RPO compliance by Indian Railways in Maharashtra – Response to MERC

order dated 04 July 2017

Background

The Maharashtra Electricity Regulatory Commission (MERC) has issued an order dated 04 July
2017 (Case 173 of 2016) with regard to verification of compliance of Renewable Purchase
Obligation (RPO) by Indian Railways (IR) for FY 2015-16.
As per the above order, the Gross Energy Consumption (GEC) of IR in FY 2015-16 in
Maharashtra was 653.24 MUs. This pertains to the period starting from 26 November 2015
when IR started drawing power under Open Access as a Deemed Distribution Licensee for the
first time. In accordance with MERC RPO Regulations 2010 that is applicable upto 31 March
2016 (end of FY 2015-16), the Solar obligation of IR was 0.50% amounting to 3.26 MUs and
the Non-Solar obligation of IR was 8.50% amounting to 55.53 MUs. The Non-Solar obligation
also includes within it a Mini & Micro Hydro obligation of 0.20% amounting to 0.11 MUs. IR
has not fulfilled any of the above obligations even partially.

The MERC RPO Regulations 2010 state that every “Obligated Entity” (distribution licensees,
users owning captive power plants, and open access consumers in the State of Maharashtra)
may meet its RPO target by way of own generation or procurement of power from RE
developer or by way of purchase from other licensee or by way of purchase of renewable
energy certificate or by way of combination of any of the above options.

Keeping in view the newly established status of IR as a Licensee in FY 2015-16, the MERC has
allowed IR to meet its RPO shortfall for FY 2015-16 by the end of FY 2017-18, to the extent
that it has not already made up for it in FY 2016-17. MERC has also stated that IR may do so
through its own RE generation, procurement of RE power and/or purchase of RECs. MERC has
also stated in the order that if IR does not discharge its responsibilities with regard to RPO in
future, it would be liable to RPO Regulatory Charges.
RPO Regulatory Charges are defined in the MERC RPO Regulations 2010 in the following
manner :
“If the Obligated Entity fails to comply with the RPO target as provided in these Regulations
during any year and fails to purchase the required quantum of RECs, the State Commission
may direct the Obligated Entity to deposit into a separate fund, to be created and maintained
by such Obligated Entity, such amount as the Commission may determine on the basis of the
shortfall in units of RPO, RPO Regulatory Charges and the Forbearance Price decided by the
Central Commission; separately in respect of solar and non-solar RPO:
Provided that RPO Regulatory Charges shall be equivalent to the highest applicable
preferential tariff during the year for solar or non-solar RE generating sources, as the case may
be, or any other rate as may be stipulated by the State Commission;
Provided further that the fund so created shall be utilised, as may be directed by the State
Commission.”
Compliance status of other Licensees in Maharashtra

It appears that the MERC has conducted similar proceedings for all major Distributions
Licensees / Deemed Distribution Licensees for their respective RPO compliance pertaining to
FY 2015-16. Their status appears to be as follows :

Licensee Gross Energy Non-Solar RPO Mini / Micro Solar RPO

Consumption achievement Hydro RPO achievement
(GEC) against target achievement against target
FY 2015-16 (8.50% of GEC) against target (0.50% of GEC)
(0.20% of GEC)
(within 8.50%
Non-Solar RPO)
MUs % % %

BEST 5058 98.5% 145% 130%

Tata 6021 100.3% 285% 246%
R-Infra 9895 100% 0% 100%
MSEDCL 119186 96% 0.4% 72%

It appears that MSEDCL has had consistently large shortfall in Solar RPO compliance in
previous years, though compliance has improved from a low of 5% in FY 2010-11 to about
50% in FY 2014-15. MERC appears to have directed MSEDCL to constitute a RPO Regulatory
Charges Fund for its Solar RPO non-compliance for FY 2014-15. MSEDCL’s Mini/Micro Hydro
RPO compliance has remained below 10% during all these years. Non-Solar RPO compliance
by MSEDCL from FY 2010-11 to FY 2014-15 appears to have been of the order of 90 to 93%.
MSEDCL and R-Infra appear to have made requests to remove the sub-category of Mini/Micro
hydro RPO and the MERC has allowed purchase of RECs in lieu of this requirement until such
energy becomes available.
It therefore appears that other Licensees in Maharashtra have attained a reasonably high
level of compliance in FY 2015-16 except for certain specific sub-categories like Mini/Micro
hydro. It also appears from public documents that MERC had allowed R-Infra in March 2017
to meet its substantial backlog of RPOs in FY 2016-17 through purchase of RECs in FY 2017-18
keeping in view the much lower REC Floor price of Rs. 1000 proposed at that time w.e.f. 01
April 2017.
Current choices before the Indian Railways

