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National Electricity Policy, 2005
The National Electricity Policy is one of the key instruments for providing policy guidance to the Electricity Regulatory Commissions in discharge of their functions and to the Central Electricity Authority (CEA) for preparation of the National Electricity Plan.
The objectives of the National Electricity Policy include:
â€¢ Access to Electricity-Available for all households in next five years.
â€¢ Availability of Power-Demand to be fully met by 2012. Energy and peaking shortages to be overcome and spinning reserve to be available.
â€¢ Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.
â€¢ Per capita availability of electricity to be increased to over 1000 units (kWh) by 2012.
â€¢ Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
â€¢ Financial Turnaround and Commercial Viability of Electricity Sector.
â€¢ Protection of consumers' interests.
â€¢ The Plan prepared by CEA to be used by prospective generating companies, transmission utilities and transmission/distribution licensees as reference document.
â€¢ Development of Rural Electrification Distribution backbone, village electrification and household electrification to achieve the National Common Minimum Programme (NCMP) target of completing household electrification in next five years. Financial support in terms of capital subsidy to States for rural electrification. Special preference to Dalit Bastis, Tribal Areas and other weaker sections for rural electrification. REC to be nodal agency for rural electrification at Central Government level.
â€¢ Creation of adequate generation capacity with a spinning reserve of at least 5% by 2012 with availability of installed capacity at 85%.
â€¢ Full development of hydro potential. Provision of long tenor finance for these projects.
â€¢ Choice of fuel for thermal generation to be based on economics of generation and supply of electricity.
â€¢ Development of National Grid.
â€¢ Cost of recovery of service from consumers at tariff reflecting efficient costs to ensure financial viability of the sector.
â€¢ Provision of support to lifeline consumers (households below poverty line having consumption of 30 units per month) in terms of tariffs.
â€¢ Availability Based Tariff (ABT) to be extended to State level for better grid discipline through economic signaling.
â€¢ Special emphasis on time bound reduction of transmission and distribution losses.
â€¢ Measures to promote competition aimed at consumer benefits.
â€¢ Reliability and quality of power supply to be monitored by State Electricity Regulatory Commissions.
â€¢ Exploitation of non-conventional energy sources such as small hydro, solar, biomass and wind for additional power generation capacity.
â€¢ Emphasis on achieving higher efficiency levels of generating plants through necessary renovation and modernization.
â€¢ Central Government to facilitate the continued development of national grid. Central Transmission Utility (CTU) and State Transmission Utility (STU) to undertake coordinated planning and development.
â€¢ Transmission capacity to have redundancy level and margins as per international standards.
â€¢ Adequate transitional financial support for reforming power utilities. Encouragement for private sector participation in distribution.
Electricity Act 2003
The Electricity Act, 2003 was enacted and the provisions of this Act were brought into force on 10.6.2003. With the coming into force of the Electricity Act, 2003 the Indian Electricity Act, 1910, Electricity (Supply) Act, 1948 and Electricity Regulatory Commissions Act, 1998 stand repealed.
The salient features of the Act are:
â€¢ Thrust to complete the rural electrification and provide for management of rural distribution by Panchayats, Cooperative Societies, non-Government organizations, franchisees etc.
â€¢ Provision for license free generation and distribution in the rural areas.
â€¢ Generation being de-licensed and captive generation being freely permitted. Hydro projects would, however, need clearance from the Central Electricity Authority.
â€¢ Transmission Utility at the Central as well as State level, to be a Government company - with responsibility for planned and coordinated development of transmission network.
â€¢ Provision for private licensees in transmission and entry in distribution through an independent network
â€¢ Open access in transmission from the outset.
â€¢ Open access in distribution to be introduced in phases with surcharge for current level of cross subsidy to be gradually phased out along with cross subsidies and obligation to supply.State Electricity Regulatory Commission's (SERC) to frame regulations within one year regarding phasing of open access.
â€¢ Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution businesses.
