• Team Sapphire and Sage

SOLAR ENERGY IN INDIA



Is it the time to say goodbye to pollution caused by use of fossil fuel-based energy resources, including in power generation n India, the main reason of pollution and welcome renewable energy resources such as solar, wind, small hydro and biomass. Though pre COVID-19 era it had already taken baby steps but now there is an opportunity to take a leap. Authorities must now pull up their socks and use land mass of India which being a tropical country, has a high potential for solar energy. Most parts of India witness 300 sunny days a year, which translates into an incidence of 5,000 trillion kWh per year of energy over India's land mass (with most parts receiving 4–7 kWh per sq m each day). India can capitalize on this huge potential by using the latest advanced Solar Photovoltaic (PV) and thermal technologies and fulfill its commitment of reduction of its emission intensity to 35% below 2005 levels by 2030 and to achieve a 40% cumulative electricity power capacity from non-fossil fuel-based energy resources by 2030 under the Paris climate accord.

This article sets out the Indian regulatory aspects, guidelines and incentives applicable to the solar energy sector.


Government Incentives

According to the CERC (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations 2017, all renewable energy power plants except biomass power plants with installed capacity of 10MW and above and non-fossil fuel-based cogeneration plants shall be given a ‘must run’ status and not be subject to ‘merit order dispatch’ principles.

Pursuant to the Tariff Policy, the CERC has exempted payment of inter-state transmission charges and losses for solar energy generators for 25 years from commissioning for projects set up through competitive bidding, based on compliance with certain terms and conditions. Further, in view of shorter gestation period of renewable energy projects, the GOI has issued directions to the CERC to accord early regulatory approval for the transmission system associated with renewable energy projects amounting to 66.5GW.


Regulatory Framework

After the Electricity Act, several state electricity regulatory commissions (SERCs) have issued regulations in respect with Renewable Purchase Obligations (RPOs). The SERCs had stipulated certain percentages for procurement of energy generated from renewable energy sources on the basis of total consumption of electricity within the demarcated areas for supply by the distribution utilities. These regulations apply to entities that are mandated to comply with RPOs and include consumers owning captive power plants and open access users. RPOs are divided into solar and non-solar. The Ministry of Power (MOP) has notified the long-term growth trajectory of RPOs for 2019-20 to 2021-22 (for 2020-21, the RPOs notified for solar is 8.75 per cent). The RPOs can also be discharged by purchase of environment attributes sold as intangible energy commodities called Renewable Energy Certificates (REC).

Under the REC framework, a developer sells the electricity generated and the environmental attributes associated with clean energy separately. The entities obligated under the RPO regime from any part of India may purchase these RECs to meet their RPO targets. RECs can be sold on a market discovered price within a price band fixed by the CERC, from time to time. There are two types of separately priced and traded RECs (solar RECs and non-solar RECs). 

Purchase of Renewable Power

To promote renewable energy sources, the Tariff Policy envisages a renewable generation obligation. Pursuant to this, a developer proposing to establish a coal or lignite-based thermal generating station would be required to establish such renewable energy generating capacity or procure and supply renewable energy equivalent to such capacity, as may be prescribed by the GOI. The renewable energy produced by such generator will be bundled with its thermal generation for the purposes of sale. In the event that an entity that is mandated to comply with RPO procures this renewable power, then such entity would be considered to have met the RPO. If an existing coal and lignite-based thermal power generating station sets up renewable energy generating capacity, the power from such plant may be bundled and the tariff of the renewable energy shall be allowed to pass through by the CERC and SERCs. Buying of such power shall count towards the RPO of such entities.

Government Authorization

Under the Electricity Act, generation of energy is a delicenced activity. Prior to the construction of a project, certain site-specific approvals may be required (if applicable) such as forest clearance and approvals from defense establishments, the Airports Authority of India and the Archaeological Survey of India. Projects are required to comply with technical standards prescribed by the CEA, including those in relation to construction, safety and maintenance. In order to commence commercial operations Electrical safety approval from the CEA; commissioning certificate and power evacuation approval may also be required. The classification of industrial sectors by Central Pollution Control Board recognizes solar power generation through solar PV cells and this industry had been classified in the ‘white’ category and thus consents from pollution control boards under the Air (Prevention and Control of Pollution) Act 1981 and Water (Prevention and Control of Pollution) Act 1974 are not required.

Additionally, micro-level corporate, labour and employment and land revenue approvals may be required.

