RENEWABLE

ENERGY
IN INDIA
Economics and
Market Dynamics

Pramod Deo
Sushanta K. Chatterjee
Shrikant Modak
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Renewable
Energy
in India
Economics and
Market Dynamics

Pramod Deo
Sushanta K. Chatterjee
Shrikant Modak
Copyright © Pramod Deo, Sushanta K. Chatterjee and Shrikant Modak, 2021

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Contents

List of Illustrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Foreword by Kirit Parikh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi

Chapter 1. Renewable in India: In the Context of Evolution

of Power Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2. Structural Reforms in Power Sector: Implication

for Renewable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter 3. Policies Supporting Renewable: Aid to Market

Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Chapter 4. Distributed Energy Resources: Business Models

and Market Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Chapter 5. Renewable Energy Pricing in India:

What Is Missing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Chapter 6. Renewable Purchase Obligation: Does It Need

a Revisit as Instrument for Market Creation? . . . . . . . . . . . . . . . . 106
Chapter 7. Renewable Energy Certificate (REC): Has It
Outlived Its Life as Market-based Mechanism? . . . . . . . . . . . . . . 138

Chapter 8. Intermittent Renewable: How to Enable

Participation in Market? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Chapter 9. Market Design for Renewable Energy:

Right Design, A Missing Link in India . . . . . . . . . . . . . . . . . . . . . . . 176

Chapter 10. Renewable Policy Introspection: Rethink and

Move in the Right Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

About the Authors����������������������������������������������������������������������������225

Index��������������������������������������������������������������������������������������������������228

vi Renewable Energy in India

 List of Illustrations

List of Figures
8.1 Tamil Nadu State Demand versus Wind Generation
(22 August 2017)—Maximum Wind Generation
Day 159
8.2 Demand in Gujarat on 22 May 2017, along with How
This Was Met from Various Sources of Generation
Available—Maximum Wind Variation Day 160
9.1 All-India Demand and Net Demand of a Typical Day
(in 2021–2022) 181
9.2 Short-term Trading Price Trends 184
9.3 Share of Market Segments in Total Electricity
Generation, 2019–2020 185
9.4 Price Variation in Power Exchange during a
Typical Day 186
9.5 Price Variation in Power Exchange during a Week 187
9.6 Price Variation in Power Exchange during a
Month 188

List of Tables
4.1 The Year-wise Cumulative Solar Power Rooftop PV
Installations (2015 to 2018 February) 50
6.1 Long-term Growth Trajectory of Renewable Purchase
Obligations for Solar and Non-solar as Determined
by the Ministry of Power 114
6.2 State-wise Renewable Purchase Obligations for Solar and
Non-solar as per MNRE’s National Portal for RPO 115
7.1 RE Generators Registered (No. of Projects and Capacity
in MW as on 31 March 2018) 150
7.2 Demand and Supply of REC (2012–2013 to
2018–2019) 151
10.1 Prices of Solar Projects Discovered through
Bidding 201

List of Appendices
5A State-wise Latest Wind and Solar Tariff Rates 81
5B Bid Tariff (Wind) 87
5C Bid Tariff (Solar) 93
6A.1 Targets of Renewable Purchase Obligation Set
by State Electricity Regulatory Commissions from
2010–2011 to 2019–2020 (in %) 124
6A.2 Compliance of Renewable Purchase Obligation
by the Utilities from 2010–2011 to 2013–2014 126
6B State-wise RPO Target (FY 2016–2017 to
FY 2020–2021) and RPO Compliance
(FY 2016–2017 to FY 2018–19) 128

viii Renewable Energy in India

 List of Abbreviations

AC Alternating current
AGC Automatic generation control
APERC Andhra Pradesh Electricity Regulatory
Commission
APPC Average power purchase cost
AS Ancillary services
CASE Commission for Additional Sources of Energy
CDM Clean Development Mechanism
CEA Central Electricity Authority
CERC Central Electricity Regulatory Commission
CFD Contract for difference
DC Direct current
DISCOM Distribution company
DNES Department of Non-conventional Energy Sources
DRE Distributed renewable energy
DSM Deviation Settlement Mechanism
DT Distribution transformer
EA Electricity Act
EE Energy entrepreneurs
eRA e-Reverse auction
ERC Electricity Regulatory Commission
FERC Federal Energy Regulatory Commission
FIT Feed-in tariff
FOR Forum of Regulators
FY Financial year
GOI Government of India
GRPV Grid-connected rooftop photovoltaic
IEGC Indian Electricity Grid Code
IEX Indian Energy Exchange
INDC Intended Nationally Determined Contributions
IPP Independent power producer
ISGS Inter State Generating Station
ISO Independent system operator
ISTS Inter-State Transmission System
LMP Locational marginal price
LRMC Long-run marginal cost
MBED Market Based Economic Dispatch
MGP Mera Gao Power
MNES Ministry of Non-conventional Energy Sources
MNRE Ministry of New and Renewable Energy
MW Megawatt
NAPCC National Action Plan for Climate Change
NEM Net Metering Regulation
NETA New Electricity Trading Arrangement
NFFO Non-Fossil Fuel Obligation
NLDC National Load Dispatch Centre
O&M Operation and maintenance
P2P Peer-to-peer
PAYG Pay-as-you-go
PPA Power purchase agreement
PTC Production tax credit
PURPA Public Utility Regulatory Policies Act
PV Photovoltaic
PX Power exchange(s)
QCA Qualified Coordinating Agency
RA Reverse auction
RE Renewable energy
REC Renewable energy certificate
REMC Renewable Energy Management Centre
RFS Request for selection
RLDC Regional load despatch centre

x Renewable Energy in India

RO Renewables Obligation
ROC Renewables Obligation Certificate
RPC Regional Power Committee
RPI Retail price index
RPO Renewable purchase obligation
RPS Renewable portfolio standard
RRAS Reserves Regulation Ancillary Services
RTM Real-time market
RTO Regional transmission organization
SEB State Electricity Board
SECI Solar Energy Corporation of India
SERC State Electricity Regulatory Commission
SLDC State load dispatch centre
SRMC Short-run marginal cost
TAC Transmission access charge
TAM Term Ahead Market
TERI The Energy and Resources Institute
UP Uttar Pradesh
UPNEDA Uttar Pradesh New and Renewable Energy
Development Agency
UT Union territory

List of Abbreviations xi
 Foreword

How to Promote Renewable Power

The importance of solar energy and other forms of renew-
able energy was recognized in India more than a decade ago.
Its promotion began initially with policies to promote wind
power, by providing subsidies on capital costs, accelerated tax
write-offs and by launching of the National Solar Mission in
2010—targeting a solar capacity of 20,000 megawatts (MW) by
2022. This target was then further increased by Prime Minister
Narendra Modi to 175,000 MW by 2022.
The promotion of renewable power faces many difficulties,
though not insurmountable. In 2010, the cost of solar power
was four times that of coal-based power plant. Also, solar and
wind power, being subject to vagaries of nature, are not avail-
able on demand. Since their generation is intermittent with a
wide variation in their availability—between 15 and 30 per cent
of the capacity, in comparison to over 80 per cent for coal-based
plants—it creates difficulties in their acceptance by the power
project developers as well as by the power distribution agencies.
Although the cost of installing a solar photovoltaic plant has
fallen dramatically over time, and the levelized cost of solar
power is now almost comparable to that of coal power, its inter-
mittent nature requires balancing power with corresponding
modifications in the grid transmission infrastructure. This calls
for additional expenses. Thus, these costs have to be considered
when comparing renewable power with conventional power.
India has tried several approaches in promoting solar power.
It has provided assured feed-in tariffs to solar power develop-
ers, and it has mandated power distribution companies to pur-
chase a stipulated percentage of power from renewable power
generators. Moreover, it has created tradable instruments like
renewable energy certificates to enable mandated entities in
meeting their renewable portfolio obligations. It has also waived
all transmission charges on the interstate movement of renew-
able power. This has been done to facilitate the purchase of
renewable power from the states with higher renewable power
potential to those with lower potential.
These measures have had their own logic, but they also had
problems with them. This book, written jointly by the former
chairman of the Central Electricity Regulatory Commission, an
expert in infrastructure economics, co-authors with specializa-
tion in management and finance, who have teaching experi-
ence in various academic, research and training institutions,
and an academic turned journalist with expertise in energy
economics, discusses the issues pertaining to pricing of renew-
able energy and its commercialization in India.
The book lucidly explores the rationale behind the various
government policies in India adopted for commercializing
renewable power generation nationally. It then compares
the Indian experience with the international experience in
this field. The problems faced in the commercialization of this
form of energy and possible solutions have been thoroughly
discussed. The chapters in the book are logically sequenced to
address the issues involved and to address the problems raised
by the steep fall in the costs of renewable generation. Finally,
it provides the way forward suggesting the ways in which these
problems could be overcome.
The book provides a significantly different perspective than
what is normally available in books dealing with renewable

xiv Renewable Energy in India

technology and economics of it. It is largely focused on issues
in pricing renewable power appropriately, evolving market
mechanisms to commercialize it, in regulating it and in absorb-
ing it into the grid. The issues involved in promoting distrib-
uted power through micro-grids have also been considered
separately.
I learnt quite a few things by reading this book, and I recom-
mend it to all those who are interested in promoting renewable
power in the country and the world. It is a very useful book not
just for India but also for any country interested in accelerating
the development of renewable power.

Kirit Parikh
Chairman, Integrated Research and Action for
Development (IRADe)
Former Member, Planning Commission
New Delhi
15 December 2020

Foreword xv
 Preface

It is indeed gratifying to discover, after more than three decades

as professional energy specialists, that many of the assumptions
on which we had worked were now becoming a reality. At our
baptism in the power sector during the 1980s/1990s, we could
not have imagined that India would be soon crossing the mark
of 100 GW of green energy.
Energy self-sufficiency was identified as the major driver for
new and renewable energy in the country in the wake of the
two oil shocks of the 1970s. The sudden increase in the price of
oil, the uncertainties associated with its supply and the adverse
impact on the balance of payments position led to the estab-
lishment of the Commission for Additional Sources of Energy
(CASE) in the Department of Science & Technology in March
1981. In 1982, a new department, that is, the Department of
Non-conventional Energy Sources (DNES), which incorporated
CASE, was created in the then Ministry of Energy with the
responsibility of formulating policies and their implementation,
programmes for the development of new and renewable energy,
apart from coordinating and intensifying R&D in the sector. In
1992, DNES became the Ministry of Non-conventional Energy
Sources. In October 2006, the Ministry was re-christened as the
Ministry of New and Renewable Energy.
 The journey of promotion of renewable has continued
since then. On the policy front, the Ministry of Power and the
Ministry of New and Renewable Energy and, on the regulatory
front, the Regulatory Commissions have been taking steps to
promote renewable energy. But electricity, and more so the
renewable, being an intensely political economy issue, the gap
between vision and reality is a norm rather than an exception
in this segment of the economy. Some of us lived through and
grew with this experience, and it is this reality that gave us the
motivation to write this book.
Policymaking is a long-drawn and arduous process, and not
necessarily always dictated by the doctrines of economics, even
if the subject matter demands consideration of such principles.
Social and political expediency often outweighs economic
considerations. It is this dilemma that we have tried to capture
through the seams of the book. We have discussed policy and
regulatory initiatives but, at the same time, have endeavoured
to bring in a future-looking perspective by blending the aca-
demic, research and professional experience of us authors.
The focus has been on economics of renewable, especially
the distinctiveness of this form of generation in terms of vari-
ability, followed by its supply and pricing principles and market
dynamics. These aspects have been analysed in the backdrop
of various theories before venturing into practices and eventu-
ally into what we consider as the missing approach, especially
on pricing and market design of renewable in India. This per-
spective, we believe, would remain relevant not only for an
academician/researcher but also for hardcore professionals and
practitioners in this field.
Varied experiences of the authors, ranging from spearheading
central-level energy management centre, state energy develop-
ment agency, regulatory commissions at the state and central
levels; key roles played in drafting new electricity law, national
electricity policy, tariff policy, rules and regulations, and devel-
oping a new market design with a focus on the integration of
renewable and an incisive analysis of an economist and column-
ist bring a distinctive flavour to the discourses in the book.

xviii Renewable Energy in India

 Global developments are the overarching context for an
exercise in which our national performance is assessed. To
appreciate its consequences, what we require at home is a dis-
passionate debate that rises above competitive politics. We are
in debt to numerous energy experts whom we earlier used to
meet physically in workshops, seminars and conferences, and
for the last 8 months virtually for their contrarian viewpoints,
which helped us to develop a holistic approach. Our publish-
ers have been very patient as the fate of the book was linked
to the twists and turns in our own lives. We hope that their
forbearance is rewarded.

Preface xix
 Acknowledgements

We express our gratitude to the policymakers, regulators, energy

experts, academicians and researchers who helped shape our
thought process. But for their intellectual engagement, we
could not have reached this stage of our professional life and
penned a book on a specialized subject like this. Our special
thanks to the colleagues who contributed in data compilation,
especially Mr Rajashekhar, Mr Ravi and Mr Suresh, to name a
few. Mr Arora and Ms Boby also merit mention for their support
in text formatting and typing.
Last but not the least is the unflinching support of our
family members—Neelam, Nandini, Tanusree, Tannishtha,
Jyoti, Mrinal and Sudeep, who stood by us through our arduous
journey and continued to inspire us, to make sure that our idea
fruitions into a meaningful manuscript. They have been a wit-
ness to the trials and tribulations that we have gone through,
and they have provided us with sustenance in our containment.
We take this opportunity to record our sincere thanks to
all those who helped us, directly or indirectly, in making this
book a reality.
 1

Renewable in India
In the Context of Evolution
of Power Sector

Introduction
The central theme of the book is the economics of renewable
(wind and solar to be specific) with a focus on pricing and
market dynamics, given the special natural of its production,
and this idea runs through the seams of all chapters. To start
with, this chapter sets out the context by presenting an over-
view of the electricity industry in India, with a special reference
to renewable energy (RE), and discusses the electricity reforms
in other parts of the world. It also traces the technological and
structural evolution of the sector, with a focus on tariff, a cen-
tral piece of electricity regulation.
Demand for power is central to all planning processes in any
power system. Generation and transmission are planned to
make sure that the power consumption need of consumers is
met at all times. Demand pattern varies by day, across seasons,
depending on various factors such as weather, festivals and
economic activities. The challenge of power system planning
and operation is to match generation to follow this curve, often
termed as the load duration curve. Generation planning is done
on a long-term time horizon and a portfolio of different fuel
source-based generation is created to cater to the power require-
ments at different time intervals. Thus, we have coal-based
generation capacity to meet base load, hydro to meet peak load
and gas-based capacity to address the flexibility requirement. To
this portfolio, there is a growing trend of adding RE resources,
largely driven by environmental concerns.
For generation planning, generally peak load is taken as
a reference. For instance, the peak demand in India during
Financial Year (FY) 2019–2020 was 184 GW. Against this
requirement, the country had a total installed generation
capacity of 370 GW, comprising 199 GW of coal-based genera-
tion capacity, 6.6 GW of lignite, 25 GW of gas-based, 46 GW of
hydro, 87 GW (as on 29 February 2020) renewable, 6.8 GW of
nuclear source-based generation capacity.1 Coal is an exhaust-
ible source, gas supply in the country is limited and import is
expensive and the hydro project costs are quite high, at least
in the initial years. Energy security is therefore a big concern
more so for a developing country like India. Given these reali-
ties and also driven by environmental concerns, India has of
late put a lot of emphasis on adding renewable generation
capacity on a big scale.

Renewable Revolution
India has been at the forefront of international efforts at har-
nessing RE for decades now. We have one of the largest and
most ambitious programmes in this field in the world. More
than 86,759 megawatt (MW)2 of power-generating capacity
based on RE sources has been installed until February 2020.
This constitutes over 23.48 per cent of the total installed power
capacity of the country, most of which comes from private
investments.
With wind power capacity of 37,669.25 MW, 3 India
ranks 4th4 among the major global countries engaged in the

2 Renewable Energy in India

commercialization of wind energy. It is also engaged in expand-
ing its small hydroelectric generation, which is particularly
suitable for remote hilly regions and the north-eastern states
because of their sizeable hydropower potential. The Ministry
of New and Renewable Energy (MNRE) in India is in charge
of projects up to 25 MW. Around 4,683 MW5 of small hydro
capacity has been installed already until February 2020. Besides,
as the leading sugarcane producer in the world, the country
has been engaged in implementing the largest bagasse-based
co-generation power programme in its sugar mills.
In 2015, the Indian government announced an ambitious
target of 175 GW for RE capacity to be added to the grid by
2022. It meant that the annual RE capacity in the country
would have to grow at a rate of 25 per cent in a short period
of time available, as against the recent annual capacity growth
rates achieved by all grid-based electricity generation of about
6 per cent.6 In 2018, India had the third largest power grid in
the world, with a gross capacity of 344 GW. The RE constituted
only 7.6 per cent of it. But with the induction of the projected
magnitude of fresh RE capacity in the national system, there
would have to be a quantum jump in this share to 20 per cent
of the country’s total power capacity by 2022.
For this magnitude of achievement to sustain, it is important
to mobilize investments both in RE capacity and supporting
infrastructure, which would be a herculean task in the limited
time available. However, even if this seems difficult, the empha-
sis on accelerated RE capacity addition in the system is expected
to persist over a decade to come. To achieve this, investments
in supporting infrastructure growth would have to keep in sync
with the former.
India’s initiatives in RE reflect what has been happening
elsewhere in the world. For example, in Europe, many coun-
tries have been making conscious efforts to promote greater
utilization of RE to reduce greenhouse gas emissions. In Austria
and Finland, electricity from RE constitutes over 10 per cent
of their total energy production and this figure is even higher

Renewable in India 3
in Denmark. The UK, too, is having a robust RE-based power
generation programme.
In India, when the Standing Committee of Parliament was
examining the Draft Electricity Bill, the Ministry of Non-
conventional Energy Sources (MNES; presently MNRE) had sug-
gested the incorporation of enabling provisions in the Bill with
a view to promoting the development of non-conventional
energy-based power for the grid. The suggestions included the
mandate for the Central Electricity Regulatory Commission
(CERC) to frame guidelines on ‘preferential’ prices for renewa-
bles by taking into account the avoided cost of negative exter-
nalities associated with fossil fuel-based generation. The need
for promotional measures, such as banking, wheeling and
third-party sales, was also emphasized. There were, at the same
time, suggestions from some other stakeholders to prescribe
specific provision in the Bill for a minimum energy procurement
requirement (say, 10%) from RE sources.7

Issues
However, the Electricity Act, 2003 (EA, 2003)8 did not quite
incorporate these provisions as explicitly as the MNRE would
have preferred. But what it did was to specify that the State
Electricity Regulatory Commission (SERC) must

…promote co-generation and generation of electricity from

renewable energy sources by providing suitable measures
for connectivity with the grid and sale of electricity to any
person, and also specify, for the purchase of electricity from
such source, a percentage of the total consumption of elec-
tricity in the area of a distribution licensee.

The Act thus left the modalities of carrying out the task to the
ground-level assessment and professional judgement of the
concerned commissions. The Act also provided for the promo-
tion of renewable as one of the guiding principles for tariff
determination by electricity regulators.

4 Renewable Energy in India

 While some SERCs had already taken initiatives in this direc-
tion, CERC, through its successive regulations, provided the
basis for the market-based mechanisms to begin to develop.
This, in turn, helped in facilitating the processes at different
times across India. This has been discussed in this book in the
subsequent chapters.
While the promotion of co-generation and generation of
electricity from renewables guided the tariff regulation by the
SERCs—to the extent that they had a bearing on the average
cost of power generation and distribution in the system—both
conventional and renewable power generators were able to link
their generating units to the electricity grid by meeting the
technical standards set for them. This aspect has been covered
in the later part of the book against the background of inter-
national experience.
It has been more than a decade since the EA was promulgated
in 2003. Yet the question ‘What role should the commissions
play in promoting RE systems in their states’ has remained rel-
evant. Should they encourage the guaranteed export of surplus
power when produced from these technologies at feed-in rates to
the national grid? And, if so, what should these rates be? Looking
at it differently, one may ask whether there is still a justifica-
tion in giving preferential treatment to RE technologies over
time-tested conventional power generation technologies for sup-
plying electricity to the grids? Has there been an international
experience that can provide insights into the various issues
relating to the promotion of RE technologies? And whether
there is anything that India can gain from the experience in
other countries.
There are other issues that need to be addressed as well.
First, the age-old environmental debate regarding the pricing
of electricity from conventional power plants, which ignores
the external costs associated with producing power from these
sources. This indeed goes against the spirit of the Act, which
requires fairness in the treatment of costs, irrespective of the
source of generation. Second, though the state commissions

Renewable in India 5
are free under the EA, 2003, to incorporate a surcharge for
cross-subsidies in addition to the wheeling charges, the sub-
sidies referred to are on account of the differential pricing
at the consumer level. But nothing is mentioned in the Act
about how to tackle any increase in average electricity costs
that may take place due to the promotion of RE-based power
as a consequence of states’ RE programmes. Apparently, it
seems that this increase is meant to be a ‘pass-through’ in the
determination of average tariffs to consumers. This means that
consumers must pay for these programmes. Finally, how does
one reconcile with competition in the electricity sector due to
preferential treatment for predetermined sources of energy?
Of course, no Act can provide perfect answers to all possible
contingencies. But, as things stand, the EA, 2003, provided a
novel legal setting that has spurred developments in the Indian
power industry for over a decade now. The Act itself had been
a product of considerable deliberations and debate, both inside
and outside the Parliament, before it was cleared. In fact, in
many ways, it has reflected both the changed global view and
the Indian perception about the nature of the power industry.
As a result, new initiatives have ushered towards creating a
market-friendly structure.

Technological and Structural Evolution

of the Sector
A peek into the history of electricity reveals how technological
developments—with respect to transmission and generation—
have triggered the structural evolution of the power industry.
The first-ever power system, installed in the USA by Thomas
Alva Edison in 1880, was powered by direct current (DC) gen-
erators run by the steam engine. It pumped electricity into
distribution system lighting 400 bulbs of 83 watts at a time.9
This technology soon proliferated worldwide, when hundreds
of entrepreneurs replicated it throughout the major cities in the
world. One common feature of these systems—against the back-
ground of high losses suffered while transmitting low-voltage

6 Renewable Energy in India

DC—was that it required the stationing of generation units
close to the loads that were being served.
With the development of the transformers, the alternating
current (AC) became the dominant technology in the transmis-
sion of power.10 With the continuing evolution of transmission
technology into high-voltage transmission lines and the cor-
responding breakthrough in generation technology—with the
replacement of steam engines by steam turbines—it became
possible to produce and transfer bulk power to load centres
located at considerable distances from the power-generating
plants. With every rise in the transmission voltage and turbine
size, power networks across the world began to increasingly wear
a look of natural monopolies—especially public utilities—where
average costs were falling with rising outputs. The markets, on
the other hand, were often not large enough to absorb their
supply of electricity.
In the post-1930s, the focus with respect to technological
development in the power sector was on scaling up the size
of conventional power plants. The economies of scale, due to
higher thermal efficiency, as well as lower specific investments
in power stations, gave rise to a trend where power plant size
kept on increasing with each installation. For example, the most
efficient power plant size in the 1930s was 60 MW. It rose to 180
MW during the 1940s and, by the 1980s, it reached 1,000 MW.11
Similarly, the development of new converters, based on thyris-
tor technology, made high-voltage DC lines a very promising
option for the transmission of power over long distances.
But, above all, further improvements in AC high-voltage
transmission links had the most significant influence on the
structure of modern power systems. They made the intercon-
nection of the regional system feasible.12 With these ongoing
developments, it became almost impossible for smaller utilities
to compete on their own in the power industry, and this gave
rise to vertically integrated monopolies having centralized
control over the entire electricity supply chain. This called for
greater regulation of power utilities.

Renewable in India 7
 In countries where these utilities were privately owned, it
meant closer vigilance over their operations in the larger public
interest. Where they were brought under public ownership, the
control was more direct. Either way, profits became the regu-
latory focus, giving rise to cost-plus rate-of-return approach.
This has survived all these years and continues to hold sway
even now with regulatory authorities in many countries for
setting tariffs for consumers. With this change, it also became
obligatory on the part of power utilities to supply electricity
to all classes of consumers at predetermined tariffs—universal
service obligation.

Evolution of Electricity Legislation in India

The electricity legislation that has evolved in India over the
years, in many ways, reflects these global trends. For example,
as explained earlier, in the early 20th century, transmission and
generation technologies were still in the infancy stage; power
generation in that era was possible only through small generat-
ing sets. Understandably, in India too, the sector was made up
of small generating companies, owning 30–60 MW units and
supplying mostly to urban areas. The Indian EA, 1910, came
up against this background. Its purpose was to regulate small
licensees and to protect consumers.
By 1948, there were significant advances in power genera-
tion technology, giving rise to economies of scale in power
generation. This, together with the advances in transmission
technology, made it possible to transmit power at high voltages
over long distances. The result was the establishment of typical
state-owned, centralized power generation, transmission and
distribution utilities in the form of State Electricity Board (SEB)
in the country. In fact, the Electricity (Supply) Act, 1948, was
specifically meant to constitute and regulate the activities of
these utilities. This vertical structure of power utilities came into
question worldwide on grounds of efficiency, during the 1990s.
India too was affected by this global concern for efficiency,
which gave rise to electricity reforms.

8 Renewable Energy in India

 Globally, the first country to start off on the reforms path in
the power sector was Chile in 1982. But it was the reforms in
Britain, with its EA of 1983, that abolished the legal monopoly
of the Central Electricity Generating Board in England and
Wales that caught the fancy of reformers all over the world.
To begin with, independent generators were allowed to wheel
electricity directly to retail customers. Subsequently, there were
changes in the approach, based on the experiences gathered
from the initial implementation of the Act. However, all of
these were in the direction of increasing competition in the
power grid of the region.
Emulating England, several countries followed suit and insti-
tuted reforms with modifications in their own power industry
in the 1990s. The Norwegian Parliament passed a new Energy
Act in 1990; the Swedish Parliament revised its EA of 1902 in
1995; and, in 1993, the Council of Australian Governments
accepted the federal proposal put forth in 1991 to create a
National Electricity Market. Even countries such as Israel and
Argentina went ahead with instituting electricity reforms. A
common aspect of each of these was to create competition, in
varying degrees, in their respective electricity markets.
The Indian Legislation—known as the EA, 2003—came
about against this background of international legislation in
the power sector. At a macro level, the central feature of this
law has been unbundling of the power sector into its constitu-
ent segments; and, at a micro level, altering operational terms
in a manner that would be conducive to greater competition.

Power Tariff: A Central Piece of Electricity Regulation

The central aspect of all electricity regulation, wherever there
have been vertically integrated power utilities, has been the
tariffs. Before the Electricity Regulatory Commissions (ERCs)
Act, 1998, came into force in India, five sets of norms for set-
ting tariffs were in force. One specified by Schedule VI of the
Electricity (Supply) Act, 1948, was for determining retail tariffs

Renewable in India 9
of licensees under the Indian Electricity Act, 1910. The second
part, Section 59 of the Electricity (Supply) Act, 1948, pertained
to the retail tariffs to be set by the SEBs. The third, specified by
the central government under Section 43 A(2) of the Electricity
(Supply) Act, 1948, was meant for determining the bulk tariffs
to be charged by the central utilities. The fourth, under Section
43 A(2), was again for bulk tariffs, for state utilities. And the
fifth (Section 41 of the 1948 Act) was for the transmission tar-
iffs to be charged by the utility, for transmitting power to and
across states, through its network. Despite differences, there has
been a fair degree of commonality in all five sets of norms.13
Interestingly, all the Acts have focused on tariffs. In this book
as well, we have discussed tariffs; but from a perspective of
renewable power technologies.
In many ways, the norms reflect the evolution of India’s
power sector over the years. When central power stations came
up in the 1980s against the backdrop of failing health of SEBs
and the inability of states to finance the expansion of power
generation from their own funds, it became necessary to put
in place tariff norms for the supply of power by these stations
to SEBs. In the wake of the resource crunch in the 1990s, it
became even more difficult to finance plans for the expansion
of the power sector with public funds; generation was opened
up to independent power producers (IPPs) to plug the invest-
ment gap. This necessitated the setting up of tariff norms for
the bulk supply of electricity by these producers. Interestingly,
this was also the backdrop against which alternative energy
options began to be more seriously considered for the supply
of electricity to the grid.
Moreover, when it became clear that the IPP policy was
unsustainable due to poor financial health of SEBs—caused by
years of political manipulation of electricity pricing, theft and
inefficiencies—the ERCs Act, 1998, was brought in to ‘stem
the rot’. With this, SERCs assumed the function of approving
electricity tariffs based on the principles laid down in this Act.
In final admission of the fact that the piecemeal legislation was
not enough to grapple with India’s power sector problems, a

10 Renewable Energy in India

comprehensive EA, 2003, was passed by the Parliament. This
Act, similar to the legislations in other countries, sets out the
basic ground for the unbundling of the entire power industry.
In fact, it attempts to create environment conducive to com-
petition on the supply side of the industry. It is thus based on
the premise that the industry’s regulation is appropriate only
in segments where a competitive market is not feasible.
The Act reflects the latest global technological and structural
trends in the reorganization of the sector. Conventional tech-
nologies having matured are no longer able to demonstrate
economies of scale in relation to market size. The plant sizes of
conventional power plants have stabilized globally. At a differ-
ent level, distributed technologies, such as combined cycle gas
turbines, have been introduced that generate power as economi-
cally as conventional power plants. In specific cases, even RE
technologies have reached a stage where they are economically
competitive with conventional power plants. All these develop-
ments have taken place against the background of expanding
worldwide electricity consumption.
One major advantage of RE technologies in comparison
with the conventional technologies is that they require smaller
investments in generating plants than the latter. Moreover, the
time taken for erecting these units is in months as opposed to
several years in the case of conventional technologies. This
means that size is no longer an issue as far as electricity genera-
tion is concerned, and this segment of the power supply chain
is now most amenable to competition. Although this may not
be true for the transmission and distribution segments of the
industry, it has been observed that by separating dispatch of
power from the ownership of wires and by providing open
access to all, it is possible to create competition in wholesale
and retail segment of the industry.
Significantly, the operational structure of the vertically
integrated SEBs centralized and internalized all transactions
between different segments of the industry. In contrast, the
provision for unbundling in the EA, 2003, by separating and

Renewable in India 11
segmenting various parts of the industry, has begun to demerge
and change the commercial interface between these segments
and their parts. It has also required different rules for pricing
services in demerged segments. This means that the renewable
power producers, just as others, now have to operate under
altogether different business environments than before. Yet,
in the transitory phase, the interface of these producers with
unbundled utilities has required regulatory oversight for a
variety of reasons.
The regulation in the structurally changed sector in the
future will continue to be based on the following principle:
‘…regulate only those segments which by their nature are not
amenable to competition.’14 Here, regulators so far have had to
act as ‘surrogate’ markets for enforcing the requisite economic
discipline in the absence of markets. One of the main issues,
in so far as RE technologies are concerned, is that regulators
have had to deal with aspects of the markets that could lead to
market failures, hampering the commercial evolution of these
technologies.
At a different level, regulators have strived to refrain from
resorting to the cost-of-service regulation in sectors that are
competitive. But this has not been easy. Whereas in sectors
that require price regulation (or support), prices have had to
be set at sufficiently high levels to enable power producers to
earn enough to meet their investment needs, but low enough
to spur them to improve their efficiency in order to maintain
profitability. To achieve this, the regulatory bodies have had
to strive towards knowing the power industry as well as the
industry itself in order to enforce the regulations.
The regulation of tariffs of electricity from renewable sources
has continued to be of importance since the EA, 2003, came
into being. However, the direction of regulation has taken a
decisive turn in recent years. The focus has changed gradually
towards imparting greater market orientation to this sector.
There has been a growing stress on evolving a market in
this sector in a manner that the overall value of green power is

12 Renewable Energy in India

market determined, though within the limits to be set by the
regulatory authority. However, the question as to how these
limits are to be set is still of relevance.

Chapter Conclusion
Renewable has taken centre stage in the discussion on the
power sector in India. The ambitious target of renewable capac-
ity addition would require the mobilization of investments
both in RE capacity and in the supporting infrastructure—a
herculean task indeed in the limited available time (target of
175 GW by 2022). However, even if this seems difficult, the
emphasis on accelerated RE capacity addition in the system is
expected to persist over a decade to come.
It must be emphasized that pricing of electricity is central
to the efficient functioning of any industry, and much of the
regulatory process in India has been devoted to addressing this
seemingly complex issue, since the EA, 2003, came into opera-
tion. However, this book focuses on pricing in those segments
of renewable electricity generation, namely solar and wind
energy, which produce electricity on mass marketable scale.
Within the renewable technology sector, these generation
technologies have proved to be the most successful of all the
available technologies in mass commercialization worldwide.
Hence, much of the regulatory effort has been on supporting
and facilitating the induction of these technologies into the
national market defined by the state and the national grids.
Having set the context, the focus in the next chapter is on how
structural reforms have shaped the electricity industry and, in
turn, impacted the commercial viability of renewable.

Notes
1. http://cea.nic.in/reports/monthly/executivesummary/2020/
exe_summary-03.pdf (accessed on 8 February 2021).
2. Ibid., 4.
3. Ibid., 14.

Renewable in India 13
 4. https://www.power-technology.com/features/wind-energy-by-
country/ (accessed on 4 December 2019).
5. http://cea.nic.in/reports/monthly/executivesummary/2020/
exe_summary-02.pdf (accessed on 9 May 2019), 14.
6. Rahul Tongia and Samantha Gross, ‘Working to Turn Ambition
into Reality, the Politics and Economics of India’s Turn to
Renewable Power’ (Working Paper No. 4, Brookings, Washington,
DC, 2018), 4.
7. Standing Committee on Energy, Thirteenth Lok Sabha, ‘Ministry of
Power Thirty-first Report, the Electricity Bill, 2001’ (2002). Available
at https://eparlib.nic.in/bitstream/123456789/63654/1/13_
Energy_31.pdf (accessed on 18 November 2020).
8. https://powermin.nic.in/sites/default/files/uploads/The%20
Electricity%20Act_2003.pdf (accessed on 18 November 2020).
9. Ackermann, Thomas (First Draft 1999), Distributed Power
Generation in a De-regulated market Environment, Part I, Working
Paper, Royal Institute of Technology, Stockholm, Sweden. pp 14.
10. Ackermann, Thomas (2004), Distributed Resources in a Re-regulated
Market, Doctoral Thesis. KTH Electrical Engineering, Stockholm,
Sweden. pp 54.
11. Ackermann, Thomas (First Draft 1999), Distributed Power
Generation in a De-regulated Market Environment, Part 1, Working
Paper, Royal Institute of Technology, Stockholm, Sweden, pp 16.
12. Ackermann, Thomas (First Draft 1999), Distributed Power
Generation in a De-regulated Market Environment, Part 1, Working
Paper, Royal Institute of Technology, Stockholm, Sweden, pp 16.
13. S. S. Ahluwalia and Gaurav Bhatiani, ‘Tariff Setting in the Electric
Power Sector’, in The Indian Case Study in Regulation in Infrastructure
Services: Progress and the Way Forward, ed., S. K. Sarkar and Kaushik
Deb (New Delhi: TERI, 2001), 67–104.
14. Ibid.

14 Renewable Energy in India

 2

Structural Reforms in
Power Sector
Implication for Renewable

Introduction
The electricity industry structure has evolved over the years
and has witnessed significant changes, especially during the
last three decades. This chapter traces structural reforms in the
power sector across major economies of the world, compares
against Indian experience and reflects on the impact of such
reforms on the commercial viability of renewable.

Breaking Monopoly
During the first wave of liberalization in the 1990s, govern-
ments across the world began to reassess the structure of the
electricity industry. An understanding that electricity is as trad-
able a commodity as any other was one of the influences behind
these developments. It was argued that once a monopoly over
wires and dispatch was suitably set apart and controlled, elec-
tricity could be competitively supplied at wholesale and retail
levels. Based on this logic, many countries went ahead with
the task of developing competitive markets in the generation
and retail segments in their own power sectors. Some govern-
ments also viewed privatization and competitive markets as a
God-sent opportunity for reducing involvement in their own
power sector. Deeply steeped in debts as they were, many were
no longer in a position to finance the future expansion of their
power sectors. They, therefore, used this as a means to transfer
at least part of their responsibilities to private participants.
In one of the earliest attempts at introducing competition
in the power sector, competitive bidding route was adopted
for investments in generation. The main purpose behind this
was to get private parties to invest in generation while leaving
the complex matter of network operations and long-term plan-
ning with the central organization. From the point of view of
RE technologies, one of the major difficulties with this process
was getting the organizers to accept new technologies in the
tendering norms.1 Moreover, it was costly and cumbersome for
small-scale players to get themselves involved in this process.
Yet it would be foolish to believe that changes in the sector were
being initiated solely with small-scale renewable technologies in
mind. These markets, in fact, had overgrown the scale and were
ready to absorb enterprises in large numbers, irrespective of the
technologies or plant sizes they chose to bring into the market.
The next attempt was to give open access to generators for
wheeling of power on transmission lines, against payments for
transmission charges and the fulfilment of certain technical
requirements for the grid connection. The high cost of setting up
wheeling contracts, especially in the case of smaller players, and
the option available to transmission companies for refusing con-
tracts on technical grounds, significantly hampered the develop-
ment of competitive markets in the process of generation.

Power Trading and Pooling

England and Wales instituted a pooling system for power
trading. In this model, complete freedom was given to bulk

16 Renewable Energy in India

consumers and distributors to buy electricity directly from
power generators, traders or from the electricity pool. An open
access to wires was created to back up the trading process and
a central dispatch system—to be operated by the independent
system operator (ISO)—was instituted.
After privatization in 1990, England and Wales divided their
power industry into four separate activities, namely generation,
transmission, distribution and retail. Central planning was
disbanded, and the power supply was shifted to a competitive
platform for trading in the power pool. All final consumers
were allowed to choose their own supply, not only from the
existing suppliers but also from any that chose to enter the
field subsequently. The new regulator, using price caps or an
incentive formula, set prices for monopoly segments, namely
transmission and distribution. In contrast, markets set prices in
competitive segments, namely generation and supply. However,
they remained under close vigil of the regulator. The results
of the British reforms were mixed; after a decade, it was still
in transition and, according to some accounts, evolving rapidly,
but in an unpredictable manner.2
With privatization, electricity generation in England and
Wales was set to run in a manner as if fully competitive. The
electricity market was meant to set its own prices for generation
without any aid from the regulator. In reality, what ensued was
a mix of bilateral contracts and the power pool.3 Under power
pools, generators who wished to operate their power plants
had to bid successfully for specific time slots. The bids had to
be placed 24 hours in advance of each of the 30-minute block
of a 24-hour day. Although plants were scheduled according to
the merit order on the basis of their bid prices, in practice, they
all were paid the same rate that corresponded to the highest bid
price from among the successful contestants. All of the wholesale
suppliers, on the other hand, had to buy from the power pool
at a market-clearing price.
However, bilateral contracts between generators and suppli-
ers were allowed to subsist and even bypass pool rates. These

Structural Reforms in Power Sector 17

were essentially known as contracts for differences. In the first
instance, while all transactions were put through at the pool
price, generators and buyers settled any difference that arose
between the pool and the contract price between themselves.
When the pool price was higher, the generators reimbursed the
buyers for the difference and vice versa.
The underlying logic behind allowing these contracts was
to provide a hedging mechanism against long-term price risk
that arose from the volatility in spot market prices nearer the
actual dispatch and due to cyclical and seasonal changes in
demand and supply. It was necessary for this reason to provide
an arrangement that would allow generators and customers
seeking certainty to enter into contracts and secure them
against risk. Typically, in such a system, generators looking for
certainty could seek long-term contracts in sufficient numbers
to cover a significant portion of the proposed capacity before
actually investing. They could thus reduce their long-term risk.
It was anticipated that the pool would act as a fulcrum, bal-
ancing and facilitating operations with a significant proportion
of transactions passing through it. The contract market, on the
other hand, drawing on the experiences from the pool prices,
would evolve its own set of prices. Unfortunately, in practice,
things did not quite work out the way it was anticipated.
In fact, little power was bought and sold at pool prices, as they
were widely mistrusted. Eventually, the system had to be aban-
doned and the New Electricity Trading Arrangement (NETA)4
had to be brought in its place. Despite its initial failure in Britain,
the pooling concept for trading in electricity won a significant
number of subscribers across the world. It was deployed in vari-
ous countries of the world—Australia, Norway, Argentina, New
Zealand and Israel, to cite a few—with suitable modifications to
its basic design, reflecting lessons learnt from its initial operation
in England and Wales, and their own situation.
The factors behind the pool’s failure were complex. One of
the main reasons was its premature launch, even before soft-
ware for trading was ready. Its failure in creating the desired

18 Renewable Energy in India

amount of liquidity in the market, as originally envisaged, was
another reason why it was abandoned in its initial form; in
fact, the presence of a long-term contract system undermined
its evolution. Dominated as it was by the operations of its two
most powerful generators, the pool displayed all signs of price
manipulation. Despite these setbacks, the pooling system has
continued to be viewed as the most preferred option for open-
ing up of the power sectors to competition. The fact that elec-
tricity reforms have been tailored on similar lines worldwide
is proof of this.
Broadly, there have been two pool designs. The first of
these was the original English model based upon the principle
of mandatory market. It required all electricity to be traded
through the power exchange (PX). Comparatively, the Nord
Pool market of Scandinavia requires that only surplus power,
over and above bilateral contracts, be traded through the pool.
The bids in this system, unlike the mandatory pools, are tied
to the operating company and not to the plants.
Interestingly, NETA, which replaced the mandatory pool-
ing system in the UK, has been the same as Nord Pool, which
developed from innovations in the former English and Welsh
pooling models.5 NETA, besides the half-hour settlement system
and other aspects that remain the same as in the original model,
also includes forward and future markets. These markets allow
contracts for electricity to be struck up for several hours in the
future along with short-term PX that allow participants to fine-
tune their contracts in a simple manner. The demand side of
the electricity market, unlike the previous pooling system, is
fully represented in the new model.

Competitive Markets
The preoccupation with creating competitive markets stems
from the well-established principle of economics, which pos-
tulates that, in normal circumstances, markets are the most
effective means for efficiently allocating resources between

Structural Reforms in Power Sector 19

various consumer segments, provided they are competitive.
Supply, in such markets, is driven by the incremental cost of
producing additional units—also known as short-run marginal
costs (SRMCs). The market clears at a price where the marginal
cost of supplying electricity is equated with consumers’ willing-
ness to pay for it.
The monopoly or any form of collusion is seen as antithesis
to markets and requires close regulatory involvement. For the
sake of economic efficiency, in such situations, tariff regulation
requires the pricing of electricity on the basis of SRMC—just as
in other markets—with a view to balancing electricity demand
with supply in the short run; and, in the long run, on the
basis of long-run marginal cost (LRMC). The latter is meant to
efficiently channel investments in the future expansion of the
sector. Thus, there is a stamp of economic efficiency associated
with the use of these two costs as the basis for setting tariff.
Most of the concerns with respect to tariff regulations in such
cases centre on the feasibility of using these methodologies as
the basis for electricity tariff formation.
In this background, the central purpose behind the
unbundling of the sector and trading-based pool is to create
a competitive industry structure by demerging it into vari-
ous activities. The industry is divided into its competitive
constituents and those requiring closer regulatory scrutiny.
The ultimate benefit of unbundling is that it is meant to help
remove any possibility of price manipulation by dominant
players who could use their clout from one segment to gain
advantage in the other.
For example, it could curb the possibilities of cross-subsidization
between generation and retail services which operate under
competitive conditions, on the one hand, and transmission and
distribution services, which even in pool function as monopo-
lies, on the other.6 To prevent any such possibility, electricity
pools need be run by centralized independent organizations—
defining the bidding process and organizing dispatches at
market-clearing prices.

