Strengthening Renewable Purchase Obligations
The Electricity Act of 2003 mandates State Electricity Regulatory Commissions (SERCs) to set minimum renewable energy (RE) shares for states, known as Renewable Purchase Obligations (RPOs), which apply to distribution companies (DISCOMs) and other obligated entities. It binds entities to purchase a certain percentage of their total electricity consumption from RE sources. Initially, RPOs were divided into solar and non-solar categories. In 2019, hydro power obligations (HPO) were introduced, and in 2022, RPOs were categorized into Wind, HPO, and Other RPO, with a new energy storage category added. The latest update in October 2023 revises these categories to Wind, Hydro, Distributed RE, and Other RE, maintaining the total RPO target at 43.33 per cent for FY 2029-30.
Despite the framework’s role in driving RE deployment, RPO compliance and monitoring at the state level have been inconsistent, leading to a backlog in meeting targets. The Ministry of New and Renewable Energy (MNRE) continues to track compliance, and the Forum of Regulators (FoR) has been tasked with annual monitoring. Recent changes, such as the Green Open Access Rules, which lower the access threshold and streamline procedures, are expected to boost RE consumption through open access and captive power plants. Improved transparency and accountability are essential for the success of RPOs.
In states like Chhattisgarh, Maharashtra, and Telangana, RPO regulations mandatorily apply to all DISCOMs, captive consumers with an installed capacity of 1 MW and above, and open access consumers with 1 MW and above, collectively known as Obligated Entities. However, states like Haryana and Jharkhand consider captive consumers with 5 MW and above capacity as obligated entities. The Ministry of Power’s (MoP) October 2023 Notification specifies RPO targets for designated consumers, including DISCOMs, open access consumers, and captive users. The Green Open Access Rules have reduced the open access threshold to 100 kW and removed the load limit for captive transactions. To avoid frequent changes, targets and categories need to remain consistent within the typical 5-year control period. Long-term RPO trajectories up to FY 2033-34 could be provided, aiding in effective long-term power procurement planning.
Fungibility allows excess power from one RPO sub-category to cover deficits in another. Currently, 30 states and Union Territories (UTs) permit fungibility between RPO sub-categories. States like Karnataka, Andhra Pradesh, and Punjab have introduced composite RPO targets, enabling obligated entities to plan power procurement holistically. The MoP’s October 2023 Notification also supports this approach, except for distributed RE. SERCs need to incorporate fungibility provisions in their RPO regulations or set composite RPO targets.
Net consumption, the annual energy consumption by an obligated entity, varies in definition across states. Most states use net consumption minus hydro consumption or total consumption from all sources. With large hydro now classified as renewable and the addition of new RPO sub-categories, total consumption should be the basis for RPO compliance, as per the MoP’s October 2023 Notification. SERCs need to align their definitions of net energy consumption with this notification for RPO compliance calculations.
State RPO regulations should specify the RE sources eligible for RPO compliance, including power procurement from RE projects and net/gross metering-based rooftop projects. For example, Maharashtra allows off-grid project generation for RPO compliance. The MoP’s October 2023 Notification includes a Distributed RE category for projects less than 10 MW, encompassing various solar installation configurations. Recent amendments to Green Open Access Rules by some SERCs include methods like power markets, green tariffs, and green hydrogen and ammonia for RPO compliance. SERCs should update their RPO regulations to reflect these developments for clarity.
Effective monitoring of RPO compliance depends on standardized data reporting by obligated entities. Very few states like Bihar, Jammu and Kashmir, Jharkhand, etc. provide clear data reporting formats in their regulations. Some states like Maharashtra, Andhra Pradesh, Uttarakhand, and Punjab have mechanisms for timely data reporting. Some states have specific timelines for reporting data from obligated entities to the State Nodal Agency (SNA) and from SNA to the SERC. The MoP’s October 2023 Notification mandates that the Bureau of Energy Efficiency (BEE) maintain data on RE compliance and report it to the Central Government. However, public access to this data is limited across many states. A centralized portal for data submission and reporting by obligated entities and state nodal agencies is recommended. This portal should allow obligated entities to submit their RPO compliance data, which the SNA would validate and submit to the SERC. Post-verification, SNAs should report the data to the portal within 30 days, and BEE should then submit the data to MoP and MNRE within 30 days of uploading. Obligated entities should submit compliance data for the upcoming year and report on contracted RE capacity. Data should be reported in a standardized format, clearly mentioning power carried forward and RECs procured. This process should ensure timely, transparent, and standardized data reporting and public availability.
