Initiatives to promote clean energy in Maharashtra, India Dr. Pramod Deo, Chairman, MERC

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1 Initiatives to promote clean energy in Maharashtra, India Dr. Pramod Deo, Chairman, MERC A. Context of Electricity Regulation The Maharashtra Electricity Regulatory Commission (MERC) was established in August 1999, under the erstwhile Electricity Regulatory Commission's (ERC) Act, 1998, with the powers to determine tariffs, regulate power purchase, and promote competition, efficiency and economy in the activities of electricity industry. The three-member MERC was fully constituted in September Subsequent to the enactment of the Electricity Act, 2003, which consolidated all the Electricity laws in the country, the powers of MERC have been broadened, and several Regulations like Standards of Performance, Supply Code, etc., have been notified after following a consultative process involving representatives of Utilities, Consumer Representatives, and MERC representatives. One of the major objectives of power sector reforms in Maharashtra was achieved with restructuring of erstwhile vertically integrated Maharashtra State Electricity Board (MSEB) into three functional entities for generation (MSPGCL Maharashtra State Power Generating Co. Ltd), transmission (MSETCL Maharashtra State Electricity Transmission Co. Ltd) and distribution (MSEDCL Maharashtra State Electricity Distribution Co. Ltd.) along with a Holding Company, in June Apart from these State sector entities which supply power to the entire State of Maharashtra except the State capital - Mumbai, historically, generation, transmission and distribution networks in the city of Mumbai were developed and owned by private licensees such as The Tata Power Company Ltd (TPC) and Reliance Energy Ltd. (REL). Moreover, in the island city of Mumbai (i.e., the metropolitan area excluding its suburbs) the retail supply of electricity has been the responsibility of a local municipal authority namely Brihan-Mumbai Electricity Supply and Transport Undertaking (BEST). The State also has a rural electric co-operative society - Mula-Pravara Electric Co-operative Society (MPECS) in Ahmednagar district. Maharashtra thus, has the most varied mix of distribution licensees in the country, which has the presence of two private distribution licensee, the largest (in terms of sales and revenue) public sector distribution licensee in the country, one local authority vested with the distribution licence, as well as one rural co-operative distribution licensee. There is a nodal agency called Maharashtra Energy Development Agency to promote and disseminate new and renewable energy sources. The State Government can issue Policy Guidelines from time to time, on matters of public interest related to the electricity sector. B. Overview of Experience with Sustainable Energy Renewable Energy The Electricity Act 2003 (EA 2003) has placed the responsibility for development of renewable energy (RE) on the shoulders of the State Electricity Regulatory Commissions (SERCs). Enactments prior to the Electricity Act 2003 had no specific provisions to promote renewable sources of energy, as a result of which, the policies for RE sources were left to the whims and fancies of the State Governments and State Electricity Boards, though the Ministry of Nonconventional Energy Sources (MNES), now renamed as Ministry of New and Renewable Energy (MNRE), attempted to give an impetus to the RE sector through its Policy Guidelines in These efforts had mixed results. However, the EA 2003 has radically changed the legal and regulatory framework for the RE sector. 1

2 The EA 2003 mandates SERCs to promote RE within their area of jurisdiction. The two most important provisions in this regard are Section 61 (h) and Section 86 (1)(e) of the EA 2003, which are mandatory in nature and therefore, put significant responsibility on SERCs. Section 61(h) of the EA 2003 prescribes promotion of cogeneration and generation of electricity from renewable sources of energy as one of the criteria for tariff determination. Nearly all SERCs have issued their Tariff Regulations incorporating suitable clauses, which will enable SERCs to provide preferential treatment to RE during the tariff determination process. While Section 61 (h) is important from the perspective of improving viability of the projects by ensuring promotional tariffs and regulatory certainty for investments in RE sector, Section 86 (1)(e) helps develop the market for RE projects by requiring the SERC to prescribe the percentage of purchase from renewable sources of energy by distribution licensees and others. This Section also mandates the SERC to provide suitable measures for connectivity to the grid. SERCs in several States such as Maharashtra, Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Tamil Nadu, etc., have issued orders and/or Regulations and specified Renewable Purchase Specification (RPS) ranging from 0.5% to 10% for RE procurement by licensees. SERCs in Maharashtra, Andhra Pradesh and Rajasthan have taken a comprehensive view and made RPS applicable to not only distribution licensees but also to Open Access and captive consumers, which will significantly expand the market for RE sources. Even before the implementation of the EA 2003, the Commission had issued its Order on Renewable Purchase Obligation (RPO), which required the Distribution Licensees to equitably share the RE generation in the State. In