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Competitive Bidding or Licensing Aditya K. Singh - Kam Solar Energy Consultants


entral Government is targeting deployment of grid connected solar power capacity of 20,000 MW by 2022. To achieve this target, Central Government and various States have been introducing various initiatives to promote ecologically sustainable growth while addressing India’s energy security challenge. We appreciate the initiatives of the concerned government agencies for the promotion of generation from renewable energy sources. However, recently many states have introduced solar power policy wherein they have introduced approval route for the establishment of solar plant, for example Haryana has recently published Draft Solar Policy, 2013, wherein developers are required to take approval prior to setting up a power plant. The main objective of the enactment of the Electricity Act, 2003 was to make generation activity license free. Any solar power developer can set up the power plant in any part of India without obtaining prior approval for setting the power plant subject to compliance of other statutory approvals. It appears to us that the recent solar policies of various states are in contravention of the Electricity Act, 2003 and bringing back license era in the electricity generation segment. Before dwelling upon this issue, it is pertinent to dwell upon regulatory scheme concerning the procurement of power. Section 10 of the Electricity Act provides that a generating company may supply electricity to any licensee in accordance with the Act and rules and regulations made there under and may, subject to the regulations made under sub-section (2) of Section 42, supply electricity to any consumer. The National Tariff Policy, formulated by the Ministry of Power, has specific guidance on purchase tariff for power generated from renewable energy sources: Section 6.4 “…. It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission. Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within 34

EQ INTERNATIONAL - November 2013

suppliers offering energy from same type of non-conventional sources. In the long-term, these technologies would need to compete with other sources in terms of full costs.” Section 63 of the Electricity Act, 2003 states that Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Commission. In December 2012, Ministry of New and Renewable Energy issued guidelines for tariff based competitive bidding process for grid connected power projects based on renewable energy sources. After reviewing existing regulatory scheme, it appears that the concerned state agencies can procure the electricity from the renewable energy sources by competitive bidding process in compliance with MNRE guidelines. Various state agencies have already adopted this mechanism. Various state solar power policies (For example Haryana, Rajasthan etc.) speak about approval route for the establishment of any solar power plant in the state. It appears that any solar power developer has to take approval from nodal agency prior to setting up power plant in these states. We argue that the approval route is not having any valid statutory force and it is an attempt to go back in pre 2003 era. Prior to enactment of electricity act, CEA approval was required for the establishment of any power project. Electricity Act, 2003(“Act”) had brought smile on the faces of generating companies. A new license free regime for generating companies came after the enactment of this act. Section 7 of the Act states that any generating company may establish, operate, and maintain a generating station, without obtaining a licence under this Act, provided it complies with the technical standards regarding connectivity with the grid. As per Act, Generation including those from renewable energy sources is a delicensed activity. Hence an IPP, if they desire and subject to any other statutory clearances, may set up a power plant on a self identified site. Licensing was dispensed because it was felt that it leads to delay, to harassment and possibly corruption. A company that is investing millions in setting up a power plant is fully qualified to assess whether the project is technically sound and financially

viable. Electricity Act, 2003 imposes license requirement only for licensing, trading and distribution of the electricity. Section 8 specifically states that Hydro projects however, would need clearance from the Central Electricity Authority. Legislatures expressly excluded all power generation sources except Hydro. Requirement of approval for setting up solar power plant is in clear violation of the Electricity Act, 2003 in its letter and spirit. State Agencies have a mandate to promote cogeneration and renewables and hence a major role in mainstreaming renewable energy sector under the Electricity Act, 2003. It appears that the purpose of these policies is to backdoor introduction of ‘regulatory control’ of generation business. Various state electricity regulatory commissions had also expressed their displeasure on the attempt by state agencies to bring back power generation industry under license regime. In the case number HERC/PRO-10 of 2012 in the matter of Suo moto petition for determination of generic tariff for renewable projects to be commissioned during FY 2012-13, Haryana Renewable Energy Development Agency brought to the notice of the HERC, clause 19.3 of the Renewable Energy Power Policy dated 23/11/2005 of the Haryana Government wherein it was required that Commission shall entertain tariff proposal of only HAREDA approved IPP. The Commission was not convinced with the view of HAREDA and observed that, though desirable, the proposal to entertain only the proposals from the IPPs after approval from HAREDA lacks statutory support. Therefore, in light of the abovementioned observations, we are convinced that the approval route for establishment of solar power plant does not have statutory force. The distribution licensees can invite competitive bid for the procurement of energy from generating companies but any attempt to impose unreasonable restriction on the ability of the power developer to generate the electricity will be in clear violation of the Electricity Act and various articles of the Constitution of India (Article (19)(1)(g) and Article 301 of the Constitution of India.

EQ Int'l November'13 Edition  

InterSolar India 2013 Special Edition