are international practices aimed at promoting and facilitating renewable energy generation. More and more countries are evolving various instruments to encourage generation of such power. Two important approaches in this regard include (a) Feed-in Tariff, and (b) Renewable Power Obligation (RPO). The Feed-in Tariff is comparatively higher than the tariff for conventional power to take care of the higher cost of generation and to incentivise renewable power promoters. This enables, on the basis of such authorisation by Regulatory Commission or other competent authority, the distribution companies to procure somewhat costlier power which is appropriately factored in while determining the consumer tariff. In India also several States have done this on the basis of which power projects in the field of wind and other categories have been developed. The renewable power obligation obliges the distribution companies to necessarily procure a percentage of their total power from renewable energy sources.

The instrument of Renewable Energy Certificate (REC) means that those distribution companies which are procuring renewable energy are given these Certificates and they can trade these Certificates with those who fall short of their renewable energy purchase obligation. When market determines these prices, the developers are encouraged to develop such projects because trading of Certificates would lead to profits for the companies which have procured such power and have sold it at a later date. This incentivises procurement of such power and, therefore, development of larger amount of renewable energy generations systems. Another form is to issue REC to generating companies which can sell to Distribution Companies which may buy to match their RPO. Each has its own advantages and disadvantages.

A few issues that need to be discussed include whether issue of renewable energy certificate would disentitle the project developers from the incentives that they may be eligible under the existing dispensation. Depending on the experience when this system is introduced, the Regulatory Commission has to be watchful to ensure that while this mechanism does lead to additional investments in renewable energy generation, if does not lead to excessive cost of power that is procured by the distribution companies (if this happens, or there is a tendency towards this, State Distribution Companies would work against such an instrument). The optimum point of such a fine balancing will have to take into account the reality that to attract investments. Initially the developers do get significantly higher returns on their investments. This would lead to larger number of developers and investors getting into this line of business. When there is competition, prices should get regulated through market mechanism. Having said this, we must recognise the importance of regulatory interventions during transition to intervene at the appropriate fine balancing point.

Normally, it has been seen that getting Open Access for transactions of renewable energy does become an issue particularly in areas where transmission systems have not been developed. In many cases, it is primarily on account of the fact that reasonable amount of power generation capacity has not come up in a time frame, sufficient for optimal utilisation of such transmission systems. This is true for desert areas of Rajasthan, Kutch areas of Gujarat and such other places where potential for wind generation exists, but sufficient capacity does not come up to justify an extra high voltage transmission system. This stalemate has got to be resolved through a co-ordinated development of reasonable amount of generation capacity and associated transmission network.

Another important issue which will need to be addressed is in regard to non-compliance of renewable energy purchase obligation. Unless the obligations fixed by the Regulatory Commission, which would be dynamic in nature, are complied with sanctity of such direction will be lost. These must be enforced. There have to be inbuilt remedial measures by way of Regulatory Charge on the distribution companies, so that sufficient amount of compulsion and pressure is created for them to effectively respond to comply with these obligations. The utilisation of the fund so created will also have to be thought in an innovative way, perhaps to further the cause of enhancement of renewable energy supply. A proper market development on Renewable Energy Certificates could also function as a good substitute to the regulatory interventions as mentioned above. But, during the transition, till such market develops, appropriate regulatory interventions, suitably calibrated in a dynamic way, would be important for the success of this initiative.

Within the renewable energy technologies, wind power occupies the largest space, if we exclude hydroelectric generation. Solar power has a significantly higher price. Therefore, if we treat all the renewable power obligation alike, it is unlikely that solar power would be encouraged with the same strength from this instrument as other non-conventional power. Therefore, there appears to be a need for fixing purchase obligation for solar power separately as distinct from other sources of renewable power. Such an exercise will need to take into account, on the one hand, the capability to deliver the fulfilment of the target, and on the other the impact it would create on the finances of the distribution companies. This would than also mean that Renewable Energy Certificate for solar may have to be different from those for others. Whether these could be combined without diluting the objective could also be an issue to be properly examined and analysed.

In the Round Table, we also discussed about the parallel exercise which is being carried out by the Bureau of Energy Efficiency, in relation to the Energy Efficiency Certificates (EEC). In the ultimate analysis, the objectives of both these initiatives converge to the extent that both aim at mitigating appropriately climate change concerns. A highly efficient Demand Side Management (DSM) deploying most efficient technologies and most efficient consumption practices would lead to reduction in CO2 emission just as, on the supply side, development of larger amount of renewable power would displace some of the fossil fuel based electricity generation, thereby making a significant impact on carbon emission reduction. Both need to be introduced and encouraged.