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“A thing long expected takes the form of the unexpected when at last it comes” – Mark
Twain.
When all the developing countries were squabbling for equitable distribution of emission
rights, India’s revelation of voluntary cut of 20-25 percent in emission intensity by 2020
compared to 2005 levels came as a surprise. India has always been persistent in not
accepting any emission reduction targets at the backdrop of not compromising with its
economic development. Even if the declaration is not binding, additional cost impacts to
achieve this cannot be sidelined. Announcement of National Action Plan on Climate
Change (NAPCC), having eight comprehensive missions, forms the basis of domestic
actions to deal with the climate change. Development of Renewable Energy (RE) is at the
forefront of this plan as it addresses the twin objectives of reducing emissions and
ensuring energy security.
RE growth steady yet inadequate compared to vast potential available
India’s renewable industry has been in the making since past 5 to 6 years (Figure 1).
Growth was initially fueled by state level Renewable Portfolio Standards (RPS) and later
on proliferated due to cash inflow through CDM market. Under RPS, states fixed a
percentage of electricity that their power distribution company (DISCOM) would need to
buy from renewable sources. The minimum RPS level varied across the states keeping in
view the availability of RE potential. Some states defined resource-wise target common
for all DISCOMS whereas some states had different targets for different DISCOMS.
However, RPS has not been able to achieve the level of capacity addition when compared
to the vast technical potential available in the country.
1
JNNSM aims to achieve 3% generation from solar by 2022
Figure 3: Energy requirement during 2010 – 2020 in REC scheme
2,100 16
Conventional Energy requirement Non-Solar Renewable Energy obligation
Solar Energy obligation Renewable obligation (%)
1,800 Non-Solar Renewable obligation (%) Solar obligation (%) 14
12
1,500
` 10
Percent
1,200
TWh
8
900
6
600
4
300 2
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Rs/MWh
GW
40 1500
30
1000
20
500
10
0 0
2010 2012 2014 2016 2018 2020
Marginal rise in power prices after “low hanging fruits” are plucked
In the initial years of REC scheme, easier to implement and low cost RE sources are
expected to be added in the system. Less endowed regions and more costly technologies
would be taken up in the later years. The REC prices would therefore increase as the
scheme progresses not only due to the increased renewable energy targets, but also due to
the exhaustion of cheaper and easier to implement resources in the initial years. The non-
solar REC market size will be around USD 8-9 billion by 2020. The impact of this
scheme could be a net rise of 10 percent (average of price rise between 2010 and 2020)
on annual power purchase cost of DISCOMS. This implies a 15-20 paisa/unit increase in
the average electricity prices. There could also be a further impact on average tariffs due
to additional maintenance required for power system reliability.
Assorted schemes could help renewable to achieve grid parity sooner
The recent union budget imposed a cess of 5 paisa/kg on coal production. This will
increase the cost of coal generation thereby reducing the gap between RE and
conventional energy cost. Likely liberalization of coal sector and increased penetration of
imported coal will further push the pooled power prices upwards. Concessional custom
duty and exemption of central excise on certain renewable plant equipments are already
in vogue. Such schemes and policies will automatically increase the price of conventional
electricity basket and thus lesser additional support would be required to renewable
resulting in lower REC prices than projected in future.
Sustaining RE growth hinges on proactive role by regulators
Global experience suggests that REC can be a facilitator in development of renewable
capacity. However, regulators will have a greater role to play to ensure renewable
development by proper monitoring and implementation of the REC system as envisaged.
Astute response to market dynamics will be required to handle the teething problems in
the initial years of the REC scheme. This would occur because 1) CERC will calibrate the
band of price at which REC can be traded creating uncertainty in the expected return that
a developer will be eyeing at; 2) Vagueness in banking of certificates will affect trend of
capacity additions.
Toying too much and too frequently with the financial incentives of the scheme will
jeopardize renewable industry growth and dwarf the bigger objective of the country to
manage volatility in energy price and concerns of climate change. Greater emphasis of
regulators should be to bring more harmony among participants of the scheme by
providing long term visibility on the scheme.
To paraphrase Mark Twain once again “Climate is what we expect, weather is what we
get”. We are keeping our fingers crossed.