A new tariff policy to accelerate India’s renewables growth

28 April 2015 |

Ministry of Power (MoP) has proposed amendments to the country’s existing tariff policy of 2005 (refer). Promotion of renewable generation sources has now been added as the fifth objective of the policy. There are three salient features for the solar sector in this proposed amendment:

  • Renewable purchase obligation (RPO) has been revised to 8% by 2019
  • Discoms will now be allowed to procure bundled solar power from the existing conventional power generators on a cost plus basis to meet their RPOs
  • Renewable sources have been exempted from inter-state transmission charge

The increase in RPO target from 3% by 2022 to 8% by 2019 implies an aggregate solar capacity of 69 GW by that time. This is equivalent to solar capacity growth of 87% per annum, which is largely consistent with the 2022 target of 100 GW but is nonetheless extremely ambitious in our view.

Discoms will continue to have the option to buy solar power by allocating capacity through competitive bidding. However, they can now also buy bundled power directly from conventional power producers such as NTPC, NHPC, state power generation companies and private conventional power generators such as Reliance, Jindal and Adani. The amendments propose that all coal-fired power plants installed after a specified date will have to be accompanied by a renewable power plant for at least 10% of their coal generating capacity. Additionally, after receiving consent from off-taker, the existing coal power plants will be allowed to set up solar/renewable capacity for bundled power to be sold on a cost-plus basis. Conventional power generators have an obvious advantage over renewable IPPs in terms of scale and existing evacuation infrastructure. Now, with the added advantage of being able to directly pass through costs for solar on a regulated cost-plus basis, these players might get a significant advantage over renewable IPPs going forward.

Renewable power is also proposed to be exempted from inter-state transmission charges until a further notification by central government. This would encourage a large concentration of solar plants in resource rich states, such as Rajasthan and Gujarat provided the transmission capacity is sufficiently boosted. Green corridors to evacuate renewable power are already in active planning stages.

There is more detail required to back up these policy announcements particularly on enforcement, which is always the weakest element of such policies in India. Also, like most other central government initiatives in the power sector, bringing states on board will be a significant challenge. Overall though, BRIDGE TO INDIA believes that the proposed amendments could be a very good driver for boosting the renewable sector in the country.


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