RPO Non-Compliance Penalty Should Be Higher: Prayas Energy Group

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Pune-based energy think tank Prayas Energy Group has urged the Maharashtra Electricity Regulatory Commission (MERC) to consider keeping the penalty for non-compliance of Renewable Purchase Obligation (RPO) higher. 

The think tank expressed its views in connection with the MERC draft (RPO, Its Compliance and Implementation of Renewable Energy Certificate Framework (First Amendment) Regulations 2023. RPO refers to the mandate to the obligated entities in states like discoms and bulk energy procurers to procure a defined portion of their overall energy mix from renewable energy sources. 

“CERC REC regulation 2022 has done away with a floor price for RECs. Hence, there is a need to amend the regulations by removing the reference to floor price. The penalty should be high enough and be effectively imposed to deter non-compliance. The penalty could be linked to the GDAM-GTAM price discovery or to the RE PPA rates for contracts concluded in the year for which compliance is being determined. It could be around 50% of these prices,” the recommendations said.

“Also, there should be an additional graded penalty (like in the case of F&S DSM penalty for RE) in case the shortfall of previous years is not met in the current financial year. This penalty can be graded (e.g., 0.1 8 Rs/kWh for remaining shortfall up to 5%, 0.25 Rs/kWh for 5-10% shortfall, 0.5 Rs/kWh for 10-20%, 1 Rs/kWh for >20% shortfall),” it added.

The think tank also said that the Commission could consider a composite RPO target instead of separate RPO for wind, large hydro projects and others. Prayas researchers said that individual RPO targets have practical issues in implementation. 

“While we appreciate the long-term RPO trajectory target of 43.3% by 2030 and 4% ESO by 2030, the new RPO categories can create certain challenges and accounting complexity. As per the MERC Order dated 31st March 2023 on Case No. 226 of 2022, the contracted capacity for wind source for MSEDCL is 3,546 MW as of 31st March 2022. Considering 140 BUs as demand for MSEDCL and 21% CUF, the contracted capacity can only generate enough power to meet 4.6%. A similar trend was found for other three major DISCOMs of the state,” it said.

It also said that as several large hydro projects are stalled, it would be tough to achieve the hydro RPO targets, too. “As of 01.07.2017, there are 14 under construction Hydro Power Projects (above 25 MW), totalling 5,055 MW, which are stalled due to various reasons. The cost overrun calculated by CEA due to these stalled projects is Rs. 25,593.78 cr.’2 Thus, there is, on average, a Rs 5 Crore/MW cost overrun for these projects, which is in stark comparison to the total cost of new solar and wind projects. Long gestation period further adds up uncertainty in terms of timely completion and increased cost overruns due to delay. Thus, the entire value proposition for large hydropower needs to be looked at afresh,” the report from Prayas Energy Group read. 

It also batted for making the compliance verification process timebound and adding forward-looking aspects such as directing all Obligated Entities to submit a quarterly or six monthly RE and storage procurement calendar for the next 2-3 years. “This would be important to hold DISCOMs more accountable to their future RE and storage procurement planning,” the researchers at Prayas said.