20 Renewable Energy in India

 The overall design in this system has to be able to offer suf-
ficient stability and predictability, and ensure that investments
in new generation capacity are not intolerably risky. In fact, the
contract market in England and Wales was meant to perform
this very function. But, for reasons explained, it instead dried
up liquidity and affected the operations of the regional pool
markets and, in the process, defeated its original purpose. One
of the main lessons learnt from this experience was that in
countries having a history of monopoly in electricity genera-
tion, the newly unbundled generating utilities could still have
a large market share and, therefore, exercise their clout. If this
were not checked, it would defeat the original purpose behind
setting up of electricity pools.
For these reasons, the unbundling process has followed
different routes in different countries. Some have gone in for
organizational unbundling, where, without changing the origi-
nal ownership, there has been an organizational and account-
ing separation of activities, namely generation, transmission,
distribution and supply.7 Although this may be a far cry from
the original purpose of unbundling, it has the merit of introduc-
ing transparency in the overall operation of the power system;
at least in the short run. There are others who, by virtue of
already having a sufficiently competitive generating segment,
have felt comfortable in straightaway launching short-term
pool exchange. However, they have continued to regulate trans-
mission and distribution activities in their electricity industry.

Unbundling in India
The tariff-setting mechanisms have varied across countries,
depending on which of the several approaches they have
adopted in pursuing electricity reforms. But the main issue
in the context of unbundling with RE technologies has been:
can these technologies cope with the structural reforms that
are taking place in the power sector around the world and, if
so, how? At the time when the Indian power sector is being
reformed, the issue pertaining to competition and market

Structural Reforms in Power Sector 21

efficiency is as important to its RE initiatives as it has been to
initiatives of a similar nature in other countries of the world.
This is so, especially since the thrust of the EA, 2003, in India
has been clearly to unbundle and open access, leading ulti-
mately to the introduction of competition in its power sector,
as and when feasible. In fact, Orissa and Delhi Electricity Boards
embarked on this route even before the EA, 2003, came into
effect. Several others have followed since then.
Barring power dispatch and transmission, the EA, 2003,
opened all other power sector operations to private entry.8
For that matter, even while control over transmission has
remained with government agencies, there is provision for
private entry in certain aspects, as reflected by the creation
of the ‘transmission licensee category’ in the Act. Whichever
way one looks at it, unbundling, with its focus on creating
competition, has been an important development in the Indian
power sector. As far as RE technologies are concerned, though
privatization has not been an issue—as most of these units are
privately owned—competition, as it is usually defined, has
remained so. As any economist knows, despite the tag of effi-
ciency, markets are woefully inadequate in dealing with a host
of situations lumped together under a common label ‘market
failures’; and, as it will be clear later, the pooling system has
been no exception.
The key competitive charge in the short-term pool market
is the generation price. Power pools provide the model for
achieving the most efficient dispatch, given the SRMCs of
supply. In this system, the least cost of dispatch of the pool
and that of a competitive market is one and the same, so long
as the transmission is unconstrained. However, this compli-
cates short-term market operations, not only by aggravating
power losses in the system but also by blocking the passage
of electricity in wires.
In a typical transmission network, it is rarely the case that
power flows from point to point. Transmission congestion con-
strains the long-distance movement of power in some segments

22 Renewable Energy in India

of the grid while imposing higher supply costs in others. This
aspect would have been particularly relevant to the Indian
situation if the power sector had adopted the pool system.
Anyone who is even remotely familiar with the Indian power
industry knows well how investments in intrastate transmis-
sion and distribution have grossly fallen short of requirements
over the years.9
In normal circumstances, power would flow from low-cost
to high-cost regions. In contrast, in the background of trans-
mission constraints and periods of high demand, cheaper
plants in low-cost areas are sidelined as costlier generating
units located in unconstrained regions supply power there. In
such a scenario, though the economic dispatch would still be
the least cost, the bids would have to be location specific and
recognized as the minimum acceptable price at the concerned
location. Thus, in the presence of transmission congestion, the
generation contract, though necessary, is insufficient to provide
the required long-term hedge.
Bilateral generation contracts can capture the effect of
aggregate movements in the market—when a single market
price is up or down—which is not the case once transmission
constraints come into the system. Transmission congestion
gives rise to multiple location-specific prices, due to which the
generator alone cannot provide back-to-back hedge on fluc-
tuations of short-term electricity prices. The solution in this
case is to redistribute congestion revenue—due to differential
prices—through the system of long-run transmission conges-
tion contracts. This, in turn, runs parallel with the long-run
generation contracts, the settlement again being through the
contract of differences, just as in the case of generation.10
From the RE technology angle, the transmission constraints
can be double-edged. On the positive side, it can be potentially
favourable, at least in the short run, for those RE units which
are situated on the unconstrained side of the transmission.
Further, in a truly competitive market, the transmission con-
straint could provide an opportunity to RE technologies to be

Structural Reforms in Power Sector 23

seriously included in the investment options being examined
for easing the power supply situation in the areas affected by
the constraint.
However, in reality, there have been some serious misgivings
among the advocates of RE technologies over the pool system.
For one, it has been argued that since RE units are usually small
in scale, it is not always economically worthwhile for them to
enter into such contracts. If the cost of seeking customers or
taking up distribution on one’s own is prohibitive, it is often
the same with costs of PX membership. Further, the costs associ-
ated with making RE technologies compatible with the grid are
high—since protocols for grid interface have evolved over the
years in response, predominantly to the needs of conventional
technologies.
One of the major issues concerning RE units in India is that
they are site specific and often located in rural areas where high-
tension grid may not be available. The nearest substation may
be at a distance at which the cost of erecting tie-up lines can be
prohibitively high in the case of isolated units. One approach
to resolving this problem could be to hook these units up with
the distribution system. Unfortunately, distribution networks
are designed for different purposes than transmission networks.
They usually have unidirectional power flow with little or no
inbuilt redundancy. Generally, from the grid angle, control
over generation from these sources becomes difficult for the
system operator, as low-voltage ends of the distribution lines
are usually not connected with the central system.11
There is an added complexity in the Indian context. In areas
where there is no high-tension grid, these units are connected
to the local grid at 11 kilo volt (KV) level. Since, in times of
load shedding, it is these substations that are cut off from the
main grid, their effect is to block off the export of power from
these units. Also, some renewable units, such as co-generation,
perform best only when connected to the grid at 66 KV level.
But, in India, this level of transmission is on the wane and is
being replaced by 110 KV.

24 Renewable Energy in India

 Another issue that invariably figures in any debate on the
commercial viability of RE technologies is environmental
costs. In comparison to conventional power plants, these are
clean technologies with no external costs. Proponents of RE
technologies argue that the costs of polluting power stations,
if included in their unit electricity costs, will nullify any cost
advantage that they may have over renewable power units.
The market’s inability to institutionalize this aspect of power
generation is a classic market failure often referred to in textbooks.
Billions have been spent on finding a politically acceptable
answer, and though carbon trading and clean development
mechanisms (CDMs) have since evolved, these are still to be
put into practice globally.12
The main problem with RE technology has been that though
some of them are technically and economically viable, commer-
cially they are still lagging behind. If one ignores externalities,
then the financial estimates of per unit life cycle cost of electric-
ity generation from these technologies and conventional power
plants have been comparable. But when it comes to estimating
these costs in commercial operations, things have been com-
pletely different. For instance, given the intermittent nature of
wind and solar resources, RE projects based on these resources
cannot be treated as firm. There are, therefore, system balancing
costs associated with the integration of wind and solar projects.
This concern gets aggravated when the penetration level of
variable renewable increases in the power system. Naturally,
therefore, this is currently a major area of debate, as the share
of renewable has increased substantially and is likely to increase
exponentially in the foreseeable future. There are reports13
that point to additional RE integration cost exceeding `1/unit
resulting from additional gas-based generation cost, additional
deviation charges, standby charges, extra transmission charge,
etc., to accommodate variable renewable as must-run plants.
One of the major issues has been that several RE units have
had high capital costs but low short-run costs. Besides, the
financing structure of these projects has complicated the matter

Structural Reforms in Power Sector 25

further, as principal and interest payments have been high
during the years when debts were being repaid (generally 10
years). In a dynamic situation when technology is still evolving
commercially, this becomes a significant barrier, even more so
when promotional policies change without providing protec-
tion to earlier investments.

Chapter Conclusion
The structural reforms, especially the breaking of the monopoly
and the ushering in competition, leave a significant commercial
impact on renewable. Renewable, when weighed against only its
investment cost and variability, appears to be non-competitive.
The financial cost comparison between renewable and con-
ventional plants makes renewable look expensive (though
trend is changing in recent times). However, if one considers
the low short-run cost of renewable and also the factors in the
external costs (environmental costs), renewable turns out to be
more cost-effective. The need is to recognize these realities and
not only to protect in the restructured system the investments
made in the past but also to create conducive environment for
renewable to sustain with its long-term positive effects. It is in
this context that the next chapter details the various promo-
tional policies experimented in different parts of the world and
compares them with those in India with a focus on the impact
of such policies on the market creation for renewable.

Notes
1. Thomas Ackermann, ‘Distributed Resources in a Re-regulated
Market’ (Doctoral Thesis, KTH Electrical Engineering, Stockholm,
Sweden, 2004), 74.
2. Steve D. Thomas, ‘Tariff Setting in Privatised British Electricity
Industry’, in The Indian case Study in Regulation in Infrastructure
Services: Progress and the Way Forward, ed., S. K. Sarkar and Kaushik
Deb (New Delhi: TERI, 2001), 105–118.
3. Review of Electricity Trading Arrangements Background Paper 1
Electricity Trading Arrangements in England and Wales (February
1998). https://www.ofgem.gov.uk/ofgem-publications/79088/

26 Renewable Energy in India

 review-electricity-trading-arrangements-background-england-and-
walespdf
4. www.Inencogroup.com/neta.html (accessed on 8 February 2021).
5. Ibid.
6. Thomas Ackermann, ‘Distributed Power Generation in a
De-regulated Market Environment, Part I’ (First Draft Working
Paper, Royal Institute of Technology, Stockholm, Sweden, 1999),
25.
7. K. Ramanathan, ‘Choice of a Power Market Model in India in
Transition to Liberalized Environment: Experiences and Issue in
Regulation’, ed., Leena Srivastava and S. K. Sarkar (New Delhi:
TERI), 128–136.
8. The EA, 2003.
9. M.S. Bhalla, ‘Transmission and Distribution Losses in India’, in The
Indian Case Study in Regulation in Infrastructure Services: Progress and
the Way Forward, ed., S. K. Sarkar and Kaushik Deb (New Delhi:
TERI, 2001), 165–174.
10. William W. Hogan, Transmission Investment and Competitive
Electricity Markets (Cambridge, MA: Center for Business and
Government, Harvard University, 1998), 10.
11. Ackermann, ‘Distributed Power Generation in a De-regulated
Market Environment’, 37.
12. European Wind Energy Association and Greenpeace, ‘Wind Force
12, A Blueprint to Achieve 12% of the World’s Electricity from
Wind Power by 2020’ (2004), 16. Available at http://www.green-
peace.org/usa/wp-content/uploads/legacy/Global/usa/planet3/
PDFs/windforce-12-2004.pdf (accessed on 8 February 2021).
13. https://www.cea.nic.in/reports/others/planning/resd/resd_comm_
reports/report.pdf, 13–18 (accessed on 8 February 2021).

Structural Reforms in Power Sector 27

 3

Policies Supporting
Renewable
Aid to Market Formation

Introduction
Nations across the world have come up with policies promoting
renewable. These policies have reiterated the need for special
treatment for renewable, and the support has ranged from fiscal
incentive, capital subsidies, feed-in tariff (FIT) guaranteeing grid
access and fixed tariff, to concessional transmission pricing and
so on. India is no exception. This chapter captures the global
policies supporting renewable, dwells at length on Indian ini-
tiatives and presents a perspective on how these policies have
helped market creation for renewable.

Global Approaches to Supporting Renewable

Energy Technologies
A usual approach that most of the governments promoting
RE programmes around the world have taken in dealing with
these issues is to forcibly create markets for these technologies
by introducing specific laws and regulations favouring their
promotion.1 These technologies have been backed up with
preferential tariffs, subsidies and various other fiscal incentives
in the last 30 years. In Europe, feed-FITs have been used very
effectively to get RE technologies off the ground. Several gov-
ernments in Europe have made it obligatory for power utilities
to connect local renewable power-generating units to the grid
and pay them the FITs. These tariffs have been fixed at differ-
ent levels for different technologies. By securing income and
reducing the risk for developers, various governments have suc-
cessfully boosted their commercial deployment. For example,
Germany’s relatively high FITs have led to its emergence as the
world’s largest wind turbine market.2
With a view to spurring investments in RE development
immediately after the 1947 oil crisis—the US government
provided investment tax credits, and research and develop-
ment funds to those engaged in RE technology. However,
the enactment of the Public Utility Regulatory Policies Act
(PURPA) in 1978 was the single most important factor in the
development of a commercial RE market in the country.3
PURPA created a qualifying facility status for these units and
co-generation technologies, mandating utilities to purchase
power from them at their full-avoided cost. It also encouraged
utilities to enter into long-term contracts of 10–15 years with
them. As a result, the rates paid to RE units in the USA were
unusually high in 1980.4
In contrast, in Britain’s Non-Fossil Fuel Obligation (NFFO),
potential renewable project developers—after bidding success-
fully under each RE technology category—were awarded tariffs,
as stated in their bids, for a predetermined period (15 years).
Unlike the fixed FIT approach of other countries, this approach
proved advantageous, spurring cost and tariff reductions. For
example, the price of wind electricity dropped in the UK from
8–9 pence to 4 pence in six years in the 1990s.5 It was, however,
not clear whether this drop was due to developers confining their
new investments only to clearly advantageous wind sites or to
the deployment of more advanced technology, or both.

Policies Supporting Renewable 29

 In the last couple of decades, the electricity industry has
increasingly come under regulatory and economic pressure
to become more competitive. In fact, in the mid-1990s, the
Federal Energy Regulatory Commission (FERC) ruled against
some states in the USA for using rate-setting mechanisms to
set RE rates above the avoided costs. Competitive pressure
in the power sector has since increased in that country and
elsewhere, seriously affecting the future of RE technologies in
several ways.6
One suspects that as utilities are forced to compete more
heavily on price in the short term, the flexibility to experiment
with RE technologies could be diminished. In such situations,
the premium for short-run cost minimization would increase
substantially, squeezing out technologies that are not cost-
effective over a short period of time.
Utilities that might otherwise have invested in technologies
that are cost-effective in the long run but carry high short-run
costs would be less likely to do so once there is a competitive
pressure. Nor would they want to roll out expensive genera-
tion together with the less costly ones if the plant-based merit
order dispatch is in practice. In such a scenario, they would be
more inclined to consider each power source independently
and determine whether it is competitive.
Similarly, they would have little incentive to spend money
on the development of technologies that offer common ben-
efits to all generators. Further, increased competition would
potentially have the effect of diminishing the importance of
beneficial attributes—non-polluting and risk-reducing aspects—
of RE technologies.
For this reason, in countries that promote RE technologies,
distributed generation is often relatively unencumbered by
the rules of central systems (scheduling, pooling, dispatch). In
the UK, embedded power stations, including renewable units,
with a total registered capacity of up to 50 MW, do not have
to trade through the pool and are not dispatched through the
system operator (grid).

30 Renewable Energy in India

 However, they have to comply with the distribution code,
though not the grid code. As far as excess supply is concerned,
it has to be sold to authorized suppliers or end users. In NFFO’s
case, public electricity suppliers were obliged to buy all power
output from renewable units and, in turn, reimburse the price
difference between the market price and the NFFO tariffs. In
fact, Sweden, Germany and Denmark have special regulations
for RE generation. Under the Swedish system, concession hold-
ers are forced to buy all power from small-scale generation at
tariff rates representing their avoided costs.7

Indian Approach to Supporting

Renewable Energy Technologies
In India, until 1993–1994, the MNES had adopted a subsidy
route for promoting non-conventional energy technologies
in the country. But, in that year, it switched to a commercial
approach, promoting these technologies through private invest-
ments. The MNES (presently MNRE) had initially examined two
models, one based on competitive bidding and the other on
fixed tariffs. Eventually, it settled for the latter on the grounds
that this was the most widely prevalent approach worldwide.
It was also easy to implement.8
Before formalizing its approach, MNES (presently MNRE)
met with several states and discussed the policies they were
pursuing with respect to IPPs for encouraging investments in
conventional power plants based on fossil fuels. It found that
the tariffs for these projects ranged between `2.50 and `3.00.
Taking these figures as a benchmark, the Ministry prescribed
tariffs for the purchase of power from various renewable source
of energy. It maintained `2.25 per unit as the base for rates to
be charged in the future, stating that this being the avoided
cost of thermal power, was appropriate as the base for granting
future tariff escalations. And it thus added escalation clauses to
provide for any inflationary increase in the future.
Keeping this as the basis, several states evolved their own
policies for the promotion of RE supply to the grid. These

Policies Supporting Renewable 31

policies were challenged by various SEBs under the ERC Act,
1998. Most SERCs, except the MERC and the Andhra Pradesh
Electricity Regulatory Commission (APERC), restored the base
line tariffs as specified by the MNES through their rulings.
The MERC and the APERC, on the other hand, took it upon
themselves to evolve their own guidelines based on the Central
Electricity Authority’s (CEA) methodology.

Promotion of Renewable under

Electricity Act, 2003
With the introduction of the EA, 2003, the practical expediency
on which the MNRE approach was based could not be the sole
guiding principle for tariff setting. It required any tariff princi-
ple to address some basic issues concerning the impact of the
tariff on the overall efficiency of the sector as well as on the
economy.9 However, this was easier said than done. With the
notification of the EA, 2003, as mentioned earlier, the Indian
power supply network began undergoing a major overhaul. As
things stood now, the Act was designed to unbundle the power
network and create competition on the supply side by widening
consumer choice with respect to electricity suppliers, both at
retail and bulk levels.
In view of the complexities involved in changing over to the
new structure, the EA, 2003, stipulated its phased implementa-
tion in the future (Section 42 [2]). In short, the Act created a
level playing field with an independent regulatory authority to
attract and sustain private investment in a competitive environ-
ment. Under the previous legal framework, all private genera-
tion (including renewable), whether for captive consumption,
third-party sale or for supply to the state grid, required prior
sanction from the SEB/state government. In contrast, under
the EA, 2003, generation (Section 7) was de-licensed. As regards
third-party sale, open access on intervening transmission lines
was provided (Section 35) to the extent of the surplus capacity
available. Thus, anyone can now set up a power plant based on

32 Renewable Energy in India

RE sources and supply electricity either to a distribution licensee
or to a captive industrial unit.
While there was a provision earlier in the now superseded
Electricity (Supply) Act, 1948 (Schedule 6), specifying that the
electricity price be based on the cost plus the minimum return
on equity, this provision was omitted in the new Act. The states’
regulators now have to be guided by the principles and meth-
odologies specified by the Central Commission for the deter-
mination of tariffs applicable to generation and transmission
companies (Section 61 [a]). They have to give due consideration
to the competitive environment, the potential for efficiency
improvements and, from time to time, the overall guidance
that comes from the National Plan and Tariff Policy (Section 3).
Further, all factors that encourage and promote competition,
efficiency and better use of resources, good performance and
optimal investments (Section 61 [c]) need consideration in
such exercise.
Had the new Act stopped here, it would have meant a doom
for the RE technologies, many of which have been still evolv-
ing. Their commercial costs have been generally high and, on
the basis of merit order dispatch, probably none would qualify.
A few that are on the verge of commercial viability need sup-
port to accelerate their progress towards this goal. Fortunately,
the Act stated that the tariff regulation will incorporate ‘…the
promotion of co-generation, and generation from renewable
sources of energy’ (Section 61 [h]). It has thus been clear that
the tariff regulation of the commissions has had to be guided
by the promotion of co-generation and RE technologies in the
last few years.
While the Act had more focused reference to the promotion
of RE, it did not specify any prior quantitative targets. It left
this to the SERCs. They have thus promoted electricity genera-
tion through renewable sources, by providing suitable measures
for their connectivity with the grid and by specifying—if they
consider appropriate—a certain percentage of the total supply
of electricity to a distribution licensee’s area to come from these

Policies Supporting Renewable 33

sources (Section 86 [1] [e]). The Act has also had an enabling
provision—through government policy—for the establishment
of stand-alone systems based on RE for rural areas (Section 4).
Although the EA has focused on the improvement of effi-
ciency in supply, it has not directly addressed the demand side
in the energy supply and demand equation, except promoting
co-generation. This lacuna has, in fact, been taken care of by the
Energy Conservation Act, 2001. On the whole, it is safe to say
that the Act has had all the necessary ingredients for facilitating
the propagation of RE in the country.

Tariff Setting
Even as the Act listed the guiding factors for the tariff-setting
exercise to be taken up by the ERCs, there has been an extensive
debate over the suitability of applying various cost concepts in
arriving at bulk tariffs for the grid supply. Typically, the debates
have reflected the difference of opinion between practitioners
and economists.
Complicating the issue further—which is particularly rel-
evant to RE pricing—has been the notion of fairness. On the
one hand, these sources are not given due credit for their non-
polluting aspects. On the other hand, as the commercial cost
of producing electricity from these sources has been, on aver-
age, higher than that for conventionally produced electricity,
a question that has often come up is what impact these would
have on retail tariffs if the costs are allowed to pass through to
that level. And, if not, what would their impact be on the state
governments’ finances, as the subsidy would ultimately have
to be borne by them.
But the complication does not end here. As mentioned ear-
lier, these technologies have been still commercially evolving.
With economies of scale, their supply costs have been falling;
though not sufficiently to make them competitive commer-
cially with conventional technologies. Until they achieve
competitiveness with respect to these technologies, someone

34 Renewable Energy in India

has to pick up the bill. The question is: who should this be?
Clearly, RE technologies have had to be given a tariff support
and a regulatory oversight within the framework of the Act over
various aspects of costing, irrespective of whichever concept of
cost is put to use.
Further, one still has had to decide on the appropriate princi-
ple for fixing RE tariffs. The two most commercially applied cost
concepts have been the variants of the ‘rate of return’ method.
One of them involves costing of every aspect of the operation
and topping it up with a predetermined rate of return on equity;
the second, known as performance-based pricing,10 requires the
application of an annual escalation rate, which, though linked
to the retail price index (RPI), is, unlike the former, adjusted by
an efficiency factor negotiated between the regulator and the
generator. These two tariff methodologies have been broadly
labelled as the cost-plus approach.
The two most widely discussed cost concepts based on the
application of economic principle have been avoided costs and
marginal costing. The latter has two variants, the SRMC and
the LRMC, as discussed earlier. The avoided cost approach as
applied to RE pricing was first mandated in the USA under the
PURPA, in the late 1970s, when utilities in that country were
required to purchase power from the qualifying facilities at
their avoided costs. However, by the mid-1980s and the early
1990s, oil prices stabilized, natural gas prices declined and the
excess capacity in most regions of the USA allowed utilities to
buy capacity and energy at much lower prices.
Subsequently, the utilities’ actual avoided costs dropped to
much lower levels than what they were when the first con-
tracts were signed. After the FERC refused to allow the states
to set rates above the avoided costs prevailing at that time
(early 1990s),11 this methodology was virtually abandoned
for the purpose of pricing electricity from renewable sources.
More recently, the support to RE technologies in that country
was provided through the renewable portfolio standard (RPS)
approach.12

Policies Supporting Renewable 35

 Returning to the Indian context, there has been an added
issue to using these costs as the basis for pricing electricity
from renewable sources. It relates to identifying a generation
source that is being displaced as a result of the induction of
RE supply to the grid. This requires an elaborate network
analysis of the varying system conditions before zeroing in
on the source that is being displaced by a particular RE unit.
Although this may be fine as an academic exercise, its practi-
cal application is limited. It would require the installation
of a sophisticated information network for monitoring the
generation source being replaced.
This brings us to marginal costing. A question that may be
asked is how relevant is its application for fixing electricity tar-
iffs in India, especially when this is produced from RE sources?
As said earlier, the issue here stems from the fact that most RE
units have proportionately very low variables but high capital
costs. It means that entrepreneurs cannot recover their initial
investments if they are paid a tariff that is equal to their SRMCs.
In fact, even with avoided costs that are much higher than the
SRMC, these units would find it difficult to recover their invest-
ments. Tariffs based on both the avoided costs and the SRMC
would discourage private investments in these technologies at
the present stage.
For that reason, it is often argued that these units must be
paid tariffs based on their LRMC, which would take care of
both, the investments and the variable costs, and leave the
developers with a reasonable rate of return. Were RE technolo-
gies mature, this would indeed be true. But, as things stand,
these technologies are still commercially evolving. Capital
costs, measured in terms of per unit of capacity, are falling
with the advances in generating technologies of these units.
It means that even tariffs based on LRMC would not be able
to recover all costs and some additional fixed charges would
be necessary to guarantee that developers recover their future
investments. Besides, the estimation of LRMC is meaningless if
it is carried out independently of long-term planning exercises

36 Renewable Energy in India

for future capacity additions and power procurement plans of
power utilities.
Since most RE technology developers are small-scale IPPs, it
is difficult to visualize them undertaking such an exercise. For
that reason, the full cost methodology has a practical value for
regulators as it enables them to periodically review all elements
of unit costs of electricity produced from renewable sources,
factor in the most recent advances in these technologies and
to separately fix tariffs for generating units of each techno-
logical vintage. As long as this energy source does not form a
significant proportion of the total electricity generation in the
country, its impact on retail rates, if any, would only be mini-
mal. In fact, it is more important that these concepts are first
implemented in conventional power plants, which form the
major portion of the power supply in the country.
Until recently, the transmission pricing was not the concern
of electricity-generating units based on RE sources worldwide.
Having sold power to vertically integrated utilities, they did not
have to separately negotiate transmission and distribution rates
with them. In contrast, in India, SEBs have had their own poli-
cies with regard to the charges on transmission access given to
these units for supply to third parties or to the principal manu-
facturing units which set up these as captive units.

Transmission Pricing
With the stipulation of unbundling and non-discriminatory
open access in the Act, the relationship between utilities and
renewable units described above changed, at least on paper.
These units have, in the new structure, been dealing with not
the former vertically integrated utilities but with unbundled
identities such as transmission utilities or licensees, or distribu-
tion entities. In this background, transmission facilities would
have to be built upon the expectation that such investment
would eventually be recovered through appropriate rate-making
procedures. In this respect, CERC has provided guidance, which

Policies Supporting Renewable 37

hopefully would act as an incentive for investments in trans-
mission capacity when needed and, at the same time, utilize
facilities that are already on the ground in the most efficient
manner. As RE-based power units are often located remotely
from electricity demand centres, it matters significantly how
transmission access is charged to them.13
A fact that power flows not from point to point, but in loops
and parallel paths, is a major hurdle in pricing transmission.
Congestion in wires further adds to this complication. As far as
renewable resources-based power systems are concerned, these
aspects can affect their viability in an unpredictable manner.
For this reason, pricing schemes based on the ‘contract path’
method, which are not scientific (as power flows based on the
laws of physics and not on path between contracting parties)
and are generally considered to be inappropriate, whereas
alternative flow-based pricing methods, such as megawatt-mile
rates, are complex and difficult to calculate.
Although the latter is based on parallel power modelling
techniques, it gives no credit for counterflows and is admin-
istratively far more complicated than other methods for tariff
calculations. In this method, the rate for each transaction has
to be calculated for each change in the transaction as well as
for each additional transaction. On the other hand, the prob-
lem with methods such as marginal cost pricing is that these
costs of transmission are only a fraction of the fixed capital
charge. Hence, in practice, pricing schemes for transmission
have tended to set these rates well above these costs, with an
ultimate aim of recovering fixed charges.
Unfortunately, that is where all the problems lie. The meth-
odology used to recover these fixed charges can dramatically
change the allocation of these costs among different types of
generation. For example, rates that have high firm charges as
components of transmission tariffs can affect the competitive-
ness of renewable resource-based power units, depending on
the degree of their infirmity. In general, transmission charges
have to be related to one or more of the following, namely the

38 Renewable Energy in India

quantum of electricity that is being transmitted; the distance
to which it is being transmitted and the transmission capacity
reservation.
How transmission pricing schemes affect the viability of
renewable technology power units ultimately depends on how
the various characteristics of these technologies are related to
the above factors. Yet, given the thrust of the the government’s
policies towards renewable power supply to the grid, this is
something that every regulatory commission will have to focus
on. The latest transmission pricing framework14 (CERC [Sharing
of Inter-State Transmission Charges and Losses] Regulations,
2020) is relevant in this context. It does factor in the features
of the transmission capacity reservation or access, usage and
distance/direction. However, a major share, about 80 percent-
age of the transmission charge, is likely to be based on transmis-
sion access and balance on usage. The logic is that investment
in transmission has to be recovered as a fixed charge in MW
terms linked to the transmission capacity reserved or access
granted on a long-term basis. Any framework based purely on
usage would lead to under-recovery of investment. However, for
renewable generators, the transmission pricing framework based
on transmission access/use becomes burdensome. Their capacity
utilization is quite low—on average in the range of 20–30 per
cent and, as such, they would end up paying for 100 per cent of
the capacity despite using the transmission system only mar-
ginally. The question is: whether there is any way out of this
dilemma? The international experience offers possible options
to address this predicament. In several countries, the principle
as adopted by CERC is followed but with one exception that
transmission charges and losses are entirely borne by the buyers
(and not the sellers or generators) on the ground that, at the
end of the day, transmission charges and losses in any case get
passed on implicitly or explicitly to the buyers. For instance,
in California, transmission revenues are collected through the
California ISO’s transmission access charge (TAC), which is
charged to demand (to internal load and to exports).15 Supply
resources do not pay the TAC, so that resources can base their

Policies Supporting Renewable 39

bids for scheduling and dispatch on marginal costs without
adders such as the TAC. CERC has taken a step forward, though
half-hearted, in this direction. The right course of action is to
adopt the model—of the buyer bearing fully the transmission
charges and losses—at the earliest. This will not only encourage
investment in the renewable segment but will also bring the
desired simplicity and clarity on transmission pricing.

Chapter Conclusion
RE technologies are inherently different from conventional
resources on account of their variability, substantially lower
capacity utilization factor and high capital cost but low short-
run cost. It’s obvious, therefore, that nations across the globe
have carved out special dispensations for renewable with due
regard to their importance for environmental protection. These
dispensations, especially on pricing and special network access
rights, have laid the foundation for their mainstreaming with
the market operation in general. While the focus of this chapter
was on large-scale grid-connected renewable projects, a separate
discussion is considered necessary on small-scale distributed
energy resources, given the differences in their dynamics.
Accordingly, the next chapter discusses policies supporting
various business models and pricing strategy for distributed
energy systems.

Notes
1. Ackermann, ‘Distributed Power Generation in a De-regulated
Market Environment’, 55.
2. European Wind Energy Association and Greenpeace, ‘Wind Force
12’, 14.
3. Michael J. Zucchet, ‘Renewable Resource Electricity in the Changing
Regulatory Environment’, Renewable Energy Annual (1995): 25.
Available at https://inis.iaea.org/collection/NCLCollectionStore/_
Public/27/045/27045864.pdf (accessed on 8 February 2021).
4. Ibid., 26.

40 Renewable Energy in India

 5. Ajay Mathur, ‘Regulating Technological Change in the Electricity
Sector: Thinking Beyond Today’, ed., Leena Srivastava and S. K.
Sarkar (New Delhi: TERI, 233–237), 1999.
6. Ackermann, ‘Distributed Power Generation in a De-regulated
Market Environment’, 55.
7. Ibid.
8. MERC Order (16 August 2002) for Non-Fossil Fuel-based
Co-generation Projects, Sec. 3.2 ‘Approach’.
9. Pramod Deo, ‘Electricity Act 2003—Its Implications on Promotion
of Renewable Energy and Efficiency’ (Paper Presented at
International Congress on Renewable Energy, ICORE, January
2004).
10. Ahluwalia and Bhatiani, ‘Tariff Setting in the Electric Power
Sector’, 67–104.
11. Zucchet, ‘Renewable Resource Electricity in the Changing
Regulatory Environment’, 27.
12. European Wind Energy Association and Greenpeace, ‘Wind Force
12’, 16.
13. Larry Prete, ‘Transmission Pricing Issues for Electricity Generation
from Renewable Sources’, Energy Information Administration/
Renewable Energy 1998: Issues and Trends (1998), 47. Available at
https://corpora.tika.apache.org/base/docs/govdocs1/601/601899.
pdf (accessed on 8 February 2021).
14. http://cercind.gov.in/2020/regulation/158-Reg.pdf (accessed on
8 February 2021).
15. http://www.caiso.com/Documents/DraftRegionalFramework
Proposal-TransmissionAccessChargeOptions.pdf (accessed on
8 February 2021).

Policies Supporting Renewable 41

 4

Distributed Energy
Resources
Business Models and
Market Dynamics

Introduction
Small-scale distributed renewable energy (DRE) systems are
placed differently compared to large-scale renewable projects.
The former involves a direct interface with end consumers
and in remote rural areas where the grid may or may not have
reached. Such ventures, intertwined as they are with socio-
economic milieu of the population and being dependent on
locally available renewable resources, need different treatment
in terms of policy and regulatory support. This chapter traces
initiatives in this regard in India, compares them against poli-
cies in other parts of the world, with focus on business models
and pricing of electricity from such distributed energy resource-
based projects.
 Distributed energy resources are generally referred to as
resources that can provide services locally at the consumer
end, at the distribution level and could be off-grid or grid-
connected. In the international literature, resources such as
demand response, storage systems, electric vehicles and solar
photovoltaic (PV) cells are included in the discussion on distrib-
uted energy resources. There are a number of business models
around this concept and across different parts of the world, for
example, market-based and utility-supported demand response,
behind-the-meter energy storage, network service-based energy
storage, solar plus storage model, to name a few.1 However,
given the central theme of the book, we largely cover policy
interventions and business models on off-grid solutions, fol-
lowed by mini- and micro-grid and grid-connected rooftop
systems (RTS).
Distributed energy sources, decentralized generation and
stand-alone systems are often used interchangeably. The EA,
2003, has provisions for the framing of policies by the cen-
tral government on stand-alone systems for rural areas and
non-conventional energy systems (Section 4 of the EA, 2003).
Stand-alone systems have been defined as systems involving the
generation and distribution of electricity without connectivity
to the grid. Similarly, there are provisions for the national-level
policy on electrification and local distribution (Section 5).
Emphasis has been laid on the use of local institutions such
as panchayat institutions, non-governmental organizations,
franchisees, user associations, cooperative societies for such
decentralized generation and distribution. In fact, facilitative
frameworks like license exemptions have also been provided for
such ventures (Section 13, 8th Proviso to Section 14). For rural
areas notified by the state government, distributed generation
involving generation and distribution can be undertaken with-
out the requirement of any license. This is meant to facilitate
the ease of business in these areas. The Revised Tariff Policy
(2016) makes special mention of micro-grids for rural areas
where grid connectivity has not reached. It seeks to address the
concerns of investors in the event of grid reaching such areas

Distributed Energy Resources 43

by mandating the purchase of such assets at a depreciated cost
by the distribution licensees. Where do we stand in terms of the
implementation of these visions? What are the international
business models? How similar or different is India on the roll
out of measures for distributed energy resources? We seek to
explore these questions in this chapter.

Off-grid/Small Home Systems

Over the past several years, there have been a number of ini-
tiatives in India and elsewhere, especially Africa, to supply
electricity affordably to far-flung rural communities using RE
technologies. The initial successes with these initiatives in East
Africa offer hope for accessing clean and qualitatively superior
energy to the people living in the sparsely populated rural areas
of the developing world, at least for their lighting needs. One
such business that has found significant success in East Africa
is called pay-as-you-go (PAYG).2 The business model behind
this approach was first developed in Kenya and subsequently
spread to other countries in the region, namely Tanzania,
Rwanda and Uganda.
Affordability is the central feature of distributed RE-based
PAYG business models. It is structured to eventually offer own-
ership of RE generation units to remotely located rural consum-
ers through small and flexible repayments over a stipulated
period, which is usually one to three years. The success of the
model in Africa has been predicated on the fact that consum-
ers do not have access to the state-wide large-scale electricity
distribution networks for their lighting use since these areas
are generally bypassed by bulk electricity distribution grids.
Apart from lighting, rural consumers also use the electricity
thus generated for charging their mobile phones.
Enterprises in this business generally charge fixed down
payments to consumers for the installation of solar panels
and collect regular payments from them for the electricity
consumed. Functionally, the model offers two options, either

44 Renewable Energy in India

rent to own or energy service for a unit charge. The former is,
however, more popular with consumers,3 as it allows them an
ownership of the solar unit without hurting their pockets. The
collection is usually in monthly instalments over a period of
one to three years. Continuing post-ownership maintenance
and service by enterprises helps to cultivate consumer confi-
dence in the system.
One very important aspect for the success of this model in
East Africa has been the wider acceptance of the mobile pay-
ment via the M-Pesa platform. In fact, the aggressive joint
marketing of solar panels with mobile network partners4 with
the other features discussed above has led to the success of the
PAYG business model in Kenya and the neighbouring coun-
tries. Thus, Kenya has now emerged as a matured market for
distributed solar PV business.
While lack of cheaper access to grid electricity in East Africa
has made off-grid solar options attractive to consumers in rural
areas, there is no such issue in India. The grid connectivity is
far cheaper than in Africa. Besides, since 2018, grid connectiv-
ity in India has been provided to all villages. Thus, apparently,
there seems to be little scope for marketing distributed energy
solar systems to rural households.
However, despite the 100 per cent electrification of the vil-
lages in India, it still remains a home to a large un-electrified
population—as many as 100 million in fact.5 Even those rural
households connected to the grid, the supply of electricity to
them has been anaemic with frequent blackouts. This situation
has created a commercial opportunity for private enterprises to
profitably distribute PV solar kits to rural households for gen-
erating electricity for their needs. Thus, the PAYG opportunity
seems to have come alive in India.
One of the leading operators in India that has set the pace in
this market is a privately held start-up called Simpa Networks.
Despite several constraints to replicating the Kenyan model in
India, this enterprise has made headway. The Simpa’s systems,

Distributed Energy Resources 45

in fact, act as a backup to the main grid, and most of its custom-
ers are those who can purchase and use inverters.
Further, to overcome the constraints imposed on swift bill
payments, by underdeveloped rural telephony markets in this
country, Simpa Systems has overcome this hurdle by selling
prepaid recharge packages based on the intended use of electric-
ity that is provided by household solar home systems. When
a customer makes the payment, a unique code is generated on
his/her mobile phone. When this code is fed in the meter, it
activates the solar system for a stipulated use for a period over
which the payment lasts. To prevent the theft of electricity by
any customer, Simpa has provided tamper-proof smart panels.
Further, in the case of Simpa too, like the Kenyan enterprises,
ownership is transferred after 28 months.
Moreover, it offers additional advantages to consumers, like
allowing them to stop payment if the unit is surplus to their
needs or if the unit breaks, or when it is not adequately main-
tained. This builds trust in the enterprise as a reliable partner.
To overcome the absence of a mobile money payment system
in rural markets in India, Simpa hires authorized agents to sell
prepaid credit cards to customers for cash.
Thus, the comparison of the African approach to the Indian
one reveals that both have many similarities. For example, both
are strongly customer-centric; both have a convenient mode of
periodic payments for services rendered; both transfer owner-
ship of solar PV electricity generators to household consumers
at the end of a stipulated period, after receiving a stream of
regular payments over that period; in both cases, off-grid solar
farms operate without government subsidies and, in India,
more than half of them do not offer any financing arrange-
ment to consumers.
Further, in both cases, there is a strong focus on continu-
ing regular maintenance even after the transfer of ownership
and on providing prompt repair services. This, in fact, is
what builds consumer confidence in the agencies supplying

46 Renewable Energy in India

distributed solar PV systems. Also, enterprises in both cases
have evolved default-free payment collection systems to stay
afloat.
However, the main differentiating aspect between the two
business models has been the collection system. In East Africa,
co-marketing with mobile payment companies has been a
major factor in de-risking the business. In contrast, the absence
of mobile money platforms in India has meant higher invest-
ments in the collection and distribution workforce by the
Indian firms catering to these markets.
While the business approach in both countries is largely
focused on catering to the electricity demands of individual
middle-class households, it leaves out a large chunk of the
population that cannot afford the ownership of solar systems
despite the liberal payment terms.
For them, the micro-grids that distribute electricity across a
larger number of consumers offer an affordable solution.

Micro-grid
Apart from the initiatives to promote bulk-size solar plants and
wind farms of similar capacities to states’/national grids, the
Indian government has also been encouraging installations
of distributed energy systems on a smaller scale. Broadly, the
distributed segment of the RE generation is made up of two
sub-segments: one consisting of scattered rural hamlets and
the other of industrial units with expansive roofs from the
consumer side.
The rooftop installations offer the scope to harness solar
energy commercially, both for captive consumption and for the
supply to power grids for mass consumption. This sub-segment
is discussed later in the chapter. First, we focus on stand-alone
micro-grids as a means of commercially delivering electricity
to small hamlets for their commercial (small shops) and resi-
dential needs.