â€¢ The State Electricity Regulatory Commission is a mandatory requirement.
â€¢ Provision for payment of subsidy through budget.
â€¢ Trading, a distinct activity is being recognized with the safeguard of the Regulatory Commissions being authorized to fix ceilings on trading margins, if necessary.
â€¢ Provision for re-organization or continuance of State Electricity Boards (SEB).
â€¢ Metering of all electricity supplied made mandatory.
Are states autonomous in formulating their own energy policy? Where do state energy policies differ from national energy policy?
The Electricity Act, 2003 empowers the SERCs (State Electricity Regulatory Commission) to specify the terms and conditions for the determination of tariff and ensure transparency in the tariff setting process. SERCs have to constitute proper measures to allocate revenue requirement in an economically efficient manner by reducing the extent of cross subsidies. This is primarily achieved by increasing the low-tension tariff to a greater extent as compared to high-tension tariff. The Act also provides the guidelines and the procedure to be adopted for the purpose of tariff determination and issuing of tariff orders
Twenty-three states - namely Andhra Pradesh, Assam, Bihar, Chhattisgarh, Delhi, Orissa, Goa, Gujarat, Jharkhand, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura Uttar Pradesh, Uttaranchal, and West Bengal - have either constituted or notified the constitution of the SERCs. Of these, 18 states - namely Andhra Pradesh, Assam, Delhi, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Orissa, Madhya Pradesh, Maharashtra, Punjab, Karnataka, Kerala, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttaranchal, and West Bengal - have already issued their first tariff orders in the direction of rationalizing tariffs.
The SEBs (State Electricity Board) of Andhra Pradesh, Delhi, Haryana, Karnataka, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and Uttaranchal have either been unbundled or corporatized. In Orissa and Delhi, the distribution business has been privatized.
How is the energy market organized for electricity: state monopoly, state or private, competitive market? What is the legal basis for energy market organization?
The Central Electricity Regulatory Commission (CERC), an independent statutory body with quasi-judicial powers, was constituted on 25 July 1998 under the Electricity Regulatory Commission Act, 1998 and has been continued under Electricity Act, 2003. Under the Electricity Act, 2003, the Central Commission discharges the following functions, namely:-
a. to regulate the tariff of generating companies owned or controlled by the Central Government
b. to regulate the tariff of generating companies other than those owned or controlled by the Central Government, if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State
c. to regulate the Inter-State transmission of electricity
d. to determine tariff for Inter-State transmission of electricity
e. to issue licenses to persons to function as transmission licensee and electricity trader with respect to their Inter-State operations
f. to adjudicate upon disputes involving generating companies or transmission licensee in regard to matters connected with clauses (a) to (d) above and to refer any dispute for arbitration
g. to levy fees for the purposes of this Act
h. to specify Grid Code having regard to Grid Standards
i. to specify and enforce the standards with respect to quality, continuity and reliability of service by licensees
j. to fix the trading margin in the Inter-State trading of electricity, if considered, necessary
k. to discharge such other functions as may be assigned under this Act.
What is the ownership structure of energy enterprises? What is the share of foreign ownership and from which countries?
ONGC ( Oil & Natural Gas Coporation Ltd) is the major player in the Indian E&P sector. Other players include Oil India Ltd., Reliance Industries, Indian Oil Corporation, Gas Authority of India Ltd., British Gas, Essar Oil, Videocon, Cairn Energy, Hindustan Oil Exploration Company, Niko Resources, Gazprom, Energy Equity, Geoenpro Petrol Ltd., Geopetrol International, Enpro India Ltd., Hardy Oil, Tata Petrodyne, Gujarat State Petroleum Corporation, Selan Exploration Technologies Ltd., L&T, Joshi Tech., Interlink Petroleum, Mosbacher, Tullow Oil, Phoenix, Okland International, Premier Oil and Geo Global Resources
Government Controlled Companies: ONGC, OIL, IOC, HPCL , BPCL and GAIL. CPCL, BRPL and IBP have now become subsidiaries of IOC. KRL and NRL are now subsidiaries of BPCL.
