Regulatory Insights - CER Newsletter - Volume 02 Issue 04

COVID-19 pandemic has immediate as well as long-term concerns for the regulators and the policy makers. Its impact on power system is reflected in general decline of energy sales and, a change in composition of energy sales and demand profile. Given the higher proportion of fixed cost component in costs as compared to the proportion of revenue from fixed charges in total revenue, a decline in energy sale, particularly those of subsidizing categories, would widen the revenue gap.
The need for tariff revision and/or additional subsidy for the current and subsequent financial years is a cause for regulatory concern. Further, the pandemic's impact would be felt across the supply chain due to low PLF of high variable cost generators and decline in the sale of coal.

Reduction in renewable energy cost, even below that of conventional sources, needs to be reflected in floor price of solar/non-solar RECs, which has been proposed to be brought down to zero. Further, the uniform forbearance price at t 1 000/MWh provides the right framework to do away with prevailing segregation by merging solar and non-solar REC markets.

Increasing share of RE generation in RE rich states such as Andhra Pradesh and Tamil Nadu is leading to regulatory proposals removing/diluting the available preferential benefits to RE based generation. Since such concerns are arising on account of variability and uncertainty associated with variable RE generation, changes in the regulatory framework are required to make them more accountable to grid through uniform applicability of deviation related charges, and by enabling creation of a market for storage services as it becomes more economical in future.

Real-time monitoring of solar rooftop installations is a key to ensure that distribution utilities do not lose the visibility of behind the meter solar generation. Large rooftop installations (say, above 50/100 kW) should have adequate capability to enable real-time monitoring at the cost of owners. A sample of smaller installations should also be monitored by the distribution utility by making adequate investment, which should be approved by the SERCs.

Regulatory lag in RE tariff determination inadequately reflects decline in RE cost. Dynamic linking of the regulated tariff to the one determined through competitive bidding can address this. Regulated tariff for small scale projects, which are not exposed to competitive bidding process, can also be linked with adequate margin to compensate for diseconomies of scale. As an alternative, a competitive market for small scale projects can be developed by bundling a large number of identified projects.