Making India a Solar Energy Economy Prospects & Challenges

Transcription

1 Making India a Solar Energy Economy Prospects & Challenges Submitted by Ravi Prakash, 5 th Year, B.A.LL.B.(Hons.), HNLU Hidayatullah National Law University, Raipur id ravi.hnlu@gmail.com 1

2 MAKING INDIA A SOLAR ENERGY ECONOMY PROSPECTS AND CHALLENGES Ravi Prakash* Abstract The Indian power sector is witnessing a revolution as excitement grips the nation about harnessing electricity from various renewable sources of energy. India has become the world s next clean energy hotspot as it plans to meet its substantial future energy from renewable sources. These include wind, solar, bio-mass, hydro, wastes etc. Electricity generation from renewable energy sources is increasingly recognized to play an important role for the achievement of a variety of primary and secondary energy policy goals, such as improved diversity and security of energy supply, reduction of local pollutant and global greenhouse gas emissions, regional and rural development, and exploitation of opportunities for fostering social cohesion, value addition and employment generation at the local and regional level. Due to its geographical location; India receives a high intensity of solar radiation. Currently, India is pushing forward a massive plan of generating electricity by using solar radiation. Against this backdrop, the paper attempts to discuss the existing legal and policy framework for solar power generation. A power system mainly comprises three aspects i.e. generation, transmission and distribution. The present paper focuses on generation of electricity from solar power plants and the existing legal and regulatory framework for setting up of solar power plants. Many states in India have formulated renewable energy policies and states like Gujarat have come up especially with a solar power policy. An attempt has been made to make a comprehensive analysis of five leader state policies relevant for solar power generation with existing central govt. policy & against the framework of existing Electricity Act, The paper also advocates for a new renewable energy law to provide a new stimulus to the sector. 1.1 Renewable energy in India an overview 1. Introduction The electrical and power sector in India has developed significantly over the 65 years of Independence. As the socio-economic pattern of India kept continuously evolving and development reached far off to the remotest village of it, in spite of achieving great strides in electricity sector 1, access to power and reliability of power remains the major issues. Currently, India is ranked fifth globally in installed power capacity with nearly GW. 2 The fossil fuel (mainly coal) based power generation contributes to 76 GW of electricity while renewable comprises of 48.6 GW including hydro- power and 12.6 GW without it. 3 Howsoever, India s fast economic growth comes with a growing demand for energy and it is also predicted that as it propels the path of socio-economic reforms, it will face an acute shortage of power until & unless total generation capacity is increased proportionately. The impact will be most severe on rural masses 4. There would be a desperate need for some miraculous energy sources for remote village house holds. * Ravi Prakash, 5 th Year, B.A.LL.B. (Hons.), Hidayatullah National Law University, Raipur. The author can be reached at ravi.hnlu@gmail.com 1 For a study on growth and development of Indian power sector refer Rajiv K Mishra, A Report on Rural Electrification in India Looming crisis of Indian Power sector available at 2 As on 31 March 2009, India has a total installed capacity of GW. See, Annual Report , Ministry of Power, available at 3 ibid 4 The Integrated Energy Policy states that "Access to electricity is very uneven. Around 57% of the rural households and 12% of the urban households i.e. 84 million households (over 44.2% of total) in the country did not have electricity in Even those who have access to electricity suffer from shortages and poor quality of supply. Unscheduled outages, load shedding, fluctuating voltage and erratic frequency are common. Consumers and the economy bear a large burden of the consequences of this poor quality of supply." See also, National Electricity Policy 2005, available at 2