MERC has given IR time until the end of FY 2017-18 for fulfilling its backlog of RPOs. It appears
unlikely that IR would be able to access any Solar or Non-Solar capacity during FY 2017-18,
unless any rooftop solar installations of IR are operational. Any capacity from the market, if
available at all, could be from stranded older projects and thus at a much higher tariff than
what is currently prevailing and may therefore not be commercially prudent.
Keeping in view the currently prevailing prices of Solar power, Wind power and Renewable
Energy Certificates (RECs), it appears prudent for IR to purchase energy or certificates directly,
rather that lock funds away in a RPO Regulatory Fund. Even if such a fund remains in Railway
custody, it would have to be linked to the highest applicable preferential tariff for each
category and its use subjected to MERC oversight.
For FY 17-18, the highest preferential tariff in Maharashtra for Wind power is Rs. 5.40 per
kWh, for Mini / Micro Hydro is Rs. 5.86 per kWh and for Solar PV is Rs. 5.13 per kWh. Prevailing
RE prices are much lower with Solar power in the region of Rs. 3, Wind in the region of Rs.
3.50 and REC Floor prices of Rs. 1.50 for Non-Solar and Rs. 3.50 for Solar. REC Floor prices
were lowered by CERC for both categories to the equivalent of Re. 1.00 per kWh w.e.f. 01
April 2017 but operation of that order was stayed by the Supreme Court in May 2017 and the
position currently remains unclear. The stay on sale of Non-Solar RECs has been lifted on a
plea by Wind power developers subject to such sale being undertaken at pre-revised prices.
Sale of Solar RECs continue to remain under stay.
Solar power costs appear to have firmly dipped below Wind power prices already. Even in the
event that new Solar projects are imposed with domestic content requirements, Solar prices
would be generally at par with Wind power prices. Anti-dumping duties, if imposed on
imports from China, are likely to have an impact on both Wind and Solar projects.
Addition of Solar capacities is taking place in India at a dramatic rate as comparted to Wind.
MSEDCL is already understood to have petitioned MERC for certain amendments to the RPO
Regulations, including clubbing of Solar and Non-Solar RPO targets. CERC has also indicated
in recent weeks that they are also considering a similar move as the requirement for a
separate target for Solar no longer appears necessary since Solar tariffs have dropped down
substantially.
Keeping the above in view, it may not be unreasonable to assume that the MERC RPO target
for FY 2018-19 of 11% Non-Solar and 2.75% Solar RPO totalling 13.75% could well be taken as
a clubbed target. There is also a strong possibility that the Central Government’s RPO
trajectory may be adopted by many States soon and this would result in a 17% total RPO
target for FY 2018-19. A 17% clubbed target would require IR to have about 330 MW of Solar
capacity for FY 2018-19 alone. Additional capacity would be required to fulfil the backlog.
The expected RE backlog of IR in Maharashtra appears to be as follows :
 Year Gross Energy
Solar RPO Non-Solar RPO
Consumption
Mus % MUs % Mus
2015-16 653 0.5% 3.26 8.5% 55.5
2016-17 2985 1.0% 29.8 10% 298.5
2017-18 3135 2.0% 62.7 10.5% 329.1
Cumulative 95.76 683.1

Fulfilment of the entire backlog as on 31 March 2018 would entail generation over a full year
from a Solar capacity of about 57 MW and a Wind capacity of about 339 MW for the
respective Solar and Non-Solar obligations.