Off-take 

The largest off-takers in India are the distribution utilities, and certain distribution utilities in India at present do not have good credit ratings and are under financial stress leading to accumulation of debt. The financial health of distribution utilities has posed an impediment for project developers entering into off-take arrangement. 

To offset such risks, in one of the tenders for a solar energy park, the GOI launched Ujwal Discom Assurance Yojana in 2015 for financial turnaround and the operational improvement of distribution utilities. Also, to mitigate such off-taker risk, certain MNRE schemes establish NTPC Limited and SECI as counterparties to the power purchase agreements (PPA).


Procurement of Power Purchase Agreements

A renewable energy developer may enter into a PPA with central, state and private distribution utilities, third parties or captive users. Pursuant to the Electricity Act, a distribution utility can either procure power through bilateral or negotiated PPAs or through a transparent process of competitive bidding conducted in accordance with the bidding guidelines notified by the GOI. The appropriate commission is required to adopt the tariff discovered through bidding. In the case of bilateral or negotiated PPAs, the tariff and terms and conditions of sale of power are subject to a prudence check and approval of the appropriate commission. Solar Energy Corporation of India (SECI) has been designated as the nodal agency for implementation of the MNRE schemes, from time to time, for setting up solar power projects connected to the Inter-State Transmission System. 

Decommissioning

On decommissioning, all municipal and environmental laws with respect to disposal of equipment need to be complied with. Also, SECI has issued an environmental and social management framework which also prescribes conditions for decommissioning of specific solar projects. 

Utility-Scale Solar Projects

Regarding solar projects, most of the schemes under the NSM provide for deployment of solar photovoltaic (PV) technology. Projects selected are technology-agnostic and allow crystalline silicon or thin film or concentrator PV. Generally, the capacity of each project under NSM is required to be at least 10MW. Concentrated solar power projects are at a nascent stage, and two pilot projects of 50MW each are being undertaken by SECI. The GOI has also projected the solar park model. In March 2017, MNRE issued the Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects. A total of 41 solar parks in 21 states with an aggregate capacity of more than 26GW have already been sanctioned. The target of MNRE for installed capacity from solar parks is 40GW by 2022 but as of October 15, 2019, only 1,826 MW capacity has reportedly been installed, which means that the achievement is only 11.50 per cent of the target. 

Challenges

  • Land availability 

  • procurement of land 

  • financial health of distribution utilities in India

  • off-taker risk 

  • availability of transmission capacity or evacuation of power 

To offset some of these risks in the solar sector, a solar park and solar zone model have been proposed where solar tariffs have reduced considerably. Moreover, the GOI is working to build a green energy corridor to facilitate grid integration of large-scale renewable energy capacity addition.


Competitive Bidding Guidelines

The Ministry of Power released the guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects on August 3, 2017 (Solar Guidelines).

Clearance by the procurer

This clause talks about clearance to be done by relevant authority and a sub-clause pertaining to clearance by the agency developing Solar Parks.

Land Acquisition

The clause states that an identification of 100% land at the time of bid submission should be done and within 7 months of the execution of PPA, submission of documents/ agreement is to establish possession/ right to use 100% of land in name of Solar Generator/ its Affiliate. The breakup mentioned in Solar Guidelines states that possession of 90% of land shall be given within 1 month of execution of the PPA and the balance 10% shall be done within 2 months thereafter.

Bid Structure

The bids shall be designed in terms of a package, the minimumsize of a package being 50MW with a view to have economies of scale.

Bidding Parameter- Gap Funding

A separate clause regarding using VGF (Viability Gap Funding) based bidding being used as a bidding parameter.

Term of power purchase agreements

The PPA period should be not less than 25 years from the date of the Scheduled Commissioning Date (SCD) as it influences the tariff by determining the period over which the investment is returned to investor/ SPD. Thus, longer PPAs are favored for lower tariffs.

Capacity Utilization Factor (CUF)

It is specified that where the project generates and supplies energy less than the energy corresponding to minimum CUF, the Solar Power Generator will be liable to pay a penalty to the Procurer in accordance with the terms of the PPA and such penalty shall be subject to a minimum of 25% of the cost of its shortfall in energy terms, calculated at PPA tariff.

Bid evaluation methodology

The comparison of bids shall be on the basis of the bidding criteria as specified in the RFS (Request for Selection) and in case of bidding involving VGF as the parameter where bids shall be evaluated on basis of VGF support quoted. It adopts simple competitive bidding method as well VGF as a methodology, but does not include e-reverse auction.

Financial Closure

SPG shall attain financial closure in terms of the PPA, within 7 months from the date of execution of the PPA.