3 The challenges & problems are manifold (energy security being one) before an emerging economy like India which has millions of it populace below poverty line. A country which faces crisis of energy security and at the same time cannot refrain from contributing positively in averring the impact of climate change is left with no other solution than to switch over to renewable energy production. India has been endowed with a vast pool of renewable energy sources such as hydro, solar, wind, bio-mass etc. At presently renewable energy contributes about 9% (12.6 GW) of total installed electricity capacity in India 5. The result achieved in the renewable energy sector during 10 th five year plan ( ) was positive and it provided the regulatory authorities with the optimism to initiate major reforms in renewable energy power sector. 6 Even the current five year plan outlines a target of generating additional GW of electricity from renewable source of energy. 7 It identifies solar power generation as one of the means to achieve it. If the trend during tenth five year plan ( ) was to promote & generate electricity from wind power plants then perhaps current five year ( ) plan will be known for generation of electricity from solar power plants. The advantages of renewable energy are expected to contribute significantly in the developmental process. India s recent success in clean energy is just a beginning. The trends and analysis outlines in the following pages provides a glimpse of exciting developments to come, and reveal that with continued policy support, investment and technological innovation, India could become a global leader in renewable energy. A sound legal and policy framework is essential to continue this trend. These policies largely relates to financial, fiscal incentives or special directives aimed to encourage/enforce utilities to buy renewable energy power, promotes companies to set up renewable energy projects, equipment companies to manufacture renewable energy equipment or private and government entities to undertake R&D relating to renewable energy. 1.2 Solar energy the promising prospect The Central power plant, like much bulk electric transmission, will soon become a white elephant, uneconomic to run, and difficult to sell. Such plants are likely to survive in significant number by 2030 in any market economy and would be replaced by more localised electricity generation. Amory Lovins, Int l Energy Expert The days will not be far off when power plants will shift from large, remote centralised stations to rooftops, basements, backyards with no fuel cost characterised by quality & reliability. As human civilisation witnesses a gradual shift towards harnessing cleaner form of energy from various sources; the solar energy is going to play an important role. Perhaps, it is the only energy which has absolutely no fuel cost. To tap the infinite energy from the sun and transform as well as to transmit it to each household, the Indian govt. has accelerated promotion of the use of universally available solar energy through its various policies and incentives. India due to its geo-physical location receives solar energy equivalent to nearly 5,000 trillion KWh/ year, which is far more than the total energy consumption of the country today. 8 But it produces a very negligible amount of solar energy i.e. a merely 0.2 percent compared to other energy resources. 9 The Govt. of India, in all its recent policies relating to power sector has given due importance to harness the sun s energy in various ways 10. Solar energy is harnessed through the available technologies like Solar Photovoltaic (SPV), Solar Thermal (ST), and Concentrating Solar Power (CSP). Some parts of India like 5 Excluding Hydro- Power Generation which accounts for approximately 24 % of total capacity 6 During X Five year plan a total of additional 27 GW of electricity was achieved, out of which Renewable Energy accounted almost one-fourth of it. It was mainly due to the scaled installation of wind power generation in various states supported by good policy framework. 7 The XI five year plan envisages a total addition of 80 GW of electricity to the installed capacity from all sources. 8 See, CERC Draft explanatory memorandum for tariff norms for Solar Power Projects, available at 9 ibid 10 The solar energy can be harnessed mainly through two roots i.e. Heat & Light. The thermal ( heat) route uses the heat for water heating, cooking, drying, water purification, power generation, and other applications; the photovoltaic route ( light) converts the light in solar energy into electricity, 3

4 western part of Rajasthan (Thar desert) receive the required solar radiation for use of Concentrating Solar Power (CSP) technology. It is estimated that a 60 km x 60 km of area can produce 1, 00,000 MW of power using CSP technology. The advantages which distributed generation of solar energy brings are unique. It provides easy access to power for tail-end users like rural people, it avoids high transmission & distribution (T&D) costs, provides reliable and quality power and is environmentally benign. It also indicates that a decentralised power generation can perfectly complement decentralised development and governance 11. Even national electricity policy 2005(NEP) envisages that in order to ensure better rural electrification infrastructure and to operate and maintain supply system for securing reliable power; the responsibility of operation & maintenance and cost recovery could be discharged by utilities through appropriate arrangements with panchayats, local authorities, NGOs and other franchisees etc. 12 So, the promotion of generation of solar energy can significantly contribute in attaining the developmental agenda. Such renewable energy power production potential in India can be easily scaled up innovatively in an affordable and sustainable manner. Howsoever, the prerequisite to success of any such massive plan is a comprehensive legal/policy framework for the entire cycle of development for each of these renewable energy resources. Presently, solar energy is facing three fundamental challenges i.e.; cost, its manufacturing procedure (R & D) and the land acquisition for erecting solar power plants. Nevertheless, the Govt. (Central as well as State) through various policy measures has recently attempted to address these challenges. It is also estimated that once the scaling of solar energy is done a greater access to the market will be facilitated 13 and its cost will come at par with conventional source of energy. All the policy measures focus on promotion of R & D in the respective technology to enhance the efficiency and viability of the project. As these technologies will be categorised as environmental sustainable technologies(est s); under the existing international legal framework, the developed economies have an obligation to transfer technology. 14 The land acquisition policy has been always a controversial issue in India, 15 but, perhaps one of the viable solutions to it is the acquisition through local bodies, panchayats & municipality. All the existing policies provide for the acquisition of land by involving local bodies and panchayats for the successful implementation of projects. 2. Indian electricity sector (Legal & regulatory framework) The constitutional scheme essentially provides for a federal structure of governance 16. Electricity is a subject matter of concurrent list 17 in the constitutional scheme which essentially means that both Centre & State can legislate & regulate the subject matter. As the delicate balance of power in legislative field is tilted in favour of Centre rather than federal units (states) 18, the central law gains a primacy over state law in situation of conflict. According to article 254(1) of the constitution, in case of conflict between laws made by centre & state over the same subject matter, the state law becomes void to the extent of repugnancy 19. Howsoever, presently the most important legislation to regulate power sector is Electricity Act, 2003 by central govt Electricity Act, 2003 The Electricity Act, 2003 is a major enactment which regulates generation, transmission and distribution of electricity in India. This law is well supplemented with a set of by- laws, policies, codes, rules, and regulations covering all aspects of power sector. 20 The impact of such a sound legal framework can be 11 See, 73 rd & 74 th Constitutional Amendment Act See, Para 5.1.6, National Electricity Policy See, Alexandra L Carleton, Mandating Market Access for Renewable Energies in Australia, (2008) 26 JERL See, Art. 66.2, TRIPS 15 Ravi Prakash, Reconsidering law relating to Land Acquisition, (2008) 6 MLJ 83(Art.) 16 Federalism is one of the basic features of Indian Constitution. See, Kuldeep Nayar v. Union of India (2006)7SCC1 17 Entry 37, List III, VII Schedule, Constitution of India 18 See, S.R. Bommai v. Union of India (1994) 3 SCC 1. Also see, Kuldip Nayar v. Union of India (2006)7SCC1,44 para See, Deep Chand v. State of U.P. AIR 1959 SC Various policies like National Electricity Policy 2005, National Tariff Policy 2006, National Rural Electrification Policy 2006, respective Grid Code, and rules, regulations made by CERC and SERC held in regulating Electricity sector in India. 4