Implications of required RE purchase and options

Considering that the total load forecasted by IR for Maharashtra (including Mumbai) even for
FY 2019-20 is less than 300 MW, there is a clear mismatch between required RE capacity and
traction loads. Even if a higher efficiency level of new Solar plants results in CUFs (Capacity
Utilisation Factor) of 22 or 23 % instead of 19%, the MW output would at best match the load.
There is a large quantum of power from conventional fuel sources like RGPPL and BRBCL
allocated by IR for Maharashtra (including Mumbai). It therefore appears that a prudent way
forward, at least for the present, may be to procure RECs. Given the uncertainty over current
REC prices, it may be useful to wait for another two to three months to assess if RECs might
become available at a price equivalent to Re. 1 per kWh.
The current MERC RPO Regulations 2016 are operative from 01 April 2016 until 31 March
2020. These Regulations state that an obligated entity may meet its RPO target by way of its
own generation or procurement of power from another RE Project or by purchase from a
Licensee or by purchase of RECs or by a combination of these options. It further states that
procurement of RE power generated within Maharashtra by a Distribution Licensee at a rate
other than that approved by the State Commission directly from a Generator or a Trading
Licensee shall not be considered as eligible quantum for fulfilment of the RPO of such
Distribution Licensee. It further provides that procurement by a Distribution Licensee of RE
power generated within Maharashtra under a scheme of or approved by MNRE may be
considered by the State Commission as eligible quantum for fulfilment of the RPO of such
Distribution Licensee considering the nature of such scheme.
The above provisions appear to indicate a need for RE projects to be within Maharashtra, with
the exception of RECs, even though there is no such locational stipulation in the another part
of the same Maharashtra RPO Regulations 2016 where it defines “Eligible Renewable Energy
Sources” as those recognised or approved by the MNRE. However, given the pan-India
operations of IR and the overlap of Railway Zones and State boundaries, the Railways could
explore procurement of renewable energy from the most commercially viable sources even
if they are outside Maharashtra.

Suggested way forward

Solar and Wind power are likely to be increasingly brought under the Scheduling and Despatch
mechanism by various States. Both CERC and the Forum of Regulators have issued guidelines
and procedures for the same. Madhya Pradesh has already proposed to implement
Scheduling and Despatch for Wind and Solar soon, though a final order does not appear to
have been issued yet.
Given the above, scheduling of RE power and conventional power would no doubt require a
hands-on approach by all purchasers of RE power, including IR. This challenge is currently
being handled by grid managers / load dispatchers (RLDCs, SLDCs) alone as of now, given the
must-run status of renewables. The impact has therefore not been felt by Distribution
Licensees as yet, except in the form of costs of backing down conventional power. In 2016-
17, it is estimated as much as 4200 MW of conventional generation was backed down in
Maharashtra which has an RE capacity of the order of 7000 MW (mainly Wind) including co-
gen and biomass. As already suggested in the RPO Report to REMCL, IR may also need to
consider significant backing down of despatches from contracted conventional power
generation sources.
Since the degree of RPO enforcement in different States varies, it would be prudent for IR to
have RE sources whose output could easily be switched between States. From this point of
view, CTU-connected sources would be the best for IR. Any other RE purchases from individual
States should also be contracted to be delivered to IR at a CTU inter-connection point with
the sale being recorded by the CTU energy meter.
Based on procurement actions that IR may already be engaged with, a tentative plan for
purchase of Non-Solar RECs (Solar RECs also if the Floor price is dropped to Rs. 1000 per REC),
Solar power and also Wind power (if feasible) could be submitted to MERC in September /
October 2017. Based on the tentative procurement plan, IR may request MERC to extend the
time period for clearance of backlog at least upto end of FY 2018-19 and ideally upto end of
FY 2019-20 as any earlier date may not be feasible.
Although Central Railway has agreed to meet the RPO compliance by purchasing the REC.
However Hon’ble Supreme vide its Order dated 14.07.2017 while disposing the Civil Appeal
No. 6083/2017 and 6334/2014 directed that trading of Solar REC shall remain suspended until
further orders and trading of non-Solar RECs shall resume at the floor price of non-Solar RECs
prevalent earlier .
In view of above central Railway is not able to comply Solar RPO in present scenario and would
execute the Agreement with Trader for trading of Non-Solar REC for Non-Solar RPO
Compliance.
Considering that IR is intending to procure 400 MW from the Rewa Ultra Mega Solar Park,
additional capacities would also be required to met the backlog just for Maharashtra. RPO
enforcement by other States would add to the requirements. Therefore, based on actual
contracts that IR is able to enter into for procurement of RE capacity and the associated
quantum as well as delivery start date, IR may submit a plan to MERC including REC
procurement and seek extension of time for compliance. The quantum of REC purchase could
be finalised based on MERC’s decision and IR’s assessment of the extent to which coal/gas
power could be backed down. Such REC purchases could be made towards the later part of
FY 2017-18.