Electricity generation and transmission in India

Regulation of electricity utilities – power generation

What authorisations are required to construct and operate generation facilities?

As mentioned earlier, generation is a delicensed subject; however, construction, operation and maintenance of a generation facility require permits, consents and approvals under other laws relating to land acquisition, environmental clearance, corporate and labour compliances, approvals for use of restricted land and consent to establish and operate the power station from pollution control authorities. Further, in the case of power stations using domestic coal, the developer is required to obtain a coal linkage (which provides for assured fuel supply from the coal mines of Coal India Limited and its subsidiaries) or use coal extracted from a coal block specifically allotted to it by a government entity. If coal is used from an allotted mine, the developer is also required to obtain specific approvals (such as an environmental clearance) in relation to the coal mine. The Ministry of Environment, Forests and Climate Change, government of India (Environment Ministry), has issued a notification pursuant to which standalone coal-fired thermal power plants of all capacities are required to be supplied with, and are required to use, raw or blended or beneficiated coal with ash content not exceeding 34 per cent, on a quarterly average basis.

All power-generating stations are also required to comply with technical standards prescribed by the CEA, including those in relation to construction of power plants, safety requirements for construction, operation and maintenance. Hydropower projects above 25MW have an additional requirement to obtain a techno-economic clearance from the CEA before commencement of construction works. Similarly, a clearance is required from the Atomic Energy Regulatory Board for atomic energy based power plants.

What are the policies with respect to connection of generation to the transmission grid?

Under the Electricity Act, each transmission licensee is required to provide non-discriminatory use of transmission lines, distribution systems or associated facilities to a licensee, consumer or a person engaged in generation. Grant of connectivity and long, medium or short-term open access is governed by regulations issued by the CERC and the respective SERCs. Recently, CERC has issued amendments to regulations dealing with the interstate transmission system with the aim of planning and developing an efficient, coordinated, reliable and economical system for the smooth flow of electricity from generating stations to the load centres. The recent amendments specifically include renewable energy developers and operators of solar and wind power parks. This provides much-needed clarity on procedures to be followed by solar and wind park developers that have been involved in large-scale power projects across the country. The amendment also provides an enabling framework for transfer of connectivity (in limited circumstances such as transfer to the parent company) granted for renewable energy projects.

An applicant is first required to obtain connectivity to the transmission network and then obtain long, medium or short-term open access, as the case may be, depending on the time period for which it requires the transmission capacity. On obtaining these approvals, an applicant can interchange power with the transmission grid.

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The regulatory environment increasingly seeks to incentivise renewable energy, with favourable tariff regimes established by SERCs. The Electricity Act, the NEP and the Tariff Policy encourage private-sector participation in renewable energy through measures such as fixing RPOs for obligated entities. While in the past a feed in tariff scheme existed, in 2017 tariff-based competitive bidding guidelines for the procurement of power were introduced for solar and wind power projects. The procurer sets a benchmark tariff above which a bid cannot be made and the bidder with the lowest tariff bid discovered through a reverse auction is selected to enter into a power purchase agreement with the procurer. These bidding guidelines have introduced several provisions to enhance attractiveness of the solar and wind bids through measures such as:

• generation compensation by the procurer to the developer in case of power evacuation constraints;
• payment security mechanism for tariff payments; and
• termination compensation in the event of procurer default.

The feed-in tariff regime continues to be applicable for solar and wind plants with capacities under 5MW and 25MW respectively. Benefits such as the continued availability of accelerated depreciation for wind power projects, and exemptions from payment of electricity duty (which are state-specific, but are typically granted by a majority of the states) are also provided to renewable power generators. Further, the Power Ministry has recently ordered that no interstate transmission charges (and losses) shall be levied on the interstate sale of power from solar and wind power projects that have been awarded through competitive bidding with a power purchase agreement for the sale of power to a distribution company and other entities for the compliance with their RPOs, provided these projects are commissioned by 31 March 2022. Having said that, unlike for conventional power generation, renewable power projects are primarily based on state-specific policies that provide incentives and policies that are not always consistent between states and developers often shop around based on what best suits their financial model and operational expertise. This is why some states have witnessed tremendous growth in the renewable energy sector compared to others.