5 easily witnessed by analysing power sector performance post The Central law provided an enabling framework to stimulate private investments for capacity augmentation in a de-licensed regime 22, ushered required competition in the power market 23, established regulatory and monitoring agencies/ bodies 24 and contained features like open access 25, captive generation 26, cogeneration 27 etc. Various provisions of the Electricity Act, 2003 give a major thrust to the renewable energy sector & puts forth the need and priority to promote renewable energy through its enabling provisions. The relevant provisions for this are as follows:- Under Sections 3(1) and 3(2), it has been stated that the central govt. shall prepare and publish the National Electricity Policy and National Tariff Policy, in consultation with the state governments and authority for development of the power system based on optimal utilization of resources such as coal, natural gas, nuclear substances or material, hydro and renewable sources of energy. The central govt. had notified the two policies viz. National Electricity Policies (NEP) & National Tariff Policy (NTP) which lay down further policy framework for the development and generation of renewable energy. Section 4 states that the central govt. shall, after consultation with the state governments, prepare and notify a national policy, permitting stand-alone systems 28 (including those based on renewable sources of energy and other non-conventional sources of energy) for rural areas. In pursuance of the above mandate, the Central govt. had formulated a policy known as Integrated Rural Electrification Policy (IREP). Section 61, 61(h) and 61(i) states that the appropriate commission shall specify the terms and conditions for the determination of tariff, and such determination should be guided by the following factors such as the promotion of cogeneration and generation of electricity from renewable sources of energy; and the National Electricity Policy and Tariff Policy. According to Section 86(1) and 86(1) (e); the SERC s shall discharge the following functions in order to harness a cost efficient renewable energy from various sources :- (i) promote cogeneration and generation of electricity from renewable sources of energy (ii) to providing suitable measures for connectivity with the grid (iii) sale of electricity to any person, (iv) purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution license. 21 See, Annual Report , Ministry of Power, available at 22 See, Objects & Reasons of the Electricity Act, The electricity Act, 2003 introduces newer concepts like power trading and open access to overcome the ills of existing mechanism cross subsidies & sinking financial status of SEB s under previous regime. Open Access on Transmission and Distribution on payment of charges to the Utility will enable number of players utilizing these capacities and transmit power from generation to the load centre. This will mean utilization of existing infrastructure and easing of power shortage. Trading, now a licensed activity and regulated will also help in innovative pricing which will lead to competition resulting in lowering of tariffs. 24 See, Electricity Act, 2003, sec. 2 (4) Electricity Act defines Appropriate Commission means the Central Regulatory Commission referred to in sub sec. (1) of sec. 76 or the State Regulatory Commission referred to in section 82 or the Joint Commission referred to in sec. 83 as the case may be. 25 See, Objects & Reasons of the Electricity Act, Sec. 2 (47) defines Open Access means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission. 26 See, Electricity Act, 2003, sec. 2 (8) defines Captive generating plant means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association. 27 See, Electricity act, 2003, sec. 2 (12) defines Cogeneration means a process which simultaneously produces two or more forms of useful energy (including electricity). 28 See, Electricity Act, 2003, sec. 2 (63) defines Stand alone system means the electricity system set up to generate power and distribute electricity in a specified area without connection to the grid. 5

