What constitutes a decisive solar policy and enabling regulations?
Solar energy power plants on world level have seen tremendous growth is past few years. With anaverage Compound Annual Growth Rate (CAGR)of around 40% (Figure 1)it is expected that solar energy (in the near future) would be important source in the world's energy mix. An important ingredient to this rapid growth has been support from the government bodies. In case of India, the government has set up an aggressive target of 100 GW from solar energy by the year 2022. Such ambitious targets are reflected from the attractive policies and enabling regulations set by the concerned body(s). While these policies and regulations are easily available in public domain, few times it becomes hard to understand the exact message they are trying to convey. This article hence aims to educate its reader on various terminologies used in both solar policy & regulation and understand its importance when setting up their power plant.
Figure 1: Yearly CAGR of solar power plants (Data source: CleanTechnica)
Solar policy and its significance
Policy is set of rules formed by a government body which act as guidelines to various other government bodies, private/commercial institutes and public. It informs them about the intention and direction in which government wants to work in a particular field. A solar policy is drafted by Ministry of New and Renewable Energy (MNRE) in consulting with the central government and is applicable on the central level. Similarly, a state solar policy is drafted by State Nodal Agencies (SNA) (For ex: Gujarat Energy Development Agency (GEDA)) in consultation with the state government and is applicable on the state level. Solar policy details various types of business models under which a solar plant can be set up and also incentives available to various categories of customers. It can also act as a guideline to various agency involved in setting up a plant.A solar policy (considering policy of various states) in general has the following details:
- Business models: For any business to run without any hitches, it is necessary that the right methodology (or model) of investment is selected. With reference to policy, it is important that the government makes all the possible (and the right) business model available to the investors/ consumers such that it would maximize their profits while utilizing green energy. We had already covered a huge variety of business models in our previous blog "Business model: How to go the solar way?" however the policy specific models are mentioned below:
a. Sale of power through RPO and REC mechanism: The government in order to push the renewables and increase its mix in the grid has mandated the state utility (both government and private) to buy a certain amount of their energy requirement from renewable energy sources. This is known as Renewable energy Purchase Obligation (RPO). The financial settlement of such energy is done at the end of each billing cycle at a fixed price under the Power Purchase Agreement (PPA) (which is signed between the utility and generator). However in some cases (like Gujarat) the energy settlement may be done at the Average Power Purchase Cost (APPC) of the utility. The RPO mechanism works well in states which have favorable conditions for solar power plant. For hilly states (such as Himachal Pradesh) the utility may settle its RPO through a Renewable Energy Certificate (REC). The REC is equivalent to buying 1000 units of solar power plant at a mutually agreed priced(between the minimum price of 1000 INR/certificate to a maximum of 2500 INR/certificate as determined by Central Electricity Regulatory Commission (CERC)).
b. Sale of power to third party (Open Access):Third party sale or Open Access (OA) is a mechanism by which the consumer (having the connected load of more than 1 MW) can source their power from any other generator/utility. To the similar lines the generator can sell its power to any eligible consumer. The settlement of such energy may be done at a fixed price as mentioned under the Power Purchase Agreement (PPA). Almost all the states have enabled OA in their policy.
c. Net metering andCaptive consumption (both on grid and off grid): Covered in detail in our previous blog "Business model: How to go the solar way?"
- Incentives: This is the crux of the policy which supports an emerging technology to sustain the market while also taking care that the investors get fair amount of returns.All this helps boost the market for such technology making it viable and reach grid parity.This incentives (for solar energy plants) are generally in form of exemption of certain charges (and duties) to be payable to utility for pushing their power to grid. They are as follows:
a. Exemption in transmission (and wheeling) charges and loss: For both captive consumption (off site) and OA the end consumer may require power at High Tension (HT) or Low Tension (LT) level. Such necessity requires the generator to use the grid for feeding its power at appropriate level using either or both HT (maintained by transmission utility) and LT line (maintained by distribution utility) which would attract hefty charges to be paid to the concerned utility.The generator/consumer also needs to bear the applicable losses of the line (both technical and commercial). In case of a solar energy consumer/generator such charges and losses are usually exempted for the plants lifetime or for a specific amount of time as determined by the state regulator.
