RBI Governor Hints at Power Sector Reforms

For the next wave of growth of renewables, fast-paced changes need to be implemented

Recently, the Governor of Reserve Bank of India (RBI), Shri Shaktikanta Das, addressed members of the National Council of the Confederation of Indian Industry (CII), regarding whether dynamic shifts are underway in the Indian economy. Stating that the country’s power sector is undergoing a shift, Shri Das pointed out that India’s progress in addressing the demand-supply imbalance in electricity has been remarkable. It has now become a power surplus country, exporting electricity to neighboring countries.

Shri Das further elaborated, “What is particularly striking is the role of renewable energy. The share of renewable energy in overall installed capacity has doubled to 23.4% at end of March 2020 from 11.8% at end-March 2015. As much as 66.6% of the addition to total installed capacity during the last five years has been in the form of renewable energy. About 90% of this jump stems from solar and wind energy. This spectacular progress has set the stage for India targeting to scale up the share of renewable energy in total electricity generation to 40% by 2030. The shift to greener energy will reduce the coal import bill, create employment opportunities, ensure sustained inflow of new investments and promote ecologically sustainable growth.”

Saur had previously reported, “India’s renewable capacity installations reached 86 GW as of December 31, 2019.” Shri Das added, “A major factor driving this shift in energy mix has been the steep fall in the generation cost of renewable energy. As a result, renewable power generation technologies have become the least-cost option for new capacity creation in almost all parts of the world. The weighted-average cost of addition to renewable capacity in India was one of the lowest in the world in 2019. This has started exerting significant downward pressures on spot prices of electricity. Going forward, this landmark progress could result in a significant overhaul of the power sector, encompassing deregulation, decentralization and efficient price discovery.”

But we need to consider the fact that for the past two financial years; the pace of installation of solar and wind has fallen. Maximum capacity addition happened in India in renewables, especially solar in the period 2014-2018; even wind project installations have dwindled in the past two years. The country is way behind the rooftop solar target as well as large-scale solar targets of 2022. A lack of infrastructure, distribution company (DISCOM) finances are the major reasons behind this slowdown.

As an increasing number of renewable energy projects were commissioned and added to the grid there was need of expansion of grid infrastructure to incorporate for high inflow of renewable energy, but this hasn’t been up to the mark. The Green Energy Corridor is not yet complete, solar park infrastructure is not complete for all the approved 40 solar parks. The DISCOM finances are bad in most states; power producers must wait for months to get their dues. In some cases, DISCOMs also dispute the tariffs agreed upon contractually and these have been inhibiting the growth of renewables. These are reflective of a system whose processes need to be revisited.

In his address the RBI Governor also pointed out, “Policy interventions in the form of renewable purchase obligations (RPO) for DISCOMs, accelerated depreciation benefits and fiscal incentives such as viability gap funding and interest rate subvention will have to go through a rethink/need review. Reforming retail distribution of electricity while reducing commercial, technical and transmission losses remains a key challenge. The end of cross subsidization by industry for other sectors and closing the gap between average cost of supply (ACS) and average revenue realized (ARR) will require speedier/accelerated DISCOM reforms (including privatization and competition). A nationwide Grid integration that can take supply from renewable sources as and when generated is needed to take care of daily/seasonal peaks and troughs associated with renewable sources.”

An increasing number of state electricity regulatory commissions (SERCs) across India have issued new regulations that have increased the open access charges and related surcharges for renewables in order to protect their DISCOMs who would loose out on huge revenues if most industrial consumers turned to renewables (either by way of PPA with developers of by CAPEX projects). This is in direct contrast to the aims and objectives of the country’s solar/renewable mission and also shows that the nation has so far failed to reap the benefits of the UDAY Yojana that was supposed to make DISCOMs financially strong.

Recently, Power and New & Renewable Energy Minister R K Singh, said, “the renewable energy capacity would touch 450 GW by 2030, with an additional 60 GW of hydropower capacity.” If India is to achieve these targets, regulatory bodies and government agencies would do good to take cue from the RBI Governor’s address.

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Saumy Prateek

Saumy has been a writer with Reuters, Mercom India and Rystad Energy.