6 The Electricity Act, 2003 casts a significant duty upon the concerned various authorities to provide a suitable framework for the generation of power from renewable sources of energy. 2.2 National electricity policy (NEP) The policy formulated by central govt. in pursuance of sec. 3 of the Electricity Act, 2003 aims at laying guidelines for accelerated development of the power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders keeping in view availability of energy resources, technology available to exploit these resources, economics of generation using different resources, and energy security issues. Accessibility to electricity and availability of power by 2012 to all are the twin goal set out in the NEP. 29 The policy in order to meet its various objectives emphasises in harnessing power from renewable sources of energy. It postulates a decentralised distributed generation facility from renewable sources of energy for establishing a reliable rural electrification system. 30 It also provides for the necessity & importance of grid connected renewable energy. 31 The policy outlines following measures for the promotion & generation of renewable energy:- To make efforts to reduce the capital cost of projects based on non-conventional and renewable sources of energy by promoting adequate competition within such projects and promotional measures. 32 To make efforts for research, development, demonstration and commercialization of nonconventional energy systems which meets international standards, specifications and performance parameters 33 The spirit of sec. 86 of Electricity Act has been given a new life in the policy by mandating following to the SERC 34 : o o o o To specify percentage of RPO (Renewable Energy Purchase Obligation) To determine applicable tariffs for renewable energy power Such purchase of power by distribution companies shall be through competitive bidding process To determine an appropriate differential in prices to promote renewable energy technologies. 35 The cogeneration of electricity should be promoted to encourage energy efficiency and grid stability. The SERC to facilitate necessary arrangements between co-generator and distribution licensee for purchase of such surplus power. 36 The policy strengthens the mandate of Electricity Act, 2003 regarding generation of power from various sources effectively. The provision also mandate generation of power based on stand-alone system National tariff policy (NTP) 29 See, Objective, National Electricity Policy See, National Electricity Policy- 2005, para ibid, para (d) 32 ibid, para ibid, para ibid, para See, CERC Draft notification on (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2009 Available at Power-Projects.pdf 36 See, Supra 29, para See, Supra 29 6

7 The NTP has been formulated by Central govt. in compliance with sec. 3 of Electricity Act, 2003 and in continuation of National Electricity Policy The NTP sets out objectives like assured electricity to consumers at reasonable and competitive rates, financial viability of the sector, promoting transparency, consistency & predictability in regulatory approaches across jurisdiction & encouraging competition. 38 The policy stipulates that the appropriate commission 39 has to determine preferential tariff for procurement of renewable energy power by distribution licensees under renewable purchase obligation (RPO) regime as envisaged under section 86(1)(e) of Electricity Act, It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission. (2) Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional sources. In the long-term, these technologies would need to compete with other sources in terms of full costs. (3) The Central Commission should lay down guidelines within three months for pricing non-firm power, especially from non conventional sources, to be followed in cases where such procurement is not through competitive bidding. The various SERC had taken an active initiative (either suo- motu or on received application by stakeholders) to determine the tariff for electricity generated from solar power according to the norms and principles set out in NTP. 40 Integrated Rural Electrification Policy (IREP) as formulated under mandate of sec. 4 & 6 of the Electricity Act, 2003 supplements the electricity generation from renewable sources as envisaged in the above mentioned policies appropriately. 2.4 Other Legislations / Statutes Setting up of solar power plant on a commercial basis and increased grid- interactive energy will attract (directly/ indirectly) various other central or state statutes e.g. land reforms, environmental legislations and tax regulations. Perhaps this is one of the reasons why a majority of state policies contain a mechanism of single window clearance. 41 As the financial incentives are granted and administered by both centre & state respectively, various regulatory authorities at both level assume an important function. Similarly, even to set up a large grid interactive solar power plant under MNRE scheme require basic input such as land; which remains an exclusively state subject. Another set of legislations which is likely to cause more hiccups are environmental legislations. Some state policy proposes to use barren wasteland for the generation of solar power, but by virtue of Supreme court ruling all such wasteland falls within the definition of Forest 42 which demands clearance under Forest Conservation Act, Although, generation of solar energy is a zero-carbon program which hardly has any adverse impact on climate change and environment, the land policy (especially agricultural land) will certainly affect and impact the future of project in several states. 43 The advantage with solar power generation is that it neither causes air pollution, nor requires any environmental impact assessment (EIA) as needed in case of hydro power, neither does it cause noise pollution. So, the energy promised by solar power plants generally reflects a win- win situation for all stakeholders. 2.5 Why not a new renewable energy law 38 See, objective of National Tariff Policy available at 39 See, Electricity Act 2003, Sec. 2 (4) 40 See, Maharashtra State Electricity Regulatory Commission order dated May 08, 2009 in the matter of tariff for solar based power generation projects within Maharashtra under MNRE scheme. Available at 41 Refer part 4 of this paper 42 T.N. Godavarman Thirumulpad Versus Union of India, WP 202/1995 judgment dated ( ) 43 See, Respective renewable energy policy of Haryana & Karnataka. 7

