Govt mulls introducing fixed-cost component in renewable energy tariff

Source: LiveMint.com, Jan 30, 2017

New Delhi: The government is exploring a change in the tariff structure for electricity from clean energy sources to boost India’s efforts to promote a green economy.

The ministry of new and renewable energy is contemplating a fixed-cost component to the tariff for electricity generated from renewable energy sources such as solar or wind.

The idea is to prevent distribution companies (discoms) shying away from procuring electricity generated by such projects, as they will have to pay the fixed tariff component even if they don’t buy the electricity contracted for.

Such a tariff mechanism already exists for electricity from conventional sources such as coal and gas which has two parts—a fixed cost, which is the investment incurred towards power generation equipment, and a variable cost or the cost of fuel.

“The government is contemplating introducing a fixed component in the renewable energy tariff to prevent states from backing down from buying electricity from renewable energy sources,” said a person aware of the development, on conditions of anonymity.

Mint reported on 14 January about issues such as inordinate delays in signing of power purchase agreements, timely payments and power distribution companies shying away from procuring electricity generated from wind energy projects as some of the issues plaguing the renewable energy sector.

“The idea is to fix a certain component which will allow a renewable energy project developer to service the debts even if the distribution companies (discoms) back down from buying electricity. It is under consideration,” said a government official, who too sought anonymity.

Experts say this is an important step for promoting green energy.

“While this is a positive development for attracting investments, appropriate planning, demand projection for procurement strategies, commercial contracts and safeguarding utilities and consumers’ interest must be thought through,” said Sambitosh Mohapatra, partner (energy) at PwC India.

India’s demand for renewable energy is expected to grow by seven times in 2035, according to the latest BP Energy Outlook, which means the share of renewable energy in the country’s fuel mix will increase from 2% to 8% in 2035.

India, the third-largest energy consumer after the US and China, plans to achieve 175 gigawatt (GW) of renewable energy capacity by 2022 as part of its global climate change commitments.

India is the biggest greenhouse gas emitter after the US and China but renewable energy accounts for 15% of the total installed capacity.

The government says India has a renewable energy potential of around 900GW.

Queries sent via email to the spokesperson of the ministry of new and renewable energy on Friday remained unanswered.

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