Recent Policy Updates

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2017-02-28 / HFE Team

Drama Unfolds in Wind

Last Thursday 3 pm onwards, every player of the Indian wind industry geared up for real action which continued till wee hours of Friday. The first ever wind bidding by state-run Solar Energy Corp. of India (SECI) for 1000 MW. In the SECI tender for 1 GW wind power, bidders were allowed to locate projects in the state of their choice and most have opted for Tamil Nadu and Gujarat. We congratulate the winners and are sure that comparatively they possess all right rationale and better knowhow / cost economics sense on desired returns to equity investors. While I believe every tariff is viable when you invest in a project. But the term ‘viability’ in renewables has assumed a new definition recently. It is time to come to a consensus what should be the viable IRR for renewable projects in India?

What is baffling me today is how the nightlong action packed thriller resulting in tariffs as low as INR 3.46 can be considered as ‘investor friendly’ or ‘Discom friendly’ tariff? Or is it that the wind industry which was missing in action for long, suddenly got inspired by the Bollywood blockbuster “DANGAL” and decided to be the protagonists of Indian renewable industry scene and entertain the audience with never seen before kind of performance.

Surprisingly, only a few months back majority of wind developers were fighting to improve the tariff of INR 4.19 with regulators in Gujarat, which was ‘then’ considered quite low, not to mention that 50 paisa GBI was available over and above this tariff. At the above tariffs did the projects actually look unviable then, even when Gujarat DISCOM is ‘A’ rated or will the recently bid wind projects be viable now? The power offtake is guaranteed in both cases. But I am sure people who have won this bid have figured a smarter way out as developers will not put up projects to lose money.

Another interesting twist in this drama is that some turbine manufacturers themselves have also bid for quite low tariffs.  My immediate thoughts are: Has the turbine prices crashed by 15 – 20% in those 24 hours? What is the logical justification of their past project costs based on IRRs viz a vis new pricing to clients based on tariffs. Have they embraced the changing realities?

However, ‘The End’ of this thriller is on a positive note where wind has competed with solar on ‘paisa’ to ‘paisa’ basis and is likely to give thermal a run for money. Let us wait for this blockbuster to perform at the box office.

In my opinion the winners are A- Renewables B- Government C- Environment

 

Contributed by Sunil Jain, CEO, Hero Future Energies, President WIPPA

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2016-08-22 / Webmaster

Reinvigorating Discoms to Build Efficiencies

Surplus hydel capacity

Favorable monsoons have had a positive impact on the power sector; augmenting the hydel power generation capacity by almost 25000 MW. This influx of cheap hydro-power has resulted in a decline of INR 2 per unit of power on power exchanges. It can also be attributed to the fact that cheap power from alternative sources is directly procured from the exchange by the distribution company (discom) in order to improve supply and thus demand is more or less met. Thanks to this, the peak demand deficit has come down to 1000 MW, from 5000 -10000 MW range. Leveraging on this opportunity, discoms are increasingly replacing expensive power with cheaper alternatives.
Predictably, the summer season had witnessed a surge in the demand for power. Delhi offers a classic example in this context. During summer, the peak power demand for Delhi rose to 6,188 MW, breaking all the previous records. However, industry veterans suggest that the power infrastructure is fractured and not prepared to meet the rising demand. It is argued that discoms need to aggressively build their capacities to meet the peak demand conditions.

Solar tariffs & discoms

For instance, the lowest solar power tariff of INR 4.34 per kWh, has made it possible for the sector to come at par with thermal rates. This phenomenon is finding a favor with discom, who were earlier reluctant to purchase renewable power due to its higher prices. The declining solar equipment costs also corroborates to the decline in tariffs. It is understood that demand is a function of the discom’s ability to buy power. A study by Central Electric Authority suggests that the country is likely to have excess electricity of 3.1% during peak hours and 1.1% during non-peak hours. Despite that, it does not translate into consistent electricity supply across the nation. One of the primary reasons for this inconsistency is that discoms from supply-deficit regions are unwilling to buy power in order to cut down on their losses. It is important to improve the financial and operating efficiencies of discoms that operate with an accumulated debt of INR 4.37 lakh crore.