The renewable energy sector has experienced exponential growth in the past two to three years and various government incentives (both fiscal and non-fiscal) have played critical roles in this. However, as the renewable energy sector has come of age and achieved grid parity, the government aims to gradually roll back the incentives. For instance, until now renewable energy project developers (along with other power project developers) had the benefit of a 10-year corporate tax holiday which has expired. Another instance is the exemption available to renewable energy projects from payment of transmission charges and losses for transmitting renewable energy using the interstate transmission network. Having said that, the rolling back of incentives by the government has not deterred private-sector developers in developing renewable energy projects in the country. The solar sector in particular has led the pack in India’s clean-energy growth story. Solar plants can be set up under state policies or the government of India-launched National Solar Mission (NSM), which has been at the forefront of the government’s renewable energy policy. Solar projects, under either the NSM or state-specific policies, are envisaged to be developed in a phased manner with a target of achieving 100GW (increased from the original target of 20GW) of installed solar capacity by 2022. Out of the total target of 100GW, the government of India intends to develop 40GW through rooftop solar projects and the remainder through ground-mounted solar projects. To achieve these targets the government of India is developing large solar parks in collaboration with the state governments and has also issued detailed guidelines for their development. The intention is to provide ring-fenced, shovel-ready land to the power developer along with providing the associated power evacuation facilities. The government of India has doubled the capacity target from 20GW to 40GW for solar projects to be set up in a solar park, to be achieved by 2021-22.

Recently, the Solar Energy Corporation of India (SECI) has floated a tender for procurement of 1.8GW of power from wind-based sources with a tariff ceiling of 2.85 rupees per unit (about US$0.04) for qualification of bidders. This follows a previously undersubscribed tender launched by SECI, through which projects of about 480MW capacity were awarded against a target of 1.2GW. While onshore wind power projects account for a substantial portion of the installed renewable capacity in India, the government of India issued the National Offshore Wind Energy Policy in September 2015 with an aim to promote the country’s offshore wind energy potential and recently issued an expression of interest from suitable and experienced bidders for the development of 1GW of offshore wind energy anywhere within India’s exclusive economic zone. Gujarat and the state of Tamil Nadu are estimated to have the potential to generate 106GW and 60GW of offshore wind energy respectively. The principal agency charged with the development of the sector is the National Institute of Wind Energy (NIWE). Under this policy, blocks are to be allocated through a competitive bidding route and developers are required to enter into sea bed lease agreements with NIWE. As a part of the planned off-take arrangement, NIWE or the respective state distribution utilities will sign power purchase agreements. Transmission utilities owned by the government will provide the onshore infrastructure required to evacuate power generated from these projects. Offshore power evacuation infrastructure up to the first onshore substation will have to be constructed by developers at their own cost. While the government has put in place a policy and institutional framework to support development of offshore wind energy in the country, there has not been any project development activity yet. The government of India plans to develop 5GW and 30GW of offshore wind energy by 2022 and 2030, respectively.

Additionally, in May 2018 the MNRE issued a National Wind-Solar Hybrid Policy that seeks to optimise the utilisation of infrastructure such as land and the transmission system, as there are regions in India where wind and solar energy have moderate to high potential. A wind-solar plant will be considered hybrid if the rated power capacity of either source is at least 25 per cent of the rated power capacity of the other source. The policy not only aims at the development of new wind-solar hybrid plants but at the hybridisation of existing wind and solar plants. In furtherance of this the MNRE, in May 2018, issued a scheme for setting up 2.5GW of interstate transmission connected wind-solar hybrid power projects. In furtherance of the policy, SECI recently issued a tender for the development of a 160MW solar-wind hybrid power project with a battery energy storage system. While initially, the policy provided only for battery storage, it was recently expanded to include all forms of storage, such as, pumped hydro, compressed air, flywheel etc.

In the context of municipal waste-to-energy projects, while Indian cities present significant scope for growth, the industry has faced intense opposition on account of environment and health concerns. The government of India is undertaking measures to promote waste-to-energy projects. In this context, the National Biofuels Policy was approved by the Union Cabinet in May 2018, which, among other things, promotes research and development into technology using biofuels for generation of power.

On a broader policy canvas, the government of India appears to be determined to promote and develop renewable energy and is taking several measures to fine-tune the policy and regulatory framework. In addition to the Tariff Policy, which was notified in January 2016, some of the salient proposed legislative and policy changes are:

• provisions in the Proposed Electricity Act Amendments, with specific focus on renewable energy; and
• separate legislation for renewable energy (ie, the RE Act) for addressing issues that are not dealt with under the Electricity Act.

Some of the key changes proposed to be introduced through these amendments are:

• mandatory renewable energy generation obligations;
• promotion of low-cost financing;
• grid connectivity provisions specific to renewable power;
• compliance planning by obligated entities for RPOs;
• payment security for renewable energy developers; and
• promotion of net metering.