8 With all promising future of renewable energy potential in India, a separate renewable energy law is expected to play the role of a catalyst in the sector. It is important to note that India is one of the few countries that pioneered the development of renewable energy and initiated reforms at institutional and policy framework in early 1990s. The anomaly of the situation lies in the fact that the administrative machinery at the centre as well as at the state level for dealing with the activities of the renewable energy sector has been in place for a fairly long period of time but no concrete legislative policy exists. Moreover, there is a specialized financial agency, the Indian Renewable Energy Development Agency (IREDA) 44 to cater the financial requirements of the renewable energy sector in India. So, perhaps a concrete, comprehensive legal framework on renewable energy will stimulate growth and provide greater opportunities in the area. There is a need of a new comprehensive renewable energy law because:- o The use and prospect of renewable energy is not limited to only electricity generation rather extends to important sectors like transport. o Under the existing regulatory and legal framework there is a divide between the electric power sector and other energy sector (like coal, petroleum, Natural gas) 45 o To make renewable energy an engine of the common man s growth requires a detailing of technological, developmental, legal policy and institutional framework. o Renewable energy like bio-fuels cannot be regulated under Electricity Act National policies The Central government s approach to renewable energy is quite clear as it targets for at least 10% of grid-connected power to come from renewable sources by 2012; which indicates an increasing push for clean energy. In addition to the Electricity Act, 2003 and policies outlined above, the central government has provided several specific renewable energy incentives. These are predominantly fiscal incentives, including direct and indirect tax benefits, renewable energy financing and guidelines for solar feed-in tariffs. For the purpose of all these fiscal incentives as well as the monitoring of projects, the ministry of new and renewable energy along with IREDA remains the nodal agency Other important incentives by central govt. for promotion of renewable energy Direct tax benefits Accelerated depreciation:- The Central govt. presently allows for accelerated depreciation at the rate of % on a written down value 46 basis for various renewable energy items under section 32 Rule 5 of the Income Tax Act, Tax Holiday: - Under section 80 (I) (A) of the Income Tax Act, the central govt. offers a 10 year tax holiday for all infrastructure projects. 48 Indirect tax benefits Specified renewable energy devices (including Solar Energy) and equipment can obtain excise duty exemptions or concessions. Equipment for solar photovoltaic and solar thermal and power generation plant and machinery enjoy a reduction in customs duty. Foreign Direct Investments 44 The Indian Renewable Energy Development Agency was incorporated as a Public Limited Government Company in 1987 only. The twin objectives are The objectives of IREDA are: To operate a revolving fund for development and deployment of New and Renewable Sources of Energy. To give financial support to specific projects and schemes for generating energy through new and renewable sources and conserving energy through energy efficiency. 45 These do not necessarily apply to the renewable energy sector; nevertheless they underline the need to have a central renewable energy law for India in order to have a clear demarcation of the subject matter, activities, policies and regulations, particularly in the context of portfolio standards and obligations. 46 Written down Value means the net value of an asset, i.e. its original cost (its book value) minus depreciation and amortization. It is also called net book value. 47 Describe rule 5 & sec. 32 of IT Act 48 8

9 Foreign investors can enter into a JV with an Indian partner for financial and/or technical collaboration Proposals for up to 100 per cent foreign equity participation in a JV qualify for an automatic route 49 Government encourages foreign investors to set up projects on Build, Own and Operate (BOO) basis 50 Apart from all these in direct benefits and incentives include: Industrial clearances are not required for setting-up a renewable energy industry No clearance is required from central electricity authority (CEA) 51 for generation projects up to Rs 1 billion. Soft loans are available through IREDA for renewable energy equipment manufacturing The project can also enjoy various incentives under Semi-conductor Policy 2007, as silicon used in STP & SPV power plants is a semiconductor Generation based incentives (GBI) by MNRE for solar power plant (SPV & STP) The MNRE has issued two separate GBI schemes (one for STP and other for SPV) exclusively for promoting solar power generation in the state. The guidelines propose to extend the incentive to a cumulative capacity of 10 MWp in a state and a total of 50 MWp across the country during 11 th five year plan. The scheme is available to only those solar power project developers who install and commission their eligible project before 31 st December The essential criterions to be satisfied by the eligible projects are:- Grid interactive solar power generation plants with a minimum installed capacity of one MWp 52 A project developer can set up a solar power project (SPV or STP) up to a maximum capacity of 5 MWp in the country. Captive utilisation of power will not be eligible. If a project developer avails the benefit under sec. 32, rule 5 of the Income Tax Act, 1961 (claiming accelerated depreciation), then is not eligible for GBI incentives. According to the GBI guidelines, all eligible solar power developer needs to furnish specific information in the prescribed format to the IREDA. 53 A project developer needs to furnish detail information on technical and performance features, technical specifications, requirement and availability of land, title of the land, capital cost, estimated life of the SPV/ STP power plant, quantum of electricity expected to be generated and fed to the grid, proposed sale price of electricity from PV power plant, duration of power purchase agreement and power purchase rate(s), arrangements for power evacuation and the time frame for installation / commissioning of the grid PV power plant etc. 54 The disbursement of incentive will begin only when a minimum capacity of one MWp is commissioned and sold to the grid. Howsoever, the GBI scheme excludes the provision of third party sale, banking and wheeling of power while availing it. Feed-in tariffs for solar power 49 See, Policies for renewable energies/biomass in India, available at 50 See, Guidelines for generation based incentives grid interactive solar thermal power generation projects, MNRE, No.8/1/ /ST, available at 51 See, Part IX (Sec ) of Electricity Act, Such generation of power may be either at single location of may be through modular units. 53 See, Application format for seeking GBI scheme for SPV/ STP. available at 54 See, para 3.5, Guidelines for generation based incentives grid interactive solar photovoltaic power generation projects, MNRE, No.8/1/ /ST, available at 9

