CLEAN ENERGY INITIATIVES IN INDIA

The GoI recognizes the role that clean energy plays in aiding the country, not only meet its emission reduction targets, but also to achieve sustainable development.

India now ranks #4¹ globally in terms of the installed renewable energy (“RE”) capacity (including large hydro projects, wind power capacity and solar capacity). Importantly, India has ambitious targets to achieve 500 GW of installed capacity from non-fossil sources by 2030², and honour its commitments under the Paris climate accord. Notably, when India ratified the Paris climate accord on October 2, 2016, it had committed to reduce its emission intensity to 35% below 2005 levels by 2030 and ensure that about 40% cumulative power capacity is sourced from non-fossil fuel-based energy resources by 2030³. Subsequently⁴, India enhanced its commitment to reduce emission intensity to 45% below 2005 levels by 2030 and achieve about 50% of its power from non-fossil fuel-based energy resources by 2030⁵.

The Ministry of New and Renewable Energy (“MNRE”), Government of India (“GoI”) is aggressively working towards achieving its target by 2030. India’s ambition to lead the global transition to clean energy, and its commitment and efforts towards this transition has led to an increase in the country’s installed RE generation capacity by 20.5% in the last 5 years⁶.

While this growth can be attributed to a multitude of factors, the incentives provided by the GoI to RE developers, such as, feed in tariff, financial assistance, accelerated depreciation, generation-based incentives, renewable purchase obligations, waiver of Inter-State Transmission (“ISTS”) charges, income tax breaks, setting up of ultra mega renewable energy parks to provide land and transmission to RE developers on a plug and play basis etc., have been some of the key facilitators. Further, 100% foreign direct investment in the RE sector being allowed without GoI’s prior approval has also been a positive consideration for attracting foreign investment in this sector.

We now discuss in brief, some of the major recent initiatives introduced by the GoI to promote and enable the rapid deployment of clean energy.

i. Must-Run Status

At the outset, it is relevant to mention that the Electricity Act, 2003 (“Electricity Act”) does not define what constitutes RE or clean energy. It was only pursuant to a recent amendment of the Electricity Rules, 2005 (“Electricity Rules”)⁷ that the following definition of renewable energy sources was inserted - hydro, wind, solar, bio-mass, bio-fuel, bio-gas, waste including municipal and solid waste, geothermal, tidal, forms of oceanic energy, or combination thereof, with or without storage and such other sources as may be notified by the Central Government from time to time⁸.

Around 2010 or so, when the push towards deployment of cleaner sources of energy started in India, power plants based on RE sources were given a “must run” status in the Indian Grid Code, 2010. “Must run status” mainly means that evacuation of power from power plants based on RE sources would not be curtailed for factors other than on account of grid safety or safety of equipment or personnel. Unfortunately, the ground reality was slightly different, as RE based power plants continued to face curtailment despite their must run status.

To address the curtailment of RE power plants, the Ministry of Power, GoI (“MoP”) issued the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021 (“Must Run Rules”). The Must Run Rules provide that wind, solar, wind-solar hybrid or hydro power plants or plant generating power from any other source as may be notified from time to time are to be treated as Must-Run Power Plants (“MRPP”). Resultantly, MRPP would not be subject to curtailment or regulation of generation or supply of electricity on account of merit order dispatch or any other commercial consideration, other than curtailment or regulation in the event of technical constraint in the electricity grid or for reasons of security of the electricity grid.

In the event of a curtailment of supply from a MRPP, compensation would be payable by the procurer to the MRPP at the rates specified in the Power Purchase Agreement (“PPA”)/supply agreement. And, in the event of curtailment from a MRPP on account of any technical constraint in the electricity grid or for reasons of security of the electricity grid, the MRPP would sell the electricity not scheduled by the procurer, in the power exchange. The amount realised by such MRPP from sale of electricity in the power exchange, after deducting actual expenses paid for the sale in the power exchange, would be adjusted against the compensation payable by the procurer.

ii. Green Energy Corridor

To address the transmission issues, on the recommendation of Power Grid Corporation of India Limited, the GoI work on developing green energy corridor(s) (“GEC”) was commenced in 2015 to facilitate grid integration and power evacuation of RE into India’s power grid. The initiative is being implemented in two phases, and it comprises of both ISTS and Intra State Transmission System (“InSTS”) along with the setting up of renewable energy management centre and control infrastructure like reactive compensation, storage system, etc. While, phase I of the ISTS has been commissioned, the work on InSTS phase I project is under process.

