Benefits of must-run status for renewable energy generators

By Abhishek Nath Tripathi and Anura Gupta, Sarthak Advocates & Solicitors
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To push the green India initiative, the Ministry of Power has recently introduced the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021 (rules). Under the rules, renewable power plants are not to suffer any curtailment or regulation of generation or supply of electricity on account of merit order dispatch or other considerations. Procurers can now curtail power only because of technical constraints or the security of the electricity grid. In the event of curtailment of power from must-run power plants, procurers are liable to compensate power generators at the rates agreed under power purchase agreements (PPA). The renewables sector has already been granted must-run status under the Indian Electricity Grid Code (IEGC).

Abhishek Tripathi Managing partner Sarthak Advocates & Solicitors
Abhishek Tripathi
Managing partner
Sarthak Advocates & Solicitors

Renewable power generation companies have faced curtailment of power by the procurers of electricity in several states, including Andhra Pradesh, Telangana, Tamil Nadu, Madhya Pradesh and Rajasthan. The reasons offered by the state governments for curtailment, however, lack transparency. The expert group that reviewed the IEGC submitted that in the event of extreme circumstances when any must-run plant has to be curtailed, the details should be published on the website of the relevant load despatch centre the following day, giving the date, the name of the renewable energy generation plant, the installed capacity, the curtailment amount in MWh, the duration of the curtailment and the detailed reasons.

Unreasonable curtailment of power was dealt with by the Appellate Tribunal for Electricity (APTEL) in National Solar Energy Federation of India v Tamil Nadu Electricity Regulatory Commission. APTEL ordered the Power System Operation Corporation (POSOCO) to report whether the curtailment of power was intentional, or due to grid security concerns. The report concluded that only 5.26% of the total curtailment was for grid security reasons.

Anura Gupta Principal associate Sarthak Advocates & Solicitors
Anura Gupta
Principal associate
Sarthak Advocates & Solicitors

The APTEL order gave directions to all state commissions, distribution companies and state load despatch centres on the curtailment of power generated from renewable energy sources. The introduction of the rules has to be seen in this context.

The rules provide limited flexibility to the procurer and generator in unforeseen or unavoidable situations. In the event the procurer cannot procure power, the generator can now sell the power not scheduled by the procurer on a power exchange, provided that the inability to procure power is due to technical constraints or grid security concerns, and such inability is communicated to the generator before the start of the day-ahead market or real-time market. The revenues from such sales of electricity on a power exchange can be set off against the compensation payable by the procurer to the generator for the curtailment of power.

The term grid security has not been defined in the rules or the IEGC and is left open for interpretation. In the absence of a definition of the term in the relevant rules and regulations, there is a likelihood of abuse of the provisions. The rules are silent on the failure of the generator to sell such power on the power exchange and whether the procurer will still be held liable to compensate the generator.

The rules have introduced the concept of intermediary procurers to ensure that must-run power plants keep operating. Intermediary procurers shall operate as traders of electricity on the power exchange. The intermediary procurer shall be an agency or entity nominated by the central government or a state government, and shall purchase power through a competitive bidding process. The rules are not clear whether the sale to intermediary procurers can be made simultaneously with the ongoing PPA arrangements of the generator, or if it is to be made only upon the curtailment of power by the scheduled procurer and in respect to the amount of power curtailed by the procurer.

While the renewable energy sector was granted must-run status under the IEGC, the introduction of the rules will push the envelope for renewable power generation. In addition to regulating the renewable energy sector, this development will give necessary security not only to investors and generators, but also to project lenders.

Abhishek Nath Tripathi is the managing partner and Anura Gupta is a principal associate at Sarthak Advocates & Solicitors

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