10 The GBI guidelines have provisions requiring IREDA to pay eligible solar photovoltaic power (SPV) generators a maximum of Rs. 12 per kwh providing they were commissioned prior to 31 December Photovoltaic projects commissioned after this date will receive a maximum of Rs per kwh. 56 Solar thermal projects (STP) will receive a feed-in tariff of Rs. 10 per kwh. 57 This incentive amount would be in addition to the power purchase rate negotiated with the purchaser of the power. The total amount paid to the generator (power tariff plus incentive payment) would be no more than Rs. 15 per kwh for solar photovoltaic plants (SPV) 58 or Rs. 13 per kwh for solar thermal plants (STP) 59. This GBI scheme will be available to all qualified developer for a maximum period of 10 years from the date of approval provided that the utility continues to purchase power from that grid interactive solar power project. GBI schemes for SPV & STP power generation is a welcome step towards creating a competitive regime among member states and indicates some progress toward harnessing solar power. Nevertheless, the scheme is available to only a total capacity of 50 MW and that also to a max. of 10 MW in one state. Due to technological deficiency, the cost associated with such power makes it uneconomical; hence such scheme only serves the superficial purpose. 3.3 Draft national solar mission under national action plan on climate change (NAPCC) Govt. of India 60 had formulated NAPCC 61 in July 2008 to deal with the global threat of climate change while maintaining a sustainable economic growth. The NAPCC essentially consists of eight diff. missions (National Solar Mission being one); which the central govt. will be formulating and a roadmap will be laid down to mitigate these adverse impact of climate change without having any further negative impact on economic development. 62 As a consensus exists among the nation states that increased global carbon emission had led to present state; it becomes imperative for the nation state to adopt cleaner and zero carbon mode of development. A developing economy like India which produces a minimal per capita CO 2 emission, nevertheless has attempted to take initiatives to become zero carbon economy. As solar energy is characterised as zero carbon fuel of future, any such policy will have a greater impact on it. The Draft Mission envisions to make India s economic development energy efficient & to move from fossil fuels to non- fossil fuels by depending much upon solar power generation. It also recognises the importance of decentralised distribution of energy in rural India which is in tune with the Electricity Act , National Electricity Policy (NEP) 64 & Integrated Rural Electrification Policy (IREP) 65. The draft mission identifies to bring down cost of solar power generation to Rs. 4-5/Kwh by taking 2009 as base year as one of its objectives. Although, the policy is presently in draft version, howsoever, if implemented, the next phase of revolution in power sector will be brought by Solar Power Generation. The plan lays down the following as main objectives:- Solar Power Generation By 2020 a capacity of 20,000 MW By 2030 a capacity of 1,00,000 MW 55 See, GBI scheme for Solar Photovoltaic Power Generation projects, available at 56 ibid 57 See, Supra See, Supra See, Supra PM's Council on Climate Change was constituted on 6th June 2008, a committee chaired by the Prime Minister called Prime Minister's Council on Climate Change will coordinate national action for assessment, adaptation and mitigation of climate change. Available at 61 Available at 62 See, Objectives; NAPCC available at 63 See, Sec. 6, Electricity Act, See. Objectives of the National Electricity Policy The policy has been formulated by Central Govt. under sec. 3 of the Electricity Act, Objectives of National Rural Electrification Policy 2006, available at 10

11 By 2050 a capacity of 2,00,000 MW 1. Cost reduction to achieve grid tariff parity by Achieve parity with coal based thermal power generation by GW of installed Solar manufacturing capacity by The draft proposes to create Solar Energy Authority of India (SEAI) under MNRE as monitoring agency for implementation of plan. The generation of solar power under the plan is envisioned into three phases with a clear target to be achieved. Phase I ( ) This phase will be marked with specific challenges as it involves initial costs and making any plan operational is always an exigent task. It has specific objectives such as driving down cost, spurring domestic manufacturing and making solar energy technologically & economically viable. But, year 2009 is almost over & the mission still in draft phase; thus it seems that plan will have certainly diff. phase duration. Phase II ( ) - The second phase of the plan is critical because the goal it sets to achieve will mainly depend on the R&D and availability of technologies. The transfer of technology under existing climate change regime is certainly going to play an important role. This phase involves the following aims:- 1. Scaling up of various validated applications 2. To roll out rural electrification business model 3. Commercial deployment of solar thermal power plants with storage facility. 4. Pilot deployment/ dissemination of next generation technologies 5. Promotion of solar lighting & heating system on large scale through market mechanism but without subsidies. 6. To reach an installed capacity of 6-7 GW by Phase III ( ) - The third phase of plan will mainly depend upon success of first two phases as it mainly seeks to achieve commercialisation of solar power, through the following aspects :- 1. Achievement of tariff parity with conventional grid power. 2. Commercialisation of storage technologies through incentives such as subsidies. 3. Commercialisation of indigenously developed PV & solar thermal technologies. 4. To reach installed capacity of 20 GW by Policy & regulatory framework for solar power generation under draft mission The regulatory framework and scheme which the draft mission envisions are similar to the existing one. Nevertheless, it has some unique mandate to create an environment which will enable large, rapid capital investment in solar energy applications which encourages technical innovations & lowers the cost in solar power generation. The draft policy envisages following incentives for the investors 66 :- 1. A proposed feed- in tariff for various applications based on National Tariff Policy & Electricity Act, years of tax holiday. 66 Howsoever, it is pertinent to note that similar incentives and mechanisms do exist under various central / state govt. policies for promotion of renewable energy. 67 Many SERC in India had determined the tariff policy for solar power generation. 11