b. Exemption in cross subsidy and additional surcharge:A consumer opting to source its energy from a sourceother than its local utility (say from a solar plant) has to pay certain charges to offset the loss of business to utility. This is because the utility has considered power demand of such customer while signing a PPA. Such charges while applicable to normal consumer may be exempted for solar energy consumer or may be determined by the respective state regulatory commission.
c. Exemption in demand cut: Demand cut may be defined as the reduction of demand when a customer moves (partially) out of the local utility's power supply scheme and opts for other generator. In such case the customer's load demand is reduced in normal cases. However a total or partial exemption of demand cut may be provided for solar energy consumers.
- Banking facilities: Many states, along with net metering also offer the solar customers banking of energy. Here, the customer is allowed to store their excess generation of one month in a virtual bank. And in case of excess drawl (in some other month) the energy is debited from the bank. An example is tabulated below to explain energy banking:
Figure 1: Yearly CAGR of solar power plants (Data source: CleanTechnica)
|Energy in bank
|Energy balance in the bank at the end of the year||10 Units|
The energy generated and energy imported for each month is calculated. At the end of the year, the energy balance for the plant is calculated. The settlement of the account is done at 75% or 100% of the APPC depending on the state. Also in some states, as an additional incentive the 2% charges (on the total amount) for banking of energy are waived off.
Solar Regulation and its understanding
A regulation checks and maintains implementation of laws and orders which may be guided by the national/state tariff plan and national/state policy. It is passed by regulator, which is an independent body governing the market ensuring smooth and unbiased flow of business.An electricity regulation in general, is an order which guides the CTU/STU/Discom on the subject of tariff applicability, applicability of surcharges and/or in any other matters as and when the need arises. It may be applicable for that financial year or till a revision of the regulation is passed. The solar regulation in general may detail the following:
- Benchmark tariff: The benchmark solar tariff is an approximation which may be considered as an upper cap while quoting in a tender. It is determined in consultation with various stakeholders. The benchmark tariff gives out individual breakup of components required to build a solar power plant (of fixed capacity), the technical parameters (like useful life, auxiliary consumption) and the financial parameters (like debt to equity ratio, tax, etc.) which are considered for determining such tariff. In few states it is also considered as a tariff for financial settlement of energy.
- Grid codeand safety: A regulation may also guide the power generating plants to maintain the grid and its safety. It can enable the generator to be connected at a particular voltage level based upon the size of its plant. It would also give guidelines to the plant owner in case of grid outrage or to disconnect the generator from the grid in case of fault.Such regulations are generally determined based upon the guidelines of CERC/CEA.
- Energy banking and accounting: While the policy allows the prosumer (producer + consumer) to use energy banking it is the regulation which may detail the limit of energy banking, method and charge of energy settlement and any charges if applicable for banking of energy. It may also (in some cases) detail the consumer categories to whom the energy banking facility is made/ not made available.
- Network charges and losses: While the policy may determine the exemption of charges/losses, regulation may give a broad scope of charges (transmission, wheeling, cross subsidy and additional surcharge) and losses (transmission and wheeling) for limited/all business models (captive consumption, third party sale, sale via REC/non-REC mechanism). They are determined and/or specified by the regulatory commission as and when they deem necessary or at the end of each financial year.
- Scheduling and forecasting: While exempted in early years in solar policy, the regulations (still at draft stage for central as well as state level) for scheduling and forecasting for renewable energy generators are out in public domain. Associated with grid safety, scheduling and forecasting enables the solar power generator to give a schedule and forecast of its energy generation. This would enable better planning of power for both the utility and the SLDC.
We at Waaree understand state policies and their regulations. We guide our customers on what is best the possible investment option considering both technical and commercial aspects for a particular state. Additionally we keep track of latest policies and regulations to understand the government and its expectations from both generators and consumers.
Let us all pledge to make solar energy the primary source of energy in the near future.
RAHE ROSHAN HAMARA NATION