accordance with the EA 2003, the Commission issued the Long-term Development of Renewable Energy Sources and associated Renewable Purchase Specification (RPS) Framework vide its Order dated August 16, The Commission has also issued various Orders to encourage renewable source of energy, which are as below: a. Order on Non-fossil fuel (bagasse) based cogeneration dated August 16, 2002 b. Order on Wind Energy dated November 24, 2003 c. Order on Biomass dated August 8, 2005 d. Order on Small Hydel dated November 9, 2005 e. Order on Municipal Solid Waste dated April 6, 2004 All the Orders are available on the Commission s website The Orders from (a) to (e) were initiated through Petitions filed by stakeholders such as developers and industry associations. On submission of the Petitions, an admissibility hearing is conducted in the presence of authorised Consumer Representatives, to ensure that the Petition is in accordance with the provisions of the Electricity Act and the Commission s Regulations. Then the complete Petition is made available to the public and comments/suggestions are invited from interested stakeholders, followed by a Public Hearing, after which the Commission issues the Order. In some cases, the Commission also published an Approach Paper elucidating the issues involved, so that the public participation could take place on a more informed basis. The RPS Order was issued on a suo-motu basis by the Commission, after publishing an Approach Paper, which discussed the issues involved, cost framework for implementation of RPS, implications of RPS, and pros and cons of various options. The Commission is constrained by lack of adequate staff strength on its employee rolls and hence, relies largely on consultants for assistance in processing the various Petitions and Cases, for required technical, regulatory and legal inputs. 2

3 As regards whether the laws related to renewable energy need to be modified, I am of the view that the EA 2003 covers only renewable electricity and does not address other forms of renewable energy, such as bio-fuels in transportation, bio-gas in cooking and industrial applications, solar thermal for various applications. Moreover, in India, different ministries are responsible for different forms of energy such as Ministry of Power, Ministry of Coal, Ministry of Petroleum and Natural Gas and Ministry of New and Renewable Energy. This is creating hurdles in development of renewable energy technologies in India. In order to overcome these problems, a comprehensive RE Law has been developed by a Committee under my Chairmanship, which is expected to create an uniform framework for development of RE sources through different Ministries, institutional structure to identify new technologies and develop mechanism for commercialization of the same, framework for sale of grid connected RE in the inter-state market. The RE law aims to address not only electricity related issues, but integrated energy planning, to achieve the goal of sustainable energy development, i.e., growth without subsidy. Load Shedding In the State of Maharashtra, there is a severe demand-supply gap, as a result of which the largest distribution licensee, i.e. MSEDCL, is undertaking load shedding. As a result of huge demandsupply gap, the Commission has to specify and regulate the quantity of supply to ensure that no category of consumer or region is discriminated against. In order to ensure that all consumers in the State receive reasonable quantity of supply at reasonable prices, the Commission has stipulated the load shedding protocol, which ensures that there is no discrimination between consumer categories and regions. Following principles have been adopted while developing load-shedding protocol: (a) Equitable sharing of shortages (b) Incentivising loss reduction and timely payment of bills (c) Avoiding distress load shedding (d) Incentivising energy conservation Energy Efficiency (EE), Demand Side Management (DSM) & Load Management (LM) There is no specific provision in the EA 2003 that directly mandates Utilities and/or Regulatory Commission to encourage EE in various end-uses and/or DSM activities. Section 61 of the EA 2003, besides other things, mandates the Regulatory Commissions to determine tariff after considering factors that would encourage efficiency, economical use of resources and optimum investments. Section 86 (4) of the EA 2003 stipulates that in discharge of its functions, the Commission shall be guided by the National Electricity Policy, etc. The National Electricity Policy (NEP), notified by the Government of India in February 2005 has a separate Section dedicated to Energy Conservation, wherein inter-alia, the NEP stipulates that Regulatory Commissions should ensure adherence to energy efficiency standards by Utilities. However, these provisions in the EA 2003 fall short of directly mandating promotion of end-use EE or DSM by Utilities. Nevertheless, recognising the importance of end-use EE and DSM in the overall context of the huge demand-supply mismatch prevalent in the State of Maharashtra, leading to consumers facing prolonged hours of load shedding, the MERC has been actively promoting efficient utilisation of electricity, its conservation and DSM as a power shortage mitigation strategy, by exercising the power vested in the SERCs to regulate supply, distribution, consumption or use of electricity in times of exigencies under Section 23 of the EA As a result of the Commission s directives, the year 2005 saw the first ever serious efforts being made by the distribution Utilities in the State to tap demand side resources by developing, planning and implementing DSM and EE programmes. The Commission, in its Order dated 3

