The Hindu Business Line : Giving green power a policy boost

The umbrella legislation covering the power sector is insufficient to give the kind of technological push that the renewable energy sector requires. A separate legislation will give this sector a leg-up and make it attractive for larger private sector investment , says N. RAMAKRISHNAN.

Wind energy alone accounts for over 7,200 MW or 70 per cent of the installed green energy capacity.

India’s green energy proponents are looking for a major policy boost to the sector, one that will significantly increase the use of renewable sources for energy generation, including in the transportation sector. They are hoping for a transformation of the sector from an also-ran to one that will contribute in a major way to the country’s energy security. They feel that although the Electricity Act, 2003, has dealt with power from renewable energy sources, a lo t more needs to be done. They argue that a separate legislation for renewable energy is a must if the sector is to get a leg-up. In their defence, they point to Germany, which has made remarkable progress as far as green energy is concerned thanks to a significant piece of legislation that was enacted in 2000.

Renewable energy installed capacity in the country at 10,175 MW (at end-September 2007) is 7.5 per cent of the total installed generating capacity of 135,781 MW, while the actual electricity generated from renewables will be far lower in percentage terms. Of the installed green energy capacity, wind energy alone accounts for over 7,200 MW or 70 per cent, with other green energy sources such as biomass, small- and mini-hydro, combined heat and power making up the balance. Those pushing for a greater role for the green energy sector want the Government to set ambitious targets and specify that electricity from renewable energy sources should contribute at least 10 per cent in the next five years, rather than measure it in terms of installed capacity.

The German example

Take the case of Germany. Information available on the German Ministry for Environment, Nature Conservation and Nuclear Safety Web site says, “In 2007, Germany will have already exceeded its 2010 target of generating 12.5 per cent of electricity from renewables.” It goes on to say “the Renewable Energy Sources Act has proven particularly useful in this regard, and will remain the main tool for increasing the use of renewable energies in the electricity sector over the next few years.”

The German Ministry’s site says that turnover from renewable energies increased by around 4.8 billion euros, from 18.1 billion euros in 2005 to around 22.9 billion euros in 2006. Renewable energies provided jobs for over 210,000 people in 2006, around one-third more than in 2004. Apart from Germany, others such as the Czech Republic, China, Austria, the UK and Australia have enacted specific legislations for the renewable energy sector.

Admittedly, Germany has a far superior monitoring and evaluating system than that available here — ask the electricity boards as to how much electricity came from wind power and the answer will always be delightfully vague — and hence the tangible benefits from the renewable sector can be easily quantified. Which is not the case as far as India is concerned. Along with the legislation should come a better monitoring system.

Arguments against increasing use of power from renewable sources are that they are not reliable, especially a source like wind, and that they are costly. True. But, even those pushing for a greater role for green energy are not asking for power from renewable sources to replace conventional power. All that they are asking for is, to begin with, a recognition of the greater role that renewable energy can play and a policy push that will make it attractive for investors. Green energy can, at best, supplement the conventional sources and not replace them altogether.

A legislative push for renewable energy use

As Mr G. M. Pillai, Director-General, World Institute of Sustainable Energy (WISE), a Pune-based organisation pushing the case of renewable sources, points out that a legislative push is needed to encourage greater use of renewable energy. While there are national laws for electricity and electricity conservation, there is none for renewable energy. WISE has presented a draft renewable energy law to the Government and is in the process of creating awareness of this proposed legislation and mustering support for it. Significantly, the proposed legislation deals not just with electricity from renewable sources, but also addresses the transportation sector, specifically bio-fuels.

The Electricity Act 2003 — through Sec. 61 (h) and Sec. 86(1)(e) — deals with renewable energy only marginally. That is why green energy advocates call for a separate legislation that will set national standards for renewable energy use.

Currently, electricity regulatory commissions in the States set the tariffs and decide on other issues such as grid access, as far as renewable energy is concerned. Since the tariffs and what is called renewable portfolio standard (RPS) — mandating that a certain percentage of electricity distributed be sourced from renewable sources — vary from State to State, there is no uniformity, because of which investors view the sector as one with a higher risk. The barriers for the development of renewable energy run across a wide spectrum, all of which can be removed only through a separate legislation.

The draft renewable energy law goes beyond merely looking at generation, transmission and distribution of electricity, which is what the Electricity Act 2003 is all about. The umbrella legislation covering the power sector is insufficient to give the kind of technological push that the renewable energy sector requires. A separate legislation, it is felt, will not only provide this push, but also make it attractive for larger private sector investment not just in energy generation, but in research and development and adoption of the latest technologies.

Ms Lily Mathews, Senior Associate based in Australia with Baker & McKenzie, an international law firm that has environment and climate change as one of its areas of expertise, says that doubts about long-term future of policy instruments deter long-term investments whereas laws cement policy direction. Renewable energy faces specific issues — relatively high start-up costs, difficulty in obtaining financing due to perceived higher risk of these projects, intermittent nature of some forms of renewable energy and some forms need more technological development — which are dealt with most effectively through specific laws.

According to her, renewable energy markets are policy-driven and national laws ensure certainty for investors, consistency in application and liquidity for an effective market. However, a special renewable energy law alone is not enough. It needs effective design, consistent implementation and integration with existing laws.

Uniform policies and tariffs

A national law for the renewable energy sector will ensure that policies are uniform across the country. At present, different States adopt different tariffs and regulations for the sector, which makes it unattractive for investors who would like to spread their investments across the country. For instance, attractive tariffs in States such as Maharashtra and Karnataka are making them attractive destinations for large wind farms.

A number of global power companies and investors are putting up large-sized wind farms on an independent power producer model. That is, they set up the wind farms just like any other power project and sell the electricity generated to the grid. Till now, most investment in wind power has been either for captive use or for the depreciation and tax benefits that are available.

Experts point out that this is where a national law and adoption of the best practices from other countries will help. Feed-in tariffs — the minimum rate to be paid by an electricity utility for purchasing power from renewable sources — and tradable certificates are some tools that are available.

The feed-in tariffs for renewable sources differ from source to source and from technology to technology. It is designed in such a way to drive profitable development of the sector. Renewable tariffs with sufficient price and for a reasonably long period of time, say 20 years, will give confidence to investors to put in their money.

It must be mentioned that India has a system of feed-in tariffs decided by the State regulatory commissions and, hence, differs from State to State. In a tradable certificate, widely prevalent in the US, a tax rebate is given for every unit of electricity generated from renewable sources.

‘Green’ trading

Another option is to facilitate trade in green power — either a physical transfer of electricity through a national grid from States with large renewable energy potential to those with not much of scope for tapping these sources, or in the form of tradable renewable energy certificates. This will be something like carbon trading under the clean development mechanism.

For instance, Rajasthan with potential for wind power or other forms of renewable energy can trade either the electricity or the certificates with Delhi, which has limited potential.

This will not only increase investment in green power in Rajasthan but also enable distribution utilities in Delhi to meet renewable portfolio standards.

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