From RPOs to PDOs: Time to think of Power Decarbonisation Obligations for discoms

In opposition to this backdrop, this text explores choices for India’s march in direction of decarbonisation of the facility sector.

By V Subramanian & Srinivas Krishnaswamy

The Paris settlement goals to maintain the rise in international common temperature to effectively under 2oC above pre- industrial ranges, and additional restrict the rise to 1.5oC, to cut back dangers and influence of local weather change (Article 2 of Paris Settlement). Additional, with the brand new IEA-prescribed state of affairs to section out fossil fuels to realize the 1.5oC goal suggesting that the facility sector achieves internet zero by 2040 globally, stress on nations to develop long run deep decarbonisation plans, with the last word aim of internet zero emissions by the earliest attainable yr, would develop.

A problem that seems top-priority is power-sector decarbonisation “in all of the nations.” To place this in context, the whole greenhouse gasoline (GHG) emissions from India’s electrical energy era stood at 958 Mt Co2e, constituting 51% of the whole GHG emissions from the vitality sector and roughly 40% of India’s complete GHG emissions for 2015.

In opposition to this backdrop, this text explores choices for India’s march in direction of decarbonisation of the facility sector.

Decarbonising the facility sector would basically entail maximising renewable energy within the total sourcing and use. Targets of 175 GW and 450GW have been introduced. Given the construction of the Structure, it’s essential to take the states into confidence and work out an appropriate resolution.

An early renewables-promotion initiative energy was the Renewable Energy Obligations. (RPOs). This was not a lot from the viewpoint of decreasing emissions than to make further energy out there to the grid and discoms. With a view to incentivise renewable vitality, the Indian Electrical energy Act 2003, gave authorized enamel to RPOs that mandate all electrical energy distribution licensees should buy or produce a minimal specified amount of their electrical energy necessities from renewable vitality sources. It additional empowered state electrical energy regulators to find out the quantum of such RPO primarily based on the renewable potential of the states. The rationale was to provide a stage taking part in subject for renewable vitality that was costlier within the first decade of the twenty first Century. At that time of time, the price of renewable energy was larger than that of coal-based energy that was within the area of Rs 3.72 per kWh. Additionally observe, such RPOs had been prescribed for states as an entire, not for every discom.

It was additionally seen that each one the states weren’t equally endowed with renewable assets, because of which a market-driven mechanism of Renewable Vitality Certificates (RECs) was additionally launched. In short, the idea was one of some discoms absorbing the vitality from renewable sources on the Common Energy Buy Value (APPC) and granting certificates to the vitality producers who might promote them to different discoms and different obligated entities to fulfil their RPO commitments. Although there have been provisions for penalties for non-compliance with RPOs, they had been hardly imposed by the regulators. The regulation existed extra in breach than in observance. The system of RPOs and RECs is continuous for historic and educational causes alone.

Nevertheless, the brand new price dynamics, the creation of a nationwide grid and technological developments have modified the state of affairs and elevated the variety of choices out there considerably. Value of renewable energy is decrease, transmission of energy from one area to a different is seamless and with higher technological instruments, energy scheduling has change into effectively deliberate and executed.

Although critics of renewable energy could state that the CUFs are a lot decrease than that of coal-based thermal energy, price of renewable energy is way under that of standard coal thermal energy. As of 2021, the bottom bid worth for photo voltaic is Rs 1.99 per kWh, whereas the typical worth of wind is Rs 2.65 per kWh, hydro is within the area of Rs 2.72 per kWh—in sharp distinction to the scenario a decade earlier. Additional, in comparison with put in capability of mere 10 GW of RE within the decade of 2000s, the present put in capability of renewable energy (January 31, 2021)—together with photo voltaic, wind, small hydro and bio-power—is effectively over 94GW. Given this backdrop, it’s time to revisit the motivation and penalty construction within the energy sector.

Given the decline within the costs of renewable vitality, coupled with elevated capacities, quite a few discoms have dramatically elevated their share of buy of electrical energy from such sources. The share of renewable vitality in a number of discoms is as excessive as 33%. This has been additional facilitated by the completion of the Nationwide Grid that permits seamless transmission of energy one area to a different.

Additional, quite a few states have additionally exceeded their RPOs. Notable amongst them are Andhra Pradesh, Karnataka, Rajasthan, Maharashtra and Gujarat. The accompanying graphic provides a snapshot of choose states’ RE buy.

Nevertheless, this pattern continues to be not a pan-India pattern, although quite a few states have undoubtedly elevated their RE share. One of many causes for this not occurring is that lots of the discoms are nonetheless saddled with long-term energy buy agreements with coal energy producing firms.

Along with such compulsions of PPAs, the discoms proceed to incur “fastened prices” even when they don’t draw energy. In fairly a number of circumstances, the fastened prices paid by discoms to coal-based gencos may very well be greater than the present costs of photo voltaic or wind energy per kWh.

This then leads us to query the continued the relevance of RPOs and RECs and the choice of evolving a extra logical and strong system that may expedite decarbonisation of India’s energy sector by 2050 or an affordable time interval if not 2050. We suggest a brand new system that would incentivise each the renewable vitality gencos to fulfill and maybe even exceed the set targets by 2030 and guarantee optimum “capability utilisation issue”, aside from incentivising discoms to extend the share of renewable energy of their portfolio.

Our proposal is to have a progressive and a time-bound cap on the acquisition of coal-based energy, decreasing this on an annual foundation. Naturally, this needs to be carried out discom-wise, by trying on the historic break up of procurement of energy from varied sources and targets or trajectories for future procurement of energy.

This information is just not onerous to return by since all of the discoms disclose their supply of energy provide and price. This new system might be known as Energy Decarbonisation Requirements. The system would set a progressive threshold for lower in buy of coal-based energy and a corresponding improve in buy and absorption of renewable energy by discoms.

Making an allowance for the current extent of buy of each renewable and coal-based energy, it shouldn’t be tough for the regulators to set a trajectory of annual discount of coal-based. The Energy Decarbonisation Requirements, if adopted, would additionally be sure that a complete plan is put in place to restrict the organising of latest coal vegetation, whereas additionally retiring classic coal-fired energy vegetation—extra polluting than the current ones—over a interval of 20-odd years.

These may also be designated as Carbon Credit score Certificates (CCCs) to be granted to the discoms by the regulators for annual discount in buy of coal energy after a closing date. These CCCs might additionally change into market-based monetary devices that may be traded domestically to start out with, and, in a while, internationally when the markets mature.

Additional, to be able to incentivise decarbonisation of the facility sector, the scheme might additionally embrace captive energy vegetation working on coal to shift to renewable energy.

To conclude, the idea of Energy Decarbonisation Obligations might work solely with a finely-tuned coordination and implementation mechanism that entails coverage, rules and enforcement, with state governments on board.

If the answer lies in decreasing coal-based energy within the system, it’s excessive time the federal government checked out revolutionary choices somewhat than tinkering with the present construction alone.

Subramanian is former secretary, ministry of latest and renewable vitality and Krishnaswamy is CEO, Vasudha Basis