Are we moving in the right direction?
Power generation in India is currently dominated by coal, though the country also has significant renewable energy potential (1,40,000 MW) from wind, small hydro, biomass and solar power. The Government has formulated several policies to support renewables. As a result of such initiatives, the current renewable energy power achievement stands at 6,158 MW installed capacity (5 per cent of the country's total installed capacity) with the majority share contributed by wind (47 per cent), followed by small hydro (38 per cent) and biomass (12 per cent).
A significant regulatory impact on renewable energy was made by the Electricity Act, 2003 (EA03), which provides for the determination of quotas or Renewable Purchase Obligation (RPO) by the State Electricity Regulatory Commissions (SERC).
Internationally, this is commonly referred to as the Renewable Portfolio Standard (RPS). An RPS is a policy instrument that ensures that a minimum amount of renewable energy is included in the portfolio of resources.
Obligation on retailer
The policy obligates each retail seller of electricity to include in its resource portfolio a certain proportion of power from renewable energy resources, such as wind, solar, small hydro and various forms of biomass energy. The retailer can satisfy this obligation by both owning a renewable energy facility and producing own power or purchasing power from someone else's facility.
The EA03 provides that generation of electricity from new and renewable sources would be promoted by the SERCs by providing connectivity to the grid, sale of electricity to any person, and by specifying a percentage of consumption of electricity for purchase from such sources in the areas of a distribution licensee.
Such a percentage for purchase of energy from renewable sources would be made applicable for tariffs to be determined by the SERCs.
Many SERCs, including those of Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra and Orissa, have already fixed this quota. Those of Kerala, Rajasthan, Tamil Nadu and Uttar Pradesh are in the process of finalising this quantum share of renewable energy. However, at this stage, one needs to pause and think: "Are we moving in the right direction? Are we using the right approach in determining RPO or is there some other optimal and uniform approach to determine renewable energy quotas under a RPO?"
The international experience of using renewable energy policy instruments such as RPS indicates that there exists no `single right' approach for determining RPS. Rather, it is the objectives that a nation seeks to achieve with an RPS that need to be tailored into the policy so that it effectively meets those objectives.
Market-based approach
Conceptually, it is possible to draw a parallel between a RPO and RPS. Since RPS is an established policy instrument of promoting renewable energy, one needs to examine the mechanism of designing a RPS and the issues involved. But, before that, we need to understand the meaning and implications of RPS. It is a policy instrument that ensures renewable energy promotion in a way that is consistent and compatible with competitive electricity markets.
An effectively structured RPS can help a nation achieve its renewable energy policy objectives through a market-based approach if the obligation is tradable. Further, non-compliance penalties will ensure that the renewable energy objective will definitely be satisfied.
Designing the rps
While designing an effective RPS, there are five factors to be considered by a state regulator.
First, how large should the RPS be? The amount of renewables that an RPS would ultimately produce should be directly related to the parameters that have to be analysed by the regulator. Some of these are: existing potential of renewable energy sources, capacities of renewable energy sources for which Power Purchase Agreements (PPAs) have been signed and the possible burden on consumers.
Second, should the RPS be based on renewable energy or capacity? An RPS can achieve either an amount of renewable energy (in terms of kilowatt hours) or of generating capacity (in terms of kilowatts). An energy-based requirement has the advantage that environmental benefits occur when renewable energy generators actually produce power that which replaces conventional energy.
Third, should the RPS be designed for a fixed amount of renewable energy (for example, 1 million kWh) or an amount of renewable energy equal to some percentage of retail sales?
Fourth, what schedule will best achieve the RPS objective? A proper scheduling of the RPS requirement needs to address intermittency issues, especially with regard to grid connectivity and power evacuation.
Finally, how long should the RPS last? There can be two methods for ending the RPS — either a specific date is chosen at which time the obligation ends, or the RPS ends when renewables become competitive in the market and the RPS is no longer required to achieve the mandated renewable energy objective.
Tradable nature
Hence, an effectively designed RPS will ensure renewable energy promotion in a competitive market set-up. However, it would be imperative to define `eligible renewable energy credit' as a certificate of proof, certified by the regulator, that one kilowatt-hour of electricity was generated by an eligible renewable energy resource.
Further, the tradable nature of such credits should be given deep thought and encouraged, so that the renewable energy credit may be sold or exchanged by the person to whom issued, or by another person who acquires the credit. This will ensure healthy and competitive promotion of renewable energy based electricity generation that is imperative for a sector that is badly in need of reform.