Renewable energy firms seek compensation for backing down

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The government is examining a request from renewable power producers to compensate them for cutting down generation at the behest of electricity distribution utilities.

An industry official privy to discussions with the government told BusinessLine that the Ministry of New and Renewable Energy (MNRE) is in favour of this proposal. MNRE now proposes to take it up with the Power Ministry.

Recently, generation from coal-based power plants had peaked leading to an oversupply of electricity. In such circumstances, the distribution utilities prefer procuring cheaper coal based power over relatively expensive solar power. Explaining the cost aspect of renewable energy generation and the magnitude of ramp downs due to them, Santosh Kamath, Partner and Head of Renewables at KPMG India, said, “The cost of procuring power from older solar power plants is less competitive compared to thermal power plants. Much of the 8000 MW solar power generation capacity already commissioned today is sold at ₹5/unit and above.”

The government finds itself in a bind, said a former executive from a power producing company. “Who will pay the compensation to these renewable energy companies is the question. The discom is liable to pay for the power it sells, in the situation where there is lower demand for power, the discom cannot be forced to compensate the power generator,” he explained.

The government may have to get budgetary support from the National Clean Energy Fund or a similar mechanism to compensate these companies, he added.

Sunil Jain, Chief Executive Officer and Executive Director of Hero Future Energies, said, “The variable component in thermal is quite substantial; in renewable pretty much all is fixed charge, in the form of upfront capital cost. For solar energy, if the tariff is ₹5/unit, only 50 paise will be the variable cost. The government can propound a two part tariff with partial compensation for the fixed cost.” Jasmeet Khurana, Associate Director – Consulting at Bridge to India, said, “NTPC in the upcoming tenders is planning a mechanism where renewable energy generators can sell extra power in the future for the duration they will be asked to lower power generation.

“They are currently assessing compensation in the form of hours of curtailment and not in the units of power generation lost. There are some ambiguities about linking the hours of ramping down to power generation which are still being worked out.”

Industry watchers explain that conceptually there is no deemed generation clause in the Power Purchase Agreement (PPA) right now. As per the pact, legally there is a protection that government cannot ask renewable power to back down over thermal power generation.

But, despite the legislation, Discoms in Southern states such as Telangana and Tamil Nadu with higher renewable energy penetration have been ramping down clean energy procurement.

“The law mandates that renewable energy will have first right to procurement and Renewable power producers in Tamil Nadu have got relief after they approached the High Court over this issue,” Jain said.

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