Round the Clock Supply of Power – Renewable Energy Synergises with Coal

On 22 July 2020, the Ministry of Power (MoP) rolled out Guidelines for Tariff Based Competitive Bidding Process for Procurement of Round-The Clock Power from Grid Connected Renewable Energy Power Projects, complemented with Power from Coal Based Thermal Power Projects (Guidelines).

The Guidelines have been introduced, inter alia, to provide for (i) supply of renewable energy along with the power produced from coal based thermal power plants, to ensure uninterrupted round the clock power supply to distribution companies (DISCOMs); and (b) additional renewable energy capacity, to ensure fulfilment of the renewable purchase obligation by DISCOMs.

These Guidelines have been issued by MoP under Section 63 of the Electricity Act 2003 (Electricity Act). Section 63 of the Electricity Act provides for adoption of tariff by the appropriate electricity regulatory commission, if such tariff has been determined by a transparent bidding process under the ‘guidelines’ issued by the Government of India (GoI). Therefore, the bidding process and tender documents for procurement of renewable energy along with coal based thermal power, will need to be compliant with these Guidelines.

Background

It is relevant to note that, this is not the first time in the Indian power industry, that bundling of renewable energy and coal based thermal power has been introduced. Phase 1 of the National Solar Mission also witnessed bundling of expensive solar power with cheap power generated by coal based thermal power plants of NTPC Limited (NTPC). The bundled power was then sold by NTPC (the then intermediary) to the DISCOMs. However, under the Guidelines, given the reduced tariffs in the solar power sector, we now see reverse bundling, that is, cheap solar power will now be bundled with comparatively expensive coal based thermal power.

Further, earlier the coal based thermal power was only procured from NTPC power plants and was bundled with solar power by NTPC itself, whereas under the Guidelines the procurement of coal based power, this time, can be from any coal based thermal power plant (having spare capacity), and now it will be the responsibility of the renewable power generator itself to make arrangements to procure and bundle the coal based thermal power with renewable energy, in comparison to as previously done by intermediaries.

By allowing bundling of renewable energy with the coal based thermal power, the MoP, through the Guidelines, has tried to address the challenges posed by intermittent and unpredictable nature of renewable energy and low capacity utilisation of the transmission system and ensuring grid stability.

Guidelines Deconstructed

Set out below are some of the key provisions of the Guidelines:

Comments

The Guidelines permitting bundling of power is a welcome step. The World Bank in its Energy Sector Management Assistance Program paper on ‘Paving the Way for a Transformational Future Lessons from Jawaharlal Nehru National Solar Mission Phase I’ in 2014 had observed that bundling of solar power with cheaper conventional power reduces the tariff impact of solar power on the distribution utilities. Therefore, it will be a good test to see if the same impact can be brought in, by bundling cheap solar power with expensive coal based thermal power.

Further, if the implementation of the Guidelines is successful, it will further add on large scale grid connected solar energy projects in the country, accelerating the ambitious target of GoI of achieving 100GW of grid connected solar power capacity by 2022 and 24x7 affordable power for all by 2025. On the same hand, successful implementation of the Guidelines may also help in providing some assistance, if not complete relief, to the already stressed coal based thermal power sector, which is reeling under the stress of liquidity.

However, with already low tariffs being discovered for renewable energy projects under competitive bidding, coupled with hefty dues pending with the DISCOMs and the renegotiation of PPAs by some DISCOMs to revisit tariff in the past, it will be interesting to see if ‘composite tariff’ will be able to evince any interest with the generators. Recently, Solar Energy Corporation of India (SECI), one of the solar power intermediaries in India, had extended the bid submission date of its tender for procuring 5 GW renewable power on round the clock basis complemented with coal based thermal power to 1 September 2020 for hard copies and 28 August 2020 for soft copies. While the tender was issued by SECI when the Guidelines were in draft stage, it will still help us to gauge the market sentiment basis response to the tender.

-       Dibyanshu (Partner), Anuj Sahay (Counsel), Nikesh Tyagi (Senior Associate) and Sathyajith Nair (Associate) 

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