RPO mechanism takes another beating

18 April 2016 |

As part of the memorandum of understanding signed under the UDAY scheme, the Ministry of Power has allowed a roll forward of the Renewable Purchase Obligation (RPO) for Uttar Pradesh by seven years (refer). Meanwhile, state power distribution companies in Odisha have got a stay on enforcement of RPO from the state High Court. These incidents set bad precedents for the country’s solar targets, which are conceptually based on compliance with the RPO mechanism. On the other hand, states such as Telangana, Andhra Pradesh, Karnataka and Jharkhand are rapidly scaling up their solar programs and going way beyond their RPO targets. In fact, there is more solar power capacity planned in Telangana and Jharkhand in the next two years than their respective 2022 targets set by the Ministry of New and Renewable Energy (MNRE).

  • The RPO mechanism has by and large failed because of poor regulatory framework and non-compliance on the pretext of poor financial health of distribution companies
  • Some states are increasingly adopting solar power because of its economic advantages combined with environmental and political credentials
  • Going forward, we expect the RPO mechanism to become more of a measuring stick than an underlying driver for new capacity addition in the country

India’s 100 GW target for 2022 is based on 8% of total power consumption being met through solar power. However, RPO enforcement has been a challenge across the country because several states remain non-compliance on the pretext of poor financial health of distribution companies. This is despite the Supreme Court of India recently passing a judgement reaffirming the legal sanctity of RPOs (refer) and the central government proposing penalties for non-compliance under the Electricity Act 2003 amendments (refer). The purchase volumes of solar specific Renewable Energy Certificates (RECs) remain abysmally low at between 3 – 5% of the total available stock at the exchanges.

In absence of a strong RPO framework, BRIDGE TO INDIA believes that the key factors driving solar demand are strong political backing to renewable power particularly in BJP ruled states, improved economic fundamentals, short gestation period and even political showmanship.

As economics for solar power improve further, we expect the RPO mechanism to become more of a measuring stick than an underlying driver for new capacity addition. Indeed, that’s already happening to some extent. In fact, the central government is also exploring ways to tweak the RPO mechanism such that different states get different targets (as a percentage of power to be procured from solar) based on economic viability of solar in these states (refer).

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