Distributed Energy Resources 47

 Thus far, the application of micro-grids has been at a pilot
stage. Technically, DC micro-grids have been the preferred
mode for distributing electricity to scattered hamlets which
are situated at a distance from the main grids. Their choice has
been dictated by the inherent advantages of the DC grid over
the AC micro-grid.6
Although AC micro-grids have an inherent advantage over
DC grids of being able to utilize prevalent grid technologies,
protections and standards, the stability requirements of reactive
power in their case override these advantages. DC micro-grids,
on the other hand, provide an advantage of reliable, efficient
and sustainable smart grids at a comparatively lower cost and
greater effectiveness. Besides, DC micro-grids have better com-
patibility with DC storage and are more flexible and accom-
modating of load.7
While this may be the technical aspect of the energy deliv-
ery network, in recent years, solar PV systems have gained
precedence over all other new and RE technologies in India;
primarily for their operational simplicity, ease of maintenance
as well as a fact that India is spatially well endowed with solar
radiation across its land mass.
Micro-grids have been principally designed to cater to the
lighting and mobile-charging needs of rural households in
India. There are at present four agencies engaged in promot-
ing micro-grids, all of them operating mostly in the Indian
state of Uttar Pradesh (UP). The Energy and Resources Institute
(TERI) is an NGO; Uttar Pradesh New and Renewable Energy
Development Agency (UPNEDA) is a state government-
promoted agency; and there are two private players, Mera Gao
Power (MGP) and Minda, an automobile company. Each of
them has its own business model and organizational structure
to match its operational requirements.
UPNEDA, a government agency, operates as a single mono-
lith, employing locals to perform various operational functions.
It is entirely dependent on the government sources for its funds,

48 Renewable Energy in India

either in the form of subsidy from the MNRE or the develop-
ment funds allotted to it by the state government.
TERI, on the other hand, operating on an NGO model, trains
and develops local entrepreneurs whom it calls energy entrepre-
neurs (EE). Some among these entrepreneurs have been known
to have funded their ventures entirely with their own funds.
However, more generally, they fund their ventures partly with
their own funds and balance them with subsidy from TERI.
There are also some among them who have availed bank loans
for funding their ventures.
The two private agencies in the field, Minda and MGP, oper-
ate as micro-DISCOMs (distribution companies) and run their
ventures as business propositions. Minda, however, after initial
handholding, hands over its micro-grids to rural entrepreneurs
after training them to run the micro-grid as a business.
Generally, the micro-grids set up by these four categories
have between 10 and 100 households attached to them. But
TERI, an NGO, is known to have set up a grid with as many as
1,100 households connected to it. MGP has a prepaid billing
system for supplying electricity to its consumers; Minda has
devolved the revenue collection responsibility to rural solar
entrepreneurs. In case of UPNEDA, this function is internalized,
like the most government-owned DISCOMs, whereas in the case
of TERI, EE who effectively are the owners of their business do
so by themselves.
Proper maintenance, operations and billing payment systems
are key to consumer satisfaction and enrolment. The overall bill
collection record of UPNEDA has been poor in comparison to
the other three players in the field. Primarily, this is due to its
poor operational performance in comparison to the other three,
which have been operating their micro-grids quite efficiently.
UPNEDA’s poor performance has also been the cause of its
inability to retain consumers.
Overall, the impact of micro-grids membership on the
consumers’ purse has been positive. They were earlier using

Distributed Energy Resources 49

kerosene for their lighting requirements. After connecting with
the micro-grids, they have been able to cut down their average
monthly expenditure on lighting by as much as 68.4 per cent.8

Grid-connected Rooftop Solar Photovoltaic Systems

Worldwide, the grid-connected PV rooftop solar power genera-
tion has been greatly successful in many countries. This suc-
cess has been aided by the supportive regulatory framework
provided by the governments of these countries. As assessed by
the National Institute of Solar Energy, India’s power potential
from rooftop solar PV source has been estimated at 42.8 GW. To
tap this potential, there has been a drive in India too towards
encouraging investments in rooftop solar PV panels. However,
despite the increasing emphasis on promoting power genera-
tion from this source, the progress has been slow here.
Table 4.1 provides the cumulative growth of rooftop solar
PV installations since 2015.
Although the annual growth in rooftop solar PV power gen-
eration capacity in India, as observed from Table 4.1, seems to
have been steep, but when seen against the national potential,
it is evident that it would take several decades to achieve this
potential.
At the beginning of the present decade, when interest in solar
rooftop PV segment began to grow, it was promoted principally
as an opportunity that commercial and industrial units could
exploit for their captive power consumption. Accordingly, the

The Year-wise Cumulative Solar Power Rooftop

Table 4.1 PV Installations (2015 to 2018 February)9

31 March 31 March 31 March 2 February

2015 2016 2017 2018

41 MW 241 MW 656 MW 953 MW

Source: Standing Committee on Energy, Sixteenth Lok Sabha.

50 Renewable Energy in India

Forum of Regulators (FOR) made up of electricity regulators
from the Indian states and the union territories (UTs) evolved a
Model Net Metering Regulation (NEM 2013)10 in 2013 in order
to promote this form of generation to electricity consumers.
However, this regulation soon ran out of its usefulness. Based
on the international experience, as it was recognized that the
available space on the rooftops offered the opportunity not
only for harnessing solar radiations for generating electricity
for captive consumption by the units owning these premises
but also for power supply to a wider market consisting of the
states’ power grids. This broadened scope called for having a
fresh look at the NEM 2013 by the FOR.
In 2014, when the Government of India (GOI) set an ambi-
tious target of 40 GW for the grid-connected rooftop photo-
voltaic (GRPV) installations in the country to be achieved by
the year 2022, it became necessary for the MNRE to reassess
the adequacy of the prevailing regulation. Accordingly, it
undertook a review of the existing Metering Regulations and
Accounting Framework for GRPV installations with the assis-
tance from the World Bank and the State Bank of India.
The report found several lacunae; some related to technical
aspects, some to commercial aspects and still others of a miscel-
laneous nature. These are summarized here.11
Gaps related to technical aspects included restrictions in
terms of individual capacity based on sanctioned load and
maximum GRPV capacity; different limits on GRPV capacities
connected to distribution transformer (DT); limited provisions
on real-time monitoring of solar generation and participation
in system operations in the case of large penetration of the
GRPV system.
Gaps related to commercial aspects included limited busi-
ness model options available to consumers and developers, and
limited scope for DISCOMs in the present scenario; absence
of additional clauses related to change in ownership and flex-
ibility in existing power purchase agreement (PPA)/connection

Distributed Energy Resources 51

agreement; no remuneration for excess generation in present
energy accounting and commercial settlement principles.
Gaps related to other aspects include general definition,
metering and communications. The definition of premises
and solar rooftop PV systems needed to be reviewed to provide
greater visibility on solar generation to DISCOMs and systems
operations; metering and communication requirements needed
to be reviewed to provide greater visibility on solar generation
to DISCOMs and system operators.
These findings in the above-mentioned report provided
the basis for upgrading the NEM 2013 to match the changed
emphasis on the promotion of GRPV.
In the previous Model Regulations (NEM 2013), consider-
ing that the one-way flow of power was a limiting factor on
distribution systems with a capacity of 33 KV and below, an
aggregate capacity that could be connected to such systems was
limited to 15 per cent of the peak capacity of the DTs. A further
limit had been added to prevent the load on the system from
exceeding 1 MW.
Based on this, the SERCs passed their own regulations for
their jurisdictions. They restricted the GRPV installations of
individual customers, specifying varying percentages (ranging
from 15% to 75% of the DT loading) of their sanctioned or
connected to loads. Some, in fact, went as far as stipulating
capacities even higher than 50 per cent of the DT load.
While this was the case earlier, it was found based on inter-
national experience in 48 countries that the growth of the
GRPV segment could be given fillip by delinking the capacity
restrictions on the installations from their respective DT capaci-
ties. What this meant in the Indian context was that there was
scope for installations of systems of higher GRPV capacities,
after considering the operational requirements of distribution
systems and incorporating adequate measures warranted by
these requirements. Accordingly, the New Model Regulation
provided for the following.

52 Renewable Energy in India

New Model Regulations
The New Model Regulation12 stipulates that when the sanc-
tioned solar generation capacity is not more than the sanctioned
load or contract demand, the aggregate PV power plant capac-
ity can be set up as high as 100 per cent of the DT capacity,
even under the worst-case scenario, that is, 0 per cent running
load, considering feeder’s thermal capacity as the deciding
factor.
However, when the RE-based generation capacity is not
controlled on the basis of the sanctioned load of the respective
DT, the aggregate or single PV power plant capacity that can
be connected to the network, it has to be decided case by case
based on the loading of the respective DT, after taking into
account the over voltage at the point of common coupling as
a deciding factor.
Thus, the upper limit on connecting DRE system to a feeder
or a DT was recommended to be 100 per cent of the respective
feeder or DT.
Further, the Model Regulation has considered two types of
systems and stipulated separate limits on the capacities that can
be connected in each case. In the first case, where the capacity
is linked to the sanctioned load, ‘it shall not exceed the sanc-
tioned load/contract demand of a consumer’. Under this, the
minimum 1 KW and 10 KW-size systems can be set up under
net metering and billing systems.
In the second case, the maximum capacity of the inde-
pendently DRE systems at any particular location that can
be installed is linked to the capacity and configuration of the
electricity system and the power flows that the DRE system
may cause. Here, the maximum capacity that can be installed
is stipulated as 50 KW.
Further, taking into account the online monitoring, inspec-
tion and billing requirements, the New Model Regulation
has provided for the installation of advanced metering

Distributed Energy Resources 53

infrastructure with RS-485 or higher communication port for
all meters in the light of the planned future digitalization of
the grid.
The criteria for participating in rooftop solar business have
also been expanded with a view to encouraging greater partici-
pation, thus opening the opportunities for DISCOMs and other
entities. Changes have also been made in PPA and connection
agreements incorporating greater flexibility than before.
Previously, owners of captive rooftop solar PV systems were
not paid for any excess generation over and above their own
requirements. Under the new framework, there is a provision
for the settlement of excess energy procured by distribution
licensees at their average power purchase cost (APPC) of the
energy procured from all sources.
Earlier, some states were liberally allowing installations
on open and elevated land under the rooftop category. This
conflicted with NEM 2013’s definition of rooftop. In the new
model, this issue has been resolved by linking DRE capacity
to either sanctioned load or systems’ constraints, in sync with
consumer demand and within the safe limits of grid operations.
However, the definition of premises as provided in for in the
EA, 2003, has been retained.
As for compliance towards renewable purchase obligation
(RPO), the committee that presided over the drafting of the New
Model Regulation has recommended to suitably incorporate
the provision for crediting gross generation from rooftop solar
projects to DISCOMs towards meeting their solar RPO targets,
so as to ensure uniform application across the country.13
Further, the recommendation is that the quantum of elec-
tricity generated by captive units harbouring solar PV systems
over their rooftops, which are under net metering arrangement
should, if such consumers are not the obligated entities, qualify
towards meeting the solar RPO of the distribution licensees. On
the other hand, in the case of obligated entities, the quantum
of electricity consumed by these entities from their rooftop

54 Renewable Energy in India

solar PV systems, under the net metering arrangement, would
qualify towards their own RPO compliance.
However, in the case of obligated entities, these units would
have to install, at their own cost, a solar generation meter con-
forming to the applicable CEA Regulations, at an appropriate
location, to measure the energy generated from the solar PV
systems at their rooftops, if they want such energy generation
to be counted towards meeting their RPO commitments.
As far as the costs of installing meters at non-obligated roof-
top generators sites are concerned, these costs are to be borne
by the distribution licensees if they desire that such energy
generation should be counted towards their RPO compliance.
A solar generation meter at the location, in such cases, must
conform to the applicable CEA Regulations for measuring the
energy generation from the rooftop PV system. Further, the
Model Regulation requires that the distribution licensees main-
tain solar generation meters at their own costs.
Several SERCs and UTs have since adopted the model in their
jurisdiction.

New and Emerging Concept of

Peer-to-peer Trading
Peer-to-peer (P2P) trading is an emerging business model in
the landscape of distributed energy resources. It enables trade
of electricity between prosumers (i.e., consumers who are also
producers of electricity, e.g., consumers owning rooftop solar
systems) and consumers. For instance, two or more neighbours
can agree on an arrangement for the sale and purchase of elec-
tricity at a mutually agreed price without any intermediary.
A consumer or a group of consumers owning rooftop solar
panels can sell surplus power to another group of consumers
and save costs. It could be a win-win situation for both. For
RTS owner, additional revenue could reduce the payback period
of his/her investment and could result in lower electricity cost
for the buying consumer. The low cost is on account of the

Distributed Energy Resources 55

avoidance of cost towards the transmission and distribution
of electricity and associated losses, which are generally associ-
ated with the traditional system of electricity generated from a
generating station, which is then transmitted and distributed
before reaching the end consumer.
This business model has the potential of empowering con-
sumers and encouraging investment in the renewable seg-
ment. It provides an interconnected online marketplace for
consumers. A number of pilot schemes have been in operation
in countries such as the USA, the UK, Germany, Bangladesh,
Colombia and the Netherlands.14
Interestingly, in India, UP has in the recent past (December
2019) initiated a pilot on P2P transaction of RE. UP ERC
approved a proposal from the distribution licensee, namely
Uttar Pradesh Power Corporation Limited and UPNEDA to
implement a solar-based P2P trading pilot using block chain
technology. Initially, government buildings/consumers shall
form the peers for the pilot project.15
Finally, while UP’s initiative is encouraging, the fact remains
that, in general, DISCOMs are reluctant to let go their high-
end consumers for solar rooftop installations. The captive
consumption of electricity generated from their rooftop solar
PV-generating units displaces the equivalent energy that they
would have otherwise sourced from the DISCOMs. This would
shrink their revenues and, in turn, dent their ability to cross-
subsidize low-end consumers.
However, this is a larger issue that requires implementing
the stipulations in the EA, 2003, which requires utilities to
phase out cross-subsidies over a specific period of time. This
stipulation had been incorporated in the Act to stop political
interference in the commercial operations of power utilities
with a view to restoring their financial health. Reportedly, the
DISCOMs have been reeling under huge debts from unpaid
dues of power-generating companies, which has been affecting
the overall health of this sector. Hence, it is high time that, as

56 Renewable Energy in India

required by the EA, 2003, the DISCOMs were spared of having
to cross-subsidize low-end consumers. This could be a better
panacea than curbing the growth of rooftop solar generation
in order to safeguard the DISCOMs’ financial health.

Chapter Conclusion
Official claims notwithstanding, a substantial portion of
households in India still do not have access to energy. Taking
the grid to remote areas is not only cost prohibitive but also
non-sustainable in terms of quantity as well quality of supply.
The DISCOMs whose finances are already in the red do not
have inherent interest in supplying electricity to such areas
because non-remunerative tariff for the supply of electricity
in these areas further strains their finances. It is, therefore,
imperative that business models supporting distributed
energy systems and seeking to harness locally available renew-
able resources are encouraged. The financial health of the
DISCOMs and the distorted tariff structure also come in the
way of supporting distributed energy sources like rooftop solar
PV projects. The subsiding consumers, mostly in urban areas,
opt for such systems and the DISCOMs resent because a reduc-
tion of demand from such consumers upon their installation
of rooftop solar PV systems leads to irreparable revenue loss
for them. The solution therefore lies in larger tariff reforms,
by way of tariff rationalization, so as to address the constraints
of distributed energy systems. Having dealt with policy initia-
tives for the promotion of large-scale renewable in the previ-
ous chapter and small-scale distributed energy systems in this
chapter, the next chapter and subsequent chapters present a
detailed analysis of core policy and regulatory interventions,
namely RE pricing, RPO and market mechanisms like renew-
able energy certificate (REC) and the overall market design
for renewable. Discussions in these chapters are central to the
theme of this book besides the findings and recommendations
in the last chapter.

Distributed Energy Resources 57

Notes
1. http://energy.mit.edu/wp-content/uploads/2016/12/Utility-of-
the-Future-Full-Report.pdf (accessed on 16 November 2020).
2. Prabhakar Yadav, Anthony P. Heynen and Debajit Palit, ‘Pay-
As-You-Go Financing: A Model for Viable and Widespread
Deployment of Solar Home Systems in Rural India’ (2019).
Available at https://www.sciencedirect.com/science/article/pii/
S0973082618309839?via%3Dihub (accessed on 9 February 2021).
3. Ibid., 142.
4. Ibid., 140.
5. Ibid., 146.
6. Debajit Palit and Sangeeta Malhotra, ‘Energizing Rural India Using
Micro Grids: The Case of Solar DC Micro-grids in Uttar Pradesh
State, India’ (Conference Paper. New Delhi: The Energy and
Resources Institute, 2015). Available at https://www.researchgate.
net/publication/271964221_Energizing_rural_India_using_micro_
grids_The_case_of_solar_DC_micro-grids_in_Uttar_Pradesh_State_
India (accessed on 9 February 2021).
7. Ibid.
8. Ibid.
9. Standing Committee on Energy, Sixteenth Lok Sabha, ‘Action
Taken on the Recommendations Contained in the Twenty-
Second Report (16th Lok Sabha) on Energy Access in India—
Review of Current Status and Role of Renewable Energy’ (New
Delhi: Lok Sabha Secretariat, 2017–2018), 33. Available at
http://164.100.60.131/lsscommittee/Energy/16_Energy_36.pdf
(accessed on 9 February 2021).
10. http://forumofregulators.gov.in/Data/Working_Groups/Net.pdf
(accessed on 9 February 2021).
11. Forum of Regulators, ‘Report on Metering Regulation and
Accounting Framework for GRID Connected Rooftop Solar PV
in India’ (2019). Available at http://www.forumofregulators.gov.
in/Data/Reports/REPORT-METERING-ROOFTOP-08-05-19.pdf
(accessed on 9 February 2021).
12. Ibid.
13. Forum of Regulators, ‘First Report of FOR Technical Committee on
Implementation of Framework for Renewables at the State Level’,
Volume I (Covering Proceedings: December 2015–November
2017), 23. Available at https://energyexemplar.com/wp-content/
uploads/Implementation-of-Framework.pdf (accessed on
9 February 2021).

58 Renewable Energy in India

14. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/
2020/Jul/IRENA_Peer-to-peer_trading_2020.pdf?la<hig>=</
hig>en&hash<hig>=</hig>D3E25A5BBA6FAC15B9C193F64CA3
C8CBFE3F6F41 (accessed on 17 November 2020).
15. https://uperc.org/App_File/Pt-no-1522of2019UPNEDA-02–12-
2019-pdf122201951425PM.pdf (accessed on 17 November 2020).

Distributed Energy Resources 59

 5

Renewable Energy
Pricing in India
What Is Missing?

Introduction
Pricing has all along been at the centre stage of the discus-
sion in the context of the development of RE. In the major
economies of the world, fixed price support is extended as
supply side push for renewable, which in a way obviates the
need for RPO as a demand-side support. In others, RPS—a
combination of RPO and REC mechanism—is adopted as a
support mechanism for the promotion of RE. The RPS system
does not provide fixed price support as renewable projects
under this scheme are expected to participate in the whole-
sale market for the sale of their electricity components. The
unique distinction of India lies in the fact that the country has
used all three instruments, namely fixed price, RPO and REC
mechanism, for the encouragement of renewable. This chapter
covers the pricing aspect, while the next chapter focuses on
RPO, and the following chapter discusses the REC framework
in the Indian context.
As regards the pricing of renewable, there are two broad
approaches, namely the cost-plus approach of the tariff deter-
mination by the regulator and the competitive approach of
discovering price through auction. The question as to whether
auction as a method of price discovery is suitable for intermittent
RE sources such as wind and solar has been and continues to be
a subject of debate. Proponents of cost-plus approach argue that,
given the uncertainties around the availability and variability of
wind and solar resources, there are likely chances of projections
going wrong, thereby making auction a tenuous exercise fraught
with risk. The advocates of competition argue, on the other hand,
that auction is the only way of discovering the efficient cost of
such installations. In so far as uncertainties and variability are
concerned, these aspects can be suitably addressed in the auc-
tion design through equitable allocation of risks between the
project developers and the buyers. They also argue that competi-
tive bidding has the advantage of inducing technological and
operational improvements, in that the bidders are impelled to
invest more in better technology and forecasting techniques to
minimize the risks arising out of variability.
India has experimented with both cost-plus approach and
auction for soliciting renewable project proposals. Several states
in India still determine cost-plus tariff for wind and solar while,
at the national level, auction has of late become the norm for
setting up wind and solar projects. An important point to note
here is that, whether cost-plus or auction, the tariff so arrived
remains fixed generally over the useful life of the project,
thereby providing long-term certainty for investors.
This chapter deals with both of these methods of tariff deter-
mination for renewable with all their nuances. This discussion is
critical not only from the point of view of understating the cost
and operational dynamics of variable RE but also for appreciat-
ing the debate around the future market design for renewable
discussed at length in a later chapter.

Renewable Energy Pricing in India 61

Cost-plus Approach
In India, the preferential tariff for renewable technologies is
fixed based on the cost-plus formula. It involves the calculation
of tariffs by the scrutiny of project costs. While scrutinizing
costs, any concession and tax exemptions availed by promoters
are factored in. The tariffs so derived are believed to provide
equitable financial returns to developers while simultaneously
avoiding unsustainable burden on consumers.
As explained in the previous chapters, the decision to use the
‘cost-plus’ approach in determining preferential tariffs for renew-
able power has been justified with the following explanation:
while LRMC and the avoided cost of generation give the correct
economic signals, in today’s context, it is not possible to arrive
at the correct estimates of these numbers; RE technologies have a
small share in energy generation in comparison to conventional
energy sources; as the price of generation from conventional
sources—which forms a major chunk of the total power supply—
is not giving any meaningful economic signal, application of
economic principles to pricing electricity from RE technologies
operating on the fringe is unlikely to have any significant impact
on the generation market; cost-plus methodology allows inves-
tors to earn reasonable returns commensurate with the risks
borne by them; it provides a degree of certainty to revenue
which, in turn, makes the financing of these projects feasible
for investors; since technology is still evolving, rapid reduction
in prices of equipment is likely, and periodic review under the
‘cost-plus methodology’ would allow review of cost elements at
regular intervals and factor in the advances in technology while
deciding tariffs for new renewable projects in future.
Given this explanation, the capital cost is a starting point
of determining the preferential tariffs for renewable power
projects. The CERC at the centre determines the tariffs for
central government-owned and interstate power-generating
companies. The SERCs do so for generating companies in states.
The unique feature of this exercise at the centre is the capi-
tal cost benchmarking for different renewable technologies.

62 Renewable Energy in India

The CERC has undertaken this exercise—first for the three-
year period from 2009–2012; subsequently for the five-year
period 2012–2017; thereafter for three years from 2017–2020
and currently for 2020–2023. One may well ask here: of what
use is this exercise when the market for renewable power
is moving in the direction of a market-determined supply,
demand and prices?
To answer this, though there has been an initiative towards
letting the market to determine prices, the preferential tariff
option has not been taken off the table yet. Also, limits have
been placed upon the prices of RECs. To prevent a free fall, the
floor prices still have to be determined after due consideration
to the fair return on equity to the renewable power developers.
Since the return on equity has to be calculated on the capital
costs of renewable power projects, it is important that these
costs are properly and transparently benchmarked.

General Approach to Capital Cost Benchmarking

Generally, under the regulatory regime of tariff determina-
tion in India, capital costs form the most critical element in
regulated tariffs. This assumes even more significance and
a daunting task in the case of RE projects. The norms based
on a ‘sample representative case have to be developed, after
taking into consideration the diversity of sites/state specific
parameters, the variations in technological applications and
a range of unit sizes supplied by multiple suppliers’. The issue
here is how to standardize the approach for the sake of greater
uniformity and consistency.
To begin with the task of capital cost benchmarking, various
approaches for developing benchmark capital costs—for differ-
ent RE technologies—are evaluated. The following approaches
have been considered by the CERC while arriving at the
benchmark capital costs for RE technologies, namely regulatory
approach, market-based approach, actual project cost approach
and international project cost-based approach.

Renewable Energy Pricing in India 63

Regulatory Approach
In this approach, capital cost benchmarking is done based on
comparisons of existing capital cost norms, as approved by
various SERCs. ‘Pooled Capital Cost’ (` Cr/MW) of RE capac-
ity added during the previous three to five years is used as the
basis for the trend analysis of capital costs for arriving at the
benchmark.
There are, however, issues around this approach. SERCs do
not generally consider year-on-year variations while estimating
capital costs for the control period. They assume that a project
commissioned at the beginning of a control period would have
the same capital costs as that commissioned at the end of it. It is
seen as a major shortcoming as it leaves out the effect of annual
inflation on the capital costs of renewable projects.
While inflation may not significantly affect the tariff over
a short period, if the inflation rate in equipment costs is low,
it indeed would were this rate to accelerate. Irrespective of
whether such fine-tuning is essential or not, one can argue
that it would be appropriate to consider this aspect in capi-
tal benchmarking right from the start (given a fact that the
economy has seen bouts of high and low inflation over dif-
ferent periods of time), provided that the cost of information
is not very high.
The other failing of this approach is that, in most cases,
the capital cost and other cost norms have been seen to be
approved on the basis of claims in the detailed project reports
of manufacturers and developers that have been submitted to
the state commissions. This raises the issue of reliance on the
‘interested party’ data.
This absence of an independent source in the evolving norms
for capital costs is, of course, a matter of concern. To press a
point further, there have been very few instances where project-
specific parameters, such as unit size and technology, have been
given due consideration in arriving at capital cost norms. This
lacuna needs addressing.

64 Renewable Energy in India

Market-based Approach
The market-based approach carries out the comparison of capi-
tal costs for RE projects that have been awarded on the basis
of a competitive bidding process by public and private enti-
ties. This is true particularly of the wind power projects. The
tender conditions for these projects are examined to evaluate
the scope of supply and services over a period of three to five
years. The per unit capital cost norm, expressed as ` Cr/MW,
for the capacities thus awarded for the units of various sizes,
locations and by manufacturers/suppliers, is collated. Using this
information, trend analysis is undertaken.
This approach too has limitations. The scope of supply and
services stipulated in the tenders varies widely. For example,
in some cases, the bidder is expected to provide services that
include identification of sites, project clearances and O&M ser-
vices but, in other cases, this is omitted. Moreover, for capital
cost benchmarking, the components of capital costs should be
segregated and shown separately; this break-up by costs is not
always easily available.
Further, since the market-based approach provides informa-
tion about the capital costs of projects that have been cleared
through the competitive bidding route, one would expect these
costs to reflect the real costs of capacity additions rather than
the notional costs (as assumed in the regulatory approach).
However, there are only a limited number of equipment manu-
facturers in each renewable category. This approach may hence
not be truly reflective of the competitive capital costs if there
is collusion in bidding.

Actual Project Cost-based Approach

In actual cost-based approach, an analysis of capital costs for
projects commissioned during a certain period in the recent
past is undertaken. The information is furnished by the pro-
ject developers as part of the project appraisal requirement to
various financial institutions (FIs)/banks or United Nations

Renewable Energy Pricing in India 65

Framework Convention on Climate Change, either for availing
loan or for registration under CDM benefits. The project cost
data from these sources are obtained from their websites and
analysed for arriving at the capital cost benchmarks.
To elaborate, various elements of capital costs—spanning
plant and machinery costs, erection and commissioning costs,
expenditure on preparation of land and civil works, and financ-
ing costs, like the interest during construction period—are
evaluated. Finally, in arriving at the benchmark capital costs,
a trend analysis in terms of movement of overall capital costs
(` Cr/MW) and its components is undertaken for the duration
of previous three to five years.

International Project Cost Approach

In countries such as Germany, Denmark, the USA and a few
others, renewable sources-based energy generation constitutes a
significant part of their total energy requirement. Several stud-
ies have been conducted in these countries, covering various
aspects of RE equipment procurement and installation costs,
generation costs and socio-economic costs. As observed by these
studies, plant and equipment costs have not varied significantly
between countries. This is largely owing to the fact that the raw
material/equipment costs in these countries have been more or
less uniformly influenced by international market prices and
not by the domestic situation.
Based on this finding, equipment costs across these countries
could be a good guide to benchmarking capital costs for renew-
able projects in India. However, the capital cost for RE projects
is also influenced in some cases by the local factors, like the
subsidy to protect domestic manufacturers from international
competition or the fluctuations in exchange rates. There could
thus be significant differences when comparisons of capital
costs of RE projects between well-developed and emerging or
developing economies are made. In the Indian context, there
is a reason to believe that benchmarking based on such studies

66 Renewable Energy in India

would have only a limited relevance for evolving benchmarks
for RE projects.
Pertinently, the CERC has of late dispensed with capital
cost benchmarking for wind and solar projects, as competition
has taken roots in these segments. For other technologies, the
benchmark cost is arrived based on the approaches discussed in
the preceding section, but insufficient data base still constrains
the exercise. For the current control period of 2020–2023, the
benchmark capital costs of the previous control period of 2017–
2020 for most renewable technologies have been retained.1
Further, the Regulations provide that the capital costs of the
first year of the control period shall continue to apply in subse-
quent years, unless reviewed by the Commission. This raises a
question mark on the efficacy of the capital cost benchmarking
exercise. However, the focus of this book being on wind and
solar, and given that capital cost benchmarking is not under-
taken for these technologies at the centre by the CERC, further
discussion on this aspect is not considered necessary.
Before departing, it would be relevant to highlight that
the determination of capital cost and the cost-plus tariff is
still prevalent at the state level. In this exercise of the tariff
determination, after the benchmark capital cost is arrived, a
normative debt–equity ratio of 70:30 is applied treating 70 per
cent of the capital cost as a loan and 30 per cent as an equity.
Thereafter, financial norms, namely interest on loan, interest on
working capital, return on equity, operation and maintenance
(O&M) cost and depreciation are used to arrive at the tariff.
The first-year tariff is escalated at predetermined rate of escala-
tion and then a discounting factor equivalent to the weighted
average cost of capital is applied to determine the levelized
tariff. A comparison of the tariffs so determined by the State
Commissions (Appendix 5A) with the tariffs discovered through
auction (Appendices 5B and 5C) reveals a distinct edge of the
latter (bid tariff) over the former (regulated tariff). Therefore, a
natural shift towards auction as a price discovery for wind and
solar projects is likely in the future.

Renewable Energy Pricing in India 67

 However, there is one school of thought that believes that
it is too early to conclude that auction is superior to cost-plus.
With the emerging trend of aggressive bidding, especially in
the e-reverse auction (eRA), long-term viability of such projects
remains a question. This is corroborated by the large number of
cases filed before regulators seeking an extension of the com-
mercial date of operation under the force majeure clause of the
PPA and requesting compensation in terms of Change in Law
clause of the PPA. The counterargument, on the other hand, is
that bid prices are aggressive because competition has induced
cost efficiency and the bidders have been able to economize on
cost of debt, depreciation and also have lower expectation of
return on equity compared to the cost-plus dispensation. The
auction process being at infancy, any discussion on efficacy in
terms of the actual deployment of projects under the bidding
route versus cost-plus route would be premature at this stage.
What may be relevant is a discussion on the auction design
itself.
The next section accordingly analyses the recent initiatives
on auction design against the background of international
developments in this field.

Auction
Auction theory has been the basis of much fundamental theo-
retical work: it has been important in developing our under-
standing of other methods of price formation, for example,
negotiations in which both the buyer and the seller are actively
involved in determining price.
As discussed so far, one of the most important issues facing
Indian electricity regulators has been the pricing of electricity
generated from grid-connected renewable energy sources, espe-
cially from wind and solar power farms, which have been the
main thrust areas of the Indian government’s RE policy. Over
the years, there has been an ongoing debate on the practical
applicability of applying marginal cost pricing to electricity

68 Renewable Energy in India

generated from RE resources in India, as discussed earlier in
the book. The importance of the economy-wide marginal cost
pricing stems from a fact that it ensures the efficient function-
ing of a market economy as defined by the state of general
equilibrium.
An economy in general equilibrium ensures that the inter-
ests of all its participants are well balanced and, therefore,
satisfactory. Although market-driven prices fully aggregate all
of economy’s information (Paul Klemperer, pp24) and hence
reduce the cost of decision-making process for all its partici-
pants to almost zero, this may not necessarily be true in all
situations, especially when market power between participants
is imbalanced. The marginal cost pricing offers a solution in
such situations to balance an imbalanced system.
To deal with situations where estimating marginal costs
administratively has not been easy, governments worldwide
have turned to auctioning as an instrument to achieve this.
However, while auctions may resolve the practical problems
associated with marginal cost pricing, it is moot whether they
also lead to competitive pricing of resources, unless they are
carefully designed. In this chapter, we set out to assess the
effectiveness of the auctioning method adopted in India in the
pricing of renewable resources. But, for that, we first provide an
overview of how auctions work and their economic usefulness.

Overview
There has been a considerable effort by economists to find the
economic basis for auctions and to examine the conditions
that lead to optimal auctions. There are four standard types of
auctions that are generally deployed for discovering the price of
objects of economic value, namely the ascending bid auctions,
the descending bid auctions, the first-price sealed-bid auctions
and the second-price sealed-bid auctions.
Of these, the sealed-bid auctions are most commonly used by
governments for identifying suppliers for their requirements.

Renewable Energy Pricing in India 69

 In first-price sealed-bid auction, each bidder independently
submits a single-sealed bid, without seeing others’ bids. When
bids are opened, the object is sold to a bidder whose bid price
is the highest. In a second-price sealed-bid auction, though the
process is the same, the winning bidder pays only the price that
has been bid by a runner-up bidder for the object under auction.
The ascending and descending bid auctions, on the other
hand, are open bid auctions, where the auctioneer calls the
price. In the former, bidding starts at a low price and keeps pro-
gressing to higher prices until a winning bidder is found. In this
auction, bidders bidding low prices are left out of the running
at every stage as the auction progresses and the price moves
up. This process continues until the highest bidder is found.
The descending bid, on the other hand, starts with an auc-
tioneer announcing a very high bid price and successively
bringing it down until one of the many bidders’ calls the price
and wins the auction. With this, the auction ends and the win-
ning bidder pays the price.
In all of these auctions, the highest price bidder wins the
bid. In contrast, in eRA, which is being used by the Indian
government for auctioning the rights to develop wind and
solar resources for producing electricity, the winners are the
lowest price bidders. However, as far as project developers are
concerned, their project valuation depends on their future net
cash inflows determined by the difference between their future
gross cash inflows and outflows discounted at the prevailing
interest rate. Hence, those bidders with the highest project
valuation would be expected to bid the lowest unit electricity
price to win the bid. This unit price, which emerges from the
reverse bidding process, is comparable to the LRMC, which is
the preferred mode of pricing unit of electricity, as discussed
in an earlier chapter of the book.
In designing an auction, understanding the value structure
of participating bidders is crucial for achieving auction goals by
a seller (or a buyer in the present case, where the government
can be seen to represent the electricity consumers). The bidders’

70 Renewable Energy in India

signals in any auction depend upon their value function, which
in turn depends on the nature of the information they possess;
for example, in private value model, each bidder decides to bid
a price for a concerned object of economic or psychological
value, solely on the basis of his/her value function, which is
distinct from others in the run. What it means in this case is
that bidders place greater confidence on their own information
than on information of other bidders and hence are unlikely to
modify their bids even when others’ values are known to them.
On the other hand, in a common value model too, each
bidder has his/her distinct private information concerning the
object under auction that may not be the same as its actual
value, which is same for all bidders but not known to any of
them. This is usually the situation in auctions of most under-
ground mineral resources. In such cases, each bidder is prone to
revising his/her value, when the values placed by other bidders
are revealed during the auction process. However, one can think
of a general model of value in which the above two cases are
just the special cases of a larger set of values. For greater clarity
on the matter, the reader can see Note 2.2
Incorporating the bidders’ value function in standard auc-
tions helps in designing appropriate auctions that lead to
achieving auctioneers’ objectives more effectively (ibid pp 6).
A significance of what has been said lies in a fact that a good
auction design promotes both efficient assignments of rights
and competitive revenues for the seller. Hence, the structure of
bidder preferences and a degree of competition are key factors
in determining the best design.
Each of the standard auctions has its merits and demerits. For
that reason, which is the best for a particular situation depends
on the overall complexity stemming from the nature of the
economic object under auction, the auctioneers’ objectives, the
bidders’ response functions, the actual and private perceived
values of an object under auction and the risk preferences of
the participants in auction. To evaluate the merit of an auction
design, one needs an economic framework to assess this.

Renewable Energy Pricing in India 71

Revenue Equivalence Theorem
(Peter Cramton, pp4)
Auctions vary in complexity; the simplest being the first-price
sealed-bid auction and the package clock auction (Ausubel
et al. 2006; Cramton 2009) being the most complex of the lot.
Between them, there are several of varying complexities. In the
context of wind and solar power projects, only the first-price
sealed-bid auction or, for that matter its corollary, the lowest-
price sealed-bid auction is relevant here.
A revenue equivalence theorem first postulated by W. Vickrey
in 1961 provided the most important results for assessing the
efficiency of the standard auctions. The theorem postulates
that, in a single-item auction, all four elementary standard
auctions (first-price sealed-bid, second-price sealed-bid, ascend-
ing and descending auctions) mentioned earlier result in the
same expected revenue for the auctioneer while maximizing
revenues among all four standard trading mechanisms when
the seller has set an appropriate reserve price for an object being
auctioned.
This result applies to both private value models and common
value models. A fact that the revenue optimization is here
defined purely in terms of auctioneer’s revenue and not the
bidder’s benefits is a contentious issue which is discussed later,
with reference to the different stages of the eRA employed by
the Solar Energy Corporation of India (SECI), for auctioning
rights for development of wind and solar power resources
across India. Notwithstanding this observation, the revenue
equivalence theorem is now a standard reference point across
the world for analysing and designing optimal auctions.

The Auction Mechanism Deployed in India for

Dispensing Development Rights to Competing
RE Power Developers
The assumptions required for revenue equivalence are quite
special (Peter Cramton, pp4), namely a single-item auction,

72 Renewable Energy in India

an independent private value function, risk-neutral bidders,
an exogenous number of bidders, no collusion and symmet-
ric bidders (i.e., the bidders appear identical aside from their
private value information). In practice, these assumptions do
not hold together. However, Myerson (1981) and Riley and
Samuelson (1981) have showed that Vickrey’s results about the
equivalence in the expected revenue of the different auctions
apply very generally. Thus, even by relaxing these assumptions,
it is possible to show that the revenue equivalence holds even
for non-standard auctions, leading to optimum outcomes. On
the basis of this, one could ask, where does the eRA stand in
terms of optimality and also overall efficiency in the context
of a broader economy?
The MNRE spelled out the guidelines for tariff-based bid-
ding process for solar and wind power projects in 2017 and
appointed the SECI as a nodal agency for conducting eRAs for
the selection of applicants for developing bulk power solar and
wind farms in India. From among the bidding developers, those
wining the reverse bids would be required to sell the electricity
they generate to the RPO-obligated states upon completion of
their projects (IIM Study pp 12).
It may be noted that the selection of RE power developers
under eRAs is directly related to the states’ meeting their RPO
obligations. This raises questions about the future viability of
the REC trading mechanism. However, we suspend further
discussion on this to the concluding chapter.
On examining the guidelines for any prohibitive clauses with
respect to competition and restrictive bidding environment
impeding free and fair international competition, an IIM study
commissioned by the MNRE found the bidding methodology
and evaluation process to be quite robust and transparent (IIM
Study pp27). As per this study, low-entry barriers had encour-
aged new bidders to join in the fray and expanded competition.
However, in the reverse auctions (RAs) conducted so far,
there have been about 12 to 15 bidders at any one time and,
on average, around eight qualifying from among them to
enter the next e-reverse stage. An interesting finding of the

Renewable Energy Pricing in India 73

aforementioned study is that there has been an increase in
global financial institutionally backed aggressive bidders, with
inadequate understanding of the peculiarities of the Indian
energy market. These bidders, bidding aggressively in eRAs,
have frequently found themselves trapped in technicalities at
the project execution stage; particularly with respect to getting
connectivity approvals from the Power Grid Corporation of
India Limited.

e-Reverse Auction
So what constitutes an eRA and how effective has it been in
fulfilling the objectives of the nodal agency, the SECI, which
conducts these auctions? In the simplest form of eRA, the buyer
selects a supplier for supplying a range of products and services
from a list of pre-qualified developers by employing the online
bidding process. The bidders in this auction get to see each
other’s bid values during the bidding process and adjust their
own values downwards, if they feel necessary, to remain in con-
tention. The process continues until a lowest price bid emerges.
The contract is thus finally awarded to the lowest price bidder.
On comparisons with the standard auctions, the eRA design
followed by the SECI in India, though not exactly the same
as that recommended by Klemperer (1998), is broadly simi-
lar. The bidding process is conducted in two stages. The first
stage is a sealed-online bid that can be thought of as a version
of the clock stage. The tender applicants who have met the
prior mentioned technical and financial requirements in the
‘request for selection (RFS)‘ documents qualify to bid at this
stage. These pre-qualified developers have to bid in an online
sealed envelope below the ceiling price specified in the RFS
document, mentioning the wind or solar power capacity they
wish to undertake to develop at their bid price.
The sealed envelopes containing the bidding informa-
tion are opened online on a specified date mentioned in the
tender. The bids are then ranked, starting with the lowest price

74 Renewable Energy in India

bid at the top and the higher priced ones sequentially in the
lower ranks. The bidders in the lowest price range, whose bid
capacities add up to the size of the tender, move to the next
bidding stage, which is the eRA. Usually, the RFS specifies a
certain minimum project size in multiple of which bidders must
submit their share of the total tender capacity that they wish
to develop at their price.
In the second stage, the eRA is executed with bidders who
have qualified from the first (sealed e-auction) stage. The price
quoted by them in their individual sealed bids at the previous
stage forms their individual ceiling price and they cannot bid
above this price at the RA stage.
The initial session at the eRA lasts an hour. During this
period, bidders respond online to each other’s bids frequently.
While bid prices are visible to participants in this stage, their
individual identities remain concealed. This is to prevent any
collusion between them during the auction. At the end of the
hour, bids are ranked by the same procedure as in the first stage.
Those who have quoted prices above the lowest price range
that has emerged from this session are then given yet another
opportunity to improve their bids in further 10-minute slots of
reverse bidding to get back into contention.
These 10-minute slots are repeated over and over again until
prices stabilize at their lowest value, with no further prospect
of improvement. The winning bidders thus found are finally
awarded the right to develop the RE power as per their share
committed at the sealed-bid e-auction stage (the first stage).
A significant aspect in these auctions is that the value func-
tions of the participating companies seem to be based on
commonly available sets of information (such as the India
Meteorological Department, National Institute of Wind Energy,
for both wind and solar potential, National Renewable Energy
Laboratory and some private firms specializing in collecting
this information) on the one hand and, on the other, on a set
of information specific to them.