4 March 4, 2005, on a petition filed by a consumer organisation seeking the Commission s direction to the largest distribution Utility in the State (MSEDCL) to undertake steps, including implementation of DSM and EE programmes, to ward off load shedding that was being resorted to by MSEDCL to balance its demand-supply situation; directed MSEDCL to submit a DSM plan for capturing energy conservation (EC) and EE potential in various electricity-consuming sectors in Maharashtra. Subsequently, when the prospect of a prolonged phase of load shedding began to loom large over Mumbai city also, which hitherto had not witnessed load shedding, the Commission directed the distribution Utilities supplying power in Mumbai city, viz., BEST, REL and TPC, to prepare DSM plans and undertake DSM and EE/EC programmes. The distribution Utilities in the State have since initiated EE and DSM related activities and the same have been summarised in the Box. Recognising that mere directions to the Utilities to capture the available DSM and/or EE/EC potential would not suffice, MERC also took the following complementary steps: Allow recovery of DSM/energy efficiency related costs Recognising that the distribution Utilities, who are regulated entities, would need regulatory approval to recover costs associated with undertaking of EE/DSM programmes, MERC allowed distribution Utilities in the State to specifically recover all costs incurred by the distribution Utilities in any DSM and/or EE related activity, including planning, designing, implementing, monitoring and evaluating DSM and/or EE/EC programmes through their aggregate revenue requirement. Capacity Building MERC enhanced its internal capacity by creating a dedicated DSM Cell within the organisation in early 2006, in order to ensure compliance with the Commission s directions and to facilitate the regulatory process in the context of EE and DSM activities. Further, recognising that the distribution Utilities in the State have limited experience and knowledge in the establishment of a self-sustaining, market-based cycle of DSM/EE programme development, financing and implementation, the MERC provided support and guidance to the distribution Utilities in DSM/EE programme development and implementation. Further, the Commission has recently entered into a Memorandum of Understanding (MOU) with the California Energy Commission (CEC), California Public Utilities Commission (CPUC) and Lawrence Berkeley National Laboratory (LBNL) of the United States, to develop its own capacity and also that of the Utilities in the areas of energy efficiency, DSM, load research, integrated resource planning and demand response, besides other areas. Load Research Distribution Utilities in the State have virtually no category-wise demand and consumption data beyond the system level demand (no data on contribution of sector or segment or end-use or technology to the total demand and consumption, both, in terms of quantum or timing). In the absence of such data, the Utilities in the State find it very difficult to strategise and plan EE or DSM programmes. Consequently, the EE or DSM initiatives undertaken so far by the Utilities in the State have been ad-hoc, and at best have been in the nature of demonstration or pilot projects. Recognising the absence of planning data as a major constraint for speedy development and implementation of full-fledged EE or DSM programmes, the MERC through its Multi Year Tariff (MYT) Orders of April/May 2007, directed all the distribution Utilities in the State to undertake systematic load research and to make load research an integral part of their the day-today operations. Load Management Penalties/Incentives 4

5 Given the continued power shortages on the one hand, and limited capacity of the distribution Utilities to plan, develop and implement EE or DSM programmes as well as the limited availability of the data to strategise and plan EE/DSM programmes on the other hand, MERC considered it necessary to influence consumer demand by load regulation through imposition of load management incentives and penalties on consumers who were not subjected to load shedding. Accordingly, the Commission issued two sets of Orders, first in April 2005 and second set of Orders in March and October 2006, directing imposition of a load management charge, if consumption was above a certain limit specified by the Commission and offer of a load management rebate if the consumption was below the limit specified by the Commission. The Commission also directed that the net amount collected as load management charge (total load management charge minus total load management rebate) shall be kept in a separate account by the Utilities and shall be used for carrying out energy efficiency or DSM activities. While these Orders did not result in any noticeable reduction in consumption, the March and October 2006 Orders, because of very high levels of load management charges, caused severe hardships and imposed severe economic penalties on the consumers as they could not reduce their consumption below the Commission prescribed limit, basically because consumers were not really aware of the need for EE/EC and the measures to be taken to achieve EE/EC. Consequently, the