Open Access: Will it benefit the renewable energy markets?
30th April 2018
During the 20th century three actsi.e. the Indian Electricity Act of 1910, the Electricity (Supply) Act of 1984 (and their amendments) and the Electricity Regulatory Commission Act of 1998 (Figure 1) guided the electricity market. The first two acts (and their subsequent amendments)provided guidelines tosupply electricity and enhance rural electrification. It was however not late till the need for an independent ombudsman over the entire market was needed. This led to passage of the Electricity Regulatory Commission Act in 1998. With the industrial revolution and need to consolidate laws related to generation, transmission and distribution of electricity, the Electricity Act of 2003 was enacted. It consolidated and replaced the Indian Electricity Act 1910, Electricity (Supply) Act 1948, Electricity Regulatory Commission Act 1998 and their subsequent amendments. This act (for the first time in history) also enabled free trade of electricity which was termed as Open Access (OA). OA allowed power users having contracted load of more than 1 MVA to buy power from open market. It also allowed the generators with excess capacity to sell the power to the consumers of its choice while still using the network of utilities (by paying a nominal fee). The idea was that to break the traditional single buyer model where energy was only available from the local Discom (which had monopoly in supply business) and to promote competition by encouraging multi buyer model. The multi buyer model allowed the consumers to buy power from any energy source. OA also allowed sick industries such as cement industries, textiles and other manufacturing companies to buy power at a cheaper price than the grid tariff reducing their financial burden.
Figure 1 : Brief history of the electricity market
With the introduction and expedited use of renewables in India, it is clear that the country is to lead the world for capacity installation. However when considering the state wise installed capacity, it could be seen that solar power plants are only concentrated in some states (Figure 2) due to few reasons such as high irradiance, supportive policy, attractive subsidy, enabling regulation, etc. In such cases, not all the states would be able to fully (partially in some case) utilize the potential of solar energy. It is for these cases that OA would act as a helping hand. The solar energy generated at one point can be easily transferred to the other point.
Additionally with the available incentives and support from the government OA in renewable energy could be a useful tool.
Figure 2 : Installed solar capacity across top states of India (until February 2018)
The advantages of availing OA for renewable energy are as below:
- Fulfill state's Renewable energy Purchase Obligation (RPO): A RPO (both solar and non-solar) is a target mandated by state government (in consultation with central government) to all the entities which are obligated to supply electricity i.e. the Discom (both government and privately owned) of the state. With the recent proposed amendments to the Electricity Act of 2003, the utility is poised to be penalized heavily if it fails to attain its RPO for a particular Financial Year. An alternative way to fulfill the RPO was to purchase Renewable Energy Certificate (REC) from the energy exchange market where one REC was equivalent to 1,000 kWh of energy. However such trading was stayed by the supreme court by the mid of 2017as the revised prices for 1 REC were termed "too low". This set the path for OA which seems to currently be the available option for state with lower installed capacity of renewable energy. Such states could easily install a power plant and/or route the generated energy from renewable energy sources via OA. Additionally with the exemption in interstate transmission charges and losses, OA for renewable energy seem to be a financially attractive option. While only few north eastern states have set up their power plant in the solar park at Rewa, Madhya Pradesh to fulfill their RPO, a lot more of such kind can be expected.
- Sets up and strengthens the grid for the future: One of the most significant yet underlying problems is the availability of adequate infrastructure in order to transmit the generated clean energy to distant places.Additionally with the varying nature of renewable energy sources, it is important that the grid is set up in a way such that it is able to deliver energy while absorbing such variations. OA from one remote location to another could help strengthen the intermediate grid while also striking a perfect balance between supply and demand. Additionally with the passage of time, it is clear that renewables shall be the future source of energy. In such case it is important that the grid adopts renewable energy sources.
- Help promote Electric Vehicle (EV): The government of India in order to curb air pollution has set an ambitious target to 100% electric vehicle by 2030. Given the fact that the EV's require fast charging in limited times; this means that our dependence and need for energy is set to increase exponentially in the years to come. While on site renewable energy sources may offset only a part of the power requirement, it is OA that would provide sufficient clean energy to power such needs. This would enable the charging stations to always have sufficient power and/or energy required to chargethe EV's as and when required thus helping promote EV's directly.
While there are numerous defined and undefined advantages of OA, there are still few barriers which a generator/consumer needs to bypass while wanting to avail OA. They are mentioned as below:
- Hindrance from to Discom: The free route of electricity trade passes through Discom. Any consumer if needs to procure its energy from any other source needs the permission of the local Discom (which has been supplying energy to it). A Discom hence is at a full authority either to accept or reject such plea. By citing various technical reasons (which are mostly vague) a Discom (may at times) reject such plea from the customer. This is evident from number of petitions filed in State and Central Electricity Regulatory Commission (SERC and CERC) against the Discom. While the technical reasons cited are not always true, one reason that can be attributed to this behavior is that the Discom does not want to lose their high tariff paying consumers. These consumers also cross subsidize for the lower energy tariff payingagricultural consumers. While the high tariff consumers pay charges to the local utility for maintaining the grid and offsetting their loss, their effect(of leaving the utility) is still realized in the finances of Discom.
- Complexity of the charges: The charges and losses applicable for OA transaction are too complex to be understood and determined. These charges and losses keep updating every year and/or are determined/revised by SERC/CERC as and when they deem fit. Coupled with the lack of a centralized compendium, it is almost impossible to determine all these charges. Hence it is necessary that such charges are mapped on a publically available central compendium and updated as and when necessary. Additionally, it is also necessary that the entire process of OA transaction is made consumer friendly.
- Out-of-sync policy maker and regulator: With the solar energy breaching the grid parity, it can be assumed that the incentives available under the solar policy and/or the regulations would be withdrawn partially/fully. In such conditions it is clear that the current overlap between the policy maker and the regulator to determine the applicable charges and/or losses shall need a resolution. Thus a clear line of distinction between a policy maker and a regulator is needed.
- Loss of energy to state in case of inter-state transactions:OA transactions can be either intra-state or inter-state. While in intra-state transaction the energy is generated and consumed in the same state, in inter-state transaction the energy is consumed in another state. This coupled with energy deficiency in almost all the states leads to additional loss of energy. There has been cases where under certain generators were blocked from providing their energy to other states citing section 11 of the Electricity Act (where a generator is to follow directions of state government under "extra ordinary" circumstances).
Thus it can be fairly assumed that while there are fair advantages of utilizing renewable energy via OA, there are various road blocks too. One solution to this road block (as envisaged in the scheme) is the push of UjwalDiscom Assurance Yojana (UDAY) from government of India. UDAY acts as a financial revival scheme where states take over 75% of (state owned) Discom's debt and the Discom is expected to issue bonds for the rest 25%. With almost all the states having signed the scheme, we believe that within 2 to 3 years of time with the financial revival of Discom, OA can be a reality. The next and probably most important solution is the separation of carriage and content. While still in amendment stage to the Electricity Act of 2003, separation of carriage and content would enable the Discom to separate its business into two parts namely maintaining the grid and supply of electricity. In such cases the end consumer is free to choose any supplier of electricity including a renewable energy generator (similar to OA) and could switch the supplier almost instantaneously (this model is already in practice in Mumbai) if he feels the need. This would empower the end consumer while also easing the business for Discom.
Let us all pledge to make solar energy the primary source of energy in the near future.
RAHE ROSHAN HAMARA NATION