Improving discoms through UDAY

One such initiative is the Ujwal Discom Assurance Yojana (UDAY) that aims to create a paradigm shift in the pattern of distribution of power in India. UDAY bonds have been floated to provide funds and revive debt stricken discoms. This has attracted the insurance sector’s attention due to its low credit risk, attractive spreads and guarantee from the state government. UDAY bonds worth INR 1 lakh crore were issued last year. Bonds worth another INR 1.5-1.75 lakh crore are expected to be introduced in the current financial year.

Installations of smart meters, as an integral part, are critical for the success of the success of this scheme. A typical smart meter allows utilities to monitor load and consumption patterns and makes the consumers understand the impact of their electricity usage. A rollout of 35 million smart meters are being targeted by the end of 2019. Among other things, the deployment of smart meters include the overarching infrastructure and technology, as its most critical components.

GST impact

Now that the GST has been proposed, its implementation could hike the renewable costs and tariffs. The cost of manufacturing equipment are expected to rise and various fiscal incentives like tax holidays and concessional excise and customs would be removed. The impact on tariffs is significant of the order of Rs 0.5-0.6/unit. The Ministry of Renewable Energy in consultation with Finance ministry, has to introduce measures to mitigate this impact.

The government seems to be focused on making concentrated efforts to provide electricity to each and every citizen of the nation, but there are a host of challenges like pricing the power right for every citizen and making the last mile connectivity effective that it will have to deal with to make this a sustainable solution. Will the revival of discoms play an instrumental role in addressing these challenges is something that we need to ask ourselves?

Contributed by Sunil Jain, CEO & ED, Hero Future Energies

2016-03-04 / HFE Team

Analysis of Budget 2016 for Renewable Sector

     

In my view, this year #VikasKaBudget is focused on the progress of the rural sector. Transforming India with a PRO Rural and PRO poor agenda, with an allocation of Rs. 87,769 crores where 5,542 villages have already been electrified, many more than the last three years combined and with an aim to make 100% of the village electrified by May 2018. This will have a extremely positive impact on the demand for electricity.

By renaming Clean Energy cess to Clean Environment cess and with a 200% increase on Coal cess the exchequer will collect over Rs.15000 crore which should be used to encourage energy storage solutions.

On a macro level, I am especially appreciative of the Railway Budget. Under it, railway stations will now be equipped with solar power and will provide much-needed clean power. In my opinion IT is changing the face of traditional business, thanks to leaders like Suresh P Prabhu. I was happy to hear Mr. Prabhu talk about speedy implementation on freight corridors.

The union budget has also implemented major tax and other reforms for start-ups, which will encourage new entrepreneurs and exploit the potential in India’s youth. Overall, Budget 2016 looks promising and we hope that it will provide the desired impetus to the Indian economy and specially to the Renewable sector.

At a Special Programe conducted by NDTV India Post Budget 2016

Contributed by Rahul Munjal, Founder & MD, Hero Future Energies

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2016-07-29 / Webmaster

New initiative for the wind industry to heighten competition

      

India’s power sector is one of the most diversified and it is currently undergoing significant change. Occupying the fourth position in wind power installed capacity globally, India has envisaged a target of 175 GW of power generation through renewables by 2022. Of this, 60 GW is dedicated to wind power. In order to expedite the process, the government has announced a scheme of setting up 1000 MW of Central Transmission Utility (CTU) connected wind power projects through the bidding route.The framework allows non-windy states to fulfill their non-solar RPO obligations. Solar Energy Corporation of India (SECI) would serve as the nodal agency, responsible for organizing, implementation and monitoring the performance of the directives.