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

India has ratified the United Nations Framework Convention on Climate Change and the Kyoto Protocol (but with no binding obligations) to reduce its greenhouse gas emissions. Consequently, the government of India launched the National Action Plan on Climate Change (NAPCC), under which major initiatives such as the NSM have been introduced, and the Wind Energy Mission and Waste to Energy Mission are proposed. Additionally, sharing of Clean Development Mechanism benefits (between the developer and the consumer, usually a state-owned distribution utility) is present across most states. India has also ratified the Paris Agreement. The Paris Agreement requires its signatories to devise a national plan to limit global temperature rise, and as part of its plan India has set a goal of producing 40 per cent of its electricity with non-fossil fuel sources by 2030.

The government of India, under the NAPCC, formulated a National Mission for Enhanced Energy Efficiency (NMEEE), among other such policy measures. The NMEE comprises four initiatives, namely:

• Perform Achieve Trade (PAT);
• Energy Efficiency Financing Platform (EEFP);
• Market Transformation for Energy Efficiency (MTEE); and
• Framework for Energy Efficient Economic Development (FEEED).

PAT aims to reduce energy consumption in specific energy intensive industries with the issuance of tradable energy savings certificates (ESC) to those participants who achieved their saving targets. In PAT cycle I, which ended in 2015, 3.85 million ESCs were issued. PAT cycle II commenced in 2016, and will end in 2019, and PAT cycle III commenced in 2017 and will end in 2020. In total, 737 designated consumers are participating in PAT cycles II and III.

Another measure taken by the government of India has been the Street Lighting National Programme, which aims at replacing India’s 14 million conventional street lamps with smart light emitting diode (LED) variants, by 2019. This programme is implemented by the Energy Efficiency Services Limited (ESSL), a joint venture of four public service companies and set up under the Power Ministry. EESL similarly implements the Unnat Jyoti by Affordable LEDs for All (UJALA) scheme, with an aim to distribute 770 million LEDs across India by March 2019. To date, roughly 360 million such LEDs have been distributed. Both these policies are examples of the government of India’s initiatives to make India energy efficient.

While the government of India has been promoting the development of India’s renewable energy capacity and capability through various policy measures a recent decision by the Directorate General of Trade Remedies to impose a safeguard duty on the import of solar cells and modules from Malaysia and China is likely to adversely impact solar tariffs. A 25 per cent duty was imposed from 30 July 2018 to 29 July 2019, followed by a 20 per cent duty from 30 July 2019 to 29 January 2020 and a final 15 per cent duty from 30 January 2020 to 29 July 2020. There have, however, been legal challenges to the imposition of the safeguard duty with two courts staying its implementation subject to the importer furnishing a bond against the same. The Ministry of Finance subsequently announced that the government will not insist on the safeguard duty payment until the courts have decided on the legality of the safeguard duty imposition. To finally resolve the matter, the Supreme Court has stayed the ban on imposition of safeguard duty on solar panels (in the context of proceedings before the Odisha High Court).

Does the regulatory framework support electricity storage including research and development of storage solutions?

Currently there is no regulatory framework governing electricity storage in India. However, in its Annual Budget in 2016 the government of India announced the launch of a new programme for energy storage. With a view to develop a regulatory framework to govern energy storage systems in India, the MNRE constituted an expert committee to propose a draft policy to establish a National Energy Storage Mission (NESM) for India and the committee recently submitted the draft policy to the MNRE, which is expected to release the draft for public feedback shortly. The NESM aims to establish a regulatory framework that promotes manufacturing and deployment of battery storage systems. Prior to this, in January 2017, the CERC issued a consultation paper setting out a broad framework for the introduction of battery energy storage systems (BESS). The consultation paper discusses models of tariff determination for multiple users of BESS, commercial viability of BESS and policy changes that may be required to deploy bulk storage facilities in the country. Further, media reports mention that the government is also working on a policy framework to introduce on-site storage integration for wind and solar power projects.

While the government of India has, in the past, floated tenders for renewable energy capacity with storage systems, most of these systems have been suspended or withdrawn for various reasons. There have been several tenders for storage-linked renewable generation capacity in various parts of the country, such as Andhra Pradesh and Karnataka, which are currently underway. The government has also launched the National Smart Grid Mission, through which it has introduced incentives such as a 30 per cent capital grant towards a project’s cost, and a 100 per cent grant for select components such as training and capacity building.