Orders of March and October 2006, levying load management charges and offering load management rebates, were subsequently withdrawn in December In view of lack of consumer awareness, however, the Commission directed the distribution Utilities to increase consumer awareness about the need for EE and EC and the manner in which EE/EC can be brought about by undertaking extensive consumer awareness campaigns. The consumer awareness campaign of March-June 2007 (please see Box for details) was the result of this directive. The load management charge and rebate strategy, however, had one positive outcome in that the April 2005 Order helped in collecting a net amount of Rs. 700 million (About US$ 17.5 million), which immediately became available to the Utilities to pursue EE/DSM related activities. All the activities listed in the Box have so far been funded out of this load management charge amount of US $ 17.5 million. Tariff signals for fostering energy efficiency and conservation by consumers In order to provide appropriate signals to the consumers to adopt EC/EE measures, MERC deemed it necessary to provide tariff signals to the consumers in higher consumption bracket as well as certain categories of consumers like shopping malls, multiplexes, advertisement hoardings, etc. Accordingly, through the April/May 2007 Multi Year Tariff Orders for distribution Utilities in the State, the Commission steeply increased the tariffs applicable to above mentioned categories by around 80% to 100% with a view to provide them an economic signal to adopt appropriate EE/EC measures. Future Prospects With energy efficiency and DSM being an integral part of India s energy security and carbon emission mitigation strategies, the need for accelerated realisation of the available EE and DSM potential needs no emphasis in the Indian context. As regards the State of Maharashtra, with power shortages expected to prevail for at least the next four to five years, and with an estimated energy efficiency and DSM potential of around MW, it is essential that MERC vigorously pursues energy efficiency and DSM in the State of Maharashtra. The real challenge before MERC would be to scale up from schemes capturing few kilowatts of potential to schemes capturing tens of megawatts of the available potential. It is hoped that the load research and EE and DSM plan development and implementation directives of MERC coupled with the capacity building initiatives undertaken by the MERC will help to realise the available EE and DSM potential. Further, the MOU signed with California Commissions and the LBNL is expected to not only help the Utilities in incorporating DSM, load research and integrated 5

6 resource planning (IRP) in their operations, but is also expected to help the MERC in the development of the necessary regulatory framework (within the overall ambit of EA 2003) for aligning Utility incentives for investments in EE and DSM and also for developing the necessary standardised guidelines for EE and DSM programme appraisal, approval, monitoring and evaluation, as well as those for load research and IRP. EE/DSM Related Activities in Maharashtra under MERC Directives EE/EC/DSM related work: Guidance to utilities through MERC appointed experts Establishing DSM Bidding mechanism to develop options under which other implementing organisations such as energy service companies, equipment manufacturers, financial institutions, energy users and NGOs are provided incentives to develop and implement cost effective energy conservation or DSM programmes. US $ 32,500 sanctioned to REL for implementing DSM bidding in 8 th Khar Road area DSM Initiatives by Utilities under MERC Directives: o CFL promotion pilot projects in Nashik and Mumbai: More than 0.85 million CFLs distributed under the pilot projects o State level CFL promotion under CDM mechanism o Pilot project involving capacitor installation on agricultural pumps in Nashik o MEDA s project for EE in rural water supply pumping and street lighting application o I will, Mumbai Will Energy Conservation Awareness Campaign for Mumbai at the cost of US $ 1.2 million o REL and BEST pilot DSM programmes involving outlays of US $ 1.38 million and US $ US $ 0.07 million, respectively o DSM Plan preparation and load research work being taken up by REL, BEST, and TPC Tariff Orders promoting EE/EC/DSM: Consumer oriented initiatives : o Time of Day (TOD) Tariff: Very successful, anecdotal evidence 3 out of 5 multiplexes in Pune have gone in for thermal storage for air-conditioning o Power factor incentive/penalty o Load Management incentive and penalties Have collected about Rs. 70 Crore for immediate use for DSM/EE/EC Base tariff (higher for hoardings, commercial sector, high consuming consumers) Utilities in Mumbai organizing a energy users-energy service providers meet (Consumers on one side and ESCOs, Equipment vendors Voltas, Blue Star, Philips, energy auditors and financiers on the other side) o Utility oriented initiatives MYT Tariff orders Mandating DSM and load research as an integral part of operations Allowing recovery of all DSM related costs Mandating integration of DSM in all future power procurement plans 2% of costly power purchase to be reduced through EE/EC or DSM MOU between MERC and CEC, CPUC and LBNL Scoping workshop on 11 th and 12 th December 2007 in Mumbai Seminar on Demand Response on 22 nd January 2008 in Mumbai Five-day training programme on DSM, IRP and load research, March 2008, Mumbai 6