iii. Waiver of ISTS Charges

The GoI from time to time has granted waiver of ISTS charges for RE projects. The current position on the waivers for ISTS charges (and not losses) is:

a. for RE generating stations (“REGS”), renewable hybrid generating stations (“RHGS”) and pumped hydroelectric stations which declare commercial operation date (“COD”) by June 30, 2025, for a period of 25 years from COD;

b. for battery energy storage systems (“ESS”) that are charged using energy from REGS or RHGS with COD before June 30, 2025, for 12 years from COD;

c. for solar power projects operating under the Solar Energy Corporation of India (“SECI”) manufacturing-linked capacity program to sell power to entities with renewable purchase obligations, for 25 years from the COD;

d. for REGS, RHGS, pumped hydroelectric stations, and battery storage systems that achieve COD after June 30, 2025 but before June 30, 2028, to be considered in a staggered manner based on prescribed methodology;

e. for hydro power projects (“HPPs”), waiver extends to HPPs for which construction work is awarded and PPA is signed on or before June 30, 2025. Further, in relation to HPPs for which construction work is awarded and PPA is signed post June 30, 2025, ISTS charges would range between 25% to 100% of the applicable ISTS charges, depending on the year in which the construction work is awarded and PPA is signed. The said waiver/concessional charges would be applicable for a period of 18 years from the date of commissioning of the HPP;

f. for offshore wind power projects commissioned on or before December 31, 2032 and established pursuant to a PPA or under merchant basis for a period of 25 years from the date of commissioning of the project; and

g. for green hydrogen and green ammonia plants commissioned on or before December 31, 2030, and which utilize clean energy from solar, wind and large hydro projects commissioned after March 8, 2019 or ESS (such as pumped storage projects (“PSP”) or battery ESS) or any hybrid combination of these technologies, for the production of green hydrogen or green ammonia for a period of 25 years from the date of commissioning of the project.

iv. Promoting Green Open Access

With an aim to ensure access to affordable, reliable, sustainable and green energy (including waste- to-energy plant) for all, the MoP notified the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“Green Energy OA Rules”) on June 6, 2022.

The Green Energy OA Rules have since been amended a few times and currently it allows consumers who have contracted demand or sanctioned load of 100 kW or more, whether through single connection or through multiple connections aggregating 100 kW or more located in same electricity division of a distribution licensee, to procure power through green energy open access; albeit, there would be no load limitation for captive consumers. Currently, various states are in the process of aligning their open access regulations with the Green Energy OA Rules.

v. Addressing revenue risk

With an aim to provide a mechanism for settlement of outstanding dues of generating companies, inter-state transmission licensees and electricity trading licensees, the MoP notified⁹ the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (“LPS Rules”). The LPS Rules provide for clubbing of all outstanding dues as on June 3, 2022 (including principal, late payment surcharge etc.) into a consolidated amount, which can be paid in interest free equated monthly instalments, with the maximum number of instalments being 48.

Recently¹⁰, the MoP issued the draft Electricity (Late Payment Surcharge and Related Matters) Amendment Rules, 2023. The draft amendment inter alia focuses on situations where outstanding payments persist even after 2.5 months from presentation of a bill by generating companies or transmission licensee or trading licensee, or in case of default in the payment of instalments. In such case, power supply to the defaulting entity (i.e., the distribution licensee or other user of transmission system) would be regulated by controlling short-term access or temporary general network access for the sale and purchase of electricity through short-term contracts or power exchanges.

vi. Push to domestic manufacturing

The advent of RE in India was with the launch of Jawaharlal Nehru National Solar Mission (“JNSM”) in 2010. One of the main aims of JNSM was to promote technological innovation and enhance solar manufacturing capabilities in India.

Interestingly, it was not until the last few years that the country saw the implementation of significant steps to push the local solar manufacturing such as imposition of safeguard duties, custom duty etc. on import of solar modules from some specific jurisdictions. One of the recent steps on this aspect is the issuance by MNRE¹¹ of the Approved Models and Manufacturers of Solar Photovoltaic Modules (Requirements for Compulsory Registration) Order, 2019 (“ALMM Order”). The ALMM Order provides for enlisting of eligible models and manufacturers of solar photovoltaic cells and modules complying with the standards prescribed by the Bureau of Indian Standards and publish the same in the Approved List of Models and Manufactures (“ALMM”). According to the current notifications on this subject, the solar projects covered by the ALMM Order which would commission post March 31, 2024 are required to source their modules from models and manufacturers included in the ALMM.

vii. Energy Storage concept

Until recently, neither the Electricity Act nor the Electricity Rules envisaged any framework for procurement, appropriation or regulation of storage systems. Post the clarification by MoP in January, 2022, this issue was addressed by an amendment to the Electricity Rules in December, 2022¹²; which inter alia provided that:

a. ESS would be considered to be a part of the power system defined under Section 2 (50) of the Electricity Act;

b. ESS would be utilised either as independent ESS or network asset or in complementary with generation, transmission and distribution;

c. ESS would be accorded status based on its application area i.e., generation, transmission and distribution; and

d. Independent ESS would be a delicensed activity at par with a generating company in accordance with the provisions of the Electricity Act.

