New mandate requires India thermal plants to use renewable sources to generate part of their energy

The Ministry of Power on March 3 issued a resolution mandating all new thermal power plants, starting commercial operations after April 1, 2023, to ensure that 40 percent of their total power production comes from renewable energy.

According to the latest NDC of India, the country aims to ensure 50 per cent of its total energy comes from non-fossil fuel sources by the end of 2030 while it plans to go net-zero by the end of 2070. Image: , CC BY-SA 3.0, via Flickr.

The Ministry of Power (MoP) on February 27 released a resolution to introduce a new concept of ‘Renewable Generation Obligation (RGO)’ for power producers. Now, any upcoming coal or lignite-based commercial thermal power plant will have to produce a portion of its total energy from renewable sources.

According to the new RGO mandate, the upcoming thermal power plants will have to produce a minimum of 40 per cent of the total power generated at their power plant through renewable sources. They will, however, have the liberty to generate the renewable energy either on their own or ensure the supply by procuring from other sources.

Power plants which will start their commercial operations anytime between April 1, 2023, to March 31, 2025, have to ensure compliance with the new RGO norms by the end of April 1, 2025. New thermal power plants coming into operation after April 1, 2025, have to comply with the RGO as they begin their operations. Captive thermal power plants, however, have been kept out of the ambit of the RGO. Captive power plants are non-commercial plants maintained to cater to the demands of their use.

The MoP’s resolution comes almost four months after the ministry released a draft notice in November 2022, introducing the RGO for the thermal plants. However, the latest resolution has brought few changes compared to the draft norms. While the draft order of 2022 talked about imposing RGO on the new thermal power plants starting operations on April 1, 2024, the newly issued resolution fast-tracked the date to April 1, 2023, a year ahead. Also, while the draft paper talked about a minimum of 25 per cent RGO compliance, the new order mandated 40 per cent RGO on the new thermal power plants.

This is a welcome move. For the first time, ‘generation-based’ obligation is being imposed on thermal power generators.

Prateek Bhandari, counsel for energy, infrastructure, and resources, Khaitan & Co

Energy experts welcomed the move and claimed that it could help harness more clean energy and aid in achieving India’s Nationally Determined Goals (NDCs). According to the latest NDC of India, the country aims to ensure 50 per cent of its total energy comes from non-fossil fuel sources by the end of 2030 while it plans to go net-zero by the end of 2070.

“This is a welcome move. Till now, we had existing obligations for the power distribution companies (discoms) in the form of Renewable Purchase Obligations (RPOs) under which they are mandated to procure a certain portion of their power from renewable sources. For the first time, ‘generation-based’ obligation is being imposed on thermal power generators,” Prateek Bhandari, Counsel – Energy, Infrastructure, and Resources at Khaitan & Co., told Mongabay-India.

Rishu Garg, a Policy Specialist working in the Energy and Power sector at the Center for Study of Science, Technology, and Policy (CSTEP), told Mongabay-India that thermal power plants with little experience in renewable energy might face some logistical challenges in commissioning new clean energy projects to achieve the RGO targets.

“With this notification, even coal power producers will now need to share the responsibility of integrating RE. It will thus ensure that the large thermal companies contribute to India’s RE targets. But here, one of the major challenges expected is that power generators setting up the thermal plants may not have enough experience in commissioning RE-generating plants. Therefore, they might end up procuring RE from the power exchanges. Thus, a robust power exchange is needed to help manage the demand and supply of RE,” Garg said.

Out of the several public sector and private coal companies in India, there are selected entities that produce thermal power and renewable energy. The National Thermal Power Corporation of India (NTPC) is one of the state-owned thermal power companies which produces coal-fired thermal power and renewable energy. It already has 3.1 Gigawatt (GW) of installed RE capacity while it is installing 4.7GW of more clean energy. Some selected private thermal power plants, too, have forayed into the RE sector.

