Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

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, GoI (Environment Ministry), has issued a notification pursuant to which stand-alone 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.

Grid connection policies

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 regulations (yet to come into force) 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.

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. The CERC has also recently issued draft regulations that provide for general network access to the interstate transmission network to generators and beneficiaries and is intended to replace the current open-access regulations.

Alternative energy sources

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 PPA 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 a capacity lesser than 5 MW 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 PPA 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 a critical role. However, as the renewable energy sector has come of age and has 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 expired this year. 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. While solar plants can be set up under state policies or the GoI-launched National Solar Mission (NSM), the NSM has been at the forefront of the GoI’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 GoI intends to develop 40GW through rooftop solar projects and the remainder through ground-mounted solar projects. To achieve these targets the GoI 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 GoI has doubled the capacity target from 20,000MW to 40,000MW for solar projects to be set up in a solar park, to be achieved by 2021-22.

While India aims to auction 30GW of solar energy and 10GW of wind energy every year for the next 10 years the past year has witnessed a lukewarm industry response to wind power auctions. Even the Solar Energy Corporation of India (SECI) had to cancel its 2GW Tranche V tender as it was undersubscribed by 800MW.

While onshore wind power projects account for a substantial portion of the installed renewable capacity in India, the GoI 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 PPAs. 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 GoI plans to develop 5GW and 30GW of offshore wind energy by 2022 and 2030, respectively.

Additionally, the MNRE in May 2018 issued a National Wind-Solar Hybrid Policy that seeks to optimise the utilisation of infrastructure like 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 2500MW 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 GoI 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 GoI 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.
Climate change

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 has also ratified the Kyoto Protocol (but with no binding obligations) to reduce its greenhouse gas emissions. Consequently, the GoI 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 GoI, 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 a 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. 38,50,000 ESCs were issued in PAT cycle I, which ended in 2015. PAT cycle II commenced in 2016 and PAT cycle III commenced in 2017, and will end in 2019 and 2020, respectively. In total 737 designated consumers are participating under PAT cycles II and III.

Another measure taken by the GoI 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. To date, roughly 4.9 million street lights have been replaced under this policy. 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 300 million such LEDs have been distributed. Both these policies are examples of the GoIs initiatives to make India energy efficient

While the GoI 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 will be 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.

Storage

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, the GoI in its Annual Budget in 2016 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.

In 2017 the GoI floated tenders for more than 300MW of renewable energy capacity with energy storage systems. However, almost all the tenders were suspended or withdrawn for various reasons. In 2018, the GoI issued tenders for about 180MW of renewable energy capacity with energy storage systems, which are currently ongoing.

The government has also launched the National Smart Grid Mission through which it has introduced incentives such as a 30 per cent capital grant for the project cost and a 100 per cent grant for select components like training and capacity building.

Government policy

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 15,700MW are currently under construction), currently only a GoI 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 GoI 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 GoI 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 GoI 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 GoI 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.