12 3. Exemption of various duty/ taxes (customs duty & excise duty) on capital equipment & others. 4. Capital subsidy for solar heating applications & rural electrification for limited period. 5. Proposes revision of tariff guidelines & subsidy levels before the beginning of each financial year to facilitate tariff announcement by the regulators. 6. Feed- in tariff for solar power will be distributed between Centre, State & utility, where utility paying Rs. 3-5/Kwh & the balance by Centre & State in the ratio of (70:30). 7. Mandatory solar power purchase obligation (depending on state s solar resources) for states. Introduction of Renewable (Solar) Energy Certificates Mechanism to allow states to buy & sell certificates to meet this obligation. 8. Single window clearance mechanisms for all required permissions. 9. Standard lease agreement for Solar installation on govt. land 10. State transmission utilities (STUs) mandated to provide connectivity from nearest sub- station to the solar plant in a prompt and time bound manner. For successful implementation of the proposed National Solar Mission, the govt. must speed up the process which must be reflected into suitable action program. With the 2009 coming to an end, and the policy still in its draft phase, the vision has become more unrealistic. Anymore delay in execution of Phase- I plan will significantly affect the success of Phase II & III. 4. State policies Winning the opportunity to receive the national subsidy is one thing, selecting a winning state is another. -Debashish Majumdar, Chairman IREDA 68 As discussed earlier, electricity is a subject matter of concurrent list, both state and centre has legislative and regulatory power. Many states had formulated respective policies to attract investment and promote generation of renewable energy. In general the leading & favourable states for generation of renewable energy are Karnataka, Tamilnadu, Maharashtra, Gujarat, Haryana, Punjab, West Bengal and Rajasthan. As different states in India have different levels of development & market friendliness and as the scenario keeps changing constantly, it becomes very important to choose a right state for solar power generation. 69 The study of policies of five different states undertaken here are nevertheless champions in generation of renewable energy in last 10 years. Gujarat is the leading state which had prepared an exclusive policy for generation of solar power. It is also expected that in the near future many states will follow. 4.1 Gujarat Gujarat is one of the most industrialised states in the India and hence has an acute demand of power security. In order to sustain this leadership through preventive and other value interventions; which aimed to reduce the spread and depth of externalities and vulnerability in multiple spheres of economic development, Govt. of Gujarat formulated Solar Power Policy-2009 which aims at efficient use of conventional energy, proactively establish and promote sustained use of new and non- conventional energy sources and applications to reduce emissions and related impacts of climate change. 70 Solar energy being a non- firm power 71 mainly depends on solar radiation as fuel. The state is endowed with a high solar radiation levels i.e. approx. 5.6 kwh/m 2 /day 72 with 300 days of clear sun in a year with 68 Alexis Ringwald, India Renewable Energy Trends, Centre for social market, Discussion Paper Series, Presently, the Solar Power Generation is a costly affair and any project developer would afford to fail the plan. 70 See, objectives, Solar Power Policy 2009 available at 71 Non firm power means the power generated from renewable sources, the hourly variation of which is dependent upon nature s phenomenon like sun, cloud, wind, etc. that cannot be correctly predicted. 12

