Promotion of Clean Energy, Energy Efficiency and DSM by Maharasthra Electricity Regulatory Commission

04/12/23 Presentation by Pramod DeoChairman - MERC

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Promotion of Clean Energy, Energy Efficiency & DSM by Maharashtra Electricity Regulatory Commission

Presentation by Pramod Deo,Chairman, MERC

Presented atForum for Sustainable Energy, Good Governance, and Electricity

Regulation: 16-18 March 2008, Singapore


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Outline of Presentation• Promotion of grid connected renewable energy (RE)

based power generation by MERC– RE and Electricity Act 2003 (EA 2003)

– RE Tariff Orders by MERC

– RE Potential and achievement

– Tariff determination process & tariff philosophy

• MERC Initiatives for fostering energy efficiency (EE) & DSM in the State of Maharashtra– DSM and EA 2003

– EE/DSM Initiatives

– Key Challenges


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Background• Three-Member MERC fully constituted in September 1999 • Erstwhile MSEB unbundled in June 2005 into

– Maha GENCO – Maha TRANSCO – Maha DISCOM – supplies power to the entire State of Maharashtra except

the State capital – Mumbai– MSEB Holding Company.

• Mumbai licensees:– Reliance Energy Ltd. (REL),– The Tata Power Company Ltd (TPC) &– Brihan-Mumbai Electricity Supply and Transport Undertaking (BEST)

• Mula-Pravara Electric Co-operative Society (MPECS) in Ahmednagar district.


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Promotion of grid connected renewable resource based power generation by MERC


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Promotion of Grid Connected Renewable Power Generation by MERC• Prior to the Electricity Act 2003, no specific

provisions to promote renewable sources of energy by State Electricity Regulatory Commissions (SERCs)

• EA 2003 has radically changed the legal and regulatory framework for the renewable energy (RE) sector

• EA 2003 places the responsibility for development of RE on the shoulders of the SERCs


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RE and EA 2003• Section 61: The Appropriate Commission shall, subject to the provisions

of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely:-

– (h) the promotion of co-generation and generation of electricity from

renewable sources of energy;

• Section 86(1): The State Commission shall discharge the following functions, namely:

– (e) promote cogeneration and generation of electricity from renewable

sources of energy by providing suitable measures for connectivity with

the grid and sale of electricity to any person, and also specify, for

purchase of electricity from such sources, a percentage of the total

consumption of electricity in the area of a distribution licensee;


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EA 2003 – Boon for Renewable Energy • NEP and NTP to take into account Renewables

– “The Central Government shall, from time to time, prepare the

National Electricity Policy and tariff policy, in consultation with the

State Governments and the Authority for development of the power

system based on optimal utilization of resources such as coal, natural

gas, nuclear substances or materials, hydro and renewable sources of

energy".

• Policy for Stand-alone systems

– “The Central Government shall, after consultation with the State

Governments, prepare and notify a national policy, permitting stand

alone systems (including those based on renewable sources of energy

and non-conventional sources of energy ) for rural areas.”


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National Tariff Policy : Harnessing RE

• Clause 6.4 of NTP States:

• (1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate

Commission shall fix a minimum percentage for purchase of energy from

such sources taking into account availability of such resources in the

region and its impact on retail tariffs. Such percentage for purchase of

energy should be made applicable for the tariffs to be determined by the

SERCs latest by April 1, 2006.

• 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.


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Tariffs for RE Technologies

• State Regulators bound to take provisions under Section 61(h) into account while drafting ‘Terms and Conditions of Tariff’ Regulations

• Accordingly most of the SERC’s have issued Tariff Regulations to provide preferential treatment to Renewables

• MERC has issued Tariff Orders for various technologies such as:– Wind– Small Hydro– Biomass– Co-generation– Municipal Solid Waste


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RE Tariff Orders by MERC

Renewable Energy Source Tariff Order date Target Capacity Addition

Non-fossil fuel (bagasse) based co-generation

16th August 2002 300 MW

Non-fossil fuel (bagasse) based Non-Qualifying

Cogeneration

25th May 2005 Incl. above

Wind Energy 24th November 2003 750 MW

Biomass 8th August 2005 250 MW

Small Hydel 9th November 2005 200 MW

Municipal Solid Waste 6th April 2004 Not specified

Above Tariff Orders have been further extended upto 31st March 2010(To be valid during RPS policy regime)


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Maharashtra : Renewable Purchase Obligation

RPO Order (Sep 2004)

• Around 5 licensees (MSEDCL, TPC,

REL, BEST, MPECS) in Maharashtra

but RE resource concentrated in

MSEDCL area.

• All utilities to share RE purchase

obligations and share costs.

• MEDA to act as Nodal Agency for co-

ordination and RPO Pool operations.

