National solar mission has potential to shine

By Akshay Jaitly and Anuja Tiwari, Trilegal
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The Ministry of New and Renewable Energy (MNRE) recently announced the Jawaharlal Nehru National Solar Mission, which will focus on promoting large-scale generation of solar power and the manufacture in India of equipment to support it.

Akshay Jaitly Partner Govind Nair Trilegal
Akshay Jaitly
Partner
Govind Nair
Trilegal

The mission aims to address and overcome key impediments to the increase of solar power generation in India. It envisages steps that will facilitate a high level of sustained investment in the sector, reduce capital costs and promote technical innovation. Among the proposed incentives to developers are the reduction or removal of duties, the establishment of special economic zones and the enabling of “single window clearance” for projects.

To promote the manufacture of the necessary solar power generation equipment in India, the mission visualizes significant private participation in technology transfer and the improvement and expansion of facilities, and emphasizes research and development programmes focused on solar energy, and the establishment of world-class training centres.

The mission aims to use three key mechanisms that will enable these objectives to be achieved: a renewable purchase obligation, renewable energy certificates and a generation-based incentive.

Renewable purchase obligation (RPO): Electricity distribution companies are usually reluctant to purchase solar power due to its expense compared to power generated by other means. To address this problem, the mission proposes that existing legislation be amended in order to require state electricity regulatory commissions (SERCs) to fix an RPO specifically for solar power.

Most SERCs have already introduced RPOs for distribution companies. However, the RPO mechanism is weak and ineffective because it lacks credible penalties and sound enforcement provisions. Without strengthening the RPO mechanism by creating significant, enforceable penalties for non-compliance, the objectives of the mission are unlikely to be achieved.

Renewable energy certificates (RECs): The Central Electricity Regulatory Commission recently issued draft regulations proposing the REC system, under which power would be divided into two tradable commodities – the power itself and its “green component”. Under the proposed system, developers would have the choice either to sell power at a normative tariff and separately trade the RECs on exchanges, or to sell the power and its “green component” together to distribution companies, at the statutory feed-in tariffs for solar and other forms of renewable power.

Apart from encouraging renewable energy projects, the REC system aims to enable states that are deficient in renewable resources to increase the proportion of renewable power in their energy mix. However, it should be noted that the REC system is based upon the assumption of higher and more enforceable RPO targets than are the case at present. Considering that the REC system is not yet in place, and that it depends on the currently weak RPO mechanism, it cannot yet be expected to achieve the goals set by the mission.

Anuja Tiwari Associate Trilegal
Anuja Tiwari
Associate
Trilegal

Generation-based incentive (GBI): The mission also contemplates offering a GBI to distribution companies, encouraging them to include as high a proportion of solar power in their energy mix as possible. The GBI, which is payable to a distribution company (that is, the power purchaser instead of the power producer) based on its consumption of solar power generated in its licensed area, cannot properly be called a “generation-based” incentive. Terminology apart, the mission aims to use the GBI to offset the high cost of renewable feed-in tariffs that distribution companies are required to pay.

Another approach would be to lower the feed-in tariffs for solar power, and assist developers in absorbing the high capital costs of solar generation projects by directing the GBI to them rather than to the distribution companies.

A detailed institutional structure through which the mission will be implemented has not yet been specified. However, it is foreseen that the mission will be guided by a committee with members like MNRE officials – in other words, that the project will be controlled and administered by the government.

To infuse professionalism and transparency in the mission, it has been suggested that the mission should be implemented by an autonomous, independent body such as a registered society or a not-for-profit company, headed by a director with significant experience in the private sector. Such an arrangement would be similar to those used by successful initiatives like the Telecom mission headed by Sam Pitroda and the Unique Identification Number Authority headed by Nandan Nilekeni. Finally, the mission plan proposes the establishment of a fund to provide financial support to developers and research institutions. A venture capital fund setup would be ideal since this structure offers increased liquidity for investments and various tax incentives.

The mission has the potential to act as a catalyst for the development of a robust and competitive solar power sector. However, vital structural and institutional improvements are required if this bright forecast is to be proved correct.

Akshay Jaitly is a partner at Trilegal in Delhi, where Anuja Tiwari is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. The firm has over 100 lawyers, some of whom have experience with law firms in the US, the UK and Japan.

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