Those who invested in clean energy early must now be given the benefits
Today solar and wind generation costs are much lower than even the conventional coal-based generationUpdated: Oct 01, 2020, 17:56 IST
Clean and renewable energy sources have moved up on the agenda of most nations today. According to the International Energy Agency (IEA), the world energy mix is changing, and the contribution of renewable energy has grown to 26% of the energy basket. With governments adopting more sustainable sources of energy supply, the share of renewable energy source is expected to reach 30% by 2024.
India has drawn up a progressive road map to lessen its dependence on coal and liquid hydrocarbon and build more renewable capacity instead. From 17.5 gigawatt (GW) in June 2010, India has added another 65 GW in 10 years. This has been possible largely due to the promotional regulatory and market structure which steered the renewable energy (RE) sector for a decade.
It’s high time now that the consumer who had paid substantially for the promotion of RE generation is allowed to reap the benefits. Today solar and wind generation costs are much lower than even the conventional coal-based generation.
The conventional and RE power segments are linked through the renewable power purchase obligation (RPO) which binds obligators (like Discoms, captive power plants) to either buy electricity-generated by specified ‘green’ sources, or buy renewable energy certificates (RECs) from the market. Government and the regulator-introduced RECs is a market-based instrument to promote renewable energy and facilitate compliance of renewable purchase obligations (RPO) by obligators who do not have solar RE generating resources like land, roofs or 270 days sunshine.
Today, with the price of renewable energy falling below the purchase cost, the developer of renewable energy has to charge the consumer a reasonable price. Solar REC prices are as high as Rs 2.25 per unit, while solar power (i.e. power plus REC certificate) has been getting auctioned at an average rate of around Rs 2.50 /kwh since FY17-18.
The plight of discoms (and their consumers) s further aggravated by delays in revising and publishing the revised ‘floor’ and ‘forbearance’ price for RECs by the Central Electricity Regulatory Commission (CERC) due to avoidable litigations by interested parties (RE generators) who want to benefit from current system which is skewed in their favour. This has resulted in unnecessary financial burden on consumers / obligators / conventional power distributors.
Therefore, protection must be provided to the consumer from unreasonable REC prices. However, keeping the floor price at zero instead of making it obligatory to sell RECs at discounted price and keeping the forbearance price higher than zero is violative of the Electricity Act, 2003. The developers of RE generators have gained unreasonable recovery in addition to the admissible RE tariff.
Until, the new pricing is notified by CERC, the inflated REC price will continue to burden the obligated entities. These entities will be required to pay high solar REC price that is not in line with the current market price for wind and solar energy. This is when the tariffs of solar and wind projects have declined considerably. However, the inflated price of solar REC continues to put a huge burden on consumers / obligators.
In a progressive move, the Central commission (CERC) had taken note of this and reduced the forbearance and floor prices of RECs in June 2020. In the present scenario of low RE prices , it would not be misplaced to consider a negative price for the RECs and pass on the benefits to the consumer who has been funding the RE promotion by paying a higher tariff for a decade.
Manish Garg is a regulatory expert and consultant
The views expressed are personal