• Simple RPO Pool under operations for

2 years.

RPS Order (Aug 2006)

• Trajectory for percentage of RE

procurement obligation stipulated.

– 3% (FY07), 4% (FY08), 5% (FY09)

and 6% (FY10)

• Applicable to licensees as well as captive

and open access consumers.

• Enforcement mechanism introduced for

shortfall in compliance.

• Enables pro-active action by licensees to

procure/ contract/ own RE generation.


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Maharashtra - RE Potential and Achievement

4584

1524

600

207

1250

125

781

14

287

0

350

2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Cap

acit

y (

MW

)

Wind Small Hydro Co-generation Biomass MSW & LiquidWaste

Industrial Waste

• Maharashtra bestowed with all types of RE sources

• Regulatory Orders have facilitated RE Capacity Addition

• RE Potential (7852 MW), Achievement (1872 MW as on Sep-07)


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Tariff Determination Process

• Regulatory Commission is a quasi-judicial authority

• It can not determine feed-in tariff on its own

• Generating Companies or equipment manufacturers will have to file petitions before the Commission for determination of tariff for different technologies.

• Regulatory Commission will follow process as specified under Conduct of Business Regulations of the respective Commission.

• Regulatory process is a consultative process in which all the stakeholders get opportunity of representation.

• Tariff will be determined on conclusion of due regulatory process.


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Tariff Philosophy for RE projects

• Strictly every project is unique in certain characteristics.

• However, it is difficult to set tariff for each RE project on account of:

– Site specific nature of Projects

– Large number of projects exists, with smaller unit size

– Ownership of the ‘Project Entities’ is diverse.

• Tariff determination for each project will be:

– Cumbersome

– Put significant strain on regulatory institutions.

– RE developers tend to perceive ‘Regulatory uncertainty’

• Therefore, all SERCs have opted for determination of tariff on the basis of

representative case though this would lead to some investors earning more than

specified rate of return while others would earn less.

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Financing Parameters • In the context of tariff determination, SERCs are required to

determine various other capital and finance related parameters such as:

– Capital cost of the project– Capital subsidies available for the project– Debt – Equity Ratio – Rate of interest including interest rate subsidy– Return on equity– Rate of depreciation – Income tax benefit– Working capital, if any

Concerns of all stake-holders such as investors, lenders, utilities and consumers, need to be addressed.

– Front ending or back ending of Tariff (e.g. wind)– PPA tenure (e.g. 13 years in Maharashtra)

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Operating Parameters

• SERCs are also required to develop norms for

operating parameters such as:

– Operation and Maintenance costs

– Capacity utilization factor

– Auxiliary consumption

– Interconnection arrangements

– Metering and billing related issues


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MERC Initiatives for Fostering Energy Efficiency & DSM in

the State of Maharashtra


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Promotion of EE by MERC • Unlike grid connected renewable energy, EE has no

direct backing of:– The Electricity Regulatory Commission’s Act 1998, or – Electricity Act 2003, or – National Electricity Policy (NEP)– National Tariff Policy (NTP)

• However, EA 2003 and NEP do mandate need to foster energy efficiency

• Considering large benefits and prevalent shortage situation in the State, MERC, under Section 23 of EA, has directed implementation of several initiatives to promote adoption of EC through utility demand side management (DSM) programmes


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MERC Initiatives in EE & DSM

• Some of the initiatives undertaken by MERC are as follows: (Case Study discusses these initiatives)– Regulatory Directives to Utilities– Capacity Building within MERC and also within

Utilities – Load Management Directives– Tariff Initiatives – DSM/EE/EC Activities


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Regulatory Directives to Utilities


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• Order of March 2005– Directed MSEB to submit detailed first phase

plan of EC within one month

• April/May 2005– Directive to BEST, REL and TPC to undertake

DSM programmes – All the cost incurred on implementation of DSM

initiatives will be allowed as pass through in ARR


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• Tariff Order of April 2007– Long Term power procurement plan of Distribution

Utilities to have proposals on energy conservation (EC) and energy efficiency (EE)

– Directed to take up Load research on a sustained basis and as an integral part of operations

– Directed to take up EC and EE through appropriate formulated DSM initiatives on a sustained basis on as integral part of operations

– Reiterated that all the costs incurred on implementation of DSM initiatives will be allowed as pass through in ARR


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Capacity Building for promotion of EE/EC/DSM


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Capacity Building Initiatives

• Established a DSM Cell Within MERC: April 2006• Pending DSM Plan preparation, worked with utilities

to plan and implement on “ad-hoc” basis, EE pilot/demonstration projects in lighting and water pumping areas

• Commissioned a study to develop and institutionalise DSM bidding mechanism so that ESCOs, equipment vendors, etc. could be contracted by Utilities to implement DSM projects