Sunil Dahiya, an analyst from the Centre for Research on Energy and Clean Air (CREA), told Mongabay-India that with the higher cost of production of coal-power electricity and the new RGO, investing in RE power plants will be a more rational idea for many new upcoming thermal power plants.

“The notification imposing 40℅ RE capacity addition for new coal thermal power plans is good for those plants at advanced stages of construction. It is better to convert those in the pipeline entirely to RE. Considering the current utilisation levels and the cost of new coal power, it would be wise to focus fully on cost-effective renewable power in the medium term and explore investments on storage related technologies to manage peak demand,” Dahiya said.

According to a 2022 report by the International Renewable Energy Agency (IRENA), if the cost of energy generation from coal-fired power plants and RE sources is compared, generating power from RE sources is four times cheaper from coal-fired power plants. The report said that in 2022, while around $127 was needed to produce 1 Megawatt-hour (MwH) of power from coal plants, it was around $30-$35/MwH for the energy produced from solar or onshore wind power projects if the fuel cost is compared.

Learning from RPO

The Indian Electricity Market, mainly governed by the Electricity Act of 2003, witnessed the emergence of Renewable Purchase Obligation (RPO) around a decade ago. However, despite the provision of penalties for non-compliance, several Indian states continued to miss their RPO targets.

RPO is mandated for state-obligated entities like power suppliers and local distribution companies. However, in the concept of RGO, the onus on ensuring compliance is set to come on the ‘generators’ for the first time.

Experts claim that there is still a lack of clarity on what will happen in case of non-compliance of RGOs by the obligated thermal power plants. Experts batted for more clarity on other aspects of RGO too.

“One provision that can make the RGOs more binding is a penalty mechanism for not complying with the given notifications. Further, there needs to be sufficient clarity on the tariff for RE supply under this mandate as the coal companies may lose out on the revenue because most new thermal capacities have been priced much higher than the prevailing RE market prices. Lack of clarity may hamper compliance,” Rishu Garg from CSTEP told Mongabay-India.

Who will benefit from RGO?

Experts claimed that with the rollout of the new RGO regime, several renewable energy generators struggling with payment issues would benefit. Varun B.R., Senior Policy Officer (Power) at Vasudha Foundation, told Mongabay-India that the RGO might give the RE generators an added advantage. He also said it might provide relief to the struggling Renewable Energy Certificate (REC) market vis-à-vis RE generators.

“Many RE generators were not happy with delayed payments and lesser uptake of their green power by the obligated entities, particularly the discoms. A good chunk of them thus was relying heavily on the open access mode to directly sell their renewable energy to the commercial and industrial customers for hassle-free payments and assured offtake,” he said.

He also said that as many of the new thermal power plants are likely to rely on open access and power exchanges to procure renewable energy, the RE generators will likely get an additional source of revenue and another reliable customer subject to RGO compliance. He, however, added that the thermal power plants with this are likely to see an additional financial burden on RE procurement.

A long journey

The concept has been making rounds in government policy-making for a long time. The then coal minister Piyush Goyal in 2015 announced bringing RGO into the country’s renewable energy policy. The latest available Tariff Order of 2016 also discussed bundling renewable energy with thermal energy.

The Tariff Policy of 2016 paved the foundation of RGO without using the term and defining the minimum ceiling for thermal power plants. The policy claimed that the new thermal power plants starting their operations after a specified period would be required to generate or procure a certain portion of their power from renewable sources. The order said that the government will notify its detail later. With the latest RGO notification, the government has complied with this provision of the Tariff Policy.

The Tariff Policy claimed that the produced clean energy could be bundled with thermal energy for selling. In this case, the policy said that the State Electricity Regulatory Commission (SERC) could also consider extending RPO benefits to the discoms if they produce green energy from such sources.

However, experts Mongabay-India talked to, claimed that the new RGO order lacked clarity on the new tariffs under the new RGO regime, the fate of existing Power Purchase Agreements (PPAs), the role of commissions and other agencies in the new system, and other modalities. Still, they expected that more details would come gradually.

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