Renewable Energy Pricing in India 75

 It has been shown that the eRA can be made consistent with
the revenue equivalence theorem. In fact, an experimental
research on game theoretic approach has shown that there is
almost no difference in revenue outcomes between the vari-
ant of the first-price sealed-bid auction, which is apparently
deployed by the SECI at the first stage of its eRA, and the latter
stage of the eRA, when participants are experienced bidders.3
Equally, they have found that there is ‘no substantial or sta-
tistically significant evidence of price difference between the
last round of the open reverse e-auctions and the initial first-
price e-sealed-bids’.4 Practically, in the Indian context too, it has
been observed that the second-stage eRA at best improves the
final bid price of RE-based generation projects only marginally.
For example, the IIM study concludes, citing experience with
wind power auctions, that

there is no doubt that the auctions lead to significant reduc-

tion in prices, but it is questionable whether the e-reverse
auctions lead to further substantial gains in the form of
reduction in prices at the second stage of the auction. While
the tariff drop in tranche 1 and tranche 2 was dramatic, in
subsequent tranches it stabilised. This is similar to what has
been observed in solar auctions too. (IIM pp36)

Understandably, the participants of the Indian wind and solar

power auctions, and especially the wind manufacturers, have
questioned the utility of the second-stage eRA. They have
contended that ultra-low tariffs are not sustainable and would
cause long-term damage to the manufacturing base of these
RE segments in the country (pp 6 IIM). Given these findings,
it may well be asked whether it is worthwhile extending the
overall auction process to the e-reverse stage, as in the auctions
staged by the SECI.
Further, it is debatable whether the two stages of the SECI’s
auction lead to an even more efficient outcome when seen
against the wider context of a larger, national economy? Nash
equilibrium, which is a centrepiece of game theory5 and, by

76 Renewable Energy in India

extension, of auction theory, provides essential guidance on
this. A major issue with Bayes–Nash equilibrium criterion is that
it is compatible with multiple equilibria, each of them yielding
several optimal auctions, with a differentiated benefit structure
between buyers and sellers.
That apart, as Bulow and Roberts (1989) have shown, the
sealed-bid first-price auction with an upward advancing price
leads to a third-degree price discrimination in a market char-
acterized by a monopolistic seller. This certainly is not the
desired outcome, when viewed from the perspective of a larger
economy. Similarly, if one considers its corollary to the eRA,
that too yields a similar result; but with a difference that the
SECI, which practically functions as a negotiator on behalf of
numerous electricity consumers, functions like a monopsonistic
buyer on behalf of them at the e-bid auction stage of its auc-
tion process.
While this optimizes the SECI’s benefit on behalf of consum-
ers, at the expense of project developers, its auction process
needs to be reviewed against the requirements of an efficiently
functioning national economy, especially when the govern-
ment strives to achieve greater efficiency across the different
sectors of the economy.
So what could be the alternative? Here, the Chinese experi-
ence sheds useful insights.

Chinese Approach
After using the FIT approach to pricing electricity for promoting
commercialization of RE power generation for several years,6
China shifted to auctions in 2003. It realized that the com-
petitive bidding approach as a price discovery mechanism to
support the setting up of a nationwide tariff for solar and wind
power farms made greater economic sense than persisting with
the FITs, which it had done until then.
However, alarmed by the rashness of the inexperienced bid-
ders, it entirely reworked its price criterion to benefit the bids

Renewable Energy Pricing in India 77

closest to the average price (estimated by excluding the highest
and lowest bid prices) found by averaging the price bids in the
auction. Since then, it has been using auctions intermittently
to keep tabs on prices in the rapidly evolving global RE market
and to reset FIT prices from time to time.
Thus, China has found auctions more effective in revealing
costs and establishing cost benchmarks for the setting up of more
appropriate and economically efficient FITs. The use of auctions
for price discovery in China has significantly reduced the likeli-
hood of FITs being above market equilibrium prices, thus avoid-
ing the excessive addition of RE capacity and a heavy surcharge
on consumers that excess capacity has entailed elsewhere.7
One important lesson that is particularly relevant from
China’s experience for India is that winning bid prices that are
lower than actual costs end up deterring the development of RE
sources. The FIT levels established by the Chinese government
from time to time have been comparable to the average Chinese
auctioned prices and slightly slanted towards the upper end of
the price bids. This pricing strategy has been found to be more
conducive to rapid capacity expansions, as it has encouraged
a greater number of potential investors to become interested
in these projects.
This finding is particularly important considering that the
Indian government has set ambitious targets for creating grid-
connected wind and solar capacities in the country.

Chapter Conclusion
This chapter presented a comprehensive case study on the
formation of the benchmark for capital costs for renewable
technologies at the CERC and a comparative analysis of the
cost-plus and auction routes of tariff discovery for renewable.
For reasons explained in the previous chapter, while, from the
point of view of economic theorists, methods such as LRMCs
may be the most appropriate theoretically for forming tariffs,
they are not practicable.

78 Renewable Energy in India

 Instead, the average costs, though not quite appropriate from
the point of view of promoting overall economic efficiency,
have been found to be the most practicable. Under these cir-
cumstances, the CERC’s emphasis had been on consistency
in developing tariffs for RE technology-based power plants
rather than attending to purists’ concern. This had merit in
itself, considering that the stakeholders look for consistency
and transparency in the treatment of the various elements of
costs, particularly the capital costs, in arriving at power tariffs.
While preferential tariffs based on full cost approach and
return on equity may have provided the initial basis for the
promotion of power projects based on RE, the stipulation in the
EA, 2003, that the tariff design should integrate ‘all factors that
encourage and promote competition, efficiency and better use of
resources, good performance and optimal investments’ (Section
61 [c])], needs consideration. Indeed, the FIT has since been
superseded by more robust market mechanism-based approaches
yielding results close to those sought by market theorists.

Notes
1. http://cercind.gov.in/2020/draft_reg/DEM-RE-Tariff-Regulations2020.
pdf (accessed on 9 February 2021).
2. A private model is that in which each bidder knows how much he/
she values an item under auction, but this value is private informa-
tion to him/her.
• In the common value model, the actual value is common to all,
but the bidders in auction have different private information
about what the actual value is. In this situation, each bidder is
inclined to revise the estimate of his/her value after knowing
any of the other bidders’ signals.
• Finally, a general model encompasses both of the above cases
as special cases but allows each bidder’s value to be a general
function of all signals.
3. Michael R. Mullen, Tamara Dinev, John L. Hopkins and Dennis
F. Kehoe, ‘Evidence of Revenue Equivalence in B2B Open, Reverse
e-Auctions and First Price Sealed Bids’ (2008). Available at http://
www.jgbm.org/page/48%20MichaelMullen.pdf (accessed on
9 February 2021).

Renewable Energy Pricing in India 79

4. Antoine Mandel and Herbert Gintis, ‘Decentralized Pricing and
the Equivalence between Nash and Walrasian Equilibrium’
(2016). Available at https://ideas.repec.org/a/eee/mateco/
v63y2016icp84-92.html (accessed on 9 February 2021).
5. Charles A. Holt and Alvin E. Roth, ‘The Nash Equilibrium: A
Perspective’, ed., Vernon L. Smith (2004). Available at https://www.
pnas.org/content/101/12/3999 (accessed on 9 February 2021).
6. Gabriela Elizondo Azuela, Luiz Barroso, Ashish Khanna, Xiaodong
Wang, Yun Wu and Gabriel Cunha, ‘Performance of Renewable
Energy Auctions, Experience in Brazil, China and India’ (Policy
Research Paper No. 7062, 2014). Available at https://openknowledge.
worldbank.org/handle/10986/20498 (accessed on 9 February 2021).
7. Gabriela Elizondo Azuela and Luiz Augusto Barroso, ‘Design and
Performance of Policy Instruments to Promote the Development
of Renewable Energy: Emerging Experience in Selected Developing
Countries’ (Working Paper No. 22; Washington, DC: World Bank,
2011).

References
Auction Theory: A Guide to Literature, The Economic Theory of Auction,
P Klemperer (ed), Edward Elgar (Pub), Cheltanham, UK, Yr2000.
Ausubel L, P Cramton and P Milgrom, The Clock Proxy Auction; A
Practical Combinatorial Auction Deisign, in Peter Cramton, Yoav
Shoham and Richard Steingerg (ed), Combinatorial Auction, MIT
Press 2006
Bulow J J and Roberts D J (1989), The Simple Economics of Optimal
Auctions, Journal of Political Economy, 1060–90.
Indian Institute of Management (IIM), Lucknow, Analysing Tariff Based
e-Reverse Auction versus Closed Bidding in Wind and Solar Sectors,
Report Submitted to the Ministry of New and Renewable Energy.
Klemperer, P D (1998), Auctions with Almost Common Value, European
Economic Review, 42.
Klemperer, P D (1998), Auctions with Almost Common Value, European
Economic Review.
Myerson R B (1981), Optimal Auction Design, Mathematics of Operation
Research, 6, 58–73.
Peter Cramton (2009), Spectrum Auction Design, University of
Maryland, Dept of Economics, August 15, 2009, 30 pages.
Peter Cramton (2009), Spectrum Auction Design, University of
Maryland, Dept of Economics, August 15, 2009, 30 pages.
Riley J G and Samuelson W F (1981), Optimal Auction, American
Economic Review, 71, 381–92.

80 Renewable Energy in India

Appendix 5A  State-wise Latest Wind and Solar Tariff Rates
Wind Tariffs Solar PV Tariffs
S. Generic Tariff Order Year Generic Tariff Order Year
No. States/UTs (`/kWh) Date (FY) (`/kWh) Date (FY)

1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
AD 6.51 2019 2020 AD 6.63 2019 2020 (for
2. Levelized tariff without 2. Levelized tariff without gross
AD 7.04 AD 7.16 metering)
2 Andhra 1. Levelized tariff with 30 Mar 2017–
Pradesh AD 4.35 2017 2018
2. Levelized tariff without
AD 4.76
3 Assam 16 Nov 2016–
2016 2017
4 Bihar 4.17 1 Apr 2019–
2019 2020
5 Chandigarh 1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
AD 4.82 2019 2020 AD 4.88 2019 2020 (for
2. Levelized tariff without 2. Levelized tariff without gross
AD 5.22 AD 5.27 metering)
(Appendix 5A Continued)
(Appendix 5A Continued)

Wind Tariffs Solar PV Tariffs

S. Generic Tariff Order Year Generic Tariff Order Year
No. States/UTs (`/kWh) Date (FY) (`/kWh) Date (FY)
6 Chhattisgarh 1. 0.5 MW–2 MW 4.53, 16 Mar 2020–
2. 2 MW–5 MW 4.11 2020 2021
7 Dadra & Nagar 1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
Haveli AD 4.82 2019 2020 AD 4.61 2019 2020 (for
2. Levelized tariff without 2. Levelized tariff without gross
AD 5.22 AD 4.98 metering)
8 Daman & Diu Diu 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
1. Levelized tariff with 2019 2020 AD 4.61 2019 2020
AD 3.34 2. Levelized tariff without (for gross
2. Levelized tariff without AD 4.98 metering)
AD 3.62
Daman
1. Levelized tariff with
AD 4.57
2. Levelized tariff without
AD 4.95
9 Goa 1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
AD 4.82 2019 2020 AD 4.61 2019 2020
2. Levelized tariff without 2. Levelized tariff without (for gross
AD 5.22 AD 4.98 metering)
10 Himachal Projects to be set up 8 Jul 2019–
Pradesh in other than industrial 2019 2020
areas and urban areas
up to 1.00 MW 3.98
Above 1.00 MW up to
5.00 MW–3.94 Projects
to be set up in industrial
areas and urban areas
up to 1.00 MW 4.06
Above 1.00 MW up to
5.00 MW 4.02
11 Jharkhand 27 2017–
Dec 2018
2017
12 Karnataka 3.26 6 May 2020– 1. Solar PV (MW) 3.08; 1 Aug 2019–
2020 2021 2. Solar PV (kW) 3.07 2019 2020
(without subsidy);
2.32 (with subsidy);
3. Solar PV (1 kW to
10 kW) 3.99 (without
subsidy); 2.97(with
subsidy);
(Appendix 5A Continued)
(Appendix 5A Continued)

Wind Tariffs Solar PV Tariffs

S. Generic Tariff Order Year Generic Tariff Order Year
No. States/UTs (`/kWh) Date (FY) (`/kWh) Date (FY)
13 Kerala Wind Zone 1 6.60, 2 Nov 2017– 5.68 2 Nov 2017–
Wind Zone 2 6.00, 2017 2018 2017 2018
Wind Zone 3 5.28,
Wind Zone 4 4.40,
Wind Zone 5 4.13
14 Lakshadweep 1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
AD 6.56 2019 2020 AD 6.63 2019 2020
2. Levelized tariff without 2. Levelized tariff without (for gross
AD 7.10 AD 7.16 metering)
15 Madhya 4.78 43,531 2019– 5.45 43,531 2019–
Pradesh 2020 2020
16 Odisha 6.24 15 Jan 2016– 11.44 (first 12 years) 15 Jan 2016–
2014 2017 6.78 (next 13 years) 2014 2017
17 Puducherry 1. Levelized tariff with 2 Sep 2019– 1. Levelized tariff with 2 Sep 2019–
AD 4.48 2019 2020 AD 4.61 2019 2020
2. Levelized tariff without 2. Levelized tariff without (for gross
AD 4.14 AD 4.98 metering)
18 Rajasthan In case of Jodhpur 10 Jul 2017– 7 Jan 2019–
Jaisalmer and Barmer: 2017 2018 2020 2020
1. Levelized tariff with
AD 4.87,
2. Levelized tariff without
AD
5.26,
In case of others:
1. Levelized tariff with
AD 5.12,
2. Levelized tariff without
AD 5.52
19 Tamil Nadu 1. Levelized tariff with 13 Apr 2019– 1. Levelized tariff with 29 Mar 2019–
AD 2.80 2018 2020 AD 2.80 2019 2020
2. Levelized tariff without extended 2. Levelized tariff without extend
AD 2.86 till until a AD 3.04 till until a
new order new order
is issued is issued
20 Telangana 3.61 6 Oct 2019–
2018 2020
(Appendix 5A Continued)
(Appendix 5A Continued)

Wind Tariffs Solar PV Tariffs

S. Generic Tariff Order Year Generic Tariff Order Year
No. States/UTs (`/kWh) Date (FY) (`/kWh) Date (FY)
21 Tripura 1. Levelized tariff with 16 Oct 2015- 1. Levelized tariff with 16 Oct 2015-
AD 5.88 2015 2016– AD 6.27 2015 2016–
2. Levelized tariff without 2019- 2. Levelized tariff without 2019-
AD 6.50 2020 AD 6.95 2020
22 Uttarakhand Gross tariff 4.73 7 Jun 2019–
Net tariff 4.48 2019 2020

Source: Websites of SERCs.

Note: AD = Accelerated depreciation.
Appendix 5B  Bid Tariff (Wind)
Wind Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Wind Developer Name Won Year- Month Tariff

1 SECI 5 Mytrah Energy India Private Limited 250 2017 February 3.46
Wind-I Green Infra Wind Energy Limited 249.9 3.46
1000
MW Inox Wind Infrastructure Services Limited 250 3.46
Ostro Kutch Wind Private Limited 250 3.46
Adani Green Energy (MP) Limited 50 3.46
2 GUVNL 8 Sprng Energy Pvt Ltd 197.5 2017 November 2.43
500 MW K. P. Energy Ltd 30 2.43
Verdant Renewable Pvt Ltd 100 2.44
Betam Wind Energy Pvt Ltd 29.9 2.44
Powerica Limited 50 2.44
Renew Power Ventures Pvt Ltd 35.7 2.45
Oil India Limited 18.9 2.43
SJVN Limited 38 2.43
(Appendix 5B Continued)
(Appendix 5B Continued)

Wind Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Wind Developer Name Won Year- Month Tariff
3 SECI 5 ReNew Power Ventures Private Limited 250 2017 October 2.64
Wind-II Orange Sironj Wind Power Private 200 2.64
1000 Limited
MW
Inox Wind Infrastructure Services 250 2.65
Limited
Green Infra Wind Energy Limited 250 2.65
Adani Green Energy (MP) Limited 50 2.65
4 MSEDCL 6 Adani Green Energy 75 2018 March 2.85
500 MW KCT Renewable Energy Private Limited 75 2.85
Inox Wind 50 2.86
Mytrah Energy 100 2.86
Hero Wind Energy Private Limited 75.6 2.86
Torrent Power Limited 124.4 2.87
5 SECI-III 7 ReNew Power Ventures Private Limited 400 2018 February 2.44
2000 Green Infra Wind Energy Limited 300 2.44
MW
Inox Wind Infrastructure Services Limited 200 2.44
Torrent Power Limited 499.8 2.44
Adani Green Energy (MP) Limited 250 2.45
Alfanar Company 300 2.45
Betam Wind Energy Pvt Ltd 50.2 2.45
6 SECI-IV 8 Srijan Energy Systems Private Limited 250 2018 April 2.51
2000 Sprng Energy Private Limited 300 2.51
MW
BLP Energy Private Limited 285 2.51
Betam Wind Energy Private Limited 200 2.51
Inox Wind Infrastructure Services Limited 100 2.51
Adani Green Energy (MP) Limited 250 2.51
Mytrah Energy (India) Private Limited 300 2.52
Renew Wind Energy (TN) Private Limited 300 2.52
(Appendix 5B Continued)
(Appendix 5B Continued)

Wind Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Wind Developer Name Won Year- Month Tariff
7 NTPC 6 Sprng Vayu Vidyut Private Limited 200 2018 August 2.77
2000 Mytrah Energy 300 2.79
MW
(allocated Srijan Energy 50 2.80
1200 ReNew Wind Energy 300 2.81
MW) Hero Wind Energy Private Limited 300 2.82
Fasten Power 50 2.83
8 SECI-V 5 Torrent Power Limited 115 2018 September 2.76
1200 Adani Green Energy Limited 300 2.76
MW
Alfanar Company 300 2.77
Sitac Kabini Renewables Limited 300 2.77
Ecoren Energy India Private Limited 175 2.77
9 SECI-VI 6 Adani Renewable Energy Park (Gujarat) 250 2019 February 2.82
1200 Limited
MW Ostro Energy Private Limited 300 2.82
Srijan Energy System Private Limited 150 2.82
Powerica Limited 50.6 2.82
Zenataris Renewable Energy Private 125 2.83
Limited
SBESS Services Projectco Two Private 324.4 2.83
Limited
10 GUVNL-II 8 Anisha Power Projects Pvt Ltd 40 2019 January 2.80
1000 MW Powerica Ltd 50.6 2.80
(allocated
745 MW) Vena Energy Shivalik Wind Power Pvt 100 2.80
Ltd
Sarjan Realities Ltd 100.8 2.87
Viridi Clean Alternatives Pvt Ltd 100 2.95
Inox Wind Energy 40 2.95
Renew Wind Energy (Karnataka Two) 200 2.95
Pvt Ltd
Adani Renewable Energy Park (Gujarat) 113.6 2.95
Ltd
(Appendix 5B Continued)
(Appendix 5B Continued)

Wind Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Wind Developer Name Won Year- Month Tariff
11 SECI-VII 4 Betam Wind Energy Private limited 200 2019 February 2.79
1200 Ostro Energy Private Limited 50 2.81
MW
(allocated Sprng Vaayu Urja Private Limited 100 2.82
480 MW) Adani Renewable Energy Park (Gujarat) 130 2.83
Limited
12 SECI-VIII 2 China Light and Power (CLP) 250 2019 September 2.83
1800 Italian energy company Enel 190 2.84
MW
(allocated
440 MW)

2.73
Source: Compiled by the authors from various public sources, e.g. Orders of State Electricity Regulatory Commissions,
websites of MNRE, SECI etc.
Appendix 5C Bid Tariff (Solar)
Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff

1 NTPC 250 1 Solairedirect 250 2017 April 3.15

MW
2 RUMS 750 3 Mahindra Renewable Pvt Ltd 250 2017 February 2.98
MW ACME Solar Holdings 250 2.97
Solenergi Power 250 2.97
3 NHPC 50 MW 1 Larsen & Toubro Ltd 50 2017 June 5.7
4 SECI 250 MW 3 Phelan Energy Group Ltd 50 2017 May 2.62
Avaada Power Private Limited 100 2.62
SBG Cleantech Three Limited 100 2.63
5 SECI 500 MW 2 ACME Solar Holdings Private 200 2017 May 2.44
Limited
SBG Cleantech One Limited 300 2.45
(Appendix 5C Continued)
(Appendix 5C Continued)

Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
6 TANGEDCO 16 NLC India 709 2017 September 3.47
1500 MW Raasi Green Energy 100 3.47
Solitaire BTN Solar (HPPPL) 100 3.47
Narbheram Vishram (Atha Group) 100 3.47
Rays Power Infra 100 3.47
NVR Energy (Atha Group) 100 3.47
ReNew Solar 100 3.47
Sai Jyoti Infrastructure Ventures 54 3.47
Talettutayi Solar Projects Two 50 3.47
(Solar Arise)
Shapoorji Pallonji Infra 50 3.47
GR Thanga Maligai Firm (GRT) 10 3.47
GR Thanga Maligai & Sons (GRT) 10 3.47
GRT Silverwares (GRT) 10 3.47
Dynamize Solar 5 3.47
Sunlight (Udayasooriyan) 1 3.47
Dev International 1 3.47
7 SECI 250 MW 2 Azure Power India Private Limited 200 2017 December 2.48
ReNew Solar Power Private Limited 50 2.49
8 SECI 500 MW 2 Hero Solar Energy Private Limited 300 2017 December 2.47
SBE Four Limited 200 2.48
9 GUVNL 500 4 GRT Jewellers India Pvt Ltd 90 2017 September 2.65
MW Gujarat State Electricity 75 2.66
Corporation Ltd
Gujarat Industries Power Company 75 2.67
Ltd
Azure Power India Pvt Ltd 260 2.67
10 MAHAGENCO 2 Azure Power 200 2018 May 3.07
300 MW Shapoorji Pallonji 50 3.26
(allocated 250
MW)
11 KREDL 860 11 Shapoorji Pallonji 185 2018 February 2.94–
MW (allocated 3.07
760 MW) ACME Solar 106 2.94–
3.15
Asian Fab Tec 85 3.24–
3.34

(Appendix 5C Continued)
(Appendix 5C Continued)

Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
Emmvee 80 3.52–
3.54
ReNew Power 99 3.15–
3.28
Greenko 45 3.30–
3.36
TEP Rooftop Solar 55 3.04–
3.07
Ekialde Solar 35 3.15–
3.19
Rays Power Infra 30 3.16–
3.20
Max Planck Solar 20 3.12–
3.31
Svarog Global 20 3.54
12 APDCL 100 2 Azure Power 75 2018 June 3.37
MW (allocated Maheswari Mining and Energy Pvt 10 3.19
85 MW) Ltd
13 KREDL 550 3 ReNew Power 300 2018 March 2.91
MW Avaada Energy 150 2.92
Azure Power 100 2.93
14 SECI 750 MW 3 SB Energy Seven Private Limited 250 2018 July 2.70
Sprng Soura Kiran Vidyut Private 250 2.70
Limited
Ayana Renewable Power Private 250 2.71
Limited
15 SECI 200 MW 1 SBE Renewables Twenty Five 250 2018 May 2.82
Private Limited
16 SECI -I 2000 6 ACME Solar Holdings Limited 600 2018 July 2.44
MW Shapoorji Pallonji Infrastructure 250 2.52
Capital Company Private Limited
Hero Solar Energy Private Limited 250 2.53
Mahindra Susten Private Limited 250 2.53
Azure Power India Pvt Ltd 600 2.53
Mahoba Solar (UP) Private Limited 50 2.54
(Appendix 5C Continued)
(Appendix 5C Continued)

Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
17 SECI-II 3000 1 ACME Solar Holdings Limited 600 2018 July 2.44
MW (allocated
600 MW)
18 NTPC 750 3 Sprng Energy 250 2018 May 2.72
MW Ayana Renewable Power 250 2.73
SB Energy 250 2.73
19 NTPC 2000 4 ACME Solar 600 2018 August 2.59
MW (allocated Shapoorji Pallonji 500 2.59
1400 MW)
Azure Power 300 2.59
SB Energy 600 2.60
20 KREDL 650 2 Fortum Corporation 250 2018 July 2.85
MW (allocated Tata Power Renewable Energy Ltd 250 2.85
500 MW) (TPREL)
21 MSEDCL 4 Shapoorji Pallonji Infrastructure 80 2018 November 3.09–
1000 MW Capital versus Shapoorji Pallonji 3.15
(allocated 235 Infrastructure Capital Company Pvt
MW) Ltd
TPSOL RESCO Three Pvt Ltd 50 3.13
Kintech Synergy Pvt Ltd 5 3.15
Juniper Green Energy Pvt Ltd 100 3.15
(formerly AT Capital Advisory India
Pvt Ltd)
22 MSEDCL 6 JLTM Energy India Private Limited 20 2018 May 2.71
1000 MW Mahoba Solar (UP) Private Limited 200 2.71
(Adani)
ReNew Power 250 2.72
ACME Solar 250 2.72
Tata Power Renewable Energy 150 2.72
Limited
Azure Power 130 2.72

(Appendix 5C Continued)
(Appendix 5C Continued)

Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
23 GRIDCO 200 5 Aditya Birla Renewables 75 2018 July 2.79
MW Sukhbir Agro 25 3.19
Gupta Power 20 3.19
Eden Renewables 50 3.19
ACME Solar 30 3.2
24 OREDA (6 1 Azure Power 6 2018 September 3.13
MW)
25 GUVNL 500 3 Aditya Birla Renewables Limited 100 2018 September 2.44
MW Avaada Sunrise Energy Pvt Ltd 300 2.44
(SPV of Giriraj Renewables Private
Limited)
Gaya Solar (Bihar) Pvt Ltd (SPV of 100 2.44
Adani Green Energy Ltd)
26 KREDL 150 1 Giriraj Renewables 150 2018 October 2.92
MW
27 KREDL 200 1 Asian Fab Tec 100 2018 October 2.89
MW (allocated
100 MW)
28 UPNEDA 500 9 NTPC 140 2018 November 3.17
MW Maheswari Mining and Energy Pvt 20 3.17
Ltd
Mahoba Solar 50 3.19
Maheswari Mining and Energy PVT 20 3.19
Ltd
Energy PVT Ltd 20 3.19
Sukhbir Agro Energy Ltd 50 3.20
Talettutayi Solar Projects Five Pvt 50 3.21
Ltd
Eden Renewable 50 3.21
Giriraj Renewables Pvt Ltd 100 3.23
29 UPNEDA 550 9 NTPC 85 2018 December 3.02
MW EDF (Bastille Solar) 70 3.04
EDF (Bastille Solar) 70 3.07
Avaada (Giriraj Renewables) 100 3.07

(Appendix 5C Continued)
(Appendix 5C Continued)
Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
Jakson Power 50 3.07
Adani (Mahoba Solar) 50 3.07
Tata Power Renewable Energy 50 3.07
Limited (TPREL)
Tata Power Renewable Energy 50 3.08
Limited (TPREL)
Adani (Mahoba Solar) 25 3.08
30 KREDL 100 2 Think Energy Partners (TEPSOL) 80 2019 January 2.91
MW Shapoorji Pallonji Infrastructure 20 2.91
Capital Company (SP Infra)
31 SECI 129 MW 1 Bharat Heavy Electricals Limited 129 2019 January 4.38
32 MSEDCL 4 Shiv Solar Private Limited 50 2019 May 2.74
1000 MW ACME Solar 300 2.74
Renew Power 300 2.75
Avaada Energy 350 2.75
33 GUVNL 500 5 Paryapt Solar Energy Private 50 2019 February 2.55
MW Limited
Gujarat State Energy Corporation 75 2.67
Limited
Juniper Green Energy Private Limited 120 2.67
Adani Renewable Energy Park 150 2.67
(Gujarat) Limited
Renew Solar Power Private Limited 105 2.68
34 SECI-III 1200 4 ReNew Solar Power Private Ltd 300 2019 February 2.55
MW Azure Power India Pvt Ltd 300 2.58
Eden Renewable Site Private Limited 300 2.6
SBSR Power Cleantech Eleven 300 2.61
Private Limited
35 SECI-750 MW 5 Fortum Solar 250 2019 March 2.48
Palimarwar Solar House (LNB 40 2.49
GROUP)
ACME Solar 250 2.49
Sitara Solar Energy (UPC 100 2.49
Renewables)
ReNew Power 110 2.49

(Appendix 5C Continued)
(Appendix 5C Continued)

Solar Quantum
Sr. Developer (MW) Tender Winning
No Auction Number Solar Developer Name Won Year- Month Tariff
36 GUVNL-III 700 4 Electro Solar Private Limited 200 2019 May 2.65
MW (allocated Gujarat State Energy Corporation 100 2.68
500 MW) Limited
Gujarat Industries Power Company 100 2.68
Limited
Tata Power Renewable Energy 100 2.7
Limited
37 SECI-250 MW 3 Talettutayi Solar (Solar Arise) 50 2019 May 2.87
Tata Power 100 2.88
NTPC 100 2.91
38 GUVNL 1000 1 Tata Power Renewable Energy 250 2019 May 2.75
MW (allocated Limited
250 MW)
39 SECI-IV 1200 4 Ayana Renewable Power Private 300 2019 June 2.54
MW Limited
ReNew Solar Power Private Ltd 300 2.54
Azure Power Maple Pvt Ltd 300 2.54
Mahindra Susten Private Limited 250 2.54
40 SECI-II 750 4 NTPC 160 2019 June 2.50
MW (allocated Mahindra Susten 200 2.50
680 MW)
Hero Future Energies 250 2.50
Azure Power 70 2.50
41 UPNEDA 500 1 NTPC 40 2019 June 3.02
MW (allocated
40 MW)
42 GUVNL 200 1 Gujarat State Energy Corporation 100 2019 August 2.65
MW (allocated Limited
100 MW)
43 GUVNL 750 1 Tata Power Renewable Energy 50 2019 August 2.75
MW (allocated Limited
50 MW)
44 SECI-V 1200 2 SB Energy 330 2019 August 2.65
MW (allocated GRT Jewellers India 150 2.53
480 MW)

2.63

Source: Compiled by the authors from various public sources, e.g. Orders of State Electricity Regulatory Commissions,
websites of MNRE, SECI etc.
 6

Renewable Purchase
Obligation
Does It Need a Revisit as
Instrument for Market Creation?

Introduction
Apart from the tariff intervention discussed in the previous
chapter, RPO is yet another important instrument for the crea-
tion of market for renewable. This chapter discusses the concept
of RPS practised especially in Europe as a market mechanism
and compares it against the concept of RPO as understood in
India and delves into the constraints that need be overcome
to ensure its effectiveness as a facilitator for competition and a
market for renewable.

Market Mechanism
One way to achieve marginal cost pricing is by relying on mar-
kets to create competitive conditions in the renewable power
market. If there is sufficient number of suppliers competing in
each of the renewable categories, markets would ensure that
electricity from each of these sources is priced at the marginal
cost of generation, irrespective of the pricing formula adopted
by the individual suppliers.
One of the issues, however, is what should be the nature of
market-based instruments that would enable these technolo-
gies to flourish and grow in an environment where they cannot
commercially compete with conventional power generation
technologies without regulatory support. Besides, the other
equally relevant task at the moment is to evolve a regulatory
mechanism that would bring in competition within these seg-
ments and, hence, greater efficiency with it.
Internationally, countries have promoted the commercializa-
tion of RE resources and their corresponding technologies in
several ways, but FIT and RPO have been the two most popular
approaches in recent times. The former is equivalent to the
preferential tariff approach in India, in which the authorities
notify sufficiently attractive tariffs for generation from these
technologies, in a hope that this would bring forth investments
in generation capacity based on these technologies. The latter,
on the other hand, is in many ways different from the RPO
mechanism that has been implemented so far in India.

Renewable Purchase Obligation

In RPS, which has gained currency across various countries of
Europe, Australia and some states in the USA, the regulatory
authorities have, rather than specifying tariffs for different RE
technologies, decreed a percentage of the total electricity con-
sumption that electricity consumers must consume from RE
generation. Practically, however, the obligation has operated
at the level of electricity suppliers—distribution entities in the
Indian context—who have then passed on the costs arising
from this obligation to electricity consumers in the form of a
separate surcharge in electricity bills.

Renewable Purchase Obligation 107

 In this method, the environmental and commodity features
of RE are untied into two distinct products. On the one hand,
the electricity generated by RE units, just as generation from
any conventional unit, is sold in the wholesale electricity
market; the REC, which embodies the environmental feature,
on the other hand, is sold as a green product on the PX. Its
buyers are obligated entities (entities that must meet their RPO
obligations) as well as voluntary buyers.

The UK Case
To illustrate, in the UK, the new Renewables Obligation (RO)
and associated Renewables Obligation (Scotland) amendment
came into force in April 2002 as part of the Utilities Act, 2000.
Under this, power suppliers have had to acquire from renewa-
bles a specified proportion of electricity they supply to their
customers. It started with 3 per cent in 2003, rising gradually to
10.4 per cent in 2010 and to 15.4 per cent by 2015. Under this,
the costs to consumers have been capped and the Obligation
has been guaranteed in law until 2037.1
Eligible renewable generators receive the Renewables
Obligation Certificates (ROCs) for each MWh of electricity gen-
erated. These certificates are then bought by electricity suppliers
(distributors in Indian terminology) to fulfil their obligations.
However, suppliers have an option to either meet their obliga-
tions by purchasing the required number of certificates or pay
a ‘buyout’ price for the short fall. The buyout price, in fact, is
essentially a penalty for non-compliance.
Generally, the penalty is set as a maximum price of ROC
or renewable electricity purchased under the obligation in
the year. In Sweden, it is different. Consumers who do not
comply pay a penalty which is 150 per cent (starting in 2005)
of the average certificate price in the previous accounting
period. The penalty in this case thus sets a moving ceiling
price. Generally, the buyout price is fixed as the ‘price per
MWh‘ shortfall.2 In the UK, however, this is adjusted every

108 Renewable Energy in India

year in line with the RPI. But it is not necessarily so in other
countries that follow RPS.
All the proceeds from buyout payments in the UK are recy-
cled to suppliers in proportion to the number of ROCs they
present. For example, if a supplier submits X per cent of the
total number of ROCs issued in a year, he/she receives that
percentage from the total amount paid by the defaulting com-
panies in the buyout fund. Assuming that all costs and savings
are passed on to consumers from this fund, the cost of ROCs is
effectively paid by electricity consumers of supply companies
that fail to present sufficient ROCs, while supply companies
that submit ROCs in large numbers to that extent reduce the
costs to their consumers.
However, the manner in which the funds raised from the
penalty are used is not the same across countries. Some trans-
fer these to the RE fund, whereas others treat it as revenue to
the government and transfer it to the general account of the
government.
The RO in the UK was designed as a market mechanism to
increase the uptake of renewables, as the ROCs were to provide
additional value over and above the price of electricity itself. As
it turned out, it proved far more successful vis-a-vis the previous
support mechanism, known in England and Wales as the NFFO,
and delivered considerably more renewables. In the latter, the
government had launched several rounds of competitive bidding
contracts for RE in 1990, which came to be labelled as NFFO.
In general, a distinct feature of the ROC mechanism has
been that, unlike the FIT, which is notified by the regulatory
authorities periodically, the price of the certificates is deter-
mined by the supply and demand for ROCs in the market. As
for the renewable electricity, like electricity produced from con-
ventional power plants, it trades as a commodity and its price
is pegged to the wholesale price of electricity. Since the price
of ROCs is determined in the market, it must be the case that
the cost of ROC should correspond to the cost of the marginal
renewable power producer.

Renewable Purchase Obligation 109

 Further, contrasting the two, while the FIT mechanism elimi-
nates price uncertainty to RE generators/developers, there is no
guarantee that it will produce a cumulative response that will
achieve the national target for RE generation. In contrast, in a
well-enforced RPO, since it is mandatory to meet the percent-
age obligation, there is a fair chance that the national target
will be achieved.
However, at what price this will be achieved remains uncer-
tain. This could have consequences that may not always be
palatable to consumers. Yet another of its drawback is that it
could make financial closure difficult for developers in the
absence of price clarity. Thus, the national goal of achieving
a given proportion of RE consumption and the goal of achiev-
ing it in the utmost economically efficient way may not be
fulfilled.
In comparison, the obligation implemented so far in India,
as we saw in the previous chapter, has been a variant of what
has been the case internationally. On the demand side, while
SERCs have mandated the RE percentage obligation for elec-
tricity DISCOMs in their respective areas, state regulators have
departed from the usual approach by bringing in FITs to sup-
port different RE technologies. In effect, the system as it has
operated in India so far is a hybrid of FITs and RPS mechanism.
The regulators have, by specifying the RE targets as well as the
FITs, tried to lower the overall uncertainty, in the hope that
this would make investments attractive to the developers of
these technologies, while limiting the impact of their higher
costs to consumers.
From what is experienced of the RPO in India, it is evident
that the environmental feature of RE generation has remained
tied with its electricity component. This has meant that the
entities which have had a purchase obligation had to meet their
requirements by the actual purchase of electricity from renew-
able power generators in the absence of trade-based instruments
such as the RECs (RECs are equivalent to ROCs as mentioned
above and have been introduced only in 2010 in India).

110 Renewable Energy in India

 While this in itself may not be an issue as far as meeting the
state targets for RE is concerned, one may as well ask whether
the system as it stands is suitable for meeting the national RE
goals set out in the National Action Plan for Climate Change
(NAPCC), especially since the fragmented nature of its execu-
tion bears little correspondence with the requirements of the
National Action Plan. Clearly, a far more universal approach is
necessary for promoting RE in a country as vast and diverse as
India if it is to exploit the potential of these technologies fully
and efficiently.

National Action Plan for Climate Change

Let us consider the NAPCC, which provides the basis for change
in the system of promoting RE technologies in this country.
Section 4.2.2 of the NAPCC requires that a ‘dynamic minimum
renewable purchase standard (DMRPS) be set at a national level,
with escalation each year till a pre-defined level is reached, at
which time the requirements be revisited’. It further proposes

that starting 2009–10, the national renewables’ standard

(excluding hydropower with storage capacity in excess of
daily peaking capacity, or based on agriculture based renew-
able sources that are used for human food) be set at 5% of
the total grid purchase and increased by 1% each year for
the next 10 years.

From this and a fact that the FOR has incorporated the NAPCC
goals in its recommendations, one must presume that the FOR
too has set this as a minimum obligation norm for each of the
SERCs in the country, especially since what is in the plan is also
expected to form part of India’s voluntary obligation under-
taken at the Copenhagen Climate Summit (and reconfirmed at
successive summits after that) to reduce the carbon intensity of
the economy by 20 per cent by 2020.
Given this context, it is apparent that the states are expected
to set RPO targets, which achieve in aggregate the requirements

Renewable Purchase Obligation 111

of the national renewables objectives. In fact, in sync with this,
the Working Group on Policies on Renewables of the FOR has
recommended that the state commissions must specify a mini-
mum RPO of 5 per cent by 2010 to conform to the NAPCC.

India’s Recent Targets for Renewable

Capacity Addition
In 2015, India announced its Intended Nationally Determined
Contributions (INDC)3 commitment to have 40 per cent of
the cumulative installed capacity from non-fossil fuel by 2030.
For this, the country has set an ambitious target of adding 175
GW of generation capacity based on RE sources by 2022. This
overall target includes 100 GW from solar, 60 GW from wind,
10 GW from biopower and 5 GW from small hydropower. The
Ministry of Urban Development had requested all states and
UTs in 2014 to issue the necessary directives to all state govern-
ment departments for using rooftop of buildings under their
control for solar power generation on a mandatory basis, as
well as to local bodies under their jurisdiction to incorporate
similar provision into their building by-laws so that installation
of RTS on rooftops of all types of buildings in their jurisdic-
tion may become mandatory. Further, the Ministry of Urban
Development also issued Model Building Bye-Laws, 2016, in
which suitable provisions for the installation of RTS on build-
ings have been incorporated.
In addition to the above, the GOI set a more ambitious
target of 44 per cent of the total electricity capacity from
renewable sources by 2027 in the CEA’s4 National Electricity
Plan.5 According to the Plan, India aims to have, by 2027, 275
GW from RE, 63.3 GW of hydroelectricity, 16.8 GW of nuclear
energy and 25.7 GW from gas.
The Tariff Policy (Tariff Policy, 2016) 6 notified by the
Ministry of Power, GOI, provided that the long-term growth
trajectory of RPOs would be prescribed by the Ministry of
Power in consultation with the MNRE. In pursuance to the

112 Renewable Energy in India

policy framework and further to enable the achievement of the
target of 175 GW of renewable capacity by March 2022, the
Ministry of Power, in July 2016, notified the long-term trajec-
tory of RPOs for solar as well as non-solar sources, uniformly
for all states/UTs, initially for three years from 2016–2017 to
2018–2019. Subsequently, in June 2018,7 the RPO targets for a
further three-year period from 2019–2020 to 2021–2022 were
also notified (refer to Table 6.1).
The MNRE also brought out state-wise RPOs for solar and non-
solar through their national portal for RPO (refer to Table 6.2).8
The National Solar Mission in 2011 further provided that
within the percentage so made applicable, to start with, the
SERCs shall also reserve a minimum percentage for purchase
of solar energy which will go up to 0.25 per cent by the end of
2012–2013 and further up to 3 per cent by 2022. The question is
whether there is consonance between the centre and the states
on the RPO target setting and compliance.
In this context, the Report of the Comptroller and Auditor
General of India on the RE sector in India (Report No. 34 of
2015—Performance Audit)9 assumes importance as the report
shows the status of compliance of the RPO targets by the utili-
ties against the RPO targets set by the concerned SERCs. Details
are provided in Appendices 6A.1, 6A.2 and 6B.
It is evident from the data that there is a hiatus in the vision
between the centre and the states in terms of the RPO setting. For
example, RPO target (NAPCC target) ranged from 7 percent to
15 percent through 2011–12 to 2019–20 but Andhra Pradesh had
set the target at a constant rate of 5 percent through 2011–12 to
2016–17 (refer to Appendix 6A.1). RPO Compliance remained all
the more discouraging (refer to Appendix 6A.2). To achieve the
national objectives with this system would require an effective
coordination mechanism between states. This would be adminis-
tratively unwieldy. So far, the SERCs have been setting RPO targets
with regard mostly to RE availability in their areas. But to bring
them in line with the national requirements requires a mecha-
nism that is more conducive to achieving the national objective.