Part commissioning

Part commissioning of a project shall be accepted by the Procurer subject to the condition that the minimum capacity for acceptance of the first and subsequent parts of commissioning shall be for at least 50 MW, without prejudice to the imposition of penalty, in terms of the PPA on the part which is not commissioned.


Commissioning schedule

Projects shall be commissioned within a period of 13 months from the date of execution of the PPA. Additionally it is provided that projects with a capacity of 250MW and above, if being outside a solar park shall be commissioned within a period of 15 months from the date of execution of the PPA.

Commercial Operation Date (COD)

COD shall be the date on which the commissioning certificate is issued upon successful commissioning of the full capacity of the project or the last part capacity of the project as the case may be.

Technical Specifications

The detailed technical parameters for Solar PV Power Projects to be selected shall be specified by MNRE.

Dispute Resolution and Arbitration

There are no separate bodies or framework for disputes relating to renewable energy in particular. Jurisdiction over interstate and intrastate electricity regulatory issues is exercised by the CERC and SERCs, respectively. Both the CERC and SERCs have the authority to refer disputes to arbitration. APTEL is the appellate body and possesses suo-moto jurisdiction to examine the validity of any order made by the CERC or SERC. Decisions of APTEL may be challenged before the highest court, the Supreme Court of India. All other disputes shall be resolved by arbitration under the Indian Arbitration and Conciliation Act, 1996.

Deviation from process defined in the guidelines

In case there is any deviation from these guidelines and/ or the Standard Bidding Documents (SBDs), the same shall be subject to approval by the Appropriate Commission. The Appropriate Commission shall approve or require modification to the bid documents within a reasonable time not exceeding 90 days.

Foreign investment

Under FEMA, 100% foreign direct investment by a Non-Resident Entity is permitted in an Indian Company engaged in the solar sector. Subject to the above condition, such investments do not require any governmental approval in India. Investments by Non-Resident Entities can be made on a repatriation basis i.e. the investment (net of applicable taxes) can be remitted outside India. However, there are filing requirements to report such investments with the Reserve Bank ofIndia. Key facets of FEMA are:

Ownership Restrictions

There are no sectoral restrictions or conditions on the acquisition of interest in renewable energy projects in India.

Equipment restrictions

Currently, there are no restrictions on importing foreign manufactured equipment so long as it is compliant with applicable laws and standards.

Permissible Instrument for Investment

Non-Resident Entities can either make a primary investment in an Indian Company by subscribing to any permissible ‘Capital Instruments’ of such a company or make a secondary acquisition of the share capital of an Indian Company by purchasing the any permissible ‘Capital Instruments’ from the existing shareholders of the Indian company. If the investment is in the form or any other instrument, such investment is not considered as ‘foreign direct investment’ and instead considered as foreign debt, in which case separate regulations and conditions apply.

Permissible ‘Capital Instrument’ of an Indian Company: equity shares, convertible preference shares or convertible debentures which are compulsorily convertible into equity shares (Compulsorily Convertible Instrument). 


Compliances and Documents Needed:

  • Industrial Clearance

  • Land conversion (Agricultural to Non-Agricultural)

  • Environmental Clearance Certificate from state PCB

  • Contract labour license from state Labour Department

  • Fire Safety certificate from Fire Department

  • Latest tax receipt from the Municipal/Gram Panchayat for the factory land.

  • Auditor compliance certificate regarding fossil fuel utilization

  • Approval from Chief Electrical Inspector

  • Clearance from Forest department

  • Land purchase

  • Power Evacuation arrangement permission letter from DISCOM

  • Confirmation of Metering Arrangement and location

  • ABT meter type, Manufacture, Model, Serial No. details for Energy Metering.

  • Copy of PPA (important as Preferential PPA projects are not eligible for REC mechanism)

  • Proposed Model and make of plant equipment

  • Undertaking for compliance with the usage of fossil fuel criteria as specified by MNRE

  • Details of Connectivity with DISCOM

  • Connectivity Diagram and Single Line Diagram of Plant

  • Details of pending court cases with Supreme Court of India, High Court of state or any other courts

  • Any other documents requested by SLDC.


The effects of global warming and pollution have made the people question their choices and increased environmental consciousness. Various attempts have been made by governmental and non-governmental bodies to spread awareness about climate change and to control pollution and using renewable sources of energy too procure power is only a start.





References

25 views

Copyright © 2019 Sapphire & Sage All Rights Reserved

  • LinkedIn Social Icon