COMPETITIVE BIDDING FOR RENEWABLES: IS IT TENABLE?

The Karnataka Electricity Regulatory Commission (KERC) on receiving directives from the Appellate Tribunal of Electricity (ATE) has issued a discussion paper on ‘Guidelines
for competitive bidding for procurement of renewable energy (R.E.) power in the state of Karnataka w.e.f. April 2008.

The ATE has stated in para 27 of its Order dated 14.5.2007 that, “to promote renewable technologies as also to ensure competitive costs of procurement of power, it would be desirable to
introduce competitive bidding process, as envisaged in the tariff policy for all future requirements of renewable-based power.”

In light of the above directives from ATE, it would be interesting to see (as specified below) whether it is an appropriate time to introduce competitive bidding process for renewables and also, if it compliments the specific R.E. enabling policy and regulatory provisions stated in the
Electricity Act (EA), 2003, National Electricity Policy (NEP) and National Tariff Policy (NTP), 2005.

I. Clause 5.12.2 of the NEP states the importance of R.E. technologies, role of the SERCs in promoting R.E. sources (determination of preferential tariff and specifying quota for
renewables). The clause further states that such purchase by the distribution licensees shall be through competitive bidding process in future.

II. Clause 6.4 of NTP mentions about the provisions of Section 86 (1) (e) of the EA, 2003, and the functions of the Commission in specifying percentage for purchase of renewable energy and preferential tariffs for renewable technologies. It is also mentioned under the clause that
future procurement of R.E. shall be done as far as possible through competitive bidding. The clause also states that in future the tariff for procurement of renewable energy shall
be determined as per the proposed guidelines to be issued by CERC, GoI (in case competitive bidding is not adopted).

III. It is interesting to note that none of the provisions of the EA, 2003, indicates competitive bidding for procurement of renewable energy directly. Section 61 (h) of the Act calls for
preferential tariffs for renewables and Section 86 (1) (e) calls for promotion of co-generation and generation of electricity from renewables by providing suitable measures
for connectivity with grid and sale of electricity to any person. It also states that the Commission should specify certain fixed quota for renewable energy to be purchased by distribution licensees as percentage of total consumption within the area of licensee. Section 63 of the Act mentions that the Commission may adopt the tariff determined through transparent bidding process.

IV. As per interpretation of the provisions in NEP and NTP, procurement of renewable energy in Indian states should be carried out as follows:

Determination of preferential tariff based on guidelines proposed to be issued by CERC (April 2006) and specifying quota obligation RPS for renewables by respective state
commissions.

The state commissions to ensure operationalisation of RPS in respective states.

In the long-term, when R.E. technology matures and sufficient competition develops within the manufacturers of similar R.E. technology, renewable energy can be procured by competitive bidding process.

At present, State Electricity Regulatory Commissions of 14 states in India have issued RPS orders and specified a fixed percentage for purchase of renewable energy. But none of the
Commissions except that of Maharashtra have issued guidelines/orders for long term implementation of the RPS framework. If we look at resource-wise achievements of R.E.
against the potential as on J une 2007 [wind (15%), SHP (13%), biomass (3%), co-generation (12%)], we find that a lot of untapped potential still exists in the country. Moreover, the
figures are very outdated as is seen in Tamil Nadu, where installed wind capacity has already crossed its estimated potential. Secondly, there are still many states which do not have tariff orders for renewables in place, which is a major deterrent for capacity addition in the state. From this it is clear that we are still in the initial phase of R.E. development.