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Solar policy vs. DISCOMs – Round One


13 July 2015 | BRIDGE TO INDIA

Solar policy vs. DISCOMs – Round One

One group in India that has so far not shared the enthusiasm about the country’s solar ambitions is utilities. Their immediate concerns relate to how the transmission and distribution grid is used and paid for. At a more fundamental level, they are wondering about whether the growth of solar will restrict or change their role in India’s future electricity system. While some DISCOMs have been more proactive, viewing solar as an opportunity, others have been dragging their feet. This has been a key determinant of whether or not solar has take off in different states. Andhra Pradesh is one of the most solar enthusiastic states in India – but the state’s DISCOM is now challenging that. The Eastern Power Distribution Company of AP Limited (APEPDCL), has petitioned the state electricity regulatory commission, APERC, to review exemptions from wheeling charges for renewable energy (refer).

  • Andhra Pradesh was a leading state in announcing a waiver of wheeling charges and has since been followed by several others
  • Regulatory changes after the investment has been made can be very damaging to the investment climate. The petition in Andhra Pradesh is a reminder of the uncertainties of the business.
  • BRIDGE TO INDIA supports fair compensation for use of infrastructure but that should not be confused with seeking to protect distribution monopolies

State DISCOMs impose wheeling charges on the use of their transmission infrastructure. A waiver from wheeling charges is an incentive for the renewables sector, essentially a subsidy. APEPDCL argues that it is currently losing revenue due to such waivers and will have to bridge the revenue gap by hiking tariffs for non-solar customers. For this reason, it has asked for the waiver to be scrapped. We expect many more such challenges to solar in India.

Andhra Pradesh was one of the first states in India to announce a waiver of wheeling and some other open access charges for captive use/private sale of power from utility scale solar projects. This decision was hailed by the solar industry and similar policies with full or partial waiver of various open access charges were announced in Karnataka, Madhya Pradesh, Tamil Nadu, Punjab, Uttarakhand and Punjab. The trend so far was towards expanding this model. The central government, for instance, has proposed changes to the National Tariff Policy 2005 to allow free interstate transmission of renewable power.

With falling solar prices and rising grid power tariffs solar power has become an attractive choice for more and more customers. This has prompted several developers to look at private solar parks and other such business models seriously. According to BRIDGE TO INDIA’s project database, over 100 MW of off-site, private sale of power sola projects have been built. Many developers are currently looking at such opportunities through the solar parks being built in Madhya Pradesh, Telangana, Rajasthan, Tamil Nadu and Andhra Pradesh.

A key concern investors and especially banks have had with such projects has been the longevity and stability of waivers from various charges announced as part of ambitious state policies. Despite grand vision statements, actual regulations can change quickly and in India, they are almost never protected by a ‘grandfathering’ clause (refer). Regulatory changes after the investment has been made can leave investors in a lurch. The petition in Andhra Pradesh is a sharp reminder of such uncertainties.

BRIDGE TO INDIA is of the opinion that DISCOMs should be fairly compensated for use of their infrastructure. However, this compensation should not be used to shut out new entrants and maintain monopolies. If states want to provide such incentives to the solar sector, then DISCOMs should either be allowed to pass these costs on to other customers or the government should compensate them for it.Otherwise, similar policies in other states, especially policies such as Karnataka’s 10 year waiver on wheeling and other charges, will not be sustainable. So the issue needs to be addressed keeping in mind the interests of all stakeholders. It is equally important, however, to build investor trust in the Indian market and from that perspective, overturning any policy for existing projects should be a strict no-no.


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