Does government policy encourage or discourage development of new nuclear power plants? How?

While the government is positive about setting up power stations based on nuclear energy (it has already installed 6,780MW of capacity from 22 operational nuclear reactors and projects with an aggregate capacity of approximately 15.7GW are currently under construction), currently only a government of India entity or a government company (ie, where the government holds a minimum of 51 per cent of the shareholding) can own and operate a nuclear power plant. Private ownership of nuclear power generation assets is not allowed.

A major issue that had hampered private investment in other areas of nuclear power generation was the interpretation of a provision of the Civil Liability for Nuclear Damage Act 2010 (CLND Act) as mandating a civil nuclear liability clause in supply contracts, therefore dissuading foreign equipment suppliers from supplying Indian nuclear power projects. However, the government of India has clarified that while the legislation would not be amended, it is not mandatory to include a civil liability clause in the contractual arrangements between the foreign supplier and the Indian operator. This clarification has been provided as a part of responses to certain ‘frequently asked questions’ issued by the government of India and has therefore led to concerns that such a stance may not be legally binding. While it is highly unlikely, it remains to be seen whether the Nuclear Power Corporation of India (a government company and operator of nuclear power plants) will agree to undertake such liability. India has also ratified the Convention on Supplementary Compensation for Nuclear Damages (CSC) which has been hailed as an important step towards creating a global nuclear liability regime. It is important to note that ratification of the treaty requires national law to be in compliance with article 10 of the CSC, which states that national law may provide that an operator may have a right of recourse to the supplier only if this is expressly provided for in writing or if the nuclear incident results from an act or incident done with an intent to cause damage. However, section 17(b) of the CLND Act in India adds another instance where an operator may have recourse to the supplier and that is if the nuclear incident occurred owing to an act of the supplier, which includes supplying parts with a latent or patent defect. The government of India has also issued a clarificatory response in relation to section 17(b) of the CLND Act stating that while the language of section 17(b) is in addition to the provisions of article 10 of the CSC, it relates to actions and matters such as conditions of service and contract. The government of India is of the view that these are in any case ordinarily a part of the contract and are not a new method of tracing liability back to the supplier. India is also a part of the limited group of countries with a Nuclear Insurance Pool, which provides insurance cover to operators of nuclear power plants and suppliers. India’s nuclear insurance pool has a corpus of 15 billion rupees.

Regulation of electricity utilities – transmission

What authorisations are required to construct and operate transmission networks?

Owning and operating transmission assets requires a licence from the CERC for interstate transmission facilities and the relevant SERCs for intra-state transmission facilities. The Electricity Act allows the appropriate electricity regulatory commission to specify any general or specific conditions that a licensee must comply with. The appropriate electricity regulatory commission may, on the recommendation of the government and in the public interest, even permit any local authority, cooperative society, government institution, etc to transmit (and distribute) electricity, subject to certain terms and conditions, without a licence.

Transmission licensees also require right of way from landowners for construction of transmission lines, approvals under the Electricity Act for installation of overhead lines and installation of transmission towers, apart from other applicable clearances such as those from the Environment Ministry. Alternatively, the Electricity Act also enables a transmission licensee to place and maintain a transmission line on any immovable property, upon being authorised by the government. The government authorisation entitles the transmission licensee to enter any privately owned or occupied land without the notice or consent of the owner or occupier to carry out the works required for setting up the transmission project. The central government has issued guidelines for the payment of compensation to landowners for obtaining right of way for the construction of transmission lines. The guidelines are applicable for transmission lines of a voltage of 66kV and above. The guidelines state that compensation of an amount equal to 85 per cent of the market value of the land should be paid to land owners for the land required for construction of the tower base area. Further these guidelines also state that compensation of up to 15 per cent of the land value should be paid to land owners for the diminution in the width of a right of way corridor owing to the construction of transmission lines. In addition to the above, the licensee also needs to comply with regulations issued by the CEA and CERC in relation to grid and technical standards upon grant of the transmission licence.

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

The open access regulations issued by the relevant electricity regulatory commissions permit usage of transmission lines by any generating company, distribution licensee, any consumer with a requirement of over 1MW of electricity and electricity traders, provided they comply with the requirements of obtaining connectivity and open access to the transmission system. The regulations also cast an obligation on the transmission licensees to provide non-discriminatory access to their transmission lines upon application for such access. The applicant is required to pay transmission charges and other charges as applicable, which may include a cross-subsidy surcharge, wheeling charges and open-access charges.