Joint Sector Companies: MRPL used to be a joint sector company with equal stake of HPCL and Aditya Birla Group. However, ONGC has bought the stake of the Aditya Birla Group in MRPL making it a public sector company.
Private Sector Companies: Reliance Petroleum Ltd. (RPL) - which has now been merged with parent Reliance Industries Ltd. (RIL), Gujarat Gas
Renewable energy policies and programmes
Are there specific policies concerning renewable energies? Are these policies defined in policy documents; please provide document name and source? What are the main characteristics of these policies?
Yes, there are specific policies initiatives for renewable energy technologies. The policies are defined in the document "Renewable Energy in India - Business Opportunities", Ministry of Non-Conventional Energy Sources, February 2004.
Are there specific legislations to promote renewable energy in general or certain technologies?
Some of the specific measures for investment promotion and industrial capacity building in Renewable Energy projects including power from renewable are:
â€¢ Industrial clearances not required for setting up a renewable energy industry
â€¢ Up to 74% foreign equity participation in renewable energy projects and enterprises and 100% participation possible with FIPB approval
â€¢ Customs and Excise duty concessions for renewable energy equipment and spare parts
Some of the promotional measures and incentives which are available for projects for generation of power from renewable are:
â€¢ Exemption from taxes for the first five years;
â€¢ No techno-economic clearance required from the Central Electricity Authority;
â€¢ Accelerated depreciation of 80% in the first year of project commissioning;
â€¢ Exemptions and concessional rate of central sales tax and customs duty on imported equipment and materials.
A host of fiscal incentives and facilities are available to both manufacturers and users of renewable energy systems, which include:
â€¢ 80% accelerated depreciation for tax purposes in the first year of the installation of projects/systems.
â€¢ No excise duty on manufacture of most of the finished products.
â€¢ Low import tariffs for capital equipment and most of the materials and components.
â€¢ Soft loans to manufacturers and users for commercial and near commercial technologies.
â€¢ Five year tax holiday for power generation projects.
â€¢ Remunerative price under alternate power purchase policy by State Government for the power generated through renewable energy systems, fed to the grid by private sector.
â€¢ Facility for Banking and wheeling of power.
â€¢ Facility for Third party sale of renewable energy power.
â€¢ Financial Incentives/Subsidies for devices with high initial cost.
â€¢ Involvement of women not only as beneficiaries but also for their active contribution in implementation of renewable energy programmes.
â€¢ Encouragement to NGOs and small entrepreneurs.
â€¢ Special thrust for renewable energy in North-Eastern region of the country. 10% of Plan funds earmarked for North-East towards enhanced and special subsidies.
Allotment of land on long term basis at token lease rent and supply of garbage free of cost at project site by State Governments, in respect of projects on energy recovery from municipal waste.
Are there national programmes to promote renewable energy? Please provide details on these programmes.
The major national programmes to promote renewable energy are given below:
â€¢ National Biogas Programme
â€¢ Integrated Rural Energy Programme (IREP)
â€¢ Remote Village Electrification Programme
â€¢ Solar Water Heating Programme
â€¢ Solar Photovoltaic Programme
â€¢ Biomass Gasifier Programme
â€¢ National programme on Energy Recovery from Urban & Industrial Wastes
State programmes to promote renewable energy?
For encouraging investment by the private and public sector companies in power generation through renewable energy, a set of guidelines have been issued by the Ministry of Non-Conventional Energy Sources for consideration of the States.
As a result a number of States have announced policy packages to encourage power generation projects from renewable energy including Wheeling, Banking, Third Party sale and Buy-Back which have been outlined.