Renewable Purchase Obligation 113

 Long-term Growth Trajectory of Renewable Purchase Obligations for Solar and Non-
Table 6.1 solar as Determined by the Ministry of Power

MoP Order Dt. 22 July 2016 MoP Order Dt. 14 June 2018
2016–2017 2017–2018 2018–2019 2019–2020 2020–2021 2021–2022

Non-solar (%) 8.75 9.50 10.25 10.25 10.25 10.50

Solar (%) 2.75 4.75 6.75 7.25 8.75 10.50
Total (%) 11.50 14.25 17.00 17.50 19.00 21.00

Source: Ministry of Power (https://powermin.nic.in/sites/default/files/webform/notices/RPO_trajectory_2019-22_

Order_dated_14_June_2018.pdf)
 State-wise Renewable Purchase Obligations for Solar and Non-solar as per MNRE’s
Table 6.2 National Portal for RPO

2017–2018 2018–2019 2019–2020 2020–2021 2021–2022

Sl. No State RE Technology (%) (%) (%) (%) (%)

1 Andhra Pradesh Non-solar 6 7 8 9 10

Solar 3 4 5 6 7
Total 9.00 11.00 13.00 15.00 17.00
2 Arunachal Pradesh Non-solar 9.50 10.25
Solar 4.75 6.75
Total 14.3 17 0.00 0.00 0.00
3 Assam Non-solar 5.00 6.00 7.00 8.00 9.00
Solar 4.00 5.00 6.00 7.00 8.00
Total 9.00 11.00 13.00 15.00 17.00
4 Bihar Non-solar 5.50 6.00 6.75 7.50 9.00
Solar 2.25 3.25 4.75 6.75 8.00
Total 7.75 9.25 11.50 14.25 17.00
5 Chhattisgarh Non-solar 7.00 7.50 8.00 8.50
Solar 2.00 3.50 5.00 6.50
Total 9.00 11.00 13.00 15.00
(Table 6.2 Continued)
(Table 6.2 Continued)
2017–2018 2018–2019 2019–2020 2020–2021 2021–2022
Sl. No State RE Technology (%) (%) (%) (%) (%)
6 Delhi Non-solar 9.50 10.25 11.00
Solar 4.75 6.75 8.75
Total 14.25 17.00 19.75
7 JERC Non-solar 4.20 5.40 6.80 8.00 9.00
(Goa & UT) Solar 2.50 3.60 4.70 6.10 8.00
Total 6.70 9.00 11.50 14.10 17.00
8 Gujarat Non-solar 8.25 8.45 8.80 8.90 9.00
Solar 1.75 4.25 5.50 6.75 8.00
Total 10.00 12.70 14.30 15.65 17.00
9 Himachal Pradesh Non-solar 9.50 10.25 10.25 10.25 10.50
Solar 4.75 6.75 7.25 8.75 10.50
Total 14.25 17.00 18.00 19.00 21.00
10 Jammu and Non-solar 7.25 8.00 8.75 9.50 9.50
Kashmir Solar 1.25 1.50 1.75 2.00 3.00
Total 8.50 9.50 10.50 11.50 12.50
11 Jharkhand Non-solar 4.00 4.50 5.00
Solar 3.75 5.50 6.55
Total 7.75 10.00 11.55
12 Karnataka Non-solar
Solar
Total
13 Kerala Non-solar 6.00 7.00 5.75 6.05 6.35
Solar 1.50 2.75 0.25 0.25 0.25
Total 7.50 9.75 6.00 6.30 6.60
14 Madhya Pradesh Non-solar 7.00 7.50 8.00 8.50 9
Solar 1.50 1.75 4.00 6.00 8.00
Total 8.50 9.25 12.00 14.50 17.00
15 Maharashtra Non-solar 10.50 11.00 11.50
Solar 2.00 2.75 3.50
Total 12.50 13.75 15.00
16 Manipur Non-solar 2.00 2.50 3.00 3.00 3.00
Solar 5.50 8.00 9.00 10.00 10.50
Total 10.00 12.70 14.30 15.65 17.00
(Table 6.2 Continued)
(Table 6.2 Continued)
2017–2018 2018–2019 2019–2020 2020–2021 2021–2022
Sl. No State RE Technology (%) (%) (%) (%) (%)
17 Mizoram Non-solar
Solar
Total
18 Meghalaya Non-solar 2.07 3.25 4.00 4.75
Solar 0.43 0.75 1.00 1.25
Total 2.50 4.00 5.00 6.00
19 Nagaland Non-solar
Solar
Total
20 Orissa Non-solar 4.50 5.00 5.50
Solar 3.00 4.50 5.50
Total 7.50 9.50 11.00
21 Punjab Non-solar 4.20 4.30 5.50 6.50 8.00
Solar 1.80 2.20 4.00 5.00 6.50
Total 6.00 6.50 9.50 11.50 14.50
22 Rajasthan Wind 8.20 8.75 8.75 8.75 8.90
Biomass 1.30 1.50 1.50 1.50 1.60
Non-solar 9.50 10.25 10.25 10.25 10.50
Solar 4.75 6.75 7.25 8.75 10.50
Total 14.25 17.00 17.50 19.00 21.00
23 Tamil Nadu Non-solar 9.00
Solar 5.00
Total 14.00
24 Tripura Non-solar 11.50 12.25 13.00
Solar 1.50 1.75 2.00
Total 13.00 14.00 15.00
25 Uttarakhand Non-solar 9.50 10.25 11.00 11.75 12.50
Solar 4.75 6.75 7.00 7.50 8.00
Total 14.25 17.00 18.00 19.25 20.50
26 Uttar Pradesh Non-solar
Solar
Total
(Table 6.2 Continued)
(Table 6.2 Continued)
2017–2018 2018–2019 2019–2020 2020–2021 2021–2022
Sl. No State RE Technology (%) (%) (%) (%) (%)
27 West Bengal Non-solar 7.40
Solar 0.60
Total 8.00
28 Sikkim Non-solar 9.50 10.25
Solar 4.75 6.75
Total 14.25 17.00

Source: MNRE (https://rpo.gov.in/Home/About)

Drawbacks of Current RPO Approach
From what has been observed so far, it is evident that the RPO
mechanism in India, in its prevailing form, has operated in too
narrow a sphere to meaningfully contribute to the national
requirements. The State Commissions’ insistence on the obli-
gated entity to meet their purchase obligation by procuring
RE generation from within their state boundaries hinders the
achievement of the national objective. It limits the market
reach and scope for RE generators and deprives electricity
consumers of any benefit that the national-scale operation in
green energy may offer.
Besides, given that the RE costs are averaged in electricity
tariffs charged to consumers and a fact that RE potential across
India varies considerably, consumers in states with dispro-
portionately higher RE obligations are put at a disadvantage
vis-a-vis other states, as they are left to bear higher costs of RE
generation through their electricity tariffs. In this context, the
issue of RE integration cost in general and system balancing
cost in particular also assumes importance. The balancing cost
is estimated to be within the range of `1.11 per unit10—the
balancing cost on account of provisioning of additional flexible
high-cost gas-based generation, unscheduled interchange (UI)
charge, standby charge and additional transmission charge.
Seen from the point of view of the RE-deficit states, trans-
mission infrastructure and associated costs are the major con-
straints. Encouraging interstate RE trade across India would
require addressing infrastructural constraints. Notwithstanding
open access, the prevailing constraints in transmission have
been a major impediment to achieving interstate trade.11 This
is despite the creation of a national grid.
For the obligated entities to participate in interstate trade,
the cost of procuring, after adjusting for transmission and
wheeling charges, will have to be lower than what they may
be paying at the moment to RE generators in their own states.
Lastly, a number of states have already achieved high RPO

Renewable Purchase Obligation 121

levels and one suspects that they have little interest in adding
more RE-based power in their system. Further, in the case of
states that are deficient in RE resources, insistence on procure-
ment of RE generation from within their boundaries results in
a very low level of RPO targets in them. If they are to raise their
targets, they must be provided with cost-effective options to
meet them. The waiver of interstate transmission charges and
losses provided in the policy of the GOI and regulations of the
CERC (Tariff Policy, 2016,12 and Central Electricity Regulatory
Commission [Sharing of Inter-State Transmission Charges and
Losses] Regulations, 202013) is a step in this direction.

Chapter Conclusion
For any trading mechanism to be successful, it would have to
either overcome the constraints of the transmission infrastruc-
ture and associated costs, or sidestep them. While a detailed
analysis of the various constraints, the steps taken so far to over-
come them, the gaps that exist in the absence of a holistic view
and the desirable action has been covered in the last chapter,
the next chapter deliberates the initiatives taken in the form
of the REC mechanism to address, inter alia, the constraints of
interstate transferability of variable renewable, so as to facilitate
better compliance of RPO. The FOR in India, responding to the
challenge, developed a national framework for the implementa-
tion of RPO, based on trade of RECs. It called upon the CERC
to frame a regulation to institutionalize it at the national level
and to entrust SERCs to adopt this instrument for RPO compli-
ance under Section 86 (1) (e) of the EA, 2003. This is discussed
in the next chapter in detail.

Notes
1. https://www.ofgem.gov.uk/ofgem-publications/76340/ro-buy-out-
fund102010-pdf (accessed on 10 February 2021).
2. N. H. van der Linden, M. A. Uyterlinde, C. Vrolijk, Lars J. Nilsson,
Kerstin Åstrand, Karin Ericsson, R Wiser and Jamil Khan, ‘Review

122 Renewable Energy in India

 of International Experience with Renewable Energy Obligation
Support Mechanisms’ (Petten: Energieonderzoek Centrum
Nederland, 2005).
3. http://moef.gov.in/wp-content/uploads/2017/08/Press_
Statement__INDC_English.pdf (accessed on 1 October 2020)
4. https://en.wikipedia.org/wiki/Central_Electricity_Authority_
(India) (accessed on 10 February 2021).
5. https://www.cea.nic.in/reports/committee/nep/nep_jan_2018.pdf
(accessed on 1 October 2020), 5.17.
6. https://powermin.nic.in/sites/default/files/webform/notices/
Tariff_Policy-Resolution_Dated_28012016.pdf (accessed on
1 October 2020).
7. https://powermin.nic.in/sites/default/files/webform/notices/RPO_
trajectory_2019–22_Order_dated_14_June_2018.pdf (accessed on
9 May 2020).
8. https://rpo.gov.in/Home/About (accessed on 9 May 2020).
9. https://cag.gov.in/sites/default/files/audit_report_files/Union_
Civil_Performance_Renewable_Energy_Report_34_2015.pdf
(accessed on 9 May 2020), 205–206.
10. https://www.cea.nic.in/reports/others/planning/resd/resd_comm_
reports/report.pdf (accessed on 10 February 2021), 18.
11. Central Electricity Regulatory Commission, ‘Study on
Determination of Forbearance and Floor Price’ (2010). Available
at http://powerexindia.com/media/new/Images/Downloads/rec/
Final_Suo_Motu_Order_on_Determination_of_Forbearance_and_
Floor_Price_of_REC.pdf (accessed on 10 February 2021).
12. https://powermin.nic.in/sites/default/files/webform/notices/
Tariff_Policy-Resolution_Dated_28012016.pdf (accessed on
1 October 2020), para 6.4.
13. http://cercind.gov.in/2020/regulation/158-Reg.pdf (accessed on
1 October 2020), Regulation 13.

Renewable Purchase Obligation 123

  
Targets of Renewable Purchase Obligation Set by State Electricity Regulatory
Appendix 6A.1
Commissions from 2010–2011 to 2019–2020 (in %)
S. 2010­ 2011– 2012­ 2013– 2014– 2015– 2016– 2017– 2018– 2019–
No. State –2011 2012 –2013 2014 2015 2016 2017 2018 2019 2020

NAPCC Target 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00
1 Andhra Pradesh 5.00 5.00 5.00 5.00 5.00 5.00
2 Arunachal Pradesh 4.20 5.60 7.00
3 Assam 2.80 4.20 5.60 7.00
4 Bihar 1.50 3.00 4.00 4.50 5.00 1.00 1.25 1.50 1.75 2.00
5 Chhattisgarh 5.00 5.25 5.75 5.75 5.75
6 Gujarat 5.00 6.00 7.00 7.00 8.00 9.00 10.00
7 Haryana 1.50 1.50 2.05 3.10
8 Himachal Pradesh 10.00 10.01 10.25 10.25 10.25 11.25 12.25 13.50 14.75 16
9 Jammu & Kashmir 3.00 5.00 5.00 6.00 7.50 9.00
10 Jharkhand 2.00 3.00 4.00 4.00 4.00 4.00
11 Karnataka 7.25 7.25 7.25
12 Kerala 3.30 3.60 3.90 4.20 4.50 4.80 5.10 5.40 5.70 6.00
13 Madhya Pradesh 2.50 4.00 5.50 7.00
14 Maharashtra 6.00 7.00 8.00 9.00 9.00 9.00
15 Meghalaya 0.50 0.75 1.00 1.00
16 Mizoram 5.00 6.00 7.00
17 Nagaland 5.00 7.00 8.00
18 Odisha 5.00 5.50 6.00 6.50 7.00
19 Punjab 2.40 2.90 3.50 4.00
20 Rajasthan 8.50 6.00 7.10 8.20
21 Tamil Nadu 9.00 9.00 9.00 11.00 11.00
22 UP 3.75 5.00 6.00 6.00
23 Uttarakhand 4.53 5.05 6.05 7.08 8.10 9.30 11.50
24 West Bengal 4.00 5.00 6.00 7.00 8.00

Source: Comptroller and Auditor General of India on Renewable Energy Sector in India (Report No. 34 of 2015 –
Performance Audit).
  
Compliance of Renewable Purchase Obligation by the Utilities from 2010–2011 to
Appendix 6A.2
2013–2014

S. RPO Notified/Achievement (in%)

No. State 2010–2011 2011–2012 2012–2013 2013–2014

NAPCC target 6.00 7.00 8.00 9.00

1 Andhra Pradesh 5.00/NA 5.00/1.75 5.00/NA
2 Arunachal Pradesh 4.20/8.41 5.60/8.87
3 Assam 0/8.40 1.90/4.01 4.20/3.44 5.60/ NA
4 Bihar 1.50/1.00 2.50/2.10 4.00/ 2.90 4.50/1.89
5 Chhattisgarh 5.00/0 5.25/ 2.76 5.75/2.96 6.25/ NA
6 Gujarat 5.00/2.76 6.00/4.73 7.00/ 6.50 7.00/672
7 Haryana 1.50/1.06 1.50/1.07 2.05/0.97 3.10/0.94
8 Himachal Pradesh 10.00/12.00 10.01/15.73 10.25/17.26 10.25/16.69
9 Jammu & Kashmir 3.00/Nil 5.00/Nil 5.00/Nil
10 Jharkhand 2.00/0.19 3.00/ 0.28 4.00/0.39 4.00/0.42
11 Karnataka 0/10.70 7.25/10.73 7.25/9.93 7.25/10.97
12 Kerala 3.00/3.38 3.30/2.855 3.60/2.47 3.90/ NA
13 Madhya Pradesh 2.50/NA 4.00/ NA 5.50/ NA
14 Maharashtra 6.00/5.77 7.00/ 7.15 8.00/ 7.05 9.00/ 7.66
15 Meghalaya 0.50/ 4.14 0.75/ 3.41 1.00/ 5.00 1.00/ 3.80
16 Mizoram 5.00/5.14 6.00/ 7.76 7.00/14.45 9.00/11.99
17 Nagaland 5.00/NIL 5.00/NIL 5.00/NIL 5.00/NIL
18 Odisha 5.00/NA 5.500/ NA 6.00/ NA
19 Punjab 2.40/1.69 2.90/2.59 3.50/3.08
20 Rajasthan 8.50/3.55 6.00/5.16 7.10/6.30 8.20/7.25
21 Tamil Nadu 0/17.27 9.00/20.09 9.00/26.13 9.00/20.04
22 UP 3.75/4.56 5.00/6.19 6.00/4.68 6.00/4.45
23 Uttarakhand 4.53/NA 5.05/3.78 6.05/3.15
24 West Bengal 2.00/NA 3.00/1.47 4.00/2.54

Source: Comptroller and Auditor General of India on Renewable Energy Sector in India (Report No. 34 of 2015 –
Performance Audit)
  
State-wise RPO Target (FY 2016–2017 to FY 2020–2021) and RPO Compliance (FY 2016–2017 to
Appendix 6B
FY 2018–19)
Non-solar
Solar Achievement/ Achievement/
States/DISCOMS Solar Target (%) Compliance (%) Non-solar Target (%) Compliance (%)
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
S. 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018– 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018–
No. States DISCOM 2017 2018 2019 2020 2021 2017 2018 2019 2017 2018 2019 2020 2021 2017 2018 2019
1 Andaman & Electricity 1.65 2.50 3.60 4.70 6.10 3.20 4.20 5.40 8.00
Nicobar Department,
Andaman
and Nicobar
Administration
(ED A&N)
2 Andhra Southern Power 0.25 3.00 4.00 5.00 6.00 4.75 6.00 7.00 8.00 9.00
Pradesh Distribution Co.
Ltd (SPDCL)
Eastern Power 0.25 3.00 4.00 5.00 6.00 4.75 6.00 7.00 8.00 9.00
Distribution Co.
Ltd (EPDCL)
3 Arunachal Department of 2.75 4.75 6.75 8.75 9.50 10.25
Pradesh Power, Arunachal
Pradesh (DOP,
AP)
4 Assam Assam Power 1.00 4.00 5.00 6.00 7.00 1.00 1.16 3.00 5.00 6.00 7.00 8.00 2.91 4.90
Distribution
Company Limited
(APDCL)
5 Bihar North Bihar 1.50 2.25 3.25 4.75 6.75 1.50 2.25 2.79 5.00 5.50 6.00 6.75 7.50 5.00 5.50 5.30
Power Distribution
Company Limited
(NBPDCL)
South Bihar 1.50 2.25 3.25 4.75 6.75 1.50 2.25 2.80 5.00 5.50 6.00 6.75 7.50 5.00 5.50 6.93
Power Distribution
Company Limited
(SBPDCL)
6 Chandigarh Chandigarh 1.65 2.50 3.60 4.70 6.10 1.40 1.06 3.20 4.20 5.40 6.80 8.00 1.23 1.21
Electricity
Department (CED)
7 Chhattisgarh Chhattisgarh State 1.50 2.00 3.50 5.00 6.50 6.50 7.00 7.50 8.00 8.50
Power Distribution
Company Ltd
(CSPDCL)
8 Delhi BSES Rajdhani 0.35 2.75 4.75 6.75 7.25 0.41 8.65 8.75 9.50 10.25 10.25 8.04
Power limited
BSES Yamuna 0.35 2.75 4.75 6.75 7.25 8.65 8.75 9.50 10.25 10.25
Power limited
Tata Power Delhi 0.35 2.75 4.75 6.75 7.25 8.65 8.75 9.50 10.25 10.25
Distribution Ltd
(TPDDL)
New Delhi 0.35 2.75 4.75 6.75 7.25 8.65 8.75 9.50 10.25 10.25
Municipal Council
(NDMC)
9 Dadra & Dadra & Nagar 1.65 2.50 3.60 4.70 6.10 1.41 0.08 3.20 4.20 5.40 6.80 8.00 3.54 0.00
Nagar Haveli Haveli Power
Distribution
Corporation Ltd
(DNHPDCL)

(Appendix 6B Continued)
(Appendix 6B Continued)
Non-solar
Solar Achievement/ Achievement/
States/DISCOMS Solar Target (%) Compliance (%) Non-solar Target (%) Compliance (%)
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
S. 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018– 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018–
No. States DISCOM 2017 2018 2019 2020 2021 2017 2018 2019 2017 2018 2019 2020 2021 2017 2018 2019
10 Daman & Diu Electricity 1.65 2.50 3.60 4.70 6.10 0.71 0.80 3.20 4.20 5.40 6.80 8.00 1.86 3.63
Department of
Daman & Diu (ED
DD)
11 Goa Electricity 1.15 2.50 3.60 4.70 6.10 1.54 2.38 3.56 2.80 4.20 5.40 6.80 8.00 1.06 4.09 5.30
Department, Goa
(EDG)
12 Gujarat Dakshin Gujarat 1.75 3.00 4.25 5.50 6.75 1.88 1.83 2.77 8.25 8.35 8.45 8.80 8.90 6.73 7.60 9.27
Vij Company
Limited (DGVCL)
Madhya Gujarat 1.75 1.75 4.25 5.50 6.75 1.88 1.83 2.77 8.25 8.35 8.45 8.80 8.90 6.73 7.60 9.27
Vij Company
Limited (MGVCL)
Uttar Gujarat Vij 1.75 1.75 4.25 5.50 6.75 1.88 1.83 2.77 8.25 8.35 8.45 8.80 8.90 6.73 7.60 9.27
Company Limited
(UGVCL)
Paschim Gujarat 1.75 1.75 4.25 5.50 6.75 1.88 1.83 2.77 8.25 8.35 8.45 8.80 8.90 6.73 7.60 9.27
Vij Company
Limited (PGVCL)
Torrent Power 1.75 1.75 4.25 5.50 6.75 2.46 2.59 3.67 8.25 8.35 8.45 8.80 8.90 5.79 8.24 7.95
Limited-
Distribution Surat
 Torrent Power 1.75 1.75 4.25 5.50 6.75 2.46 2.59 3.67 8.25 8.35 8.45 8.80 8.90 5.79 8.24 7.95
Limited-
Distribution
Ahmedabad
13 Haryana Uttar Haryana Bijli 1.00 2.50 4.00 5.50 7.00 2.75 2.75 3.00 3.00 3.00
Vitran Nigam Ltd
(UHBVNL)
Dakshin Haryana 1.00 2.50 4.00 5.50 7.00 2.75 2.75 3.00 3.00 3.00
Bijli Vitran Nigam
Ltd (DHBVNL)
14 Himachal Himachal Pradesh 2.50 4.75 6.75 7.25 8.75 2.50 9.50 9.50 10.25 10.25 10.25 9.50
Pradesh State Electricity
Board Ltd
(HPSEBL)
15 Jharkhand Jharkhand Bijli 1.80 3.75 5.50 6.55 6.55 3.50 4.00 4.50 5.00 5.00
Vitran Nigam
Limited (JBVNL)
Damodar Valley 1.80 3.75 5.50 6.55 6.55 3.50 4.00 4.50 5.00 5.00
Corporation
(DVC)
Jamshedpur Utility 1.80 3.75 5.50 6.55 6.55 3.50 4.00 4.50 5.00 5.00
Services Company
Limited (JUSCO)
Tata Steel Limited 1.80 3.75 5.50 6.55 6.55 3.50 4.00 4.50 5.00 5.00
(TSL)
Steel Authority 1.80 3.75 5.50 6.55 6.55 3.50 4.00 4.50 5.00 5.00
of India Limited
(SAIL)

(Appendix 6B Continued)
(Appendix 6B Continued)
Non-solar
Solar Achievement/ Achievement/
States/DISCOMS Solar Target (%) Compliance (%) Non-solar Target (%) Compliance (%)
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
S. 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018– 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018–
No. States DISCOM 2017 2018 2019 2020 2021 2017 2018 2019 2017 2018 2019 2020 2021 2017 2018 2019
16 Karnataka Bangalore 0.75 2.75 6.00 7.25 8.50 1.04 4.11 11.00 12.00 13.00 12.00 12.00 11.00 12.00
Electricity Supply
Company Limited
(BESCOM)
Chamundeshwari 0.75 2.75 6.00 7.25 8.50 0.79 4.94 11.00 11.00 12.00 12.00 12.00 10.47 11.00
Electricity Supply
Corporation
Limited (CESC)
Gulbarga 0.75 2.75 6.00 7.25 8.50 0.75 5.33 5.50 6.00 7.00 11.00 11.00 5.50 10.47
Electricity Supply
Company Limited
(GESCOM)
Hubli Electricity 0.75 2.75 6.00 7.25 8.50 0.68 3.89 7.50 8.50 9.50 8.00 8.00 7.80 20.81
Supply Company
Limited (HESCOM)
Mangalore 0.75 2.75 6.00 7.25 8.50 1.48 4.26 11.01 12.00 13.00 13.00 13.00 11.01 13.10
Electricity Supply
Company Limited
(MESCOM)
17 Kerala Kerala State 0.50 1.50 2.75 0.23 0.53 0.75 4.50 6.00 7.00 2.85 3.24 4.68
Electricity Board
Ltd (KSEBL)
18 Lakshadweep Electricity 1.65 2.50 3.60 4.70 6.10 3.20 4.20 5.40 6.80 8.00
Department, UT
of Lakshadweep
(LED)
19 Madhya Central DISCOM 1.25 1.50 1.75 6.50 7.00 7.50
Pradesh East DISCOM 1.25 1.50 1.75 6.50 7.00 7.50
West DISCOM 1.25 1.50 1.75 6.50 7.00 7.50
20 Maharashtra Tata Power 1.00 2.00 2.75 3.50 4.50 1.10 1.55 3.23 10.00 10.50 11.00 11.50 11.50 10.00 10.50 10.97
Distribution
(TPC-D)
RInfra-D/Adani 1.00 2.00 2.75 3.50 4.50 0.74 0.73 0.79 10.00 10.50 11.00 11.50 11.50 7.45 2.14 2.29
Electricity Mumbai
Limited (AEML)
Maharashtra 1.00 2.00 2.75 3.50 4.50 0.38 0.79 10.00 10.50 11.00 11.50 11.50 10.00 10.57
State Electricity
Distribution
Company Limited
(MSEDCL)
Brihanmumbai 1.00 2.00 2.75 3.50 4.50 1.01 0.69 10.00 10.50 11.00 11.50 11.50 9.03 11.38
Electric Supply
and Transport
(BEST)
21 Manipur Manipur State 2.75 4.75 6.75 0.00 8.75 9.50 10.25 0.92
Power Distribution
Company Ltd
(MSPDCL)
22 Meghalaya Meghalaya Power 0.42 0.43 0.75 1.00 1.25 1.58 2.07 3.25 4.00 4.75
Distribution
Corporation
Limited (MePDCL)

(Appendix 6B Continued)
(Appendix 6B Continued)
Non-solar
Solar Achievement/ Achievement/
States/DISCOMS Solar Target (%) Compliance (%) Non-solar Target (%) Compliance (%)
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
S. 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018– 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018–
No. States DISCOM 2017 2018 2019 2020 2021 2017 2018 2019 2017 2018 2019 2020 2021 2017 2018 2019
23 Mizoram Power and 2.75 4.75 6.75 0.00 8.75 9.50 10.25 20.89
Electricity
Department
(P&ED), Mizoram
24 Nagaland Department of 2.75 4.75 6.75 7.25 8.75 0.00 0.00 0.00 8.75 9.50 10.25 10.25 10.25 15.86 13.05 16.26
Power, Nagaland
(DPN)
25 Odisha Central Electricity 1.50 3.00 4.50 5.50 3.00 4.50 5.00 5.50
Supply Utility
(CESU)
North Eastern 1.50 3.00 4.50 5.50 3.00 4.50 5.00 5.50
Electricity Supply
Company of
Odisha Limited
(NESCO)
SOUTHCO 1.50 3.00 4.50 5.50 3.00 4.50 5.00 5.50
Western 1.50 3.00 4.50 5.50 3.00 4.50 5.00 5.50
Electricity Supply
Company of
Orissa Limited
(WESCO)
26 Puducherry Puducherry 1.65 2.50 3.60 4.70 6.10 0.02 3.20 4.20 5.40 6.80 8.00 0.00
Electricity
Department (PED)
27 Punjab Punjab 1.30 1.80 2.20 4.00 2.65 3.91 3.66 4.10 4.20 4.30 5.50 2.49 4.58 3.75
State Power
Corporation
Limited (PSPCL)
28 Rajasthan Ajmer Vidyut 2.50 4.75 6.75 6.00 7.25 8.90 9.50 10.25 9.00 9.40
Vitran Nigam
Limited (AVVNL)
Jodhpur Vidyut 2.50 4.75 6.75 6.00 7.25 8.90 9.50 10.25 9.00 9.40
Vitran Nigam
Limited (JDVVNL)
Jaipur Vidyut 2.50 4.75 6.75 6.00 7.25 8.90 9.50 10.25 9.00 9.40
Vitran Nigam
Limited (JVVNL)
29 Sikkim Energy and Power 0.75 4.75 6.75 6.75 6.75 4.25 9.50 10.25 10.25 10.25
Department,
Sikkim (EPDS)
30 Tamil Nadu Tamil Nadu 2.50 5.00 5.00 2.90 3.40 3.32 9.00 9.00 9.00 14.64 18.91 12.15
Generation and
Distribution
Corporation Ltd
(TANGEDCO)
31 Telangana Northern Power 0.25 0.25 5.33 5.77 6.21 4.75 4.75 0.67 0.73 0.79
Distribution
Company of
Telangana Limited
(TSNPDCL)
Southern Power 0.25 0.25 5.33 5.77 6.21 4.75 4.75 0.67 0.73 0.79
Distribution
Company of
Telangana Limited
(TSSPDCL)

(Appendix 6B Continued)
(Appendix 6B Continued)
Non-solar
Solar Achievement/ Achievement/
States/DISCOMS Solar Target (%) Compliance (%) Non-solar Target (%) Compliance (%)
FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY
S. 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018– 2016– 2017– 2018– 2019– 2020– 2016– 2017– 2018–
No. States DISCOM 2017 2018 2019 2020 2021 2017 2018 2019 2017 2018 2019 2020 2021 2017 2018 2019
32 Tripura Tripura State
Electricity
Corporation Ltd
(TSECL)
33 UP Dakshinanchal 1.00 1.00 1.00 2.00 3.00 0.43 0.01 1.07 5.00 5.00 5.00 6.00 8.00 4.10 4.16 3.90
Vidyut Vitran Nigam
Ltd (DVVNL)
Kanpur Electricity 1.00 1.00 1.00 2.00 3.00 0.43 0.01 1.07 5.00 5.00 5.00 6.00 8.00 4.10 4.16 3.90
Supply Company
Ltd (KESCo)
Madhyanchal 1.00 1.00 1.00 2.00 3.00 0.43 0.01 1.07 5.00 5.00 5.00 6.00 8.00 4.10 4.16 3.90
Vidyut Vitaran
Nigam Ltd
(MVVNL)
Pashchimanchal 1.00 1.00 1.00 2.00 3.00 0.43 0.01 1.07 5.00 5.00 5.00 6.00 8.00 4.10 4.16 3.90
Vidyut Vitaran
Nigam Limited
(PVVNL)
Purvanchal Vidyut 1.00 1.00 1.00 2.00 3.00 0.43 0.01 1.07 5.00 5.00 5.00 6.00 8.00 4.10 4.16 3.90
Vitaran Nigam
Limited (PUVVNL)
Noida Power 1.00 1.00 1.00 2.00 3.00 0.69 0.83 5.00 5.00 5.00 6.00 8.00 1.39 6.86
Company Limited
(NPCL)
34 Uttarakhand Uttarakhand 1.50 4.75 6.75 7.25 8.75 0.30 2.64 8.00 9.50 10.25 10.25 10.25 7.36 7.10
Power
Corporation Ltd
(UPCL)
35 West Bengal West Bengal 0.25 0.30 0.40 5.50 6.00 6.50
State Electricity
Distribution
Company Ltd
(WBSEDCL)
Calcutta 0.25 0.30 0.40 5.50 6.00 6.50
Electric Supply
Corporation
(CESC)
Damodar Valley 0.25 0.30 0.40 5.50 6.00 6.50
Corporation
(DVC)
Durgapur Power 0.25 0.30 0.40 5.50 6.00 6.50
Limited (DPL)
India Power 0.25 0.30 0.40 5.50 6.00 6.50
Corporation
Limited (IPCL)

Source: Compiled based on information available in websites of SERCs.

 7

Renewable Energy
Certificate (REC)
Has It Outlived Its Life as
Market-based Mechanism?

Introduction
Continuing the discussion from the previous chapter regard-
ing the constraint of the interstate transferability of variable
renewable, coming in the way of RPO fulfilment by obligated
entities, this chapter examines the framework of REC as a mar-
ket-based instrument to address this constraint and, in turn, to
facilitate RPO compliance. The CERC issued ‘Central Electricity
Regulatory Commission (Terms and Conditions for Recognition
and Issuance of Renewable Energy Certificate for Renewable
Energy Generation) Regulations, 2010’ on 14 January 2010
framing the regulation as agreed in the FOR. What are its fea-
tures? How does it compare with international mechanisms of
a similar nature? Even more importantly, can it deliver what
the government has sought to achieve? These are some of the
questions that this chapter seeks to answer.
CERC’s Notification
The CERC’s notification of 14 January 2010 (subsequently
amended in 2010, 2013, 2014 and 2016) requires obligated
entities to meet two distinct RPOs, namely solar and non-solar,
through solar and non-solar RECs, respectively. Further, the
notification provides for the issuance of solar certificates to gen-
erators of electricity from solar energy and non-solar certificates
to generators of electricity from non-solar RE (for brevity, both
are referred to in rest of the book as RECs).
Entities having RE purchase obligation can acquire these cer-
tificates in fulfilment of their obligation only from the PX and
not in any other manner. Bilateral transactions in certificates
are thus ruled out. There is no restriction, however, on placing
these certificates on any of the PX in the country, so long as
they have obtained prior approval of their rules and by-laws,
including the mechanism for price discovery for certificates, from
CERC (Sec 8[2]).

Pricing of Certificates
Logically, since the trade in certificates is meant to be con-
ducted through PX, its price discovery must also happen
there. The notification provides for this, but with a caveat
that the CERC ‘may, in consultation with the Central Agency
(designated by the Commission inter-alia for registration and
issuance of RECs) and the Forum of Regulators provide for the
forbearance and the floor price from time to time, separately
for the solar and non-solar certificates’. How would these
prices be determined?
The notification spells this out requiring the following
aspects to be taken into account in setting prices, namely
variation in the cost of generation of different RE technolo-
gies falling under the solar and non-solar categories, across
states in the country, variation in the pooled cost of purchase
of electricity across states in the country, expected electricity
generation from RE sources, including expected RE capacity

Renewable Energy Certificate (REC) 139

under preferential tariff and expected RE capacity under the
mechanism of certificates.
The pooled cost in the regulation is defined as the weighted
average pooled price at which the distribution licensee has
purchased the electricity, including the cost of generation, if
any, in the previous year from all energy suppliers, long-term
and short term, but excluding those based on RE sources, as
the case may be.
After spelling out the basis for arriving at a forbearance and
a floor price, the Commission awarded a study to a consultant
firm to assess these prices and to make its recommendation. The
Commission determined1 these prices in accordance with the
following assumptions and principles for non-solar renewable
technologies, namely the target for RE generation in the coun-
try for the year 2010–2011 taken as 6 per cent as per the NAPCC;
it developed future scenarios for each of the RE technologies
across states, by taking 2009 as a base year and the growth in
capacities of each of the RE technologies in selected states, and
making projections on the basis of the cumulative aggregate
growth rate performance of each of them in the past five years,
the current achievement in each of them, MNRE/GOI’s 11th
Plan targets for capacity addition in RE and the remaining RE
potential available in the state, the Commission estimated
incremental generation at the state level in 2010–2011. For
the sake of uniformity, the capacity added under a specific RE
technology was multiplied by the capacity utilization factor for
that technology, as per the CERC RE Tariff Regulations, 2009;
again, for uniformity, the cost of generation/RE tariff for differ-
ent technologies for 2009–2010 was assumed to be as per the
CERC Tariff Regulations, 2009; in the assessment, the (pooled)
APPC for a state represented the weighted average pooled power
purchase cost by distribution licensee (excluding transmission
charges) in the state during the previous FY (2009–2010).
The forbearance price for REC was derived on the basis of the
highest difference between the cost of generation of RE tech-
nologies/RE tariff and the APPC of 2009–2010 for the respective

140 Renewable Energy in India

states. Floor price was derived keeping in view the basic mini-
mum requirements for ensuring the viability of RE projects set
up for meeting the RE targets. The viability requirement covered
the loan repayment and interest charges, O&M expenses and
fuel expenses in the case of biomass and cogeneration.
To keep it short, the approach to calculating floor price
for solar technologies is not taken up in detail here. But the
approach is broadly similar to that for computing the forbear-
ance price, except that the floor price is derived as the difference
between the viability cost for a renewable project (of late taken
as 70% of the cost of RE being equivalent to normative debt
servicing requirement) and the APPC.
From the above, the Commission in June 2010 arrived at
the forbearance price for non-solar and solar technologies of
`3,900/MWh and `17,000/MWh, respectively. Thus, departing
from various prevalent approaches abroad, the Commission has
pursued an approach in which these prices are determined with
the help of quasi-supply curve for RE generation.
Further, the Commission too, like in other countries of the
world, has provided for the minimum level of price support
in its order to the eligible renewable generators. However, it
has arrived at REC floor prices by again using a quasi-supply
curve approach; but under different circumstances than those
in the case of a forbearance price. The floor price thus arrived
is `1,500/MWh and `12,000/MWh, respectively, for non-solar
and solar technologies. While this latter price is meant to pro-
tect the viability of RE generators under conditions of declining
REC prices, it also explains why the CERC’s order has kept solar
and non-solar under two different obligation categories.
Subsequently, the CERC through a suo motu order in August
2011 revised the floor and forbearance price of non-solar and
solar RECs for the control period from 1 April 2012 to 31 March
2017. Through this order, the floor price of the non-solar and
solar RECs was kept as `1,500/MWh and `9,300/MWh, while
the forbearance prices of the two categories were determined as
`3,300/MWh and `13,400/MWh, respectively. Subsequently, in

Renewable Energy Certificate (REC) 141

December 2014, the Central Commission revised the floor and
forbearance prices of solar RECs to `3,500/MWh and `5,800/
MWh for the remaining part of the control period, that is, up
to 31 March 2017, while leaving the floor and forbearance
prices of non-solar RECs untouched. From 1 April 2017, the
floor prices of solar and non-solar have been pegged at `1,000/
MWh, while the forbearance prices of solar and non-solar RECs
have been set at `2,400/MWh and `3,000/MWh, respectively.
In a recent order issued in June 2020,2 the CERC has further
revised the forbearance price for both solar and non-solar RECs
to `1,000/MWh and the floor price to `0/MWh.
The forbearance price in the CERC order is akin to the buyout
price of REC to be paid by suppliers/DISCOMs in the UK for
defaulting on their RPS obligation. In India, the forbearance
price is also meant to act as a protection to obligated entities
against a runaway rise in REC prices.
The forbearance price is required to be high enough to
discourage obligated entities from defaulting on their obliga-
tions, at least in normal circumstances but, in a scenario where
there could be a serious shortfall in RE generation for whatever
reasons, the forbearance price is meant to act as a protection
against a runaway rise in REC prices.

Eligibility Criterion for Generators

There are eligibility criteria for registering as generators
under the REC. These require a generating company engaged
in generation of electricity from RE sources to register with
the central agency for issuance of and dealing in the RECs.
Further, at a time of registering, it should not be availing of
the benefit of selling such generation at a preferential tariff
(determined by the appropriate commission) and, on regis-
tration, it should sell electricity so generated to the distribu-
tion licensee in its area at a price not exceeding the pooled
cost of power purchase of the licensee or to an open access
consumer at a mutually agreed price or through market at a

142 Renewable Energy in India

market-determined price. The last of this presumably allows
RE generators to take advantage of electricity prices in the spot
market if they decide to do so.
The central agency for the issuance of RECs is required to
issue certificates after satisfying itself that all the conditions for
the issuance of certificates, as stipulated in the detailed proce-
dure, have been met by eligible RE generators.
The certificates are, in fact, to be issued against renewable
units of electricity generated and injected by the generator into
the grid after duly accounting for it in the energy accounting
system, as per the Indian Electricity Code or the State Grid
Code, as the case may be. Each certificate issued, like the ROCs
in the UK and elsewhere where this system is in operation,
would represent MWh of electricity generated and injected into
the grid from an RE source.
There are other similarities as well with the RPS implemented
abroad. As mentioned in the CERC notification, the price of
electricity from RE units is pegged to the weighted average
pooled cost of electricity to the distribution entities. This, in
effect, is a wholesale price of electricity, as understood in the
context of the Indian electricity sector.
In pegging the price to pooled costs, the regulator’s intention
has been to protect electricity consumers, especially in areas of
entities having RPO in which the share of RE in total electricity
consumption is disproportionately high. Next, the tradability
of REC obviates the need to actually procure electricity from RE
generator and thus reduces transaction costs for the obligated
entities towards meeting their obligations.
Further, since the interstate trade is in RECs and not in elec-
tricity, it sidesteps the issue of physical constraints mentioned
above. However, as in systems abroad, it is not quite clear
whether the order has capped the costs to consumers in the
case of a default by the obligated identity.
Lastly, most countries that follow the RPS approach for
promoting electricity from RE allow for the banking and

Renewable Energy Certificate (REC) 143

borrowing of RECs. The former allows holders to keep RECs in
their account for compliance with the obligation in the future.
The latter, on the other hand, allows the current obligation
to be met from the future generation of renewable electric-
ity. However, in the Indian context, obligated entities cannot
retain RECs for future compliance. Once traded, the RECs get
extinguished. Also, bilateral trades in RECs are not allowed in
India. RECs can be traded only in PX.
Thus, the tradable certificate mechanism, which has come
into effect in India, is in many ways similar to that in opera-
tion in several other countries of the world. However, there are
several departures in the order, which is meant to adapt this
system to the present Indian situation. That said, the RPS as
envisaged in the CERC order has aimed at creating a national
market for RE in the most practicable manner possible.
In this chapter, one may well ask if there are any issues that
could come up in the operation of trade-driven RPS mechanism
under the Indian situation. The RPS mechanism has already
become functional for both non-solar and solar renewable
power suppliers for some time now.
As things stand, the CERC order has allowed both the RPS
mechanism and the preferential tariff system in states to oper-
ate side by side, though independently of each other. The order
has thus provided the option to both the electricity distribution
licensees (in meeting their RPS obligation) and the RE genera-
tors to either commit their resources under the REC system or
the preferential tariff system.
Here, one can try and contemplate the manner in which the
order could affect the REC market, especially in states that are
well endowed with RE resources. Generally, under preferential
tariffs, grid operators are obliged to guarantee priority grid
access to RE and are also obliged to buy electricity at regulatory
prices from the generators feeding RE into the grid. In contrast,
the RPS scheme is designed to aid the RE to compete with con-
ventional energy sources by creating a RPS market.

144 Renewable Energy in India

 Further, in the Indian context, since there is a concentration
of RE potential in a few states, it could mean that these states
could well end up with the bulk of investments in renewable
generation capacity under the national obligation system. This
could pose challenges to the management of power grids in
these states, which they would have to address.
Apart from this, one might also want to assess a priori
whether the REC mechanism, as envisaged, could achieve the
national RE generation target and at what cost. Also, there
could be issues concerning risk that would affect states well
endowed with RE resources differently than those not so well
endowed.

Preferential Tariff versus RPS Mechanism

It is apparent that the simultaneous operation of the REC
and the preferential tariff mechanism in states which are well
bestowed with RE resources have opened up opportunities to
distribution entities in these states to seek out the best option
from either of these two to meet the RPO.
Theoretically, they can choose either to buy RECs from the
market or to negotiate a PPA with eligible RE generators if the
latter are willing to do so. However, the CERC has foreclosed
this choice. It requires the RECs to trade only on PX.3 This rules
out the long-term contract market in the REC segment of the
RPO mechanism.
However, if entities having RPO wish to protect themselves
against long-term risks stemming from the volatility in REC
prices, they have an option to approach the preferential tariff
segment and to sign a PPA with any of the generators operat-
ing under this system, at least for part of their needs. Thus, it
seems that the preferential tariff segment could well function
as a contracts market for obligated entities.
The trouble, however, is that the contracts market will be
constrained when it comes to the states having inadequate RE

Renewable Energy Certificate (REC) 145

resources and leave obligated entities in them stranded without
adequate cover against risk associated with the REC prices if
the interstate transaction costs are high and the transmission
constraints are binding. While the extent to which obligated
entities choose to secure themselves against the risk of default-
ing on obligation depends on several factors, it is nevertheless
pertinent that they have an option to hedge against risk for the
sake of healthy development of market.
Looking at the situation from the other side, before commit-
ting investment, the RE generators are under no obligation to
commit generation capacity either under the state-sponsored
RPO systems or the REC mechanism. This gives them some
latitude in deciding where to position themselves before invest-
ing. However, once they have committed one way or the other,
they are not left with much choice in the short term. Those
that choose the state-sponsored RPO system have, it seems, no
option but to remain tied to it. This, however, is not entirely
true. They still have a choice. They can, if the spot electricity
prices are sufficiently high, opportunistically participate in the
spot market for electricity by reneging partly or fully on their
PPA obligation.
Were this to happen, it would amount to leakage, since they
would forsake a preferential tariff for a higher price of electric-
ity in the spot market, by diverting the supply of electricity away
from the obligated entities in the state to the spot market for
electricity. This leakage would be difficult to account for in the
obligation system since there is no way to distinguish between
generation sources once electricity enters the spot market.
There is no such issue with generators registered under the
REC mechanism. Irrespective of the segment of the electricity
they supply, they will receive RECs for all of their generation.
These, in turn, will have to be sold on PX to those having
to comply with the RPO. RE generation will thus be fully
accounted for in the REC mechanism. The separation of the
green feature from the commodity aspect of RE and creating a
market for trade in RECs ensures that there is no leakage.

