Let’s keep the renewables story going

The world has recognised and accepted India’s policy leadership and commitment to live in harmony with nature, by conferring United Nations’ environmental award on our prime minister. The award underlines the inherent strength of the Indian value system, wherein the virtues of protecting the ecosystem and propagating the environment are deeply engrained.

India’s green energy mission, a true reflection of the virtues of the Indian value system, has seen astonishing progress not only in terms of the quantum, but also in terms of price discovery, becoming a critical tool to achieve 24x7 reliable power. It is imperative that the gains made through competitive bidding regime in renewable generation be delivered to the bottom of pyramid by translating these to low cost and reliable energy.

While all moves are indicating positive progression, there is a lurking feeling that these gains in generation may erode quickly if we don’t ensure that competitive spirit prevails across the complete value chain of energy delivery.

The Electricity Act of 2003 gave impetus to India’s power sector that it so desperately needed to reform itself. The Act has certainly unleashed competitive forces and unlocked efficiencies benefiting the consumer with lower tariffs, evidenced widely in renewable generation.

The reformist environment in the sector has especially helped the transmission sector, which has attracted global investment and brought in the efficiencies of tariff based competitive bidding (TBCB) under the public private partnership (PPP) framework.

Since the introduction of competitive bidding, 43 transmission projects have attracted investment upwards of ₹50,000 crore and these projects, apart from significantly truncating execution timelines, have reduced tariffs by at least a third.

The proven success in India’s transmission sector clearly underlines that all efforts should be made to minimise, in fact eliminate, any exceptions to the TBCB model. Faster completion of transmission lines at a lower cost has to be the sole focus. That, in fact, was the vision when in January 2016 the National Tariff Policy for Electricity was amended.

Cost-plus model

What has been transpiring is the converse. Currently, we notice unfolding of a policy with exceptions under the tariff policy being allowed to grow. As many as 58 of the 101 projects have had exceptions applied to them and are being routed through the cost-plus model using the regulated tariff mechanism (RTM), burdening the consumer with higher cost and tariff.

In its recent Tariff Approach Paper, the Central Electricity Regulatory Commission estimates that the cost of inter-State power transmission has increased by 69 per cent in the past seven years. Projects being awarded under regulated, and not competitive bidding model contributes to a greater measure to this increase.

The rise of renewable energy in India is a feel-good story. But even this congenial story could take a hit unless the phased transmission network plan is awarded strictly according to the competitive bidding model. More than 66 gigawatts of renewable energy have to be evacuated by 2021 at a cost of ₹45,000 crore.

If routed through the cost-plus model, the cost of delivered power is likely to increase by 30-40 per cent, negating the gains being made on competitive bidding-based price discovery of green energy.

Project execution models based on competitive bidding have demonstrated the capability of developers to work strictly according to timelines under a transparent framework. Even public sector undertakings like Power Grid Corporation have shown improved efficiencies of cost and time in the projects secured through competitive bidding, as opposed to those secured through the cost-plus mode. Any attempt to deviate from this proven framework can only do harm to India’s green energy ambitions.

Interestingly, in a recent communication to the government, the RBI cited preferential treatment given to state-owned power utilities like NTPC as one of the reasons for stress in the sector. The country can ill-afford a similar spectre in the transmission sector.

Competitive spirit must prevail in raising the green energy corridor for the feel-good element of the story to endure and ensure that the investment of about ₹10 lakh crore required on renewables does not go the NPA path. And that is possible if projects in transmission are awarded through the TBCB route with rewards for timely completion, and stringent penalties.

The writer is former Secretary, Department of Economic Affairs.

COMMENT NOW