RPO compliance verification practices vary across states, making comparison challenging. States like Bihar and Karnataka report RPO compliance data in true-up orders, while Uttar Pradesh and Madhya Pradesh use suo-motu orders. Maharashtra previously had separate RPO proceedings but now includes them in mid-term reviews. Consolidated data reporting by holding companies occurs in states like Uttar Pradesh, Gujarat, and Madhya Pradesh. Some states do not publicly report RPO compliance at all. A standardized process for RPO compliance monitoring and verification is needed. Compliance verification should be public and independent of tariff determination processes. SERCs should set clear and strict timelines for annual verification, completing the process within 180 days. Currently, issuing final compliance orders can take 280 to 400 days post-financial year. SERCs should publish verified compliance data within 15 days of verification completion. Data reporting by the commission should also be standardized. States like Maharashtra, Karnataka, Goa and UTs, Bihar, and Himachal Pradesh provide detailed RPO compliance data, a practice that other states can adopt.
Many states do not impose penalties for RPO non-compliance despite shortfalls. Exceptions include Delhi, Uttar Pradesh, and Madhya Pradesh, which have penalized DISCOMs for non-compliance. Penalty provisions vary widely; for instance, Uttar Pradesh, Gujarat, and Karnataka impose penalties as a regulatory fund, while Rajasthan, Andhra Pradesh, and Tamil Nadu use both regulatory funds and Section 142 of the Electricity Act, 2003. Maharashtra’s penalties are linked to REC prices or fixed quantum, but actual penalty imposition and collection are rarely publicly reported. The MoP’s October 2023 Notification specifies penalties for RPO non-compliance under Section 26(3) of the Energy Conservation Act, 2001, with Jharkhand being the first state to adopt these penalties. Other states may follow suit. Shortfalls in RPO targets should be penalized, with rare exceptions allowing carry forward to the next year. Penalties should be deposited in a separate regulatory fund for RE integration or promotion, with transparency in the penalty collection process. SERCs should set timelines for penalty payment and monitor adherence, imposing additional penalties for delays. Public proceedings should be held if timelines are not met.
“Carry forward” refers to the adjustment of surplus or shortfall in power procurement from RE sources to the following year to meet RPO compliance. States have varied provisions for carry forward. For instance, Goa and UTs allow only shortfalls to be carried forward, while states like Maharashtra, Uttar Pradesh, Punjab, and Bihar allow both shortfalls and surpluses. Conversely, states like Gujarat and Karnataka do not permit carry forward. The carry-forward provisions should be stringent and not a routine measure. Shortfalls allowed to be carried forward should be mentioned in the compliance proceeding and should only be for the next consecutive year. To avoid indefinite deferment of compliance, any carry forward for unforeseen circumstances should be capped at 10 per cent of total RPO targets for that year and should gradually reduce.
While penalties for RPO non-compliance are common, incentives for over-compliance are rare, with Maharashtra being a notable exception. The Maharashtra Electricity Regulatory Commission (MERC) has introduced an incentive mechanism where DISCOMs receive Rs 0.25/kWh (later reduced to Rs 0.10/kWh) for over-compliance, provided there is no backlog of under-compliance. Other obligated entities, such as captive and open access consumers, are also eligible for incentives paid by the supplying DISCOM and recovered from the Aggregate Revenue Requirement (ARR). Incentives should ideally be reserved for DISCOMs overachieving their RPO targets. The incentive amount, decided by SERCs, should be linked to the quantum of over-achievement and capped at 125-150 per cent of the target. Incentive calculations and data should be publicly available. Obligated entities might fail to meet RPO targets due to uncontrollable circumstances, warranting some relaxation in target revisions. However, instead of routine target revisions, carrying forward non-compliance or cumulative compliance is preferable. SERCs can revise targets under their power to remove difficulties, but revised targets should not be lower than those specified for the previous year. Revisions should be exceptional and justified in the commission’s order. Obligated entities should file petitions for target revisions before the financial year’s end, providing valid reasons. Revisions should not occur after one year post the relevant financial year. For example, Gujarat revised its 2018-19 targets in 2022, based on the weighted average of RE procurement by DISCOMs. Such practices should be avoided to ensure timely compliance and accountability.
India aims to cut its GDP emissions intensity by 45 per cent by 2030 from 2005 levels and achieve 50 per cent of its electric power capacity from non-fossil fuels by the same year, with a long-term goal of net zero by 2070. In the FY 2023-24, RE generation (excluding hydro) was 226 billion units (13 per cent of total), while non-fossil generation (including nuclear and large hydro) was 408 billion units (24 per cent). Despite significant RE capacity additions, achieving future targets requires tripling the pace of additions. Effective RPO compliance monitoring at the state level is essential.
State RPO regulations and central guidelines need improvement in transparency and accountability. The BEE, under the EC Act 2003, should lead in establishing a national data reporting framework in consultation with the FoR. A uniform RPO framework across states, while allowing for innovation and state-specific contexts, would facilitate comparability and effectiveness.
A critical review of state RPO regulations and compliance proceedings has highlighted various approaches by SERCs. Based on these insights, good practices, guidelines, and reporting formats have been suggested for SERCs to consider.
For further reading, refer to original source “ A comprehensive review of State RPO framework and regulations: Learnings for effective implementation” by Prayas Energy Group.