At Hero Future Energies, we welcome this step by the government and look forward to work in sync with the proposed guidelines. In the meanwhile, the Ministry is also inviting discussions on the draft guidelines for implementation of the scheme.

Selection of bidder narrowly defined

Among other things, one of the clause on selection, which suggests that under any circumstances, the bidder will not be allowed to quote more than the feed-in tariff for the wind power declared by the respective SERC of the state in which the bidder proposes to install the project. We believe that this clause could be eliminated as the procurer has the last right to accept or reject the prices in a tender. Moreover, in certain states like Madhya Pradesh wind power producers have legally challenged feed-in tariffs, while in others the feed-in tariffs are too low to draw interest from investors. The central bidding programs in case of wind should also be done against CERC declared tariffs, as followed in solar.

Bidding criterion should not only be restricted to tariffs, but evacuation infrastructure, land availability at specific geographies. Some state regulators have been keeping the wind tariff artificially low, those are likely to lag behind under the current draft guidelines.

Drawing parallels with solar bidding process, we felt that there is no need to reinvent the wheel, similar guidelines can be followed in wind.  The benchmark on turnover should be done away with, as SECI solar tenders does not consider this as a criterion, hence it is discriminatory to implement it for wind generators. Many new entrants, with international wind/solar portfolio do not have a three years operation period to bring forth turnover statistics. In my views, turnover of a company is not a true indicator of its financial strength. In place of turnover, considering the net worth is much more appropriate and the same can be considered as an indicator of financial strength. Similar indicator is also used in the solar bids in India and in the solar tenders conducted by NTPC.

Technical & operational knowhow of trader is critical

For the sale of power generated, trading company (TC) which is selected on the basis of expression of interest or bids, will sign a power purchase agreement (PPA) with the bidder. It is proposed under the directives that the TC will be entitled to charge a trading margin as mutually agreed between the parties or as decided by the Central Electricity Regulatory Commission (CERC). The selection of the trader ought to be on predefined financial and technical criterion that takes care of payment risk and operational strength to handle multiple generators and manage open access.

Leeway in open access required

In case, a wind project developer is required to use the transmission system of State Transmission Utility (STU) to bring wind power at CTU point, he may do so as per regulations prescribed by the respective State Electricity Regulatory Commission in this regard. SECI should specify the open access charges in each state where the CTU has identified substations for evacuating wind power. Any change in open access charges, should be allowed as pass through under the PPA. This is because open access charges vary from state to state. An annexure illustrating the same in the RFS document will help the generators to exactly calculate the open access charges.

Deviation settlement mechanism

Further, the clause specifies that wind power developers (WPDs) are responsible for scheduling and deviation settlement mechanism (DSM) charges as per CERC/SERC regulations as applicable and all liabilities related to LTA and connectivity. We feel that in case the wind power plant is connected to STU and wheeling power to CTU sub station, the deviation settlement charges should be calculated based on methodology specified by the respective state commission. In the absence of such methodology or in case no inputs are provided in this direction, the methodology specified by CERC shall be considered for both intra state and interstate sale. Forecasting and scheduling is followed by deviation settlement. Many state commissions are yet to notify regulations and even existing regulations lack clarity in deviation settlement for simultaneous inter and intra state sale. There needs to be more clarity on this clause.

Financial closure and commissioning of projects

The existing guidelines also require the project developer to report the financial closure of the project within six months from the date of signing the PPA. Submission of the transmission / connectivity agreement with the STU/ CTU before commissioning of the project would be a judicious choice by the developer. Also, the commissioning of the projects within 15 months from the date of execution of PPA, rather than letter of award is a prudent alternative.

The Ministry needs to carefully evaluate all the recommendations to expedite the proposed scheme and come with solutions that will helps us leapfrog towards the concerted goal of achieving the asserted targets.

Contributed by Sunil Jain, CEO  & ED, Hero Future Energies

 

 

 
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