146 Renewable Energy in India

 The diversions of power generation by RE generators from
states’ RPO segment could well affect the REC prices, if the
obligated entities, which have not been able to secure their
RE obligation in full from the RPO segment, had to resort to
purchasing RECs on PX for plugging the shortfall. This could
lead to a scramble for RECs pushing up their prices when
the additional demand from these sources for the certificates
manifests on PX. If the surge is strong, it could well push up
the REC prices to the ceiling notified by the CERC. Indeed,
the regulator will have to play a role in such situations to pre-
vent runaway rise in REC prices. CERC regulations have some
safeguards against such leakage apart from the provision of
forbearance price.
However, during spells when the spot market for electric-
ity is weak, the REC price would be pushed down. Thus, in
the absence of long-term contracts market for RECs, the only
safeguard that generators in this segment would have against
downward volatility is the floor price ordained by the central
regulator. Whether this would prove enough for securing long-
term investments required for fulfilling national obligations is
a matter of conjecture.
This aspect would, therefore, need attention if the REC
mechanism is to develop in an orderly manner. Intuitively,
allowing a parallel development of long-term contracts in cer-
tificates makes sense with a view to encouraging investments
in this segment.
This would comfort both the obligated entities, which
are looking for some minimum risk cover against chances
of defaulting, and the RE generators, which are looking for
some minimum security against the volatility in their revenue
streams. In fact, US experience with the REC system suggests
that RE projects generally require long-term sales contracts to
obtain financing and deliver energy at a reasonable cost. And
in markets where long-term contracts are available, renewable
electricity is typically procured competitively and at reasonably
low prices.4

Renewable Energy Certificate (REC) 147

Wide Divergence
One further issue is a wide divergence between states, both with
respect to the overall RE potential and the type of RE resources.
For instance, most of the wind potential in India is in states
such as Tamil Nadu, Karnataka, Gujarat, Andhra Pradesh,
Maharashtra, Rajasthan, Madhya Pradesh and Kerala. Whereas
states such as Chhattisgarh, Uttarakhand and Himachal Pradesh
have only a moderate RE potential mainly made up of small
hydro potential.
The remaining states have negligible RE potential, exclud-
ing solar. Thus, states having a high or moderate RE potential
will, in all likelihood, drive the development of RE power in
years to come, as the REC system takes roots nationally. It is
apparent from this that the manner in which investments in
RE technologies and capacities pan out between the REC and
the preferential tariff segments of obligations markets in states
across India will not be uniform since resource endowment and
their commercial potential will differ.
Thus, one expects states with high RE potential to have an
obligations market that is loosely structured between their
own RPO segment and the national REC segment. In contrast,
states with low RE potential will be dependent mainly on the
national REC market for meeting their RE obligation. A further
complication on the part of distribution entities/consumers is
whether high- or low-cost resources dominate the RE potential
of their respective states and whether these resources adequately
cover their obligation requirements over extended periods in
the case that they choose to subscribe to the preferential tariff
system in their states.
Also, there are states such as Tamil Nadu and Maharashtra,
which have significant wind potential, but have already
exploited over 50 per cent of it. In contrast, there are states
that still have to make the beginning. This disproportionate
penetration of renewable generation between states raises an
important question: What should be the scheme for apportion-
ing national RE target between them?

148 Renewable Energy in India

 Equally, considering that states having significantly large RE
resources will, in all likelihood, draw disproportionately high
investments in RE power capacities to serve the national REC
market, these states will have to be prepared for dealing with
the grid stability issues (and perhaps there could be a regional
grid stability issue as well) associated with, especially, the inter-
mittent renewable generation.
In recognition of this, a report has been prepared by
the Power Grid Corporation of India in July 2012, titled
‘Transmission Plan for Envisaged Renewable Capacity’ (Vol. 1).
This report has gone into the identification of transmission
infrastructure for the likely capacity additions of RE-based
power generation capacity in renewable-rich states, estimated
the capex requirement for the development of transmission
infrastructure in these states and provided a strategy framework
for the development of a model for funding transmission infra-
structure to facilitate speedy renewable power development.

Market Performance of REC Scheme

Over the seven years from 2010 to 2017, 2,265.872 MW of new
renewable generation capacities were set up under the REC
mechanism. This constituted only 6.75 per cent of the total
RE capacity growth over that period. Initially, the scheme did
evoke a positive response, but gradually the enthusiasm began
to fade away. The number of projects registered under it began
to decline (Table 7.1) and its efficacy as an instrument to deliver
RPO compliance began to be doubted.5 After the government
switched to auctioning as an exclusive mode for identifying
and registering developers for RPO-linked wind and solar power
projects, the trading in RECs came to a virtual halt. Its future
has since looked dim.
Almost all through the scheme’s years in operation, demand–
supply mismatch prevailed (see Table 7.2).
As one would expect, there are, indeed, several explana-
tions for the scheme’s failure in delivering nationwide RPO

Renewable Energy Certificate (REC) 149

 RE Generators Registered (No. of Projects and
Table 7.1 Capacity in MW as on 31 March 2018)

Year Total No. of Projects Total Capacity (MW)

2010–2011 10 70
2011–2012 177 1,018
2012–2013 158 711
2013–2014 220 669
2014–2015 136 486
2015–2016 80 263
2016–2017 86 553
2017–2018 38 179
Total 905 3,948

Source: https://www.recregistryindia.nic.in/pdf/Others/Report_on_REC_
Mechanism.pdf

compliance by obligated entities. One of the principal rea-

sons cited has been the conflict between the FIT and the REC
mechanisms, which predictably led to the decline of project
registrations under the latter. It hence appears that the obli-
gated entities, given a choice between the overall stable costs
of meeting their RE obligations from units registered under
the FIT regime and those under the REC mechanism chose the
former, implying that the more uncertain cost components
(due to fluctuating REC prices) of the latter vis-a-vis the former
made it riskier than the predetermined FITs option and, hence,
less attractive. This suggests that the obligated entities have
become accustomed to the risk-free environment and, for
the REC scheme to succeed, the REC prices should have been
much higher than the upper ceiling fixed on their prices by the
regulator in order to compensate for the inherent risk in this
traded instrument.
Nevertheless, it is common knowledge that the overall RPO
acceptance by the obligated entities over the years has remained

150 Renewable Energy in India

Table 7.2 Demand and Supply of REC (2012–2013 to 2018–2019)
IEX PXIL
Volume of Volume of
Volume of Volume of Buy Bid Volume of Volume of Bus Bid
Buy Bid Sell Bid as % of Buy Bid Sell Bid as % of
of RECs of RECs Volume of of RECs of RECs Volume of
Year (Million) (Million) Sell Bid (Million) (Million) Sell Bid
Solar

2012–2013 0.077 0.014 549 0.012 0.005 265

2013–2014 0.054 0.586 9 0.014 0.135 10
2014–2015 0.101 3.7 3 0.063 3.346 2
2015–2016 0.465 22.767 2 0.183 9.380 2
2016–2017 0.404 32.370 1 0.153 14.766 1
2017–2018 0.089 3.499 3 0.12 1.368 9
2018–2019 8.645 15.251 57 4.446 9.985 45
(Table 7.2 Continued)
(Table 7.2 Continued)

IEX PXIL
Volume of Volume of
Volume of Volume of Buy Bid Volume of Volume of Bus Bid
Buy Bid Sell Bid as % of Buy Bid Sell Bid as % of
of RECs of RECs Volume of of RECs of RECs Volume of
Year (Million) (Million) Sell Bid (Million) (Million) Sell Bid
Non-solar

2012–2013 2.435 9.185 27 0.655 2.490 26

2013–2014 1.271 25.165 5 1.411 17.233 8
2014–2015 1.447 55.325 3 1.451 55.088 3
2015–2016 2.673 88.992 3 1.634 64.401 3
2016–2017 4.215 98.150 4 1.716 59.637 3
2017–2018 9.417 63.509 15 6.789 32.413 21
2018–2019 8.805 6.043 146 3.782 1.653 229

Source: http://cercind.gov.in/2019/market_monitoring/Annual%20Report%202018–19.pdf
low across Indian states. This has been mainly on account of
the reluctance by the government-owned electricity distribu-
tion entities to fully honour their RPOs. This suggests that it is
not just under the REC regime but also under the FIT regime
the registrations may have been declining.
Notwithstanding this, one redeeming feature of the REC
scheme has been that the trend in acquiring RECs was not
entirely negative across all segments of the obligated entities.
In contrast to the public sector electricity DISCOMs, the REC
scheme showed far greater promise with both open access and
captive buyers, the private sector DISCOMs and the electricity
departments of the UTs.6 Nonetheless, since the public sector
DISCOMs constituted for an overwhelmingly high share of the
total annual aggregate national renewable power purchases,
success in smaller RPO segments was not sufficient to upset the
declining trend in the former.
Could this apathy of state-owned DISCOMs be explained
simply by psychological factors7 (such as the REC not being
accompanied by real power, hence not having any tangible
value)?)While it is difficult to conclusively prove this, there are
several other plausible explanations for this. Logically, perhaps
it is more appropriate to conclude that managements in the
public sector entities lacked skills to assess risk than those in
the private sector; or, on the other hand, private sector enti-
ties in comparison had no other option but to buy RECs from
the exchange in order to meet their RE purchase obligations.
Hence, it seems that for the REC mechanism to be successful,
it was essential to withdraw the FIT regime and to leave only
the former as a means to fulfil RPOs by all entities.
Lastly, those subscribing to the ‘psychological’ factor expla-
nation for the failure of the REC mechanism to enthuse public
sector obligated entities propose emulating the UK example.
The units of electricity were bundled in their tradable prod-
uct (equivalent of REC) in this country and sold as one in
the market by RE generators to obligated entities. However,
if one goes back to the original purpose for creating the REC

Renewable Energy Certificate (REC) 153

mechanism, which was to facilitate the obligated entities in
RE-scarce resource states to meet their RPO obligations, it is
clear that bundling the tangible and intangible product could
not have been the solution to the problem.
While the idea behind the launching of REC looked promis-
ing when it was first conceived, from the hindsight, it might
seem to have missed out on certain counts. Considering that
there are only a few states with well-endowed RE resources in
this country, expecting these few states to install disproportion-
ately large RE power capacities in relation to their own power
grids’ size would have proved unduly burdensome to them,
causing grid stability issues.

Chapter Conclusion
In 2010–2011, a scheme was introduced in India to enable
obligated entities in states having scarce RE resources to meet
their obligations by purchasing RECs from RE power producers
in states well endowed with these resources. The said scheme
thus became one of the two modes nationally—the other being
FIT—by which obligated entities across the country could fulfil
their annual purchase obligations through third-party wind and
solar power producers. In this chapter, we examined, among
other things, the market mechanism for the REC regime and
the overall performance of the REC scheme over the years since
its inception. The REC scheme was conceived as a market-based
instrument to deliver national obligation targets more effi-
ciently than the prevailing FIT regime. However, market perfor-
mance does not exude confidence in terms of its continuation
in the existing form for long. It’s high time the mechanism was
reviewed seriously and, ideally, a sunset clause was drawn up
for the smooth transition of projects already registered under
this scheme.
Having discussed the dynamics of RPO as an instrument
for market creation for renewable in the previous chapter and
of the REC as a market-based instrument in this chapter, the

154 Renewable Energy in India

natural sequel is a discussion on the appropriate market design
for renewable in India. The reason, unlike the RPS of the UK,
which has been a combination of the RPO and the renewable
obligation certificate with the mandatory participation of
renewable projects in the wholesale market for the sale of their
electricity component, the RPO and REC mechanism in India
did not mandate the participation of renewable in the market,
nor did it provide for such certificates as the only instrument
for compliance of the RPO. India adopted and continues to
adopt the fixed tariff regime—cost-plus or auction-based FIT—
for RPO compliance alongside REC as an alternative instru-
ment for RPO compliance. Given these realities, what are the
options for India to encourage the participation of renewable
in the market and, eventually, mainstream with conventional
generators? But before we probe this question, it is necessary to
appreciate the special nature of renewable, namely its intermit-
tency. Accordingly, in the next chapter, we discuss this aspect
of intermittency and then go on to the subsequent chapter to
deliberate on what we consider to be the right market design
for renewable in the Indian context.

Notes
1. Central Electricity Regulatory Commission, ‘Order dated 1
June 2010, Petition No. 99/2010 (Suo Motu) in the Matter
of Determination of Forbearance and Floor Price for the REC
Framework’ (2011). Available at http://www.cercind.gov.in/2011/
august/order_on_forbearnace_&_floor_price_23-8-2011.pdf
(accessed on 10 February 2021).
2. http://cercind.gov.in/2020/orders/5-SM-2020-final.pdf (accessed
on 1 October 2020), 61–62.
3. Central Electricity Regulatory Commission, ‘Central Electricity
Regulatory Commission (Terms and Conditions for Recognition
and Issuance of Renewable Energy Certificates for Renewable
Energy Generation) Regulations, 2010) (2010). Available at http://
www.cercind.gov.in/2015/regulation/GZT49.pdf (accessed on 10
February 2021).
4. Richard J. Piwko, California Energy Commission, Public
Interest Energy Research, General Electric Company, GE Energy

Renewable Energy Certificate (REC) 155

 Consulting, California Energy Commission and Energy Generation
Research Office, ‘Intermittent Analysis Project. Appendix B, Impact
of Intermittent Generation on Operation of California Power
Grid: PIER Final Project Report’ (Prepared for California Energy
Commission by GE Energy Consulting; Sacramento, CA: Public
Interest Energy Research, California Energy Commission, 2007).
5. Sushant K. Chatterjee, ‘The Renewable Energy Policy Dilemma in
India: Should Renewable Energy Certificate Mechanism Compete
or Merge with the Feed-in-Tariff Scheme?’ (2017). Available at
https://www.hks.harvard.edu/centers/mrcbg/publications/awp/
awp79 (accessed on 10 February 2021).
6. Ibid.
7. A psychological barrier in the main text relates to a perception
that the purchase of REC is seen by obligated government entities
as giving away money without any tangible benefit like getting
energy/power.

156 Renewable Energy in India

 8

Intermittent
Renewable
How to Enable Participation
in Market?

Introduction
Intermittency is often seen as a constraint to market participa-
tion of renewable. However, this needs to be overcome not only
to mainstream renewable but also to assuage the sentiments of
host renewable-rich states that have to face the consequences of
such intermittency. This chapter discusses the nature of inter-
mittency, the steps taken by India to address this limitation and
the desirable course of action to ensure a smooth transition of
renewable to market.
If one looks at the projected growth for different types of RE
generation resources in the country, one finds that not all of
the national RE generation targets will be met by the dispatch-
able segment of the renewable generation. Rather, a great deal
of it will come from intermittent resources, such as wind and
solar, which cannot be dispatched at will. This means that the
concerned states would have to make special efforts to integrate
these resources into their respective power grids since neither
the state nor the regional power grids in India have been
designed to transmit asynchronous power in bulk.
However, accommodating intermittent generation in power
grids that are traditionally not designed for them has been a
universal challenge. One can expect similar issues, as others in
the world have faced, to surface here also in our state grids once
the share of intermittent generation in their total generation
crosses the threshold.
The challenge of accommodating intermittent generation
mainly pertains to its impact on system’s reliability and dis-
patchability. Particularly, in the case of wind, which has a far
greater variability than any other renewable generation unit,
since it occurs at night-time, when the system load is light
and the flexibility in the system is at its lowest. How serious is
the issue? Let’s look at the wind and solar generation profile
and compare it against the system demand in some of the
renewable-rich states, as shown in Figure 8.1.
Figure 8.1 shows the profile of load, and wind and solar gen-
eration in Tamil Nadu on the maximum wind generation day,
that is, on 22 August 2017. On this day, the combined wind
and solar generation was 5,279 MW (4,618 MW wind plus 661
MW solar) and the contribution of RE was to the tune of 34 per
cent.1 Variability of the wind notwithstanding, the interesting
point is that even on this high-wind day, wind and solar gen-
eration were complementary to each other, especially during
09:30 hrs and 15:30 hours (see increasing trend of the black line
[wind] and decreasing trend of the light grey line [solar] during
this period) and have met most of the load during the day time.
The other dimension of this phenomenon is that during high
wind + solar generation, non-renewable generation has to be
operated at lower capacity level and, in some cases, it has to
be backed down. This poses a challenge in managing the steep
ramping requirement in the evening when both wind and solar
are not available (see the dark grey line [demand] peaking up

158 Renewable Energy in India

16,000 5,000

14,000 4,500
4,000
12,000
3,500
10,000 3,000
8,000 2,500

6,000 2,000
1,500
4,000
1,000
2,000 500
0 0
0:30
1:30
2:30
3:30
4:30
5:30
6:30
7:30
8:30
9:30
10:30
11:30
12:30
13:30
14:30
15:30
16:30
17:30
18:30
19:30
20:30
21:30
22:30
23:30
Demand Wind Solar

 
T amil Nadu State Demand versus Wind
Figure 8.1 Generation (22 August 2017)—Maximum Wind
Generation Day
Source: Based on Annexure VIII of CEA’s Technical Committee Report.2

from 17:30 hrs and solar disappears and wind generation starts
declining). You need flexible generation like hydro or gas to
manage the high-peak ramping requirement.
Similarly, let’s look at the profile of Gujarat on a maximum
wind variation day, that is, on 22 May 2017 as depicted in
Figure 8.2.
Here also, the wind and solar have been complementary to
each other. From 07:00 hrs to 11:00 hrs, solar picked up and
wind disappeared but again after 11:00 hrs, the trend reversed
with wind peaking up and solar steadily declining. But the
wind generation witnessed significant variability during the
day, and what is also of concern is the sudden dip in the
wind generation, say, from 19:00 hrs and the rising trend of

Intermittent Renewable 159

16,000 3,000

14,000
2,500
12,000
2,000
10,000

8,000 1,500

6,000
1,000
4,000
500
2,000

0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Wind Generation Solar Generation State Demand

 
Demand in Gujarat on 22 May 2017, along
with How This Was Met from Various Sources
Figure 8.2
of Generation Available—Maximum Wind
Variation Day
Source: Based on Annexure-VIII of CEA’s Technical Committee Report.3

demand during this period, which needs to be met by flexible

generation.
Generally, as long as the variability of the intermittent gen-
eration is lost in the variability of the system load and easily
absorbed in the dispatch,4 it is less of an issue. But there is a
penetration level beyond which the power systems cannot
absorb additional variability inducted by this form of genera-
tion, especially during light load periods. Considering that wind
power has been growing rapidly and forms a considerable part
of the system load in some of the states in India, this issue will
have to be addressed. The question is how.
Dealing with the uncertainty introduced by the intermit-
tent generation would require the rest of the generation in the
system to be responsive to the fluctuations introduced by it. In
wind’s case, since its rising generation coincides with that of the

160 Renewable Energy in India

declining load in the system, one of the options would be to
build deeper runback capability to mitigate light load manoeu-
vrability.5 This would, however, be appropriate if the net load
(system load less intermittent generation) in the system remains
below the minimum system load for a significant number of
hours during the year.
On the other hand, if the coincidence of very high intermit-
tent generation with minimum system load is infrequent, a
better option would be to either let some units de-commit or
curtail some wind generation for a brief period of time when
this happens. But a problem with de-committing a base load
unit is that it may not be available when it is needed most in
the future. If that’s the case, it may be economically preferable
to curtail wind generation than de-commit a base load unit
for the required period. Conversely, de-committing base load
units may prove cost-effective if one expects extended periods
of significant wind energy curtailment.6
One further issue is managing ramps. This is a major challenge
for system operators handling power systems with high penetra-
tion of intermittent generation. Generally, automatic generation
control (AGC) mechanisms play a major role in managing short-
term uncertainties in power systems. However, with increased
intermittent penetration, their performance criteria, capabilities
and technologies would require modification for managing
added variability in the system due to intermittent generation.

Existing Enabling Framework of

System Operation in India
Let’s first look at the framework as it exists in the context of
power system operation in India with focus on RE.

Scheduling and Dispatch

Scheduling is done for the injection of power as well as for the
drawl of power, and both these schedules are subject to further

Intermittent Renewable 161

rescheduling. Scheduling requires a smooth and continuous
flow of information among stakeholders such as the National
Load Dispatch Centre (NLDC), regional load despatch centres
(RLDCs), state load dispatch centres (SLDCs), Indian Energy
Exchange (IEX), DISCOMs, Inter State Generating Station
(ISGS), intrastate generators and others.
Typically, RLDC is responsible for scheduling generation for
every station under the Inter-State Transmission System (ISTS)
while SLDC is responsible for generating stations under the
Intra-State Transmission System.
Demand estimations are an important activity in the sched-
uling and dispatching process and hence all SLDCs have the
responsibility to estimate the demand for power on a daily to
annual frequency basis. Depending on these estimates, the
SLDC further formulates its strategies and measures to manage
demand. DISCOMs or SEBs are obligated to follow the measures
laid down by the SLDC for demand management. The SLDC,
along with the distribution licensee, must ensure that there is
no over-drawl that violates the deviation limits set under the
Deviation Settlement Mechanism (DSM). An automatic demand
management scheme is implemented by the SLDC or DISCOM
to prevent the over-drawl of power.
The regional entities must regulate the generation and the
consumer load to minimize the difference between the actual
drawl and the scheduled drawl. Failure to keep the deviations
under the minimum limit leads to charges as per the DSM.
To record the actual interchange of electricity, special energy
meters are installed by the Central Transmission Utility and the
computation of the actual net injection or drawl of the regional
entities as per the 15-minute blocks is done by the RLDC.
In the absence of accurate forecasting of RE, there arises an
imbalance in the grid. Regulations, therefore, mandate that
forecasting for RE must be done by the RE generators them-
selves or through a lead generator. Scheduling of RE is done
on a day-ahead basis with the flexibility of revising it 16 times
during the day. The RE generators can either use their own

162 Renewable Energy in India

forecasts or accept the ones produced by the system operator
(SLDC/RLDC). The system operator only uses its own forecast to
do further planning that is necessary for the balancing of grid
operations. The pattern of scheduling is similar as any other
non-RE generator.7 The dispatch principle for RE electricity
generation states that, barring generation from biomass power
plants with capacity of 10 MW and above as well as non-fossil
fuel cogeneration plants, rest of the renewable power generated
should be categorized as ‘must run’.

Imbalance Handling
Scheduling demand or supply cannot be done with 100 per
cent accuracy all the time. The difference between the sched-
uled injection/drawl and the actual injection/drawl is defined
as deviation. Deviations lead to imbalances in the grid and,
unless they are resolved, the desired grid frequency cannot be
maintained and damage to generating and consuming equip-
ment can occur.
Buyers and sellers of electricity must adhere to the grid
discipline by following the schedules. The DSM penalizes
over-drawl and under-injection, and rewards under-drawl and
over-injection with certain exceptions.8 The optimal grid fre-
quency that needs to be maintained is 50 Hz and hence the
charges for deviation apply when the frequency falls below or
moves above 50 Hz.
Unlike conventional generators, RE generators are not dis-
patchable and hence the penalty for their deviations (effec-
tively for inaccurate forecasts) needs a different treatment. RE
generators are exempt from any penalty for a forecast error up
to ±15 per cent and are subject to a deviation charge beyond
that tolerance limit. These limits vary from state to state for
intrastate operations. Deviation charges for renewable genera-
tors are not linked to frequency. The design of the deviation
settlement framework for RE generators eliminates the possibil-
ity of gaming since the deviation charges apply to both excess
and shortfall in energy.

Intermittent Renewable 163

 DSM strives to achieve a balanced grid by discouraging large
deviations but may not be able to ensure zero deviations all the
time. Ancillary services (AS) help restore the grid discipline by
providing the necessary regulation-up or regulation-down ser-
vices when required. They help to fill the gap that arises due to
unforeseen generation and load mismatch in a particular time
block. At present, these services can be provided by any ISGS
whose tariff is approved by the central regulator and have un-
requisitioned surplus capacities that can be utilized.9 The nodal
agency, NLDC, uses the information provided by the Regional
Power Committee (RPC) to prepare the merit order of the list
of un-requisitioned surplus capacities (i.e., the portion of the
generation capacity not requisitioned by the DISCOM). For
regulation-up services, AS providers with surplus capacities are
stacked in order to increase variable cost and, conversely, to
regulate down services, the stack is prepared in order to decrease
variable cost. This scheduled quantum of AS is automatically
added to the dispatch schedule of the AS provider. It is possible
that the AS provider may deviate from the scheduled generation
in which case the charges of DSM apply. The RPC prepares and
issues a weekly AS statement along with the deviation settle-
ment statement.
An important prerequisite for AS to function is the avail-
ability of un-requisitioned surplus capacity with the ISGS at
the desired time block. There is a certain degree of uncertainty
attached with the availability of such surplus capacities and
therefore additional reserves are required to be in place to
handle the real-time imbalances. The National Electricity Policy
suggests that spinning reserves of 5 per cent must be present at
the national level to meet the objective of grid security.10 These
spinning reserves are to be divided into primary, secondary and
tertiary reserves. Primary reserves of capacity 4,000 MW are
suggested to be maintained at the national level as an outage
contingency measure. Secondary reserves should be maintained
by the region corresponding to the size of their largest unit and,
similarly, tertiary reserves should be maintained by the state
corresponding to 50 per cent of the size of their largest unit.11

164 Renewable Energy in India

The requirements for these reserves must be estimated by the
concerned load dispatch centers on a day-ahead basis.
Primary control, which can be called as governor control,
is an immediate control mechanism that can deliver the
first level of reserve power. This control can be exercised by
all generating stations by just ramping up the turbine speed
when there is a frequency change. Secondary control replaces
the primary control. Secondary control, also called AGC, still
at pilot stage in India, uses reserves to balance the frequency.
AGC requires a robust communication infrastructure between
the load dispatch centers and the generating units to send
automatic signals during times of imbalance. Currently, the
infrastructure required for AGC to operate is lacking in India
and, hence, operators often resort to load shedding to balance
the grid. Finally, the third level of control needs to be brought
in when the grid has been in imbalance for minutes-to-hours,
for example, due to the failure of an entire generating unit.
Tertiary control involves manual changes in the dispatch and
unit generation commitment, which can help to reinstate sec-
ondary control.12

Is the Existing Framework Adequate for

Seamless Integration of Renewable?
Framework for Scheduling, Forecasting and
Deviation Settlement of RE Generation
The CERC has notified the framework for the Forecasting and
Scheduling Mechanism for Wind and Solar Technologies, which
factors in the variable and intermittent nature of such genera-
tion. The objective of forecasting by the generator is primarily
to minimize deviations from the schedule. The RE generator
also has the option of choosing between its own forecast or
the site-level forecasting as done by the respective RLDC and
to provide its schedule. However, the commercial impact of
the deviation from the forecast would have to be borne by the
RE generator. This framework was put in place by the CERC in

Intermittent Renewable 165

2015. Since then, there has been a lot of development in the
sector. There is an urgent need for alignment of this framework
with emerging realities. For instance, wind and solar generators
are allowed to revise the schedule 16 times during the day and,
once they revise their schedule, it becomes effective from the
fourth time block from the time of intimation of such revision.
In contrast, with the implementation of the real-time market
(RTM) from 1 June 2020, the revision flexibility for others has
been amended to seven–eight time blocks from the time of
intimation for such revision. There is a need to align this right
to revision for both renewable and non-renewable generators
and demand for the smooth operation of the power system. The
tolerance band of ±15 per cent for deviation of wind and solar
generation also needs to be reviewed in view of the growing
improvement in forecasting, the establishment of Renewable
Energy Management Centres (REMCs) and more so because of
the emerging concept of aggregation of wind and solar plants
at the pooling station level, which reduces forecasting errors
significantly. The penal provisions, especially linkage of the
penalty to the PPA rate, also need to be reviewed in view of
emerging market conditions. Further, given the integrated
nature of the grid, it is desirable that a framework as formu-
lated for grid integration of variable RE sources of wind and
solar at the interstate level is also adopted by states for intra-
state system.

Relaxation in Deviation Settlement Mechanism

The Central Commission, while taking into account the
problems of RE-rich states owing to the variability of RE, has
provided for additional legroom through relaxation in the devi-
ation limits to 200 MW (for states having installed solar + wind
capacity of 1,000 to 3,000 MW) and 250 MW (for states having
installed solar + wind capacity exceeding 3,000 MW).
Relaxation of the deviation limit is not at all desirable. The
grid does not generate electricity and, as such, reliance on the
grid (by way of over-drawl from the grid) for meeting real-time

166 Renewable Energy in India

energy needs is nothing but a recipe for grid failure. The
solution lies in creating reserves and operationalizing AS for
handling load generation imbalances. The CERC has laid out
a road map13 for operationalizing reserves in the country, but
the question is how to make it a reality. Is the Centre fully pre-
pared in terms of the necessary infrastructure, communication
system, measurement tools, appropriate regulatory framework/
incentive structure and are the states geared up to supplement
these efforts? Each region needs to maintain secondary reserves
corresponding to the largest unit size in the region. As regards
tertiary reserves, they need to be maintained in a decentralized
fashion by each state control area for at least 50 per cent of
the largest generating unit available in the state control area.
This would mean 1,000 MW of secondary reserves for the
Southern region; 800 MW for the Western region; 800 MW
for the Northern region; 660 MW for the Eastern region and
363 MW for the North-eastern region (total approximately
3,600 MW on an all-India basis). Primary reserves equivalent
to 4,000 MW have to be ensured at all-India level consider-
ing generation outage of 4,000 MW as a credible contingency.
This is a deterministic approach; it is also necessary to explore
a probabilistic approach to the determination of reserves
requirement. Ideally, a robust framework on reserves should
be provided in the Indian Electricity Grid Code (IEGC) and all
states should follow suit.

Ancillary Services
AS are support services to maintain the power system reli-
ability and support its primary function of delivering energy
to customers. These are deployed by the system operator over
various time frames to maintain the required instantaneous and
continuous balance between aggregate generation and load.
The CERC has notified the regulations on Reserves Regulation
Ancillary Services (RRAS) to restore the frequency level at the
desired level and to relieve congestion in the transmission
network. The RRAS supports both the ‘regulation-up’ service

Intermittent Renewable 167

(which provides the capacity to respond to signals or instruc-
tions to increase generation) and ‘regulation-down’ service
(which provides the capacity to respond to signals or instruc-
tions to decrease generation). However, the framework operates
under an administered mode with an un-requisitioned surplus
available in the ISGS. It does not guarantee the adequacy of
reserves at all times, especially during peak hours. The need of
the hour is to move to the next stage of creating framework
for secondary control and market-based procurement of sec-
ondary and tertiary AS. It is a matter of grave concern that a
power system as big as India’s—with a peak load touching 185
GW and an increase in renewable penetration—is operating
without secondary control. What is in place is only tertiary
service with no guarantee of the firm reserves in the system.
The CERC has ordered pilot on the secondary control/AGC,
but that too is limited primarily to thermal generating stations.
Reliance on thermal generators alone and closing the door to
other resources such as energy storage and demand response to
provide secondary response might prove counterproductive and
possibly more expensive for India. Absence of communication
and metering infrastructure is often cited as the reason for the
continuation of administered mechanism in secondary control.
But time is running out as renewable penetration is increasing
exponentially. Even if it is a guarded movement, a clear road
map needs to be laid out—may be under cost-based system to
start with and eventually move to market-based procurement
of secondary AS—with an adequate incentive for all types of
resources to participate and provide fast response, which is so
critical for managing variability of renewable. Tertiary services
should be thrown open to market immediately, as we have
gathered enough experience in the operation of these services
under administered mode.

Flexing Thermal Generation

The CERC has amended the IEGC, which provides for a techni-
cal minimum of 55 per cent in the case of thermal generating

168 Renewable Energy in India

units with a corresponding compensation mechanism for the
deterioration of the heat rate, the auxiliary energy consump-
tion and the oil support in excess of the normative parameters.
This is aimed at providing flexibility to respond to the needs
of variation in demand and RE generation. No doubt, this is a
welcome initiative and there is a need for states to align with
this requirement for their state-level generators as well. But the
manner of allocation of compensation for part-load operation
needs to be reconsidered. It is often argued that thermal genera-
tors are brought down to the technical minimum for ‘system
balancing’, but the costs (additional costs on account of such
low loading of generators) are borne by ‘individual’ DISCOMs
that have signed contracts with such generators. Here again, the
need is to leapfrog from administrative mode to market-based
incentive for providing flexibility.

Storage
The CERC brought out in January 2017 a Staff Paper on the
‘Introduction of Electricity Storage System in India’. The objec-
tive was to brainstorm the issues at stake by placing the paper
in the public domain, inviting comments from stakeholders.
On the policy and regulatory front, the EA, 2003, covers the
generation, transmission and distribution of electricity, but
‘storage/holding’ of electricity is not covered in the Act. Then
there are other issues regarding scheduling, energy account-
ing for charging and discharging, and open access for storage
facilities. The CERC paper does give insights into the various
aspects of the storage system, but it continues to remain a
discussion paper. Storage has a great potential for providing
flexibility support and calls for an appropriate incentive for
fast ramping. Some headway on creating a regulatory frame-
work for storage has been made, for instance, by recognizing
storage including stand-alone storage, as an entity eligible for
grid connectivity. Provisions have been made in the RE tariff
regulations for cost-plus tariff for renewable with storage. But
all this is not considered adequate. The need is to provide a

Intermittent Renewable 169

broad framework scheduling, dispatch and market participa-
tion of such resources in the IEGC and in the regulations
on AS. India can conceive of mandating the procurement of
some prespecified quantum of energy storage by the system
operator. This has been tried in other parts of the world, for
example, in California.

Smart Grid
The IEGC has incorporated elements of smart grid technology
that are mandatory, such as automatic demand management,
islanding schemes and system protection schemes. Thus, smart
grid technologies have a role in the regulations of the CERC.
The FOR has brought out Model Regulations on smart grid
for suitable adoption at the state level. The objectives of these
regulations primarily include enabling integration of various
smart grid technologies and measures to bring about economy,
efficiency improvement in generation, transmission and distri-
bution licensee operations, manage transmission and distribu-
tion networks effectively, enhance network security, integrate
renewable and clean energy into grids and micro-grids; enhanc-
ing network visibility and access, promoting optimal asset uti-
lization, improving consumer service levels, thereby allowing
for the participation in operations of transmission licensees,
distribution licensees through greater technology adoption
across the value chain in the electricity sector and, particularly,
in the transmission and distribution segments. In many states,
the process for notifying regulations has been initiated. But we
have a long way to go before we could put in place smart grid
in the country as a whole.
Similarly, distribution system designs would need to be
enhanced to accommodate reactive power control require-
ments, coordinated system restoration, communication
between system operators and generators, as well as system pro-
tection and safety concerns. Equally, the state-of-the-art fore-
casting would be required to forecast intermittent generation.

170 Renewable Energy in India

Interconnection
It is pertinent to refer here to a special report on the subject pre-
pared by the North American Electric Reliability Corporation.14
Its findings are also relevant to power systems in India, which
in not too distant a future will reach a stage where intermittent
generation forms a significant part of their total generation.
As the report states, for North America, considerable work
will also be needed in India to standardize basic requirements in
interconnection procedures and standards, such as the ability of
generator owner and operator to provide voltage regulation and
reactive power capability; low and high voltage ride-through;
inertial response (effective inertia as seen from the grid); control
of the MW ramp rates and/or curtailment of MW output and
frequency control (governor action, AGC etc.).
Indeed, interconnection procedures and standards will have
to recognize to a far greater degree the unique characteristics
of a wide range of renewable generation technologies while
continuing to focus on the overall bulk power system perfor-
mance. It will be important to have a uniform set of intercon-
nection procedures and standards, phased in over a reasonable
time frame, in order to provide greater clarity to equipment
vendors and generation developers regarding product design
requirements.

Variable Power Supply and Grid Stability

The issue of load variability in India’s power system has been
present since well before the grid-linked RE generation came
into the commercial sphere of the power sector. The source of
this variability has been the uneven daily demand pattern that
has prevailed in electricity grids of most states. The addition of
the grid-linked RE generation has only added to this uncertainty
from the supply side.
Volatility due to demand fluctuations has usually been
managed by conventional measures on supply side, such as

Intermittent Renewable 171

providing quick ramping-up power capacities such as hydro-
power and, to some extent, gas-based power stations. Besides,
some states have taken initiatives also to manage this uncer-
tainty by promoting demand-side management measures from
the consumer side. But with the induction of grid-linked RE
power units into the system, there would have to be a wider
response.
While the peaks and valleys in daily demand patterns have
characterized the load patterns, these patterns have been well
established for most state grids and, hence, the power capacities
with rapid ramping capabilities have been able to deal with it
comparably comfortably. In contrast, in the case of intermit-
tent RE power, the supply is stochastic and often variable across
seasons. The daily load patterns are thus prone to natural fluc-
tuations that may not be entirely predictable.
Although the quick response from hydropower and other
ramping power stations can provide some relief against this,
the unit cost of electricity generated from such ramping stations
is high, as these units, unlike conventional power stations, are
operated only during the limited time slots when the volatil-
ity is high. This requires spreading overhead costs over fewer
units of generation from these supply sources, pushing up the
unit price for this generation steeply. Although pumped hydro-
power is a proven storage technology to handle this situation,
its deployment in India has, however, remained limited due to
competing uses of power, for example, in irrigation. Besides,
more worryingly, there is little incentive to build storage, since
the time of day is not included in the value of electricity15; as
a matter of fact, all electricity supplies are priced uniformly
across all day in all states. Also, the total hydro capacity as of
now is close to 50 GW, of which 16 GW is linked to the ISTS.16
There are serious environmental and political constraints on
expanding this.
Yet for achieving accelerated RE growth targets in years to
come, it is imperative that reasonably priced storage technolo-
gies are developed alongside implementing ‘retail time of day

172 Renewable Energy in India

electricity pricing’ (preferably for 5-minute slots for greater
accuracy in forecasting). If one considers the current state of
the power sector in India, this will take many years to roll out.
It means that though news reports suggest that as a percent-
age of India’s total power capacity by 2030,17 RE power would
constitute half of it, investments in related infrastructure, which
have remained sluggish until now, will have to be jacked up
significantly in order to ensure grid security. For example, as
things stand, the number of installed smart meters in India is
at present inadequate.
Indigenous manufacturing capability, on the other hand,
has been about 25 million meters per year. At this rate, it
would take at least 10 years, including communications
infrastructure, to replace outdated meters. To accelerate these
installations, the government will have to liberalize imports
of smart meters while, at the same time, accelerating their
manufacturing. Also, the interface boundaries between enti-
ties are still not very well defined, and this too would require
prompt action. At the same time, a robust, scalable dispute-
free settlement mechanism, which only a couple of states
have at present, will have to be set up in all states that are
lagging behind. Over and above, the state-level forecasting
and scheduling framework will have to be put in place across
all states. The skill set of those responsible for this will have
to be improved with appropriate training. All this and much
more will have to be done if India is to achieve its ambitious
goal of expanding the presence of grid-linked wind and solar
capacities in its power system.

Chapter Conclusion
India has taken a number of steps to address the issues around
intermittency of renewable. Whether or not it is a market,
robust forecasting is the first necessary step towards main-
streaming variable renewable. Well, this is a necessary but not
sufficient condition. From project developers’ side, efforts must
go beyond forecasting accuracy to make themselves firm to the

Intermittent Renewable 173

extent possible, say, by means of exploiting the complemen-
tarities of wind and solar, or wind and energy storage, or solar
and energy storage, or wind and solar with energy storage. This
has to be supplemented by efforts from system planners and
operators in trying to create necessary infrastructure in terms
of communication system, metering, interconnection stand-
ards, planning and procurement of reserves and AS, harnessing
flexible generation and so on. The question is whether these
are preconditions in the absence of which renewable cannot
participate in the market. The next chapter on market design
seeks to answer this very question.

Notes
1. https://cea.nic.in/reports/others/planning/resd/resd_comm_
reports/report.pdf (accessed on 20 November 2020), 10.
2. Central Electricity Authority, ‘Report of the Technical Committee
on Study of Optimal Location of Various Types of Balancing
Energy Sources/Energy Storage Devices to Facilitate Grid
Integration of Renewable Energy Sources and Associated Issues’.
Available at https://cea.nic.in/reports/others/planning/resd/resd_
comm_reports/annexure8.pdf (accessed on 11 February 2021).
3. Central Electricity Authority, ‘Report of the Technical Committee
on Study of Optimal Location of Various Types of Balancing
Energy Sources/Energy Storage Devices to Facilitate Grid
Integration of Renewable Energy Sources and Associated Issues.
Available at https://cea.nic.in/reports/others/planning/resd/
resd_comm_reports/annexure10.pdf (accessed on 11 February
2021).
4. North American Electric Reliability Corporation, ‘Special Report:
Accommodating High Levels of Variable Generation’ (2009).
Available at https://docs.wind-watch.org/NERC-accommodating-
variable-generation_17Nov08.pdf (accessed on 11 February 2021).
5. Ibid.
6. Ibid.
7. Forum of Regulators, ‘Forecasting, Scheduling, Deviation
Settlement and Related Matters of Solar and Wind Generation
Sources) Regulation, 2015’ (2015). Available at http://www.foru-
mofregulators.gov.in/Data/study/MR.pdf (accessed on 11 February
2021).

174 Renewable Energy in India

 8. CERC (Deviation Settlement Mechanism and Related Matters)
Regulations, 2014.
9. CERC (Ancillary Services Operations) Regulations, 2015.
10. Ministry of Power, ‘National Electricity Policy, 2005’ (2005).
Available at http://powermin.nic.in/en/content/national-electricity-
policy (accessed on 11 February 2021).
11. CERC Order in Suo Motu Petition No. 11/SM/2015, Roadmap to
Operationalise Reserves in the Country, 2015.
12. Ibid.
13. http://cercind.gov.in/2015/orders/SO_11.pdf (accessed on
1 October 2020).
14. North American Electric Reliability Corporation, ‘Special Report’;
Power Grid Corporation of India, ‘Transmission Plan for Envisaged
Renewable Capacity—A Report’ (Vol. 1; Gurgaon: Power Grid
Corporation of India, 2012).
15. Tongia and Gross, ‘Working to Turn Ambition into Reality’.
16. Forum of Regulators, ‘First Report of FOR Technical Committee on
Implementation of Framework for Renewables at the State Level’.
17. Bloomberg report in Business Line, 3 July 2019.