• MOU with California Energy commission, California Public Utilities Commission and Lawrence Berkeley National Laboratory to develop MERC and Utility Capacity for load research, DSM and integrated resource planning


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Load Management Directives


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Load Management Directives of MERC

• Load management directives to curb demand in view of worsening power shortages (could not increase load shedding beyond what was being resorted to) and possibility of load shedding in Mumbai: [basic philosophy: voluntary load curbing is better than forced load shedding]

• Order of May 2005: BEST, TPC, MSEDCL and REL– Load management charge of Rs. 1 (2.5 cents) per kWh if

consumption above prescribed limit; and load management rebate of Rs. 0.5 (1.25 cents) per kWh if consumption below prescribed limit

– Net amount collected as load management charge to be used for promotion and implementation of EE, EC DSM

– Collected about US $ 17.5 million. This is being used to run DSM activities to date


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Load Management Directives of MERC• Tariff Order of October 2006: REL & TPC: Steep Rise in load management

Charge and load management incentive - Load management charge at the rate of additional 100% of the highest tariff chargeable to the respective category; load management incentive at the rate of 50% of the normal chargeable rate to the respective category– Consumer protests as consumers faced hardships as their bills in some

instances more than doubled.– Review petitions filed by industries and consumer associations:

• Did not have sufficient time to prepare for the directive, it came as a shock

• Lack of knowledge and awareness about why, where and how to reduce consumption

– In response to Review Petitions, Load Management Charge Order withdrawn in December 2006

– Utilities were asked to design and run a comprehensive consumer awareness campaign (conducted in March-June 2007


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Tariff Initiatives


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Tariff Reforms

• Since its inception in August 1999, the Commission has undertaken several initiatives to encourage efficient consumption. Some of these initiatives are:– Time of Day tariffs for several categories– Power Factor incentives/penalties– Additional Supply Charge– Utilities asked to reduce costly power purchase cost

by 2% through DSM– Higher tariffs for certain categories of consumers


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Time of Day Tariffs: MSEB/ MSEDCL (1/2)

• TOD Tariff for MSEB/MSEDCL since Tariff Order of May 2000

• Expanded scope of TOD tariffs for all load > 20kW for MSEDCL

• Gradually raised the difference between peak and off-peak tariff – Presently, Differential between “peak” and “Off-

peak” tariffs at 4.1 cents to 4.34 cents per unit (Average Tariff: 5.36 cents to 14.29 cents per unit)

• Introduced TOD for Mumbai city since October 2006


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PF and Reactive Power Charges

• Power Factor (Various tariff orders for MSEB/MSEDCL, TPC, REL/BSES)– Incentive for PF > 0.95– Penalty for PF < 0.9


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Additional Supply Charge • Tariff Order of October 2006

– Additional Supply Charge introduced to compensate expenditure on costly power purchase, which was being utilised to mitigate load shedding for specified categories & regions

– To foster energy efficiency, reduction in Additional Supply Charge allowed to the extent of reduction in consumption over the last year’s consumption in corresponding period

• Tariff Order of April 2007– To foster energy efficiency, incentive provided to the extent of

reduction in consumption over the reference period of January to December 2005 and in case of increase in consumption, entire increase to be billed at Additional Supply Charge

– Utilities directed to reduce costly power purchase cost by 2% through DSM


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Higher Tariffs for Certain Categories• Commission targeted conspicuous consumption categories like

shopping malls, floodlighting at stadiums, hoardings, etc., by steeply increasing their tariffs, rather than banning consumption by such consumer categories

• The tariff increase for one of the Mumbai Utilities:• For Residential consumers consuming:

– >300 units per month ~ 24%– > 500 units per month ~ 28%

• For Commercial Sector Consumers consuming:– > 500 units per month ~ 49%– > 1000 units per month ~ 64-68%

• For Low tension and high tension consumers:– ~ 33-84% rise in tariff


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Key Challenges


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Key Challenges• Immediate challenges:

– Changing Utility mind set (from supply side orientation to integration of supply and demand side orientation)

– Building utility competencies – institutionalisation of DSM, IRP and load research

– Developing appropriate incentives for utilities to take up DSM and EE/EC under cost plus regulatory regime within the ambit of EA 2003 (which does not have direct mandate for DSM)

– Unlike US and European utilities, distribution business in India has many inefficiencies (huge distribution losses, lower collection efficiencies, etc.), & the challenge is to integrate DSM with distribution efficiency improvement strategies.


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Key Challenges Contd…..

– Absence of energy efficiency market:• How to motivate bankers/financiers to lend for energy

efficiency projects

• Delivery of energy efficiency : there are hardly any ESCOs, consultants, vendors to deliver energy efficiency (to plan as well as to implement DSM/EE/EC programmes and projects)


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THANK YOU