13 conducive arid condition and minimal sun tracking, especially in the barren wasteland areas. The renewable energy policy introduced in this state is the first of its kind, created exclusively for harnessing solar energy Solar power policy The policy seeks to achieve three sets of objective mainly: Energy Security, Socio-economic transformation & technological development (R &D). 73 The policy aims to promote generation of clean & green power using solar energy, to lower its dependence on fossil fuels. It proposes to be a vehicle of socio- economic change by generating employment locally, by using wasteland productively, by spreading environmental awareness and putting up an appropriate investment regime for CDM projects 74. One of its objectives is promotion of R & D and facilitation of technology transfer 75. Salient Features of Solar Power Policy 2009 To mitigate the adverse impact of climate change; it restricts use of any form of fossil fuel in Solar Power Projects. Exemption from payment of electricity duty 76 Exemption from demand cut 77 The wheeling 78 of electricity generated from solar power plants is allowed at a rate of 2% of energy fed into grid. The electricity generated shall be metered on a monthly basis & ABT 79 compliant meters at the interface point in a grid connected power project. 80 The power by the solar power units shall be injected at 66 KV. The transmission of power from solar sub-station to grid Sub-station shall be laid by GETCO. In case of open access obtained for third party sale the developer has to pay applicable open access charges and losses as determined by GERC. Howsoever, if such sale is within the state then cross subsidy surcharge will not be applicable. Imposes penalty for non-fulfilling power purchase obligation on distribution licensee. Benefits of solar power policy-2009 will not be available to projects set up under MNRE incentive scheme 81 for solar power generation. In case of any subsidy/ incentive received to the project from any source shall be reduced from the specified tariff except the benefit of accelerated depreciation under Income Tax Act, Only new plant & machinery shall be eligible for installation under this policy All such projects which are set up under this policy can claim accelerated depreciation under sec. 32 of Income Tax Act, See, Govt. of India, Booklet on Solar Heat, available at 73 See, Solar Power Policy 2009 & its Objectives, available at 74 All Solar energy power plants will qualify automatically as CDM projects under existing Kyoto Protocol mechanism. 75 Art. 66 of TRIPS facilitate technology transfer under the existing international legal regime. It casts a duty upon the developed economies to transfer technology to the LDC s and Developing economies. 76 Electricity duty is a charge paid for the consumption or use of electricity by any user. 77 During the peak load hours, the Discoms had a {demand cut} 78 Electricity Act, 2003 Sec. 2 (76) -Wheeling means the operation whereby the distribution system and associated facilities of a transmission licensee or distribution licensee, as the case may be, are used by another person for the conveyance of electricity on payment of charges to be determined under sec 'ABT' means availability based tariff. ABT is a three-part tariff comprising of fixed charges, variable charges, and Unscheduled Interchange charges. The fixed charges would be linked to availability and variable charges to the scheduled energy. The Unscheduled Interchange (UI) rate shall be applicable for the deviations from the schedule. 80 Interface Metering shall conform to the Central Electricity Authority (Installation & operation of meters) Regulation The MNRE incentive scheme is mainly for solar power plant (SPV & STP) available for a total of 50 MW and max. 10 MW for a particular state. 13

14 Solar power project developer has to pass on 50% of the gross benefits of CDM to the distribution licensee with whom PPA is signed. The solar energy shall not be covered under scheduling procedure for intra- state ABT. The solar policy envisages that all solar plants which are installed and commissioned before are eligible for various incentives for 25 years from date of commissioning. The minimum capacity of project (either SPV or ST) shall be 5MW each. The power plant can be set by any natural or juridical person (in form of Company/ body corporate/ association/ body of individuals/ artificial person) for the purpose of captive use 82 and /or for selling of electricity. It is important to note that central govt. (MNRE GBI scheme) is not available for the captive utilisation. The proposal has to be submitted to the nodal agency (GEDA & GPCL) for approval. Howsoever, for grid interactive solar power projects the evacuation facility from the solar sub-station to grid shall be laid by GETCO. The Gujarat govt. policy exclusively for solar power generation has been received warmly by the renewable energy sector and developer. Howsoever, the policy remains silent over certain important issues like land allotment / acquisition for setting up of solar power plants, banking of power generated etc. Absence of some specific mechanism like single window clearance for the project and a time- bound execution of project can become a hindrance in realising its goal. Nevertheless, giving due account of solar power radiation it receives and availability of barren land, creation of renewable energy SEZ will be a welcome step for generation of solar power as envisaged by the policy. 4.2 Karnataka Karnataka is a model state in the field of harnessing renewable energy in India. It is leading in the area of green energy as till March 2009; total installed capacity from renewable sources has reached up to 2400 MW. The reason behind Karnataka being a hot spot for renewable energy investor is its initiative towards formulating & concretising comprehensive legal, financial and administrative framework for this sector. Karnataka has formulated a new renewable energy policy-2009 which will remain in force till 2014 or until superseded or modified. The new policy vision is to harness green and clean renewable energy sources in the state for environment benefits and energy security. 83 The important mission which it seeks to achieve is to increase the installed capacity from 2400 MW to 6600 MW by and make renewable energy commercially viable. It not only provides single window service for project clearance but also for technical consultation and sources of finance. Karnataka receives relatively a high solar radiation levels i.e. approx. 5.5 kwh/m 2 /day 85 with more than 300 days; which make it an attractive destination for development of solar energy. The policy aims a capacity addition of 100 MW grid connected power alone from solar energy (including PV/CSP/Thermal) by 2014 estimating a likely investment of Rs crore investment in the sector. 86 The nodal agency for implementing renewable energy projects in the state is KREDL, nevertheless the role of various regulatory authorities related with power sector becomes important for the purpose of successful execution of renewable energy (solar power) projects Salient features of Karnataka renewable energy policy 2009 (relevant for setting up of solar power generation) Creation of special fund for renewable energy Green Energy Cess of Rs 0.05 (five paise) per kwh on commercial and industrial consumers to generate about Rs 55 crores annually. Akshaya Shakthi Nidhi (Green Energy Fund) of Rs. 500 Crores to finance the renewable energy projects. Raising up of govt. renewable energy bonds to the tune of 1000 crores. 82 See, Rule (3), Electricity Rules 2005 which explains captive user as the end user of the electricity generated in a captive generating plant and the term captive use shall be construed accordingly. 83 See, objectives, Karnataka Renewable Energy Policy See, Mission, Karnataka Renewable Energy Policy Govt. of India, Booklet on Solar Heat, available at 86 See, Goals, Karnataka Renewable Energy Policy