Intermittent Renewable 175

 9

Market Design for

Renewable Energy
Right Design, A Missing Link
in India

Introduction
India is an emerging economy and, given the deep interlinkage
between economic growth and the development of the power
sector, there is a lot of policy focus on measures to improve
efficiency and economy in the power system operation. Market
design in the context of power sector is all about this core
aspect of efficiency and economy. The objective is to design
the market in such a way as to ensure the efficient operation of
generation and transmission assets and thereby minimize cost
for market participants. However, given the special nature of
the electricity system in terms of the requirement of ensuring
the security and reliability of the grid operation, the objective
function of the economy or cost minimization is always subject
to security constraints. It is in this context that the issue of
intermittency of renewable, which poses reliability and secu-
rity challenges to the grid operation (discussed in the previous
chapter), assumes importance. The challenge is to design a
market in such a way that the variability of renewable is duly
factored in while achieving the overall economy of operation.
Pertinently, power market design as a whole is a vast subject
unto itself and beyond the scope of the present discussion. The
focus of this chapter is on the market design aspect from the
point of view of renewable.

Issues
RE is distinct from conventional generation in two fundamental
aspects: (a) RE has to be consumed when and where it is avail-
able while conventional generation can be adjusted (to a certain
extent depending on the technology and subject to appropriate
costs); (b) even if the RE generation can be forecast with high
accuracy (e.g., comparable to the load forecasts), it can still vary
over time substantially and force the rest of the power system
(i.e., not only supply but also demand side) to adjust appropri-
ately to ensure grid stability. Large-scale penetration of renewable
is, therefore, likely to cause disruption if the business-as-usual
way of planning, building and operating the power system does
not undergo a paradigm change.
The challenges thrown by renewable are global phenomena
now. In the context of market design, apart from intermit-
tency, rapid changes in the cost dynamics of renewable across
the globe have also added new complexities. Liebreich1 talks
of the age of base-cost renewables when the costs of renewables,
namely solar and wind, have become cheaper than those of the
conventional sources of energy. Accordingly, wind and solar
tend to become the natural choice for new investment. But
this creates new challenges for renewable. Projects based on RE
sources need cheaper debt and assurance of revenue on a longer
time horizon. Further, solar and wind resources are uncertain
and, therefore, their generation depends on other technologies,
namely storage, demand response and fossil fuel-based flexible

Market Design for Renewable Energy 177

generation facilities that can be put to service to match the
variation in the availability of wind or sun. Given the increas-
ing emphasis on renewable across geographies, we are possibly
approaching a zone where technologies other than renewable
would need subsidies and protection for growth.
The base-cost phenomena and the variability of renewable
are, therefore, the two fundamental issues that need detailed
analysis in the context of the discussion around market design
for renewable. How do these factors influence power markets?
What adjustments are required in market design for integrat-
ing renewable? These are some of the questions that we seek
to probe in the subsequent sections. To start with, we take a
glimpse of the market models that have evolved in the major
economies of the world, seeking to address the two fundamen-
tal complexities posed by renewable. Then, we analyse the
Indian market model against this backdrop.

Market Models in Major Economies

The USA and Europe provide two distinct market models. Let’s
look at their salient features first. US market model is often
referred to as the standard market design. It postulates a cen-
tralized pool-based market where buyers and sellers converge
to meet their demand for power or to sell their output. This
market operates on a day-ahead time horizon followed by real
time, which is closer to the time of dispatch. The least cost
generation resources are dispatched to meet the demand. The
marginal generator generally sets the uniform market-clearing
price. To this is added the transmission loss and congestion
amount to arrive at the price at each node and is called the
locational marginal price (LMP). LMP and financial transmis-
sion rights are used as instruments for congestion management.
The unique feature of the US market model is that the system
and market operations are handled by a single entity called the
ISO or regional transmission organization (RTO). Energy and
AS are co-optimized to achieve an economy of operation. Apart
from energy only day ahead and RTM, some ISOs/RTOs also

178 Renewable Energy in India

run the capacity market to ensure the availability of adequate
capacity to meet loads at all times.2,3
In contrast, the European model does not mandate a cen-
tralized market; nor does it require system and market opera-
tions to be handled by a single entity. Rather, most European
markets have the separation of these two functions—power
trades take place bilaterally or through PX, and system opera-
tion is handled by the system operator. The last-mile imbalance
energy market is generally handled by the system operator. For
instance, in the UK, market participants have full freedom to
trade and to correct their position until the gate closure which
is one hour before the actual time of dispatch. After gate clo-
sure, the system operator takes over and balances the energy
and reserves requirement through the balancing market. There
is no concept of co-optimization of energy and AS. Europe fol-
lows zonal pricing as against the locational pricing model of
the USA. Also, the concept of capacity market in the form as
prevalent in the USA is not there in Europe.4
Given this overview, the question is how does the inclusion
of variable renewable impact the market design and to what
extent have the market models of the USA and Europe evolved
to adjust to the new regime of high penetration of RE. While
the previous chapter discussed the need for adjustment in the
power system operation to integrate variable renewable, the
focus of the present chapter is on the nature of the adjustment
needed in the market design to accommodate renewable.
The two distinct impacts of a high RE share on a market
design are the volatility of prices and the requirement of
increasing level of reserves. The marginal cost of generation of
wind and solar could be zero or negative (negative to the extent
of production tax credit [PTC]) and thus renewable figures at
the top in merit order for dispatch. With the higher penetra-
tion of such energy resources, the overall marginal price of the
system slides down substantially during hours of wind and
solar being available for generation, whereas during periods of
no wind no solar, market prices could go through the roof as

Market Design for Renewable Energy 179

the other available resources would tend to price their output
high enough to recover their full cost during these times. It is
argued that such volatility could have the fallout of rendering
renewable as well as non-renewable unattractive for investment
in the long run, especially for non-renewable recovery of invest-
ment becomes a major issue leading to capacity crisis in the
system. It is this reality that has brought to the prominence new
dimensions, such as scarcity pricing, uplift price, out-of-market
payment and the capacity market, in the context of standard
market model of the USA.
The second impact is in terms of requirement of a higher
level of reserves and the peak management challenge to match
the variability and uncertainty of wind and solar. For instance,
in a system with high wind and solar generation, the net load
(load minus the wind and solar generation) bellies down
during the day and witnesses a steep and sharp increase in
the evening—taking the shape of a duck curve (see Figure 9.1).
Such sharp variation in the morning and evening hours makes
market operation quite challenging, especially in geographies
where market operation and system operation are separated.
Added to this is the sudden fall and rise of wind and solar gen-
eration—which could happen any time during the day/night—
thereby requiring a higher quantum of reserves in the system
for balancing. This has added new thrust to balancing market
and AS markets for the procurement of reserves. In this context,
co-optimization of energy and AS has also assumed greater sig-
nificance as a necessary component of market design to achieve
the economy and the efficient utilization of existing resources.
To summarize, markets across the globe are gradually align-
ing themselves to the new norm of renewable. Price volatility
and missing money problem (the problem of generating compa-
nies not being able to recover their costs due to price volatility
and the persistent phenomenon of zero or negative price in
the market) are being managed through hedging mechanisms
like capacity contracts in the emerging capacity market sepa-
rate from the energy only day ahead and RTMs and through

180 Renewable Energy in India

 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
215,702 207,171

217,790 207,866

221,086 211,313

Figure 9.1 All-India Demand and Net Demand of a Typical Day (in 2021–2022)
225,751 215,431

220,798 210,428

202,370 194,442

202,824 193,251

205,410 179,576

Net Demand (MW)

205,389 160,944

204,551 145,994

205,204 138,270

Source: Based on Exhibit 5.2 of CEA’s National Electricity Plan.5

208,052 137,089
Hour

210,331 141,387

209,487 147,450

207,161 156,866
Total Demand (MW)

205,194 172,849
9

205,598 194,161
8

204,988 198,788
7

199,412 192,553
6

195,354 188,704
5

194,771 188,935
4

196,901 191,234
3

200,324 194,416
2

203,675 196,870
1
240,000

220,000

200,000

180,000

160,000

140,000

120,000

100,000

Demand (MW)
financial derivatives in the derivates market. Steep peak, a
natural consequence of high renewable, is being managed
through encouraging flexible capacity. The market incentive
for flexible operation is being extended through energy as well
as AS pricing strategies. The requirement of reserves has been
increasing with an increase in the share of renewable. This is
being managed by bringing organized markets closer to real
time—gradually transitioning to 5-minute market from an
hourly, half-hourly or 15-minute market. The closer the market
operates, to the actual time of dispatch, the less is the reliance
on reserves. Added to this is the initiative on enhancing the
robustness of AS market and the co-optimization of energy and
AS in time horizons ranging from day ahead to real time. AS
include primary, secondary and tertiary services and resources
like demand response, and energy storage is being encouraged
gradually to participate in these markets.6

Indian Market Model

Given the overview of global market models, this section dis-
cusses the market design aspect in the Indian context. The two
fundamental issues discussed in the preceding sections are the
base-cost phenomenon of renewable as well as the variability
of renewable. The phenomenon of ‘base-cost RE’ has already
occurred in India as well, as seen from recent auctions to pro-
cure solar PV and onshore wind in India, which have yielded
prices of `2.44/kWh and `2.64/kWh, respectively—both sig-
nificantly lower than a large amount of existing coal thermal
generators in India that are using cheap domestic coal.7
Efforts undertaken by policymakers and regulators over the
last 15 years have resulted in several major improvements in
the power sector, for example, the creation of a national-level
PX for a day-ahead energy market with transmission congestion
being reflected through the price estimation in 13 zones across
the country. The day-ahead became truly national in its scope
when the entire national grid was fully synchronized to one fre-
quency in 2014. The steadily increasing stringency of evolving

182 Renewable Energy in India

grid balancing mechanisms (i.e., starting with the UI to today’s
combination of DSM and a limited AS market) has led to the grid
frequency becoming increasingly stable, while the cost of doing
so continues to decline. The outcomes of these initiatives are easy
to assess, for example, the prices discovered in short-term trading
activities, that is, traders and PX, have been steadily trending
downwards over the last decade (see Figure 9.2).
The unintended consequences of these transitions despite
several major initiatives undertaken by Indian policymakers
have started manifesting in various ways. Take, for example,
the notional surplus electricity that several states appear to be
struggling with. In aggregate, today, there is more base load gen-
eration capacity in India (i.e., ~199 GW of coal thermal, ~7 GW
of nuclear) than peak demand met (i.e., ~184 GW), let alone the
non-base load capacity such as ~45 GW of hydro, ~25 GW of
gas turbines and ~87 GW of renewables (as in February–March
2020).9 Further, there is at least ~55 GW of captive generation
capacity (as on 31 March 2018) that has been installed by
large customers (typically industrial) because of the irregular
nature of the grid supply.10 Several thousand MW of capacity
in India—coal and gas—are sitting idle (~46 GW)11 as there are
either no buyers for their power while several households (~50
million)12 are still un-electrified. In addition, rapidly growing
RE capacity is also getting curtailed on a regular basis in different
parts of the country.
The question that we seek to address here is whether these
developments demand change in the market design that exists
in India. When we talk about market design, generally we refer
to the centralized market primarily involving the electronic
platform of PX as in Europe or the central pool as operated
by the system operator in the USA. In the case of a central
pool, the incidence of price volatility becomes more prominent.
The reason is that both generation and load go through the
central pool; low-cost renewable remains at the top of the merit
list; other generation resources get relegated on the despatch
list during hours of high wind and high solar; again, in hours
when wind and solar are not available, the market tends to rely

Market Design for Renewable Energy 183

 8.00

7.00

6.00

5.00

4.00

3.00

Price (`/kWh)
2.00

1.00

0.00
2008–2009 2009–2010 2010–2011 2011–2012 2012–2013 2013–2014 2014–2015 2015–2016 2016–2017 2017–2018 2018–2019 2019–2020
Year

Price of Electricity transacted through Traders (`/kWh) Price of Electricity transacted through PX (DAM + TAM) (`/kWh)

Figure 9.2 Short-term Trading Price Trends

Source: Based on CERC’s Market Monitoring Report.8
 1.80
2.30
2.40
4.50

Long-term Transactions
PX Transactions
Bilateral transactions
through traders
Bilateral transactions
between DISCOMS
89.00 Transactions through DSM

 
Share of Market Segments in Total Electricity
Figure 9.3
Generation, 2019–2020
Source: Based on CERC’s Market Monitoring Report.13

heavily on non-renewable resources. All of this, in turn, leads

to high price volatility.
However, in market models where you do not have a cen-
tral pool, this phenomenon of price volatility does not look
that sharp. It is in this context that the Indian Power Market
model assumes importance. In India, we still have about 90 per
cent of the total generation capacity tied up under long-term
PPAs. Only about 10 per cent of the generation gets transacted
through a short-term market. To be specific, in so far as transac-
tion through electronic PX is reserved, the share of this segment
is only a miniscule 4.5 per cent of the total generation in the
country (see Figure 9.3).
The question, therefore, is whether India can stay relaxed
and not worry about the price volatility in the market, given
its small size, even in the wake of large-scale penetration of
renewable. In this context, it would be pertinent to look at

Market Design for Renewable Energy 185

some statistics on the overall price fluctuations in the PX seg-
ment of the market occurring in the country. There is a wide
variation in minimum, maximum and average prices during a
day. Similarly, time block-wise price variation is also seen every
day, as is evident from Figures 9.4–9.6.
The above figures show hourly variation in prices during a
day, week and month in one of the PX, that is, IEX. Prices peak
during the morning and evening hours. The price volatility of
the PX is also calculated by the CERC in the annual reports of
the Market Monitoring Cell using the daily data for the year.
For instance, price volatility in the IEX and PXIL for 2019–2020
has been worked out to be 9.36 per cent and 11.07 per cent,
respectively.14

01–11–2020
3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2000–2001
2001–2002
2002–2003
2003–2004
2004–2005
2005–2006
2006–2007
2007–2008
2008–2009
2009–2010
2010–2011
2011–2012
2012–2013
2013–2014
2014–2015
2015–2016
2016–2017
2017–2018
2018–2019
2019–2020
2020–2021
2021–2022
2022–2023
2023–2024

Price Variation in Power Exchange during a

Figure 9.4 Typical Day

Source: Based on data extracted from the website of IEX.

186 Renewable Energy in India

 Week Avg 24 Oct to 31 Oct 2020
5,000.00

4,500.00

4,000.00

3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2000–2001
2001–2002
2002–2003
2003–2004
2004–2005
2005–2006
2006–2007
2007–2008
2008–2009
2009–2010
2010–2011
2011–2012
2012–2013
2013–2014
2014–2015
2015–2016
2016–2017
2017–2018
2018–2019
2019–2020
2020–2021
2021–2022
2022–2023
2023–2024
 
Price Variation in Power Exchange during a
Figure 9.5
Week
Source: Based on data extracted from the website of IEX.

The question is whether these price fluctuations are due to

renewable. No, not yet. Most of these incidences of price
fluctuations have been caused largely by fluctuation in the
demand or transmission congestion. 15 While the data as
explained above show that India has not yet witnessed high
price volatility because of renewable, it does not mean that
the Indian power market will remain untouched by the
onslaught of renewable. Whether or not through the central
PX market the increasing penetration of renewable is likely to
impact the power system operation as well as the price trends
in the market. The only difference would be that if India con-
tinues to operate under decentralized scheduling—with the
predominance of self-scheduling it is at present—the impact

Market Design for Renewable Energy 187

 Average MCP for period 21 Oct to 22 Nov 2020 for IEX
4,500.00

4,000.00

3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

 
Price Variation in Power Exchange during a
Figure 9.6
Month
Source: Based on data extracted from the website of IEX.

in terms of price volatility and the increasing requirement

of reserve and AS would be felt in a decentralized manner by
individual states.
Some states have already started experiencing challenges
as a result of high levels of renewable in their geographies, as
is evident from Figures 8.1 and 8.2 presented in Chapter 8.
Clearly, load management for a state becomes challenging
when it operates in isolation only with its own portfolio of
generation resources. It is, therefore, desirable that the balanc-
ing area and the size of market in India are enlarged from the
state level to the regional level and, ideally, to the national
level. It is common knowledge that the larger the scheduling
and balancing area and the larger the market size, the greater
is the resilience of the system and the greater is the scope of
efficiency and economy of the power system operation.

188 Renewable Energy in India

 The Central Commission in India has already come up
with a discussion paper on Market Based Economic Dispatch
(MBED)16 which seeks to create a central pool for despatch
of generation based on merit order. It is a big game changer,
given the contract pattern that exists in the country. The paper
has recommended the implementation of this framework for
greater efficiency and economy in the power market. While it
may take time before political consensus is evolved around the
framework, the question is whether there is scope for improve-
ment in the existing wholesale market design even when its
size is small. Can it be suitably tweaked to seamlessly integrate
renewable in the future?
We believe that, given the likely benefit of a larger market
for efficient system operation, the procurement of renewable in
the future should be strategized in such a way as to encourage
them to participate more and more in the larger pool of the
market so that the impact of variability in terms of price spikes
and the requirement of maintaining reserves gets spread and
socialized. It is with this realization that the next section rec-
ommends what is considered a desirable future market design
in India for integrating large-scale renewable.

Recommended Market Design

for RE in India
The natural question that follows from the above discussion is
what kind of market design is best suited for the integration of
large-scale renewable. We discussed earlier that the most rel-
evant economic principles are—larger markets are better than
smaller markets—in terms of number of market participants,
transactions, liquidity, etc.; faster markets are better than slower
markets for minimizing imbalances in demand and supply;
centralized auctions for incentivizing the creation of sufficient
flexible capacity, scheduling existing generation and balanc-
ing the grid as opposed to a purely bilateral contracting-based
market structure as it better minimizes cost to consumers; the
separation of physical and financial aspects of the contracting

Market Design for Renewable Energy 189

increases the possibility of accessing the broadest range of risk
management tools.17
Centralized dispatch-based market mechanism not only
enhances the economy and efficiency of the operation of gen-
eration resources but also helps to integrate renewable seam-
lessly. However, given the variable and intermittent nature of
renewable, it becomes difficult for them to participate in the
market, unlike conventional generators. Does it then call for
special rules for the participation of such variable generation in
the market? The international experience discussed in the pre-
ceding section reveals that renewable generators participating
in the day-ahead market are treated at par with conventional
generators and that no separate carve-out is created for them
in the energy market. They get priority in dispatch by virtue of
their being zero marginal cost generation. Given that, in the
energy market, the marginal generator (i.e., the generator with
the highest variable cost) sets the market-clearing price, the
RE generators gain by way of earning a difference between the
market-clearing price and their short-run cost of generation. In
some states in the USA, renewable generators are given incen-
tive by way of a PTC that enables them to bid negative prices.
They can make a negative bid to the extent of the PTC.
Another important feature of this market is the prevalence of
RTM closer to the actual time of dispatch. The RTM framework
gives market participants an opportunity to correct their day-
ahead position by buying and/or selling to make good their
shortfall or surplus. This reduces the risks emanating from the
variability of load as well as generation based on wind and solar.
In India, we already have a day-ahead market in PX that fol-
lows centralized economic dispatch principles. However, the
share of this market segment is only about 4–5 per cent of the
total electricity generated in the country. Further, RE genera-
tors have still not been participating in this market segment.
Rather, there have been requests for creating a separate segment
for Green Power Market, with special dispensation, such as the
flexibility of schedule revision during the day and the waiver

190 Renewable Energy in India

of transmission charges and losses.18 It is important to note
that the nature of the collective transaction in the day-ahead
market is such that it does not leave any scope for schedule
revision. Further, given the declining trend of prices for both
wind and solar through competitive bidding, the rationale for
the waiver of transmission charges and losses has lost relevance.
There is already strong resentment in the DISCOMs against
special dispensation for RE generators, as the financial impact
of such concessions is ultimately passed on to them. As such,
any market framework created on preferential treatment for
renewable would be counterproductive.
The other argument extended for a separate Green Market
is that it will provide another option for obligated entities to
meet their RPO. It is worth noting that most obligated entities
enter into a long-term PPA to comply with their RPO. Therefore,
expecting them to go to the Green Market on a daily basis to
meet their RPO appears far-fetched. Further, given that RPO
compliance is enforced on an annual basis, most obligated enti-
ties generally look for any other mode of RPO fulfilment (other
than long-term PPA) only towards the end of the FY. Hence, the
creation of a separate Green RE Market segment is not likely
to have adequate liquidity and hence cannot sustain for long.
Recently, one of the PXs requested the Central Commission
for the approval of a new product in the Term Ahead Market
(TAM), namely the G-TAM. TAM is, in fact, a bilateral market
on the PX platform where one-to-one matching takes place.
One-to-one matching of renewable generators and DISCOM
is definitely a feasible solution. The Commission has already
granted approval and this market has started operating, though
on a small scale.19
The Central Commission has also taken another important
step in the recent past by introducing the RTM framework20
with effect from 1 June 2020. It is a half-hourly market based
on the principle of collective transactions. There are, therefore,
48 market runs during the day. This is an ideal platform for RE
generators. This was, in fact, a missing link in the Indian power

Market Design for Renewable Energy 191

market design. Now RE generators, if they choose to do so, can
participate in the day-ahead market and correct their position in
the RTM. Else they can choose to participate only in the RTM.
In the RTM, they need to forecast accurately only one and a
half hour before the actual time of delivery. This is already a
norm as per the regulatory framework created by the CERC for
forecasting, scheduling and deviation settlement of wind and
solar. It is high time that RE generators made the best use of
this market platform to optimize their portfolio.
There is, however, an issue around the contracting pattern
with RE generators prevalent in the country. Most RE generators
are wed-locked with the DISCOMs for the entire output from
their generator plants. While this gives them the comfort of cost
recovery, in some cases, they also feel constrained because of
the curtailment of their power on commercial considerations
by the DISCOMs. The way forward could be as follows. Those
generators, which have a window in their contract for the sale
of surplus power at their discretion, can go to this market (RTM)
and sell such surplus power at a short notice. In respect of fully
contracted generators, the DISCOMs which have entered into a
long-term PPA with such generators can make use of the RTM
framework as portfolio players and manage variability of load
as well as RE generation. In other words, in the event of the RE
generation being more than their requirement, the DISCOMs
can sell such surplus RE generation to the RTM instead of back-
ing them down on grounds other than technical and security
reasons. On the other hand, in the event of such generators
falling short of output as against their forecasting, the DISCOMs
can lean on the RTM and buy power from there to make good
their shortfall.
For future RE capacity addition, a mechanism like contract
for difference (CFD; as prevalent in the UK) can be tried. A
central agency (say, the SECI) could invite bids for central
procurement. The tariff discovered should be treated as a refer-
ence/strike price for the purpose of CFD. On a day-ahead basis,
the selected developer could be asked to go to the PX and sell
its power like any other conventional generator. If the price

192 Renewable Energy in India

received by the RE generator from the market is higher than
the reference/strike price, the gain over and above the refer-
ence/strike price could be refunded by such generator to the
central agency. On the other hand, if the price received by
the RE generator from the market is lower than the reference/
strike price, the loss vis-a-vis the reference/strike price could be
compensated to such generator by the procuring agency.
The final adjustment can be done on a monthly/annual
basis. Given the price trends in the PX and the prices discovered
for wind/solar, it is felt that the central agency will generally
not be in deficit (See Box 10.1 in Chapter 10). However, in the
event of a shortfall, the same can be considered for sociali-
zation. For existing projects as well, this mechanism can be
tried. The option of CFD could be given to RE generators by
the DISCOMs that have already entered into PPAs with such
generators. The role as envisaged for the central agency needs
to be played by the DISCOMs.
The advantage with this market-linked procurement of
renewable is that renewable generators will have the comfort
of a fixed price contract while, at the same time, learning how
to participate in the market and manage other risks arising out
of the forecasting error and the deviation from the schedule as
these consequences will have to be borne by them. Eventually,
this will lead to encouragement of innovations seeking to
reduce variability, say, through better forecasting, harnessing
battery storage, etc. As regards price volatility and reserves
requirement, yes, these are likely consequences. However, as
stated earlier, the impact would be less severe than under the
decentralized mode of market operation and procurement by
DISCOMs individually as at present.
As regards price fluctuations, during the hours of RE gen-
eration, market prices will dip because of the influx of lower
variable cost of RE generation and, on the other hand, prices
will rise when these generation sources are not available. The
other caveat is that if, as a result, of the participation of RE
generation in the market, only supply side increases without a

Market Design for Renewable Energy 193

commensurate increase in demand, there would be adverse con-
sequences for existing conventional generators as they would
not get dispatched and eventually be rendered stranded. But it
is expected that with a reduction in market prices and a gradual
introduction of MBED, the demand side will also witness a surge
in the day-ahead and RTM. While declining market prices with
the participation of renewable might attract demand, the fall-
out is that this will lead to an increase in the burden for the
CFD contract holders, like the central procuring agency or the
DISCOMs, in terms of the liability to pay the difference between
the strike/contract price and the market price. Suggestion has
already been made that, for a specified target capacity, this
could be supported through socialization. However, our esti-
mate is that the impact would be much less than the current
dispensation of the waiver of transmission charges and losses
for wind and solar (see Box 10.1 in Chapter 10).
On the market design part, however, there would be a need
for further refinements. The current half-hourly RTM needs to
graduate to a 5-minute market; AS market needs to be devel-
oped on priority, suitably rewarding ramping and flexibility;
this should specifically include demand response and energy
storage as eligible entities for participation; gradually, energy
and AS should be co-optimized; capacity contracts with spe-
cific attributes of mandatory availability in the hours of need
and forward contracts need to be introduced to hedge against
capacity shortage and price volatility; financial derivates
though under the jurisdiction of the Securities and Exchange
Board of India should be encouraged as hedging instruments.
In the last chapter that follows, the aspect of market design is
further elaborated in the larger canvas covering other aspects of
renewable integration. In fact, the last chapter is a synthesis of
the entire gamut of issues discussed in the preceding chapters.

Notes
1. Michael Liebreich, ‘Six Design Principles for the Power Markets
of the Future—A Personal View’ (New York, NY: Bloomberg New

194 Renewable Energy in India

 Energy Finance, 2017). Available at https://assets.bbhub.io/pro-
fessional/sites/24/2017/05/Liebreich-Six-Design-Principles-for-
the-Power-Markets-of-the-Future.pdf (accessed on 12 November
2020).
2. Richard Green, ‘Electricity Wholesale Markets: Designs Now and
in a Low-carbon Future’. The Energy Journal 29, Special Issue No. 2
(2008); Paul Joskow, ‘Lessons Learned from Electricity Market
Liberalization’. The Energy Journal, Special Issue (2008). The Future
of Electricity: Papers in Honor of David Newbery.
3. E. Ela, M. Milligan, A. Bloom, A. Botterud, A. Townsend and
T. Levin, ‘Evolution of Wholesale Electricity Market Design with
Increasing Levels of Renewable Generation’ (Technical Report
NREL/TP-5D00-61765; Golden, CO: National Renewable Energy
Laboratory, 2014).
4. Green, ‘Electricity Wholesale Markets’; Joskow, ‘Lessons Learned
from Electricity Market Liberalization’.
5. Central Electricity Authority, ‘National Electricity Plan’ (Vol. 1).
Available at https://www.cea.nic.in/reports/committee/nep/
nep_jan_2018.pdf (accessed on 11 February 2021).
6. https://energyinnovation.org/publication/wholesale-electricity-
market-design-for-rapid-decarbonization/ (accessed on 1 October
2020).
7. http://pib.nic.in/newsite/PrintRelease.aspx?relid<hig>=</
hig>161755; http://seci.co.in/web-data/docs/L1%20tariff%20
as%20discovered%20after%20e-RA(2).pdf (accessed on 11
February 2021).
8. CERC, ‘Market Monitoring Report’ (New Delhi: CERC, 2019–2020),
Figure 9.
9. http://cea.nic.in/reports/monthly/executivesummary/2020/
exe_summary-03.pdf (accessed on 11 February 2021).
10. http://www.cea.nic.in/reports/monthly/executivesummary/2017/
exe_summary-01.pdf (accessed on 11 February 2021).
11. http://www.financialexpress.com/economy/46-gw-power-
generation-capacity-lacks-last-mile-connectivity-phdcci/606037/
(accessed on 11 February 2021).
12. https://www.bloomberg.com/news/features/2017–01-24/living-
in-the-dark-240-million-indians-have-no-electricity (accessed on
11 February 2021).
13. CERC, ‘Market Monitoring Report’, Figure 12.
14. CERC, ‘Market Monitoring Report’.
15. http://cercind.gov.in/2020/market_monitoring/Annual%20
Report%202019–20.pdf (accessed on 1 October 2020), 36.

Market Design for Renewable Energy 195

16. http://cercind.gov.in/2018/draft_reg/DP31.pdf (accessed on
1 October 2020).
17. A common feature of well-functioning commodity markets is that
market participants seek to manage their exposure to market risks
(among others) through a variety of forward trading arrangements.
In the first instance is the physical market that produces short-term
prices that represent the balance at the time the physical com-
modity changes hands. During periods when supply is plentiful
relative to demand, the price is usually driven down to the vari-
able cost of the last producer to clear the market. During periods
when supply is scarce relative to demand, prices rise to the what
the last buyer to clear the market is willing to pay to have access
to it at that time, rather than foregoing or postponing access. In
both cases, the price is—or should be—the product of healthy
competition between suppliers, the difference being that, in the
latter case, the price will include longer term costs (investment
and other ‘fixed’ costs) suppliers incur to have product available
when consumers wish to purchase it. Producers and wholesal-
ers usually seek to protect themselves to some extent from the
risks they would face during these periods of surplus and scarcity
by ‘hedging’ those risks in effect by buying insurance of some
kind. Market participants can and do enter into forward physical
transactions of various kinds—bilateral long-term contracts—for
instance, between a producer and a wholesaler for the delivery
and acceptance of physical commodity over a given period of
time at a given price. The problem with reliance on the physical
market alone to provide risk management tools is that its liquid-
ity (the volume of transactions available to all parties willing to
participate) is inherently limited to the physical amount of the
commodity produced and consumed. In order to relieve this
constraint, financial markets have developed over time in response
to demand for risk management options in which the risks inher-
ent in the underlying physical market can be disaggregated and
traded between counterparties for whom transactions are mutu-
ally beneficial. This can take place bilaterally (over the counter)
or through open trading exchanges. The counterparties to these
trades can certainly be the same parties that participate in the
physical market, but the skids of the financial trading markets
are really greased by the participation of financial intermediaries,
often banks and trading houses, which seek to earn a profit by
taking on (for a price) and managing certain risks faced by physi-
cal market participants more efficiently than those participants

196 Renewable Energy in India

 could manage by themselves. These can be speculators betting on
outcomes, but far more often they are traders who themselves find
other counterparties to whom they can trade away the risk. As the
period governed by a given trade draws closer and closer to real
time, prices in the two markets tend to converge, becoming equal
on the date the trade matures. Designed correctly, electricity mar-
kets are meant to allocate risk in an efficient way. Well-functioning
markets in other commodities allocate risks – relying on buyers
and sellers of the commodity facing opposite but roughly equal
risks for which they are motivated to seek insurance, through both
physical and more liquid financial forward trading.
18. http://www.cercind.gov.in/2017/orders/187N.pdf (accessed on
1 October 2020).
19. http://cercind.gov.in/2020/orders/25-MP-2019.pdf (accessed on
1 October 2020).
20. http://cercind.gov.in/2019/regulation/1.%20Statement%20of%20
Reasons_RTM_12_12_2019.pdf (accessed on 1 October 2020).

Market Design for Renewable Energy 197

 10

Renewable Policy
Introspection
Rethink and Move in
the Right Direction

The aim of this chapter is to synthesize the issues highlighted

through the seams of previous chapters and to make recom-
mendations and suggest a way forward by putting different
parts into a single whole. We start by recounting the issues.

RPO
A major issue in the implementation of RPO in India has been
a fact that, as required by the legislative framework, the State
Electricity Regulatory Agencies have been setting and enforcing
RPOs within their jurisdiction. But the experience on setting
RPOs has not been satisfactory to begin with.
Most of the states have been setting RPO for a period of 3–5
years. But, in contrast, investors have been looking for specific
provisions in the law itself about the long-term trajectory of
RPO. It is argued that only the legal mandate can bring in the
desired level of demand with certainty. At the same time, the
demand creation by itself is not sufficient. It needs to be backed
up with strong enforcement of RPO. This would be the case,
irrespective of whether the RPO is met through the administra-
tive options on the table, the market mechanisms, such as the
trade in RECs or, for that matter, the auctioning of development
rights. Although strict enforcement has been missing in India,
this aspect has been emphasized time and again at different
fora. In fact, aggrieved by the apathy of the regulators, the
wind associations have appealed before the Appellate Tribunal
for Electricity for suitable directions to the state regulators to
enforce RPO compliance.1

RE Tariffs
Another concern has been around the plethora of RE tariffs
across the states. Investors feel that the RE tariffs determined
by the states do not always reflect the cost of generation. The
FITs have been announced every year by the CERC (for central
government-owned and interstate projects) as well as by SERCs
(for state-specific projects), but there has been a wide diversity
in tariffs determined by the CERC and SERCs.
This has been the case since every state has been making its
own assumptions on normative technical and financial param-
eters. This has led to different tariffs. The wind energy tariffs in
states such as Gujarat, Andhra Pradesh and Karnataka have been
lower than the CERC-determined wind tariff for FY 2014–2015,
whereas they have been higher in states such as Rajasthan,
Madhya Pradesh and Maharashtra. As a result, investors have
been preferring investments in wind energy in these states.2
In Karnataka, the investor preference has been for captive
and group captive mode for investments in RE from wind as the
commercial and industrial consumers, who have been paying
higher tariffs for electricity from conventional power stations,

Renewable Policy Introspection 199

have found it far more cost-effective to set up captive wind
generation facilities.3
This is, of course, inevitable and, to deal with this, the CERC
spelt out a methodology to be used across India by SERCs to
ensure consistency in the estimation of capital costs, which are
a major constituent in the total cost of generation from these
sources. However, this still is FIT, determined administratively,
with all its drawbacks as an economic instrument for promot-
ing investments in the RE power segment. Indeed, regulators
and policymakers have since turned to approaches that offer
market-like solution to pricing conundrum that has prevailed in
pricing of electricity generated by RE power generators in India.
The REC mechanism and the auctions are the two approaches
that came into effect over the last decade for correcting the
inadequacies in the FIT pricing. An advantage with a market
mechanism like REC is that it separates the green feature of RE
into a separate product (REC) which can be traded on a national
exchange, whereas the electricity generated from these units
can be traded on a par with that generated by conventional
power generating units on national exchanges meant for trad-
ing in these units. This would eliminate the need for separate
tariffs for green power in each state. Provided the market func-
tions well, this should achieve the integration of green power
into the national power system much more efficiently than
instruments such as the FITs. Equally importantly, in aggre-
gate, the market-determined price would correspond with the
marginal cost of supplying electricity from RE sources, which
is, as a matter of principle, a widely recommended approach
worldwide for pricing electricity. However, in principle, the RE
electricity price discovered through the auction process also
corresponds to the marginal cost of supplying electricity over a
long run from an RE resource. Lately, this approach has found
greater favour with the government and the developers.
The RECs were first introduced in 2010. However, there have
been issues in promoting them. The initial euphoria that fol-
lowed after their launch has ebbed over a period, leading to the

200 Renewable Energy in India

 Prices of Solar Projects Discovered through
Table 10.1 Bidding

Project Year of Auction Price

Solar 2017 In the range of `2.44–5.64 per kWh

(January–December) Weighted average `3.18 per kWh
2018 In the range of `2.44–3.55 per kWh
(January–December) Weighted average `2.89 per kWh
2019–2020 (January `2.48–3.25 per kWh
2019–March 2020) Weighted average `2.74 per kWh

Source: http://cercind.gov.in/2020/orders/5-SM-2020.pdf

dampening of investment climate for registering projects under

this scheme.4 Considering that the RPO enforcement has been
very weak, obligated entities, especially the DISCOMs, have not
been coming forward to purchase the RECs.
While this has been a general situation, the government’s
shift in the last few years to auctioning RE development rights
to companies operating in this segment created a great deal of
interest initially. The competitive bidding led to a significant
fall in the number of FITs quoted in the winning bids, especially
for solar (see Table 10.1 and Appendices 5B and 5C). But an
inappropriate auction design has eventually led to a diminish-
ing interest in bidders to bid in RE tenders.
We assess here the two approaches discussed above.
Principally, both conform to the pricing criterion, which is
widely recommended for pricing electricity, as stated above. It
may not be far-fetched to expect experienced RE power devel-
opers to factor in the risks associated with infirm power, such
as wind and solar, in assessing their investments.

Assessment of Indian Auction Process

Auctions have proved to be a transparent mechanism for
allocating the development rights to wind and solar project

Renewable Policy Introspection 201

developers in India. They are useful tools in discovering the
price of electricity generated by RE power units. They overcome
the practical difficulties which were discussed earlier in apply-
ing a marginal cost pricing approach to electricity generation
for market consumption from solar and wind power farms.5
India follows the two-stage reverse bidding auctions for allot-
ting development rights for solar and wind power development.
The first stage, which is electronic sealed-price bidding, is con-
ceptually equivalent to the conventional first-price bidding. It
is used for shortlisting candidates for the second-stage bidding.
The next stage in this approach is a more dynamic open-bid
pricing. While both stages of this approach have led to what
economists call ‘price discrimination’ (in that the buyer/auc-
tioneer using his/her monopsonistic bargaining power extracts
maximum benefit for himself/herself, leaving each winning
bidder with just the bare minimum value to keep him/her
interested in the project), the second bidding stage potentially
has the effect of discouraging developers from participating in
auctions. This has been borne out by the falling interest of RE
power developers in bidding for RE auctions. There have been
instances in the last one year when the tenders for the develop-
ment of RE capacities have fallen through for want of interest.
As explained earlier, with its policy of encouraging domestic
wind and solar power equipment manufacturers to invest in
equipment manufacturing capacities within the country, China
has used auctions more often for revealing costs and estab-
lishing cost benchmarks for setting up economically efficient
FITs. Moreover, unlike India, it has restricted itself to just the
single-stage electronic closed-bid auctions. While it is tempt-
ing to recommend that India emulate the Chinese approach,
considering its national goal too is to encourage domestic
manufacturing of equipment within its territory, perhaps a
more nuanced approach, using auctions, might be better suited
to achieving its objective.
In two-stage reverse Indian auctions, generally a small set of
winning bidders is identified whose offered RE power capacities

202 Renewable Energy in India

add up to an aggregate capacity announced in the tenders for
development of RE generation capacity in an area in any par-
ticular year. The bidding prices of the winning bidders, at the
end of the second stage of these auctions, define a band of the
lowest prices that have made the grade. The PPA is signed by
the concerned government agencies with each successful bidder
in this band at its bid price.
The higher most price in the band of winning bidders’ prices
is, in fact, equivalent to the conventional market-clearing price
of a marginal supplier of goods or services in any competitive
market. Therefore, paying this price uniformly to all qualifying
developers, in contrast to paying each of them their bid price,
would be both non-discriminatory and efficient. It is thus a
discovered price at which all the PPAs with the winning bidders
should be signed, and not individually, as is the case now, at their
quoted bid prices. Besides, as the experience suggests, the differ-
ences in bid prices in the first and second stages of the reverse
bid auctions have not been significantly different to warrant
an extra stage for fine-tuning them further. Also, the first-price
sealed-bid auction, on which the first stage of the auction is
based, is in principle both efficient and fair, when seen from a
broader objective of encouraging investments in ‘Make in India’.
Thus, it may be appropriate to drop the second stage of
reverse bidding, which adds little value but discourages invest-
ments in the expansion of RE electricity generation.

REC Scheme
It is about a decade since the GOI introduced the REC scheme.
The said scheme became initially one of the two modes
nationally—the other being FIT—by which obligated entities
across the country could fulfil their annual purchase obliga-
tions through third-party wind and solar electricity producers.
The said scheme was conceived as an effective marketable
instrument to deliver national obligation targets annually,
more efficiently than the prevailing FIT regime. But did it

Renewable Policy Introspection 203

achieve the objective for which it was set up? Over the seven
years spanning 2010–2017, 2,265.872 MW of new renewable
generation capacities came up under the REC mechanism. This
constituted only 6.75 per cent of the total RE capacity growth
during that period. Initially, the scheme did evoke a positive
response, but gradually the enthusiasm began to fade away. The
number of projects registered under it began to decline and its
efficacy as an instrument to deliver RPO compliance began to be
doubted.6 After the government switched over to auctioning as
an exclusive mode for identifying and registering developers for
RPO-linked wind and solar power projects, the trading in RECs
came to a virtual halt. Since then, its future has looked dim.
Almost all through the scheme’s years in operation, a
demand–supply mismatch prevailed between the projects reg-
istered under it and the purchases made by obligated entities.
As a result, the wind and solar power generating units operating
under this mechanism continued to accumulate unsold inven-
tories of REC year after year. This situation could, of course,
have been rectified by revoking the cap on floor prices of RECs.
However, the cap was seen as an essential tool for mitigating
the downside risk for RE electricity suppliers, and so was the
ceiling price for protecting obligated entities against the risk of
a runaway rise in REC prices.
As one would expect, there indeed have been several explana-
tions for the scheme’s inability in delivering nationwide RPO
compliance by obligated entities like the power distribution
agencies in India. One of the principal reasons cited has been
the conflict between the FIT and the REC mechanisms, which
predictably led to the decline of project registrations under the
latter. Obligated entities, given a choice between the overall
stable costs of meeting their RE obligations from units regis-
tered under the FIT regime and those registered under the REC
mechanism, chose the former, implying that the latter’s more
uncertain cost components (due to fluctuating REC prices) vis-
a-vis the former made it more risky than the predetermined FITs
and, hence, less attractive for obligated entities.

204 Renewable Energy in India

 That said, it has been common knowledge that the over-
all acceptance of the RPO targets by obligated entities has
remained low over the years across Indian states. This has been
principally on account of the reluctance by the government-
owned electricity distribution entities to honour their RPOs.
However, one of the redeeming features of the REC-driven
RPS has been that the trend in the acquisition of certificates
was not entirely negative across all segments of obligated
entities. In contrast to the public sector electricity DISCOMs,
the REC scheme showed far greater promise with the open-
access captive buyers, the private sector DISCOMs and the
electricity departments of the UTs.7 This implies that since the
public sector DISCOMs constituted an overwhelmingly higher
share of the total annual aggregate national renewable power
purchases than all other segments of the RPO, the growth in
smaller segments was not sufficient to upset the overall declin-
ing trend in the former.
Could this apathy of state-owned DISCOMs be explained
simply by psychological factors such as the REC not being
accompanied by real power and hence of no tangible value?
While it is difficult to conclusively prove this, logically, if this
were so, it would mean that public sector entities lacked skills
to assess risk, unlike those in the private sector. This of course
would require an appropriate training programme in the risk
assessment for personnel in these companies and for correcting
their misconception. Nevertheless, it evidently appears that to
make the REC scheme successful, the FIT scheme should have
been withdrawn, especially since the full cost pricing is an
inefficient approach to pricing a unit of electricity produced
by generators in the renewable electricity generating sector.
Against this background, one option could have been to
emulate the UK approach, where the units of electricity were
bundled in their tradable products and sold in the market as
a single joint product to obligated entities by RE generators.
However, if one recalls that the original purpose behind creating
the REC mechanism in India, which was to facilitate obligated

Renewable Policy Introspection 205

entities operating in RE-scarce resource states to secure their
RPO without actually having to purchase electricity from
renewable power generating units in RE resource-rich states, it
is apparent that the bundling of tangible with the intangible
product as in the case of the UK would not have served the
purpose behind setting up of the REC mechanism.
Although the idea behind launching of REC-backed RPS
looked promising, there have been only a few well-endowed
states with RE resources in India. This has major operational
implication for operations of electricity grids in these states.
The REC regime (as also the framework of interstate transfer
of physical RE generation) has the effect of leaving these states
carrying a disproportionate burden of investing in renewable
power generating units, well beyond the requirements of
obligated entities within them. Dealing with it would require
additional investments in infrastructure. Thus, REC is not a
costless option.

