The government thrust to increase the use of renewable energy has put power utilities in a fix as there is just not enough installed capacity to meet the new six per cent norm mandated by the Maharashtra Energy Regulatory Commission(MERC).
According to the MERC (Renewable Purchase Obligation, its compliance and REC framework implementation) Regulations, 2010, which come into force from the financial year 2010-2011, power utilities have to ensure that six per cent of all the power they buy comes from renewable energy. The regulations come in the wake of the Electricity Act, 2003 and Central Electricity Regulatory Commission (CERC) guidelines on renewable energy.
The renewable purchase obligation (RPO) on power utilities under the Electricity Act 2003 has mandated that State power distribution companies buy renewable power and has fixed the percentage of that power in each category. The eligible renewable energy sources shall include non fossil fuel, including bagasse based co-generation projects, wind energy, biomass power based on the more efficient Rankine cycle technology, small hydro, mini hydro, micro hydro power, municipal waste based power and solar power.
As per section 4.3 of the MERC regulations, “procurement of renewable energy certificates (REC) issued for renewable energy generation outside Maharashtra as well as RECs issued for renewable energy generation within the State shall be considered as an eligible instrument for the purpose of RPO compliance by the obligated entities which are specified in the rules.” In short, the power distribution companies if they fail to procure the fixed amount of power from renewable sources of energy will have to buy the RECs to save face. It will remain a paper transaction with no real addition of power.
Hike in power tariff
While other States could also be facing problems with the RPO, in Maharashtra, the consumer could face a hike in power tariff so that the Maharashtra State Electricity Distribution Company Limited (MSEDCL) can recover an estimated Rs. 900 crore plus it may have to fork out for RECs. In a submission to the MERC, the MSEDCL notes that, “as there is acute shortage of renewable energy in the State, any methodology which encourages gaming, monopoly of cartelisation cannot be supported. The REC option in a shortage scenario may lead to monopoly and the REC pricing will be linked to the penalty of that year.” It points out that the REC mechanism will give rise to unfair competition among the utilities in Maharashtra and it may also raise inter-State, intra-State disputes and hence may not be considered at this stage.
The MERC regulations set out the RPO targets for each year from 2010 to 2016. The target for 2010-2011 has been increased to six per cent (from the earlier five) of the total energy purchased by the power utility. In 2010-11 the target for solar is 0.25 per cent of the total energy it buys, non solar is 5.75 per cent, making it six per cent. From 2010-11, it goes up by one per cent each fiscal to reach nine per cent by 2015-16. The certificates issued under the CERC shall be valid instruments for the discharge of the mandatory obligations set out in these regulations.
Power utilities have been saying that the RECs cannot work in a shortage scenario; these types of mechanisms can work in surplus scenarios where the generators of renewable energy would compete in a fair manner. In addition, even if 100 per cent generation capacity is contracted, the question is who will be responsible if the capacity does not get added.
According to official sources, the MSEDCL buys a total of 85,000 million units each year. In Maharashtra, the installed capacity for solar is one MW till June 2010. To meet the target of 0.25 per cent, the MSEDCL will have to buy 140 MW for this fiscal which is difficult. The MSEDCL will have to buy the RECs which could cost upto Rs. 17 a unit from other States, to fulfil this mandatory obligation, at an estimated cost of Rs. 350 crore.
In the case of mini or micro hydro projects, the installed capacity is 1.5 MW upto June 2010, the RPO requirement is 10 MW for 2010-11.
There could be a shortfall of 2.58 million units which will have to be filled by buying power at the rate of Rs 3.9 as unit or Rs.1 crore.
In the case of bagasse, biomass, wind and small hydro power the installed capacity is 2,300 MW. If this power is generated as per contractual agreements, there should be no problem. But due to the vagaries of generation, there could be an estimated shortfall of 1,500 million units which would then have to be bought in the form of RECs at a cost of Rs. 585 crore.
At the moment, despite its good intentions, the policy for ensuring a renewable energy component in power is favouring the renewable energy power generators and putting the distributing companies at a huge financial risk.