A total of fourteen state governments have so far announced promotional policies for power from renewables:
Examples of such state level policies include:
â€¢ Remunerative buy-back prices for power from renewable energy projects by the state owned utilities as well as facility to bank and wheel energy;
â€¢ Facility to sell the generated energy to third parties other than the utility by wheeling;
â€¢ Concessions and exemptions on sales tax and Octroi for industrial and commercial establishments which invest in renewable energy.
Who is in charge of these programmes?
The Ministry of Non-Conventional Energy Sources (MNES) is the central nodal agency for coordinating renewable energy activities in India which provides financial and fiscal incentives, such as interest subsidy and capital subsidy for renewable energy projects. In addition, soft loans are provided through the Indian Renewable Energy Development Agency (IREDA), a public sector company of the Ministry and also through some of the nationalized Banks and other financial Institutions for identified technologies/systems. MNES also coordinates with the state nodal agencies for dissemination of renewable energy technologies at state level.
Central and State Governments provide various types of fiscal incentives for the renewable energy sector, which include direct taxes -80% depreciation in the first year of the installation of the project, exemption/reduction in excise duty, exemption from central sales tax, and customs duty concessions on the import of material, components and equipment used in renewable energy projects.
How are these programmes financed?
IREDA offers concessional loans to renewable energy projects by acting as an intermediary between international developmental financial institutions, such as World Bank, Asian Development Bank, Kreditanstalt für Wiederaufbau (KfW) GEF, DANIDA,Govt. of Netherlands, and other financing agencies, through market borrowings and through MNES programmes. Since incorporation in 1987, IREDA has so far committed finances to 1569 renewable energy projects, mostly in the private sector. Out of the total commitments of 52 billion rupees (US$1300 million) , 27 billion rupees (US$675million) have been disbursed so far.
Some examples of financing from bi-lateral and multi-lateral International development agencies intermediated by IREDA are:
â€¢ World Bank Renewable Resources Development Project - the first and second credit lines totalling US$ 250 million through IREDA have financed wind and small hydro power among other renewable energy projects. The bank is currently considering a third credit line.
â€¢ The Asian Development Bank's Renewable Energy Development Project, is a US$ 100 million credit line through IREDA has financed bagasse-cogeneration and wind power projects;
â€¢ KfW credit line of DM 120 million(US$ 60 million) through IREDA was used to finance bagasse cogeneration and wind power projects;
â€¢ Danish Export Finance Corporation Credit line of US$ 15 million through IREDA to finance wind power developments.
Apart from IREDA, other public financial institutions and banks have been involved in financing renewable power projects on a limited scale. MNES provides subsidies to financial institutions, which soften the interest rate to the project developer. Private sector finance companies in the non-banking sector have also played a significant role in the financing and leasing of renewable power projects, especially wind and solar.
Are there (pilot) projects under CDM - Clean Development Mechanism? What kind of projects?
India is playing an active role in CDM related activities. India participated in the pilot phase for Activities Implemented Jointly (AIJ), to gain experience with the CDM process. Indian projects have been submitted to major GHG emission reduction programmes, notably CERUPT, the Finnish CDM/JI Programme Tender and the Prototype Carbon Fund (PCF). Several projects have been accepted under these programmes and are currently being implemented.
The type of projects under CDM in India includes:
â€¢ Biomass energy (including incineration of household- and other wastes)
â€¢ Natural gas power
â€¢ Fugitive (oil,gas,coal,charcoal)
â€¢ Energy distribution
â€¢ Energy efficiency, industry
â€¢ Energy efficiency, households
â€¢ Energy efficiency, service
â€¢ Fossil fuel switch
â€¢ HFCs, PFCs, SF6
â€¢ Other industrial processes
â€¢ Landfill gas flare
Renewable energy and industrial policy
Established rules for technology transfer, licensing and patents for foreign and national manufacturers?
Ministry of Non-Conventional Energy Sources is promoting medium, small, mini and micro enterprises for manufacturing and servicing of various types of renewable energy systems and devices. Industrial policy measures include:
â€¢ Industrial clearance is not required for setting-up of renewable energy industry.
