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A Supreme Court order last week has come as a major boost for compulsory purchase of renewable energy even though it is likely to increase the power costs for an industry dependent on captive power generation.
With the apex court upholding renewable purchase obligation (RPO), power purchasers in all states would have to follow the regulatory norms for RPOs.
This would also boost the market for renewable energy certificates (RECs), which are traded and bought to meet the RPO.
The apex court in its order said regulations framed by electricity regulatory commissions cannot in any manner be said to be restrictive or violative of fundamental rights.
The court ruling came in a case filed by Hindustan Zinc against the Rajasthan Electricity Regulatory Commission on May 13.
The court also ruled out the case filed by a number of firms including DCM Shriram, Binani Cements, JK Lakshmi Cement and Ultra Tech Cement. It instead favoured the Rajasthan Electricity Regulatory Commission’s decision that compelled these players to procure fixed amounts of energy from renewable sources or pay money in case they failed to meet the requirements.
In Rajasthan, captive power producers along with open access consumers, who buy power directly from the grid, along with distribution companies, are required to buy 8.2% of their power requirement from renewable sources besides 2% from solar. Himachal Pradesh has even higher RPO at 11% and Mizoram at 14.75%.
The companies had argued that neither any licence nor any approval from any authority is required to install a captive power plant and therefore the RERC has no jurisdiction to impose any obligation upon such captive power plants for purchase of renewal energy.
They had added that the penalty of paying charges in case of shortfall is contrary to the object and intendment sought to be achieved under the provisions of the Act of 2003 and the same is also opposed to the National Electricity Policy, 2005 and the Tariff Policy, 2006.
According to Reconnect Energy Solutions, enforcement of RPO regulations have been lax due to various reasons including the stay granted by various High Courts like in the case of Gujarat (recently vacated), Madhya Pradesh and Tamil Nadu, among others.
With the Supreme Court order, however, stay by various high courts might also become redundant.
|Top States with Renewable Purchase Obligation for 2015-16|
|(as percentage of total power used)|
The new order would enable stronger enforcement and provide support to the state electricity regulators to impose RPO regulations more forcefully and effectively.
According to Vibhav Nuwal, co-founder and director, Reconnect, to fulfil the RPO commitments companies have the option of either generating their own green power, buy it from some other source or buy RECs.
“Enforcement of RPOs has been very weak. Though the value of RECs bought has increased from just Rs 152 crore in 2011-12 to Rs 502 crore in 2014-15, the value of unsold RECs is over Rs 2,300 crore,” said Nuwal. Besides, RECs face the problem of expiry of certificates and in some cases, states had to extend the life of the certificates.
He said in the short term there was enough green energy capacity available in the country though in the long-term there could be capacity constraints.
According to Nuwal, considering that there was 40,000 mw of captive power generation in the country and a huge number of open access consumers, the court judgement could give a fillip to the REC market.