Curtailment of Solar and Wind for Commercial Reasons Continues to be a Threat

Renewable power generation, especially solar power, has seen phenomenal growth since the inception of the National Solar Mission and has accounted for most new capacity additions over the past three years.

However, the ongoing pandemic has disrupted this sector’s growth, much like the rest of the economy. India’s share of renewable energy (including large hydropower projects) increased marginally to 36.4% in the third quarter of 2020 (Q3 2020) from 36.3% in the previous quarter, according to the data from the Central Energy Authority (CEA) and the Ministry of New and Renewable Energy (MNRE).

Flouting “must-run” in the name of grid security

With rising renewable generation, grid security has become a concern for the transmission and distribution companies. The government has tried to encourage renewable generators by granting ‘must-run’ status to solar and wind energy supplied to the grid. The ‘must-run’ status means that solar and wind projects’ power cannot be curtailed except for conditions that threaten grid stability. Understandably, this has become a bone of contention between the distribution companies and renewable generators time and again.

The on the ground scenario is complicated for renewable generators. The distribution companies (DISCOMs) have the authority to curtail renewable energy power at times without even communicating it to the generators. The situation is more pronounced in renewable energy-rich states like Tamil Nadu, Rajasthan, Madhya Pradesh, Telangana, and Andhra Pradesh.

In January this year, a panel reviewing the Indian Electricity Grid Code (IEGC) 2020 suggested that wind, solar, wind-solar hybrid, and hydro projects must be treated as ‘must-run’ power projects. The draft report also indicated that these projects should not be subjected to curtailment based on merit order dispatch or any other commercial consideration.      Speaking on the ‘must-run’ status of renewables in the country, Vinay Kumar Pabba, Founder and CEO of VARP Power, said, “It has been part of Indian Electricity Grid Code for quite some time now. Wind and other renewable energy sources, including solar projects, enjoy the must-run status, in the sense that except for technical and operational reasons, the grid operator cannot ask for a shutdown of the generators for commercial reasons.”

The implementation of the ‘must-run’ status has been lax, and the reasons for curtailment lack clarity most of the time.

Commenting on the need for a stronger implementation of the ‘must-run’ status, Vinay said, “There is no transparency around power curtailment in India. Since the grid operator and the load despatch center is a part of the state transmission utility, instructions to solar and wind projects to back down rarely come with any reason. Often, the generators suspect that the curtailment is being ordered for purely commercial reasons and not truly for technical or grid-related reasons. There is a need to bring about transparency to the entire curtailment business.”

New rules to enforce the existing rules

Recently, the Ministry of Power (MoP) came out with the draft of new electricity rules to make the compensation process easier for renewable project developers. The draft addresses several important aspects like the change in law and the must-run status of renewables, among other key concerns for renewable energy projects.

“The MoP in the draft amendments is going to continue the same, with an elevated legal status, and this ‘must-run’ injunction will now be part of the rules instead of merely being part of the IEGC,”    added Pabba.

The new rules suggested that if a notice of curtailment is provided 24 hours before the scheduled supply, the generator must sell the unscheduled power to the power exchange. The ministry also stated that when the compensation rate is not specified in the power purchase agreement (PPA) or the power sale agreement (PSA), the rate will be set at 75% of the PPA rate per unit.

Aditya Malpani, Director- Open Access Business at Amp Energy India, said, “The must-run status is critical for developers to be able to sustain project viability and honor debt obligations. While regulations (central as well as state grid codes) have provided a ‘must-run’ status for a very long period, most projects across states have faced issues with the curtailment of generation. Most of the time, curtailments are not on account of technical constraints but for commercial reasons, i.e., such as oversupply, higher cost of renewable energy power, and difficulties in thermal power project outages. The proposed rules provide that the developer is entitled to the PPA rate for curtailed power, and the same should be adjusted with rates realized from the sale of power in exchange or alternate sources.”

“This is a move in the right direction as it allows developers to realize revenues for curtailed electricity (which is nil in the current framework),” Aditya added.

Last year, MNRE had issued a letter to the chief secretaries of all states and union territories, asking them to ensure that ‘must-run’ status had been accorded to both wind and power projects in the states in line with the Indian Electricity Grid Code 2010 and the Electricity Act 2003.

DISCOMs curtail without reason or notice

“Grid operations under the load despatch centers should be carved out and made autonomous of the state transmission utility. This is analogous to the Power System Operation Corporation Limited (POSOCO) being separate from the Power Grid Corporation of India Limited (PGCIL) at the central level.  It is necessary to make the grid operator independent of the transmission utility at the state level, too,” Aditya added.

The DISCOMs often decide to curtail power devoid of valid reasons, without communicating to the generator. But there are times when the curtailment is done on the part of the DISCOMs giving preferential treatment to some stations and at the same time holding power offtake from other stations. This creates an imbalance for the generators.

The curtailment of power on the part of the DISCOMs acts as an impediment for the solar generators, for whom the solar project is based on a single part tariff. The backing down of power leads to a substantial monetary loss for the developers, as they don’t get compensated for the loss of generation.

According to Aditya, “The new rules need to be adopted by the Central Electricity Regulatory Commission (CERC) and the state electricity regulatory commissions (SERCs) who need to amend the respective grid codes (especially, because rules require off-takers to pay for curtailed energy at PPA rate). One option is that regulators’ forum may issue standard amendments in grid code, which may be amended by various SERCs. It is important to incentivize SLDCs/DISCOMs to provide curtailments with a sufficient notice period. The curtailment on the grounds of technical constraints should be allowed only for grid failure or technical issues in the connecting infrastructure and when the physical flow of power is not possible from the project.”

“Must-run” integral to meet India’s renewable energy goals

While the government has issued numerous orders in support of the must-run status of renewable power, more needs to be done on the part of the government. The government needs to intervene and ensure that the solar and wind generators are not at the receiving end of this contentious issue.

“While it is nice to have a compensation provision, we easily tend to fall into this tempting and seductive trap of retrospective amendments to PPAs.  PPAs are sacrosanct. They cannot be tinkered with, now and then. They should not be amended; even it means conferring a benefit on the generators. Instead of tinkering with the PPAs and the compensation mechanism, we need to implement the ‘must-run’ rule in a fair, transparent, and compliant manner.  Also, this argument does not detract from a prospective implementation of a compensation mechanism in newer PPAs,” opined Vinay.

Stringent implementation of the must-run status can act as a shot in the arm for generators who already face numerous risks when financing and operating renewable projects.