â€¢ No clearance is required from Central Electricity Authority for power generation projects up to Rs. 100 crores (Rs. 1000 million).
â€¢ A five year Tax holiday allowed for renewable energy power generation projects.
â€¢ Soft loan is being made available through IREDA for renewable energy equipment manufacturing.
â€¢ Facilities for promotion of export oriented units are available for renewable energy industry also.
â€¢ Financial support is available to renewable energy industries for taking up R&D projects in association with technology institutions.
â€¢ Power project import allowed.
â€¢ Private Sector Companies can set up enterprises to operate as licensee or generating companies.
â€¢ Customs duty concession is available for renewable energy parts/equipment, including for machinery required for renovation and modernization of power Plants.
â€¢ Excise duty on a number of capital goods and instruments in the renewable energy sector has been reduced/exempted.
Are the licensing and bidding rounds attractive for new companies?
100% Foreign Direct Investment is allowed in respect of projects relating to the electricity sector including renewable energy with the exception of atomic reactor power plants6. This means that a Foreign Investor can bid or apply for licenses in the name of the Subsidiary Company formed here. However, a bid by a Foreign Company directly would depend solely on the terms of the Tender or Bid, though there are no restrictive clauses and will depend on the party inviting for the Bid.
However, whether the terms of the Bid will be attractive for a new Company will depend solely on the Terms of the Bid Contract. Selection Criteria could include technical capability in terms of number of years of existence of the company, relevant past project experience, etc and financial strength in terms of minimum net-worth of the company, minimum turnover of the Company, etc. In cases where the Company has been recently formed and the Holding Company (Foreign Investor) meets the above requirements in terms of technical and financial capability, such bids may be considered subject to the terms of the Bid Contract.
Is it (legally) allowed to transfer profits of foreign enterprises abroad, especially for energy sector enterprises and manufacturers of renewable energy equipment?
There are no restrictions on repatriation of profits for energy sector enterprises and manufacturers of renewable energy equipment.
Is there specific legislation concerning foreign investment?
â€¢ Foreign Investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and also for setting up of renewable energy based Power Generation Projects.
â€¢ Liberalized foreign investment approval regime to facilitate foreign investment and transfer of technology through joint ventures.
â€¢ The proposals for up to 74% foreign equity participation in a joint venture qualifies for automatic approval.
â€¢ 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board (FIPB).
â€¢ Various Chambers of Commerce and Industry Associations in India can be approached for providing guidance to the Investors in finding appropriate partners.
â€¢ Foreign Investors can also set up a liaison office in India.
â€¢ Government of India is also encouraging foreign Investors to set up renewable energy based power generation projects on Built- Own and Operate basis.
The following regulations cover INR borrowings:
â€¢ A foreign fund can invest in Equity Shares of an Indian NBFC. If the holding is upto 51%, the min amount to be invested is USD 0.5 Mill. If the holding is 51% to 74%, then, an amount of USD 5 Mill is to be brought in.
â€¢ The foreign fund can also invest in preference shares which offer a fixed rate of return.
â€¢ The dividend on both Equity Shares & Preference Shares can be repatriated abroad.
â€¢ The Foreign Fund cannot offer a loan to the Indian NBFC as it is currently not permitted.
â€¢ With the funds provided by the Foreign Fund, the Indian NBFC can lend to the ultimate borrowers.
â€¢ There is no interest rate ceiling on such lendings.
Interest Rates to the final end-user vary from a low 9% to a high 20%-24% for small loans to individuals. Within this broad range, corporate sector and Agencies avail loans at 9% to 14% for terms ranging from 3 years to 7 years, depending on the use to which the funds are put. Normally, the personal guarantee of Directors in closely held companies is taken. Individuals and micro level credit is normally for lower periods ranging from 1 year to 3 years. Individuals are expected to give either guarantee or collateral security for such loans.