Burden of relief: The cost of letting captive plants off green power grid

The Union government’s decision to exempt captive power plants from meeting renewable energy targets will upset India’s climate change mitigation plan

By Kundan Pandey
Published: Tuesday 14 May 2019
Photo: Meeta Ahlawat

As India hopes to meet the target of 175 gigawatt (GW) renewable energy installation capacity by 2022, as part of its climate change mitigation plan, a misguided step may upset the apple cart at this critical juncture. On February 1 this year, a Union government order exempted captive power plants (CPPs) from sharing the equal burden of the country’s green energy target. These plants — which generate and supply power for specific projects — will not have to bear extra charges for renewable energy purchase obligations (RPOS). Higher RPOs are mandatory only in case of additional capacity addition in future.

The move has elicited a mixed response. While Indian Captive Power Producers’ Association Secretary, Rajiv Agrawal, has appreciated the Centre’s order for bringing about market certainty, lobbies in favour of open-access consumers and state power distribution companies (discoms) pointed out that the National Democratic Alliance (NDA) government has succumbed to industry pressure.

Chandra Bhushan, deputy director general at Delhi-based non-profit, Centre for Science and Environment, said after the government decided to set a cap for CPPS, ailing discoms and states would have to increase their RPOS to reach the 2022 target of 175 GW. RPOs are basically targets to ensure the strict implementation of renewables in India’s total energy mix. Of the 175 GW, 100 GW is solar power. The rest include 60 GW wind, 10 GW biomass and 5 GW small hydro-power projects.

The electricity act, 2003, advocated renew-able energy for the first time to reduce carbon emissions from thermal power plants. After this, the National Action Plan on Climate Change (NAPCC) came into effect in 2008, under which India pledged to increase its renewable energy capacity. The then United Progressive Alliance (UPA) government made it mandatory for electricity buyers to meet their RPO targets.

Any shortfall could be met through renewable energy certificates (RECS) introduced on January 14, 2010. It was envisaged that RECS would enable more consumers to meet their RPO in a cost-effective manner. 

One REC represents one mega-watt hour (MWh) of power produced from renewables. A market-based instrument, REC is issued when one MWh power is generated and delivered to a grid from renewable energy sources. It is tradable on power exchanges, the Indian Energy Exchange based in Delhi and the Mumbai-based Power Exchange of India. Trading of RECs is conducted on the last Wednesday of every month. 

In 2009-10, the UPA government decided that discoms, CPPs and open-access customers would have to meet the five per cent RPO obligation and the target would be increased gradually. However, when the NDA government came to power in 2014, it increased the previous target of 20,000 MW of solar energy to 175 GW of renewables. To meet this target, the RPO target obligation has gone up to 22.5 per cent. However, CPPs have been pushing for relaxation. 

“As CPPs are significant, the government decision will affect India’s renewable energy target,” says Bhushan. It is estimated that India has 60-100 GW CPPs and their RPOs will be fixed at the previous 5 per cent. In fact, most of these plants have been installed earlier and are old, and so, their RPOs will be that only, Bhushan explains.

“In such a case, discoms will have to go up to 25 per cent approximately to meet India’s renewable target. There are two possibilities: either India will not meet its target or the burden will fall on discoms,” he adds. 

According to a report, Captive Power in India 2018, the total installed capacity of CPPs (of size 1 MW and above) in the country is estimated at 83,900 MW as of 2017-18. This represents 25 per cent of the overall installed power generation capacity which stood at 334 GW.

Unfortunately, CPPs have been given relief when their share in total REC purchase started to increase over the past few years. In 2011-12 and again in 2014-15, the share of CPPs, along with open-access consumers, hovered between 21 and 24 per cent in REC purchase and the rest was bought by discoms. In 2015-16, their share together reached 59 per cent. But since then, it declined. In 2017-18, discoms purchased 61 per cent of the total REC while open-access consumers and CPPs purchased just 39 per cent of REC. 

Now, the Central decision is going to further reduce the burden on CPPs. Ashwin Gambhir, a fellow at Pune-based Prayas Energy group, said the government should have given relaxation to all, and not just CPPs. In his view, discoms and states are already not serious about meeting RPO targets. Most state governments usually cite poor financial health of discoms as defence for not buying relatively dearer renewable power.

In 2014, the Comptroller and Auditor General pointed out that between 2011 and 2014, only Karnataka, Tamil Nadu, Mizoram and Arunachal Pradesh met their targets. In January this year, Minister of State with independent charge for Power and New & Renewable Energy RK Singh stated in the Lok Sabha that 27 states and Union Territories have achieved less than 60 per cent RPO. In such a scenario, relying on discoms and states will hurt India’s chance of achieving the renewable energy target.

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