Subsequently¹³, MoP issued the ‘National Framework for Promoting Energy Storage Systems’, with an objective to inter alia have 24 x 7 dispatchable RE power i.e., RE-round the clock and to support the development and deployment of ESS through policy and regulatory measures, financial and fiscal incentives and performance-based incentives.

viii. Hydro and Pumped Storage concept

Prior to March, 2019, only small hydro power projects (i.e., less than 25 MW capacity) were categorized as a source of RE. However, as part of GoI’s efforts to promote hydro power sector, the GoI¹⁴ declared large hydro power projects (i.e., more than 25 MW capacity) as a source of RE. Relatedly the GOI has been very keen on promoting PSPs, and for this purpose MoP recently¹⁵, issued the guidelines to promote development of PSPs. This step was in line with India’s aggressive clean energy targets – as energy storage models are integral to providing grid stability.

ix. Renewable Generation Obligation (“RGO”)

On February 27, 2023, MoP notified RGOs for thermal power plants pursuant to a resolution which requires generating companies establishing a coal/lignite based thermal generating station to (unless it meets its renewable purchase obligations):

a. establish RE generating capacity (in MW) i.e., RGO of a minimum of 40% of the capacity (in MW) of a coal/lignite-based thermal generating station or procure and supply RE equivalent to such capacity, for projects expected to achieve COD on or after April 1, 2023;

b. comply with RGO of 40% by April 1, 2025 for projects having COD between April 1, 2023 and March 31, 2025; and

c. comply with RGO of 40% by COD for projects whose COD is expected after April 1, 2025.

x. Green Hydrogen

On August 15, 2021, India launched the National Hydrogen Mission to meet its climate ta    rgets and with an aim to make India the global hub for manufacturing of, and the largest exporter of, green hydrogen. Subsequent to the launch of the National Hydrogen Mission, the GoI issued the Green Hydrogen Policy (“Policy”) on February 17, 2022. In furtherance to the National Hydrogen Mission and the Policy, MNRE issued the National Green Hydrogen Mission (“Mission”) in January, 2023.

Subsequently, on June 28, 2023, and in line with the objectives of the Mission, the MNRE issued guidelines: (i) for incentivizing the indigenous manufacture of electrolysers to achieve lower levelized cost of hydrogen production (“Scheme 1”), and (ii) to maximize production of green hydrogen and its derivatives in India, and enhance cost-competitiveness of green hydrogen and its derivatives vis-à-vis fossil-based alternatives (“Scheme 2”). Pursuant to the notification of these guidelines, SECI conducted bidding under Scheme 1 and Scheme 2 for selection of electrolyser manufacturers and green hydrogen producers, respectively, which received an overwhelming response from the bidders. Some of the selected bidders include Bharat Petroleum Corporation Limited, ACME Cleantech Solutions Private Limited, Torrent Power Limited and Reliance Electrolyser Manufacturing Limited.

More recently, on August 18, 2023, MNRE issued the Green Hydrogen Standard for India (“Standard”). The Standard seeks to define the non-biogenic greenhouse gas emission standards for green hydrogen produced through electrolysis and biomass as, 2 kilogram of carbon dioxide equivalent per kilogram of hydrogen (taken as an average over the last 12-month period).

Earlier this month, MNRE has issued two separate scheme guidelines for incentivising the green ammonia production and green hydrogen production. Both the schemes contemplate that SECI/ the other implementing agency¹⁶ would aggregate demand and then conduct the bidding.

Way Forward

The GoI recognizes the role that clean energy plays in aiding the country, not only meet its emission reduction targets, but also to achieve sustainable development. And, this is evidenced by the initiatives being implemented by the GoI to increase the use of RE. Despite this, India unfortunately did not achieve the installed RE capacity target of 175 GW by 2022. Amongst other factors, flip flop in the GoI policy for promoting RE, possibly, has been the main reason for this delay. Policy certainty and support is a critical factor that the investors (both domestic and foreign) require for committing to projects in India. If we want to cement India’s position as a world leader in clean energy and achieve our envisaged targets, this catalyst of policy certainty and support would be imperative.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.