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

The government is looking to increase private participation to strengthen transmission networks and has introduced a string of measures such as introduction of electronic competitive bidding for transmission projects and a viability gap funding model on a PPP structure for setting up intra-state transmission networks. The interstate transmission system is mainly owned and operated by Power Grid Corporation of India Limited (PGCIL), a state-owned company, and the intra-state transmission system is owned and maintained by state transmission utilities. However, the PPP structure is increasingly being preferred by the government for setting up interstate and intra-state transmission networks.

Additionally, major steps are being taken to strengthen the transmission network such as the commissioning of India’s first ultra-mega transmission project, setting up a green energy corridor project (facilitating the transmission of electricity produced through renewable energy sources) and the connection of the southern grid to the national grid, leading to synchronisation of all regional grids.

It is generally seen that impetus is specifically being given to the transmission sector through various measures including introduction of the National Smart Grid Mission to implement a smart electrical grid based on technology for automation, communication and IT systems, to monitor and control power flows from points of generation to points of consumption; setting up of a National Transmission Asset Management Centre; and creation of Power System Development Fund drawing from congestion charges, deviation settlement charges and reactive energy charges, for primarily relieving congestion in government transmission systems of strategic importance; and renovation and modernisation of government transmission systems for relieving congestion. The government also proposed feeder separation to augment power supply to rural areas and for strengthening sub-transmission and distribution systems.

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The rates and terms for the provision of transmission services are determined by the appropriate electricity regulatory commission (the CERC in the case of interstate transmission and the relevant SERC in the case of intra-state transmission). For transmission schemes implemented through the negotiated route, transmission charges are determined by the relevant electricity regulatory commission in line with tariff regulations issued by it, which take into account factors such as return on equity, interest on loan capital and working capital, depreciation, operation and maintenance expenses and allowance for any renovation and modernisation. Under the competitive bidding route, transmission charges discovered through a competitive bidding process are required to be adopted by the relevant electricity regulatory commission.

Once the charges for a transmission network are determined or discovered, the CERC adopts a ‘point-of-connection’ method for calculating charges payable by each user in the transmission system based on its actual usage and develops a transmission charge-sharing mechanism among grid constituents. The ‘point-of-connection’ method is, however, not adopted for intra-state transmission for entities not connected to the interstate transmission system. The CERC has amended its regulations governing sharing of transmission charges and losses, making them applicable to intra-state entities with medium-term open access or long-term access to the interstate transmission network and introducing a reliability service charge, charge for using HVDC transmission lines and provisions for misdeclaration. Further, through another amendment, the CERC has waived the payment of transmission charges and transmission losses for incremental gas-based generation from the regasified liquefied natural gas e-bid auctions.

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The CERC (Indian Electricity Grid Code) Regulations 2010 (Grid Code) brings together a single set of technical and commercial rules that facilitate planning and development of reliable national and state grids, encompassing all the utilities connected to or using the interstate transmission system. One of the key aspects of the Grid Code is to facilitate planning and development of economic and reliable national and regional grids. Furthermore, states have also issued their respective grid code regulations, for regulating the intra-state transmission grid network.

The key entities responsible for ensuring reliability of the transmission grid include the National Load Despatch Centre, the Regional Load Despatch Centre (established for five regions in India), and State Load Despatch Centres (established for each state). They ensure optimum scheduling and despatch and integrated operation of the power system in their respective jurisdiction. Additionally, the CTU and various State Transmission Utilities are responsible for planning and coordination of interstate and intra-state transmission system respectively.

The CERC has recently made regulations for ancillary services to be provided by power generators to improve reliability of the grid. Additionally, the CERC has recently amended the Grid Code to provide a procedure and mechanism for declaration of commercial operation of interstate generating stations. Under this procedure, generators are required to make such a declaration after demonstrating the unit capacity after a trial run and after obtaining the relevant clearance from the National Load Despatch Centre, the Regional Load Despatch Centre or the State Load Despatch Centre. Through the amendment, the CERC has clarified the procedure for such declaration of the commercial operations date for thermal and hydro-generating stations and interstate transmission systems. The procedure involves successful completion of all tests that are required under the Grid Code, issuing notice to power procurers, if any, and successful completion of trial runs for the equipment or generating units to be commissioned.

In relation to renewable sources of energy, several states in India have recently adopted norms for computation of deviations in actual injections of power as against scheduled injections to the state and national grids. These regulations also set out the charges payable towards deviations in quantum and frequency of power injected.