Variable Power Supply and Grid Stability

The issue of load variability in India’s power system has been
around since long before the grid-linked RE generation came
into the commercial sphere. The original source of variability
in power grids has been the uneven daily demand pattern in
electricity grids of most states. The addition of RE generation
to states’ grids adds to this uncertainty from the supply side.
Generally, the volatility due to demand fluctuations can be
managed by conventional measures on the supply side, such as
providing quick ramping-up power capacities like hydropower
and, to some extent, gas-based power stations. Similarly, it
can be managed by demand clipping during peak periods with
demand-side management measures on the consumer side.
Much of this has been known and enough has been written
about it.
There are some SEBs in India that have already taken steps to
level daily loads, but many others have not. However, as things

206 Renewable Energy in India

stand, this volatility has been managed with power stations
having rapid ramping capabilities or simply by load shedding,
which is the worst of all the options that any distribution util-
ity can exercise.
In contrast to demand-side volatility, the volatility induced
in the system by intermittent RE power is governed by natural
factors; it is stochastic and often variable across seasons and
regions. For that reason, it is more difficult to manage with
the soft options designed for influencing consumer response.
It requires appropriate infrastructural hardware to manage it.
Load forecasting at short intervals is one of the most important
solutions to deal with it.
Although quick response from hydropower and other
ramping power stations can generally provide relief against
volatility in the system, the unit cost of electricity generated
from such stations is high, as these units, unlike conventional
power stations, are operated only during limited time slots
when system volatility is high. This has the effect of spreading
the overhead costs over fewer electrical units generated for the
purpose by these power stations, pushing up the electricity
rates steeply.
Although pumped hydropower has been established as a
proven storage technology to handle this situation, its deploy-
ment has remained limited in India due to reasons such as
competing uses of water, for example, in irrigation. More wor-
ryingly, there has been little incentive to build storage since the
time of the day supply is not priced to reflect its scarcity value
during different times of the day. But the naturally determined,
unsteady stochastic patters of renewable power generation
during a day can be a major constraint on using even the time
of the day pricing.
This requires investments in standby ramping facilities
over and above those installed for dealing with fluctuations
in demand from the consumer side. But looking at total hydro
capacity in India, which as of now is close to 50 GW, only 16 GW

Renewable Policy Introspection 207

of this has been linked with the ISTS.8 This is a major constraint.
However, the gas-based conventional ramping power station
can also play a useful role in dealing with the problem, but
this, too, is costly.
Yet for achieving accelerated RE growth in the years to
come, it is imperative that these and reasonably priced storage
technologies are developed for implementing retail time of the
day electricity pricing (preferably in 5-minute slots for greater
accuracy in forecasting). If one considers the current state of the
power sector in India, this will take many years to roll out. News
reports suggest that as a percentage of India’s total power capac-
ity, by 2030,9 RE power generation would constitute half of it.
To address this situation, investments in related infrastructure
will have to be jacked up significantly than they are at present.
The number of smart meters installed in India is grossly
inadequate. Only about 250 million meters have been installed
in the country so far. Indigenous manufacturing capability, on
the other hand, has been just about 25 million meters per year.
At this rate, it would take at least a decade, including commu-
nications infrastructure, to replace outdated meters. To acceler-
ate these installations, the government will have to liberalize
imports of smart meters while, at the same time, accelerating
their manufacture here.
Also, the interface boundaries between entities have still
not been well defined. It too would require prompt action.
At the same time, a robust, scalable, dispute-free settlement
mechanism, which only a couple of states have at present, will
have to be set up in all states that are lagging behind. Further,
the state-level forecasting and scheduling framework will
have to be put in place across all states. The skill set of those
responsible for operating this will have to be jacked up with
appropriate training. All this and much more will have to be
done if India is to achieve its ambitious goal of expanding the
presence of grid-linked wind and solar capacities in its power
system. The beginning would have to be made soon to address
these inadequacies.

208 Renewable Energy in India

REC versus Auctions
Given this situation, what is the way forward? While both REC
and auctions are appropriate pricing tools, should the former
be given preference and the REC scheme revived or should the
auctioning system for allotting RE power development rights be
given primacy? If one contrasts REC with the auction approach,
obligated entities in the latter have to actually purchase their
renewable power requirements from the RE power projects that
have made the grade at the end of the auction. Entities in states
with scarce RE resources have to wheel electricity from RE units
in high RE-resource states, through interstate transmission net-
works, to their destination to meet their RPO. In normal course,
they would have to pay interstate transmission charges for
wheeling electricity. Fortunately, for them, they are exempted
from having to pay the wheeling charge. Nonetheless, someone
has to foot the bill, which in India the rate payer does.
Further, comparing investments required in infrastructure
for maintaining grid stability in RE resource-rich states between
the two schemes, it would be larger under the REC than in the
auctioning approach. This is because the power produced from
additional RE power capacities installed in the latter case for
serving obligated entities in other states is actually transferred
out of the parent grids to the grids in which obligated entities
are located; to that extent, the units selected through the auc-
tioning process operate in an extended grid that is larger than
the parent grid. Thus, the parent grid is, to that extent, in the
case of an auction mechanism, less constrained by instabil-
ity issues than under the REC approach. Hence, investments
required for maintaining the parent grid stability are less with
the auction approach than with the REC mechanism. Thus, the
choice between the REC and the auctions boils down to a trade-
off between the cost of additional investments in infrastructure
required for maintaining grid stability in the former and the
costs of wheeling the power in the latter.
However, the electricity price discovered through the auc-
tion mechanism imparts far greater certainty to the revenue

Renewable Policy Introspection 209

projections of RE power developers than the gross electricity
price (the actual electricity price plus the market-determined
REC price) discovered under the REC mechanism. To that
extent, RE capacity auctions, provided they are properly struc-
tured, are a better option in securing the required RE capacity
additions on the ground than the REC mechanism.
However, despite its inherent advantages over the REC mech-
anism, the auctions have showed signs of faltering recently.
This is primarily due to a faulty design that requires correction.

Deficient Infrastructure
Looking beyond issues in pricing, markets must have the
essential infrastructure to function smoothly. In this respect,
much needs to be done to integrate intermittent RE gen-
eration into the grid. Indeed, there is a dire need to upgrade
state, regional and national grid technology and operational
procedures in India. In conjunction with technology and
operational upgrades, there is also a need for a regulatory
framework for procuring and reasonably compensating ancil-
lary and balancing resources. These aspects, and those associ-
ated with the grid integration of variable generation, pose the
biggest challenge.
However, the main reason behind the lukewarm response
of the state government-owned power DISCOMs to the RPO
has been their poor financial health. Estimates show that the
total accumulated losses of these distribution licensees were
about `3,800,000 million in FY 2015,10 though not all of it is
accounted by the purchase of electricity from wind and solar
power farms. This is a much bigger issue affecting the entire
power sector since many years and needs urgent solution at
the government level.
The developers have been also concerned with the overall
environment for RE project development. They have often com-
plained about the lack of coordination among key institutions,
namely grid operators, DISCOMs, state revenue departments

210 Renewable Energy in India

and environmental agencies. This is a principal cause of time
and cost overruns in project execution.
While this needs correction, more specifically the main cause
for high transaction costs is the lack of coordination in land
acquisition, transmission interconnections and environmental
clearances.11 In so far as the land acquisition is concerned, a
country as vast as India would require socially and politically
sustainable land acquisition policies that are seen to be fair by
all stakeholders. Further, the sites for RE power development
will have to be a priori identified and assessed for environ-
mental clearance by the state governments themselves before
offering them for development.

What Is to Be Done: Suggested Way Forward

To round up, over a period, countries across geographies have
extended support in the form of fiscal and financial incentives
(PTC, capital subsidy, etc.) and policy/regulatory support in the
form of FITs and the RPS. In countries where FIT as a policy
and regulatory instrument has been adopted, renewable capac-
ity addition has taken place through a supply-side push. The
basic premise of FIT support has been that there is guaranteed
grid access or must-run status (‘feed-in’ component of FIT) and
assured tariff (‘tariff’ element of FIT) for a longer duration. In
countries where RPS has been adopted as a policy intervention,
tariff support in the form of FIT is generally not considered
necessary. RPS has been conceived as a market instrument with
two components, namely RPO and RO/REC.
In India, the initiatives include national policy frameworks
(National Solar Mission, RPO under the EA, the proposed
National Wind Mission, etc.), financial incentives (accelerated
depreciation, generation-based incentives, FIT, capital subsidies,
etc.) and other support mechanisms (e.g., grid codes, scheduling/
dispatch, etc.). As regards policy/regulatory support of FIT and
RPS, India has experimented with both the FIT mechanism and
an Indian version of RPS. Thus, obligated entities in India have

Renewable Policy Introspection 211

the obligation to meet RPO and they can use FIT or REC, or
both as instrument(s) for RPO compliance. India started with
FIT under an administered mode but has been gradually moving
towards auction mode, especially for wind and solar.
In this respect, the experience of over a decade has shown
that multiple approaches for developing RE power segment,
which are in use at present, are not appropriate. They must be
done away with, and only the most efficient of them must be
retained.
From the point of view of larger sectoral efficiency, both REC
and, wind and solar auctioning approaches meet the criterion,
but the latter is more advantageous than the REC in that it
ensures investments upfront in the targeted annual RE capacity
in each state, rather than depending entirely on developers to
individually come forth with the requisite investment proposals
that cumulatively add up to the targeted annual RE capacities in
states. Thus, the auctioning approach must be continued, but
the existing auction design must be modified to include only
the first stage, with the ‘first-price electronically sealed bidding’
retained for its design.
Next, with the REC being discarded, the legacy units that
have come up under it will have to be appropriately reposi-
tioned. Transferring them under the existing FIT regime in each
state with the same electricity tariff as that prevailing for the
units of similar vintage must be considered promptly to avoid
any uncertainty on this score.
While the overall cost of renewable has been declining because
of competition, a question that still haunts is on the balancing
cost of integrating renewable. There are studies12 which have
estimated the additional balancing cost to the tune of `1.11/
kWh for all-India scenario for 2022. This includes the follow-
ing components, namely (a) `0.04/kWh towards fixed plus fuel
cost of coal- and gas-based generating stations; (b) `0.30/kWh
towards additional impact of deviation charges; (c) `0/kWh
in terms of impact in tariff because of backing down coal genera-
tion (assumption: solar and wind price of `2.50/kWh and coal

212 Renewable Energy in India

generation price of `3.50/kWh); (d) `0.50/kWh as a standby
charge and (e) `0.26/kWh towards additional transmission
charge. All of these computations have been done by spreading
additional costs over renewable generation.
Let’s examine as to whether these numbers can be taken
on their face value or not. The first issue in the above exercise
seems to be of double counting of some impacts. For instance,
if additional gas-based generation and standby charges are fac-
tored in for supporting variability of RE, the impact on account
of additional deviation charge to the tune of `0.30/kWh seems
to be exaggerated. Second, the impact on account of backing
down coal should not have been taken as zero; rather, the
negative value should have been considered for the purpose of
the impact assessment in view of the fact that low-cost wind/
solar (`2.50/kWh) was assumed to be replacing high-cost coal
generation (`3.50/kWh). Most importantly, the impact has
been assessed by spreading the additional cost over renewable
generation, which, in our opinion, is not correct. Rather, it
should be spread over the entire generation, in which case the
impact would be significantly less than `1.11/kWh.
In this context, it is important to note that there is definitely
going to be an additional cost for integrating renewable into
a power system (for instance, as a result of lower capacity uti-
lization of thermal assets, costs towards reserves, etc.) but not
as high as projected in the above report. The phenomenon
is global in nature; however, when spread over the entire
generation in the country, its impact does not appear that
alarming. Another important point is that while carrying out
such estimation, one thing which is often lost sight of is the
environmental impact and the associated cost on account of
environmental degradation if one were to continue with fossil
fuel in the future. The external environmental cost on account
of continued use of fossil fuel, if monetized, could outweigh the
balancing cost for renewable. In addition, the declining energy
cost of renewable when compared with the ever-increasing price
of fossil fuel makes a strong case for renewable. The levelized

Renewable Policy Introspection 213

cost of renewable, as is being discovered through the bidding
process, currently is going to remain constant through the
next 25 years, whereas the cost of fossil fuel generation, even
though it is less than the renewable cost as at present, is poised
to increase substantially in the future.
Another important point to note is that the balancing cost
looks high when estimated only with reference to load and
generation portfolio of a state in isolation. This reinforces the
need for a larger scheduling and balancing area and market.
As already emphasized earlier, the balancing cost as also
RE curtailment can drastically reduce if balancing area and
market size increase.13 Load pattern varies from state to state.
Complementariness of load between states and regions can be
harnessed through a larger market. This in turn can lead to an
optimal utilization of generation assets, and what is counted as
stranded in the estimation of balancing cost in respect of one
state might no longer remain stranded in the larger market.
The UI charge, which is also counted as balancing cost, might
reduce substantially with suitable market reforms, for instance,
if aggregation of variable RE is allowed and closer to RTM is
institutionalized.
Given this discussion, what is the right way forward for India
in terms of promotion of renewable? We have already discussed
the need for suitable market design tweaks for integrating
renewable. It is reiterated that a centralized market with a large
number of buyers and sellers is more suitable for addressing
the variability of renewable. As such, the way forward lies in
continuing with the procurement of RE in the future based
on the auction route. However, apart from the modification
in the auction design discussed above, another transformation
suggested is in terms of mandating them to participate in the
day-ahead market and RTM. The mechanism on the lines of
the CFD should be adopted for future RE capacity addition,
whereby the difference between the energy price as earned by
these generators in the market and the strike/contract price
should be settled by the procurer.

214 Renewable Energy in India

 The SECI could invite bids for central procurement. The tariff
discovered should be treated as a reference/strike price for the
purpose of CFD. On a day-ahead basis, the selected developer
could be asked to go to PX and sell its power like any other con-
ventional generator. If the price received by the RE generator
from the market is higher than the reference/strike price, the
gain over and above the reference/strike price could be refunded
by such generator to the SECI. On the other hand, if the price
received by the RE generator from the market is lower than
the reference/strike price, the loss vis-a-vis the reference/strike
price could be compensated to such generator by the SECI.
The final adjustment can be done on a monthly/annual
basis. Given the price trends in PX and the prices discovered
for wind/solar, it is felt that the SECI should not be in deficit.
However, in the event of shortfall, the same can be considered
for socialization. The incremental impact of such socialization
should in our estimation be less than or comparable to that aris-
ing from the current practice of waiver of transmission charges
and losses (see Box 10.1). In fact, for the capacity contracted
through this route, there should not be any requirement of
waiver of transmission charges and losses. CFD support could
be given initially for a predefined target capacity of renewable.
Eventually, as renewable becomes more and more firm with
improved forecasting and combined with energy storage, the
balancing cost would also decline, and they would then be able
to compete with conventional generators based on ‘firm capac-
ity’. It is at this stage that explicit support would no longer be
required for RE.
For the existing projects as well, the CFD mechanism can be
tried. The option of CFD could be given to RE generators by
the DISCOMs that have already entered into PPAs with such
generators. The role as envisaged for the SECI (in the preced-
ing section) needs to be played by DISCOMs. The other option
is for the DISCOMs to act as a portfolio player and to manage
the RE contracts along with their variability through day-ahead
market or RTM.

Renewable Policy Introspection 215

 Box 10.1 CFD Socialization versus Waiver of
Transmission Charges and Losses

Currently, in India, there is a policy of waiver of interstate transmission

charges and losses for 25 years for wind and solar generators com-
missioned up to 30 June 2023.14 Let us look at the impact of such
a waiver in terms of tariff. Annual interstate transmission charges for
2019–2020 are reported to be in the range of `392,850 million.15
Further, the total annual generation in the country for the same
period has been approximately 1,391 BU.16 From this, if we exclude
generation from intrastate generating stations, say the equivalent of
approximately 50 per cent of the total generation, we are left with
700 BU (approximately 50% of the total generation of 1,391 BU)
which can be attributed to interstate generation by using inter-
state transmission. Dividing the interstate transmission charges
of `392,850 million by interstate generation of 700 BU, we get
approximately 56.12 paise per unit (`392,850 million/700 BU) as
the interstate transmission charge. To this, if we account for the
average of interstate transmission loss of 3 per cent, the effec-
tive interstate transmission charge works out to be approximately
57.85 paise per unit (56.12/0.97).
Now, we estimate the renewable energy qualifying for waiver of
interstate transmission charges and losses. We find that approxi-
mately 8 per cent of the total generation in the country is contributed
by wind and solar. If transmission charges and losses were to be
waived for generation from interstate wind and solar generators
(waiver is applicable to such projects; in this case, assuming 50% of
8%, i.e., 4% is the contribution from generators eligible for waiver),
this would mean the same amount of `392,850 million is to be
recovered from 672 BU (700 BU – 28 BU being approximately
4% of 700 BU), resulting in interstate transmission charge of 58.46
paise per unit (`392,850 million/672 BU). Accounting for average
interstate transmission loss of 3 per cent, the effective interstate
transmission charge works out to be approximately 60.27 paise per
unit. Therefore, the incremental impact of the waiver of transmission
charges and losses could be stated to be approximately 2.42 paise
per unit (60.27 – 57.85). Depending on the assumptions above, the
impact would vary between 2 paise and 3 paise per unit.

216 Renewable Energy in India

 Now, we compare this against the likely cost of socialization
of the CFD mechanism. We observe that the weighted average
market clearing price of the day-ahead market segment of the PX
has been in the range of about `3.16 per unit during 2019–2020.17
As against this, the weighted average price of solar power discov-
ered through auction during the same period has been in the range
of about `2.74 per unit (Refer to Table 10.1). There could be an
increase in the price of solar in the future due to the incidence of
taxation or insistence on a policy of domestic content. The increase
is also likely if we expect the solar generator to account for the
deviation/forecasting error-related cost. As against this, we also
assume a reduction in the PX-discovered day-ahead market-clearing
price as a result of increasing participation of zero marginal cost
renewable generation in the day-ahead market.
One could, therefore, argue that the gap between the current
level of market-clearing price of `3.16 per unit and the auction
price of solar of `2.74 per unit would eventually narrow down and
become zero or negative. However, in our opinion, the gap being
42 paise (`3.16 – `2.74) per unit is too large to be eliminated in the
short run. However, even in the extreme event of the price of solar
power exceeding the market clearing price of the PX, the impact
of the socialization of such cost would be much less than that on
account of waiver of interstate transmission charges and losses.
For instance, if the solar price exceeds the market-clearing price
by, say, 10 paise per unit, the cost towards the same level of RE
generation, that is, 28 BU, would work out to `280 million (28 BU
× 0.10), which, if socialized over 700 BU, would have an impact
in the range of 0.0004 paise per unit, which is way less than 2 to
3 paise per unit in the case of waiver of inter-transmission charges
and losses. Further, the cost of socialization, if any under the CFD
mechanism, could be negative or positive depending on the market-
clearing price and, as such, the impact is not perennial in nature,
unlike in the case of a waiver of interstate transmission charges
which is fixed for 25 years for any eligible project.
In view of the above, we recommend the CFD mechanism as a
future instrument for RE capacity addition at least for a predefined
target capacity. Alongside, the policy of waiver of interstate trans-
mission charges and losses should be dispensed with. As against
the waiver, the net excess liability of the procurer under the CFD
mechanism, if any, should be socialized.

Renewable Policy Introspection 217

 RTM is the ideal platform for the integration of variable RE
sources. The half-hourly market is close enough to the actual
time of delivery and gives adequate flexibility to RE generators
to forecast accurately. Centralized economic dispatch in the
day-ahead and real-time horizon helps full dispatch of RE being
zero marginal cost generation. The revenue earning potential
for such generators arises from the difference between the
market-clearing price and their actual cost of generation. The
existence of RTM after the day-ahead market gives RE genera-
tors an opportunity to correct their position closer to the actual
time of operation. RE is likely to be firmer going forward with
advanced forecasting and in combination with energy storage,
given the fast-declining price of battery storage technologies. As
such, a centralized RTM is the way forward for mainstreaming
RE sources, without the need for any special concession like
waiver of transmission charges and losses, etc.
Once a framework like this is adopted, there would not be
the requirement for RPO for the capacity contracted through
this mechanism. There would not be any need for demand-side
support by way of RPO, as renewable capacity would be added
based on the assurance of contract price.
Finally, going beyond pricing concerns, efforts will have to
be made to resolve several related issues in order to facilitate the
competitiveness of RE technologies. Thus, efforts will have to be
made towards reducing the costs of financing RE technologies.
Currently, the cost of financing energy projects, conventional
and renewable power projects, ranges between 12 per cent and
14 per cent in India. Debt constitutes about 70–80 per cent of
total project costs. In this respect, RE projects are on par with
conventional power projects. But the costs of solar and wind
per unit generation are proportionately more capital dependent
on MW to MW comparisons with conventional power projects.
Since the ultimate aim is to encourage third-party investments,
a time-bound interest subsidy scheme could be considered by
the government for these projects.
The other option would be to consider bringing RE under the
priority sector lending, allowing pension funds and insurance

218 Renewable Energy in India

companies to invest in RE projects and securitizing these loans
into trading instruments to be traded in capital markets. This
would allow longer tenure loans to flow without unduly ham-
pering liquidity. Yet one more option could be to consider the
infrastructure debt fund for investments in these units.18
Lastly, the debate around centralized forecasting and
scheduling at the state level has been going on for quite some
time. The Green Energy Corridor Report19 has provided for a
framework in this context. It has recommended the setting
up of the REMC for the purpose of centralized forecasting
and scheduling. There is merit to these recommendations and
their implementation must be undertaken in all earnest. It is
understood that there has been some progress towards the
establishment of the REMC in three regions (southern region,
northern region and western region) involving seven states.
The automation of forecasting and scheduling and real-time
tracking of RE generation—the two key expectations of the
REMC—are critical to the successful integration of variable RE
in the country.
Another important intervention that demands attention is
the aggregation of RE projects for the purpose of forecasting
and scheduling. Aggregation could happen at the level of the
pooling station. The FOR has recommended the concept of a
Qualified Coordinating Agency (QCA) for aggregating wind or
solar projects at a pooling station. The QCAs are supposed to be
responsible for collating the likely generation data of all RE pro-
jects at the pooling station and coordinating with the system
operator for combined forecasting and scheduling. The premise
is that the larger the scheduling area, the less the probability of
forecasting error. This is definitely a welcome step. The need is
for the regulators to recognize the entity in their regulations.
There are demands in states like Tamil Nadu to allow pooling of
pooling stations. In Karnataka, the regulator has allowed such
an arrangement. While there are clear benefits of aggregation,
the demands of generators for freedom of choice to be on their
own need be honoured. Given the intermittent nature of RE,
the establishment of the REMC and the institutionalization of

Renewable Policy Introspection 219

the QCA will take a long time in bringing the desired firmness
in such variable generation. This is desirable from the point
of view of secure grid operation and shall also help to reduce
the burden of the deviation penalty on renewable generators.
These aspects need to be taken forward at right earnest in the
interest of the power system operation in general and for the
mainstreaming of renewable in particular. We believe that
the two interventions, namely aggregation/QCA and REMC,
put together will address the concerns regarding the forecast-
ing error and the consequent financial impact on the project
developers while, at the same time, addressing the concerns of
the system operator in terms of balancing the grid operation.
As more variable RE generation comes online, the day-ahead
forecasting errors in net load can be expected to increase; and,
with that, the need for intraday market and/or AS to provide
load following reserves too would increase. The CERC has
floated a concept note on introducing a framework of market-
based procurement of AS. This must be undertaken soon rather
than waiting for the situation to develop in the near future and
then to firefight.
Since power cannot be supplied cost-effectively to many
remote areas of the country, it might be useful to consider and
promote alternatives such as providing stand-alone off-grid
systems in remote rural areas for home lighting and running
other basic appliances. As of now, in some states, private entre-
preneurs have successfully launched marketing packages for
small-sized solar panels. However, since village electrification
with the grids in India is 100 per cent complete, it is a major
threat to these initiatives as the government pursues 100 per
cent household electrification policy. As of now, household
acceptance of distributed technologies is driven by the lack of
guaranteed supply of electricity from the grid, but this could
change rapidly as the electricity supply from the grid improves.
The government will have to evaluate which of the two options
is economically preferable and evolve its policy accordingly in
this respect.

220 Renewable Energy in India

Chapter Conclusion
Given the target of RE capacity addition of 175 GW by 2022
and 275 GW by 2027, there is an urgent need for a course cor-
rection on policy space for India. We believe that, to start with,
the RPO regime needs to be revisited. There is already a wide
divergence in vision between the centre and the states on this
issue—the centre talks about the commitment of the INDC
and looks at energy security and climate change issue with
pan-India scenario in mind, and the states are wary about the
commercial and operational impact of ambitious renewable
and consequently RPO targets. In a federal polity like in India,
there is a limit beyond which one side cannot coax the other
and, in fact, such differences only give rise to avoidable confu-
sion for investment in the sector. As such, there is a need for
evolving an alternative to the RPO mechanism for the promo-
tion of renewable.
Our recommendation, therefore, is that ideally explicit sup-
port in the form of RPO should be reviewed by freezing the
current level of RPO percentage without insisting on increas-
ing the RPO percentage in the future. RPO is generally set as a
percentage of consumption in a state and consumption con-
tinues to increase. As such, even if we freeze the current level
of RPO percentage, in our opinion, it would support not only
the existing contracted RE capacity of, say, 90 GW but also
some additional capacity as consumption increases over the
period. The question as to what should be the ‘current level’ of
the RPO percentage for each state before it is frozen should be
evolved as a consensus by the FOR. Interestingly, the FOR had
earlier done an exercise20 on this with financial and operational
impact in mind. That exercise should be updated and refined
with current realities.
In the future, an alternative mechanism of fixed tariff sup-
port, with a focus on the scheme of CFD should be introduced,
but such CFD support should also be limited to prespecified
target capacity. For the capacity contracted through this route,
there would not be any need for RPO. Even the must-run

Renewable Policy Introspection 221

status—which is not a guarantee in the RPO regime as well—
might not be required for such a contracted capacity as their
zero or low SRMC of generation would guarantee their dispatch
in the market. Another departure from the business-as-usual
policy that we recommend is to dispense with the policy of
waiver of interstate transmission charges and losses. Also, the
special dispensation on deviation for wind and solar should be
phased out gradually as we believe that market mechanism will
provide natural support for managing deviation.
Thus, going forward, efforts should be concentrated on
market reforms in the form of enhancing forecasting capabili-
ties, operationalizing REMCs, enlarging scheduling and balanc-
ing areas through aggregation of wind and solar at pooling
station level or by pooling of pooling stations. At the same
time, the transmission pricing mechanism should be modified
to articulate clearly that transmission charges would be borne
by DISCOMs/buyers explicitly without the need for allocating
any transmission charge on generators, including RE generators.
With the utmost urgency, the market geographies need to be
enlarged and the depth of the market on day-ahead and real-time
horizons need to be increased through MBED. The market clear-
ing needs to be quicker by gradually moving from a 15-minute
slot to a 5-minute slot for RE and load to manage their variation
without leaning on the grid through UI and causing the avoid-
able risk to grid operation. These market reforms, together with
the pooling of wind and solar at least at the pooling station
level, would go a long way in reducing the balancing cost for
renewable. Equally important is the need for facilitating ade-
quate reserves and to creating a framework for a market-based
procurement of AS with proper incentives for higher ramps.
Even these measures have a cost for the rate payers (electric-
ity consumers), but these costs are going to be much lesser than
that being borne by individual states currently operating as
they are in their silos. The other advantage is that the mecha-
nisms suggested will eventually make the variable renewable
compete with conventional generation, which in turn would
reduce the DISCOMs’ resistance that we believe is currently

222 Renewable Energy in India

one of the biggest factors contributing to the dampening of
interest of investors in the RE segment. An increase in the pen-
etration of renewable is definitely going to render some of the
conventional power plants stranded. Options to mitigate risks
for such legacy contracts be explored and, more importantly,
the resource adequacy requirement and the future power pro-
curement strategy be redesigned with these realities in mind.
There is thus a need for a paradigm shift in the strategy for the
promotion of RE in India.
What needs wider recognition is that RE generation tech-
nologies are here to stay with us given the worldwide context of
global emissions concerns and limitations on the exploitation
of fossil fuel resources. Much of the learning process is now
over and it is therefore imperative that these technologies are
promoted systematically going forward. Since these technolo-
gies are seen to be evolving approximately on Moore’s Law
pattern—as in the case of information technology hardware—a
regulatory approach will have to keep pace with the changes
taking place in this and allied field to facilitate their smooth
transition from one stage to the other.

Notes
1. http://reconnectenergy.com/blog/tag/iwtma/ (accessed on 29
September 2020).
2. http://www.nrdc.org/international/india/files/renewable-energy-
wind-financing-IP.pdf (accessed on 29 September 2020).
3. http://cercind.gov.in/2014/draft_reg/Exp_memo30.pdf (accessed
on 29 September 2020).
4. http://climatepolicyinitiative.org/wp-content/uploads/2012/12/
Falling-Short-An-Evaluation-of-the-Indian-Renewable-Certificate-
Market.pdf (accessed on 29 September 2020).
5. Ralph Turvey, ‘Analysing the Marginal Cost of Water Supply’, Land
Economics 52, no. 2 (1976; quoted in NERA Economic Consulting,
‘Assessment of IPART’s Estimate of Long Run Marginal Cost for
Sydney Water’ [A report for Alinta LGA Ltd; White Plains, NY:
NERA Economic Consulting, 2008]).
6. Chatterjee, ‘The Renewable Energy Policy Dilemma in India’.
7. Ibid.

Renewable Policy Introspection 223

 8. Forum of Regulators, ‘First Report of FOR Technical Committee on
Implementation of Framework for Renewables at the State Level’.
9. Bloomberg report in Business Line, 3 July 2019.
10. https://powermin.nic.in/pdf/Power_Sector_Reforms.pdf (accessed
on 1 May 2020).
11. http://awsassets.panda.org/downloads/meeting_renewable_
energy_targets__low_res_.pdf (accessed on 29 September 2020).
12. https://www.cea.nic.in/reports/others/planning/resd/resd_comm_
reports/report.pdf (accessed on 12 February 2021), 13–18.
13. https://posoco.in/wp-content/uploads/2017/06/National-Study-
Full-report.pdf (accessed on 12 February 2021), 86, 138.
14. https://www.powermin.nic.in/sites/default/files/webform/notices/
Letter_dtd_5Aug_2020_reg_Waiver_of_ISTS_charges_and_losses.
pdf (accessed on 15 February 2021).
15. http://cercind.gov.in/2020/market_monitoring/Annual%20Report
%202019-20.pdf (accessed on 15 February 2021), 8.
16. Ibid., xiii.
17. Ibid., xvi.
18. http://www.nrdc.org/international/india/files/renewable-energy-
solar-financing-report.pdf (accessed on 29 September 2020), 119.
19. http://www.forumofregulators.gov.in/Data/study/Report-Green-
Energy-Tr.-corridor.pdf (accessed on 29 September 2020).
20. http://www.forumofregulators.gov.in/Data/Reports/Final_Report_
FOR_RPO_Study.pdf (accessed on 12 February 2021).

224 Renewable Energy in India

 About the Authors

Pramod Deo, former Chairman of the Central Electricity

Regulatory Commission (CERC), was electricity regulator
for over 11 years both at the centre and Maharashtra state.
Now he is active as an independent energy and environment
adviser.
Deo has 35 years of experience in the energy sector at policy,
regulatory and project management domains at both
domestic—state and central government—and international
levels. He was senior energy economist with the UNEP Risoe
Centre on Energy, Climate and Sustainable Development,
Denmark.
Deo is a recipient of the World Wind Energy Award 2005
from the World Wind Energy Association for his outstanding
achievement in the dissemination of wind energy.
Rich in academics with a postgraduate degree in Physics, PhD in
Infrastructure Economics and postdoctoral research in Energy
Policy and Economics, he has co-authored three books on
energy planning, energy management and regulatory approach
to green power.
Sushanta K. Chatterjee is presently Chief (Regulatory Affairs)
with the CERC. He has a long experience of dealing with power
sector reforms, especially Regulatory Reforms, since its incep-
tion in 1998. He was actively involved in the formulation of
the Electricity Act, 2003.
Chatterjee has been a postdoctoral research fellow at the
Harvard Kennedy School, USA. He has a PhD in Management
and an MBA in Finance. He co-authored Electricity Sector in
India: Policy and Regulation (Oxford University Press, 2012) and
authored S. K. Chatterjee’s Commentary on the Electricity Laws
of India (Delhi Law House, 2006). He has published papers
on renewable/REC (World Bank 2013 and NREL 2016). He
completed research work as Principal Investigator on the topic
‘Meeting the Renewable Revolution: A Roadmap for Electricity
Market Design in India’ at the International Growth Centre,
London School of Economics, UK (2017). Chatterjee has
recently been elected as the first President of the India Chapter
of the International Association of Energy Economics.
Chatterjee’s present academic and professional pursuits involve
specialization in public policy and regulation with a focus
on renewable and market design. He has been instrumental in
the conceptualization of the CERC staff discussion papers on
real-time market, day-ahead market design, ancillary services
framework, grid integration of renewable and renewable energy
certificate mechanism. He is/has been a member of various
government committees. He is/has been a guest faculty for vari-
ous academic, research and training institutions such as Power
Management Institute (PMI), National Power Training Institute
(NPTI), Indian Institute of Management Ahmedabad, Indian
Institute of Technology Kanpur, University of Petroleum and
Energy Studies (UPES), Indian Institute of Technology Roorkee,
The Energy and Resources Institute, Massachusetts Institute
of Technology (USA), London School of Economics (UK) and
Florence School of Regulation.

226 Renewable Energy in India

Shrikant Modak has been a senior financial journalist with 30
years of experience in senior editorial positions in the country’s
leading financial newspaper and magazines. His early career
was in academics, where he was on the faculty of the Institute
of Rural Management, Jamnalal Bajaj Institute of Management
Studies (JBIMS), Mumbai University and Indira Gandhi Institute
of Development Research. He has over 30 years of consulting
experience in the field of energy economics and has written
extensively on the subject in news media and academic jour-
nals. He has co-authored five books of which four have been
in the field of energy economics. He holds a master’s degree in
Economics from the London School of Economics.

About the Authors 227

 Index

AC micro-grids, 48 carbon trading, 25

ancillary services (AS) Central Electricity Authority
providers, 164 National Electricity Plan,
Andhra Pradesh Electricity 112
Regulatory Commission Central Electricity Generating
(APERC), 32 Board, England, 9
ascending bid auctions, 69 Central Electricity Regulatory
auction theory (competitive Commission (CERC), 4, 37,
bidding) 40, 62, 79
Chinese approach, 77–78 Central Electricity Regulatory
e-reverse auction (eRA), 74–77 Commission (Terms and
in India, 72–74 Conditions for Recognition
revenue equivalence and Issuance of Renewable
theorem, 72 Energy Certificate for
types of, 68–70 Renewable Energy
value structure of Generation) Regulation,
participating bidders, 71 2010, 139–142
automatic generation control clean development
(AGC) mechanism, 161, 165 mechanisms (CDMs), 25
average power purchase cost competitive markets, 19–21
(APPC), 54, 140 connection agreement, 52
contract for difference (CFD),
Bayes–Nash equilibrium, 77 192
bilateral generation contracts, Copenhagen Climate Summit,
23 111
DC grid, 48 Energy Act (1990), Norway, 9
decentralized generation, 43 Energy Conservation Act,
Delhi Electricity Board, 22 2001, 34
demand for power in India, energy entrepreneurs (EE), 49
peak load, 1, 2
descending bid auctions, 69 Federal Energy Regulatory
Deviation Settlement Commission (FERC), USA, 30
Mechanism (DSM), 162–163 feed in tariff (FIT) approach, 77
distributed energy resources, feed-in tariff (FIT) approach,
43, 55 154, 211
distribution companies first-price sealed-bid auctions,
(DISCOMs), 49, 51, 54, 56 69
distribution transformers fixed tariff regime, 155
(DTs), 52–53 Forum of Regulators (FOR), 51,
Draft Electricity Bill, 4 111, 122
dynamic minimum renewable
purchase standard (DMRPS), grid angle, 24
111 grid-connected photovoltaic
rooftop solar power
Edison, Thomas Alva, 6 generation system, 50–55
Electricity Act, 2003 (EA, grid-connected rooftop system,
2003), 4–6, 9, 12–13, 21–22, 43
32–34
Electricity Act of 1902,. high-voltage direct current
Sweden, 9 lines, 7
Electricity Act of 1983, Britain,
9 independent power producers
electricity legislation in India, (IPPs), 10
evolution of, 8–9 independent system operator
Electricity Regulatory (ISO), 17, 178
Commissions Act, 1998, Indian Electricity Act, 1910, 8
9–10 Indian Electricity Grid Code
electricity sector in India (IEGC), 170
competitive bidding route, Indian Energy Exchange (IEX),
introduction of, 15–16 162
unbundling with renewable Indian Meteorological
energy technologies, Department, 75
25–26 Intended Nationally
electricity sector, technological Determined Contributions
and structural evolution, 6–8 (INDC), India, 112
Electricity (Supply) Act, 1948, intermittent generation of
8–9, 33 renewable energy, 157–161

Index 229
Inter State Generating Station National Action Plan for
(ISGS), 162, 164 Climate Change (NAPCC),
Inter-State Transmission 111–112
System (ISTS), 162 National Electricity Market, 9
intrastate generators, 162 National Electricity Policy, 164
intrastate transmission and National Institute of Solar
distribution, 23 Energy, 50
National Institute of Wind
locational marginal price Energy, 75
(LMP), 178 National Load Dispatch Centre
long-run marginal cost (NLDC), 162
(LRMC), 20, 35 National Renewable Energy
Laboratory, 75
marginal cost pricing, 106 National Solar Mission (2011),
Market Based Economic 113
Dispatch (MBED), network service-based energy
189, 194 storage, 43
market design for renewable New Electricity Trading
energy Arrangement (NETA), 18–19
Indian model, 182–189 Non-Fossil Fuel Obligation
issues in, 177–178 (NFFO), Britain, 29, 109
market models in major Nord Pool market of
economies, 178–182 Scandinavia, 19
recommended design for North American Electric
Indian markets, 189–194 Reliability Corporation, 171
market mechanism, 106–107
Mera Gao Power (MGP), 48 off-grid/small home system,
meter energy storage, 43 44–47
micro-DISCOMS, 49 Orissa Electricity Board, 22
micro-grid, 43, 47–50
Minda, 49 parallel power modelling
mini-grid, 43 technique, 38
Ministry of New and pay-as-you-go (PAYG), East
Renewable Energy (MNRE), Africa, 44–45
3, 32, 51, 73 peer-to-peer (P2P) trading,
Ministry of Urban 55–57
Development pooling system for power
Model Building Bye-Laws, trading model, 16–19
2016, 112 power generation technology,
Model Net Metering advancement in, 8
Regulation (NEM 2013), 51 Power Grid Corporation of
M-Pesa platform, 45 India, 149

230 Renewable Energy in India

Power Grid Corporation of preferential tariff versus,
India Limited, 74 145–147
power industry in England and versus auctions, 209–210
Wales, activities of, 17 wide divergence between
power purchase agreement states, 148–149
(PPA), 51, 54, 68, 166 renewable energy in India,
power sector, global reforms 221–223
in, 9 approach to support, 32
power system operation in auction process, assessment
India of, 201–203
imbalance handling, 163–165 commercial unviability of,
scheduling and dispatch, 25
161–163 demand and net demand of
power tariff, 12–13 a day, 181
pricing of renewable energy, issues and challenges, 4–6
approaches, 61 need for infrastructure,
Public Utility Regulatory 210–211
Policies Act (PURPA) 1978, promotion under EA, 2003,
USA, 29 32–34
revolution of, 2–4
Qualified Coordinating suggestions to improve,
Agency (QCA, 219 211–220
targets for capacity addition,
real-time market (RTM) 112–115, 117–118, 120
framework, 191 tariff setting, 34–37
regional load despatch centres tariffs in states, 199–201
(RLDCs), 162 transmission pricing, 37–40
Regional Power Committee renewable energy in India,
(RPC), 164 seamless integration
regional transmission framework
organization (RTO), 178 ancillary services, 167–168
renewable energy certificate flexing thermal generation,
(REC) mechanism, 57, 61, 168–169
63, 108, 110, 122, 154–155, framework for forecasting
203–208, 154 and scheduling
CERC notificiation in 2010, mechanism, 165–166
139–142 interconnection, 171
forbearance price for, 141 load variability in power
for generators, eligibility system, 173
criteria, 142–145 relaxation in Deviation
market performance of, Settlement Mechanism,
149–154 166–167

Index 231
 smart grid, 170 second-price sealed- bid
storage and holding of auctions, 69
electricity, 170 short-run marginal costs
Renewable Energy (SRMC), 35
Management Centres short-run marginal costs
(REMCs), 222 (SRMCs), 20
renewable energy pricing in short-term pool market, 22
India, approaches Simpa Networks, 45–46
actual project cost, 66 small-scale distributed
auction theory, 68–77 renewable energy system,
cost-plus, 62–63 42
international project cost, Solar Energy Corporation of
66–68 India (SECI), 73–77
market based, 65 solar plus storage model, 43
regulatory, 64 solar power projects, prices
renewable energy technologies through bidding, 201
global approach, 28–31 stand-alone system, 43
versus conventional State Electricity Board (SEB), 8,
technologies, 11 10–11
renewable portfolio standard State Electricity Regulatory
(RPS) system, 35, 60, 106– Commissions (SERCs), 5, 32,
107, 211 52, 113
renewable purchase obligation state load dispatch centres
(RPO), 54, 73, 155, 211 (SLDCs), 162
drawbacks in, 121–122
in India, 110 The Energy Research Institute
in the UK, 108–111 (TERI), 48–49
issues in implementation of, transformers, 7
199 transmission access charge
long-term growth trajectory (TAC), 39
of, 114
products in, 108 United Nations Framework
solar and non-solar, state- Convention on Climate
wise, 115–118, 120 Change, 66
Report of the Comptroller and UP Electricity Regulatory
Auditor General of India on Commission, 56
Renewable Energy Sector in Uttar Pradesh New and
India, 113 Renewable Energy
request for selection (RFS), 74 Development Agency
Reserves Regulation Ancillary (UPNEDA), 48–49, 56
Services (RRAS), 167
rooftop systems (RTS), 112 wind power capacity, 3

232 Renewable Energy in India