Challenges to investment
India’s energy demand has surged since economic liberalization in the early 1990s. In 2015, India released its Nationally Determined Contribution under the Paris Agreement (updated in 2023), committing to reduce emissions intensity of its HDB by 45% and source 50% of power generation from non-fossil fuel sources by 2030. To meet this goal, India needed to promote private investment in renewable energy (RE). However, potential clean energy producers faced challenges enforcing contracts with their partners, given the lack of a comprehensive national framework to promote private RE investment, inadequate coordination among key institutions governing RE, volatile solar and wind tariffs, high credit risk in Power Purchase Agreements (PPAs), and the lack of standardized contracts.
Approach
In the 2000s’s, the government of India (GoI) took progressive steps to improve contract enforcement, particularly in the electricity sector. The Electricity Act of 2003 was a key legislative framework which consolidated laws and policies for electricity generation, transmission, distribution, and trading. The Act introduced the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) as regulatory bodies. The CERC oversees inter-state electricity transmission and generation and formulated the National Electricity Policy in 2005, and the Tariff Policy in 2006. Meanwhile, the SERC determines state-level electricity tariffs and ensures compliance. The Act facilitates RE contracts through Section 86(1)(e) on generation and co-generation from renewable sources, Section 62 on determining tariffs for electricity services, and Section 42 on open access for electricity distribution. The Act also defines PPAs as contracts between a power buyer and a power producer at an agreed tariff, tenor and capacity. If the definition is not limited to renewable energy, it creates a clear transactional framework including both Utility PPAs, signed between RE producers and state-owned or private utilities, and corporate PPAs, signed between RE producers and private corporations.
Key Enabling Conditions
The GoI’s commitment to RE contract enforcement was complemented by financial and regulatory support for RE contracts. These include Accelerated Depreciation (AD) for tax benefits for solar projects, Generation-Based Incentives (GBI) for wind energy, and Viability Gap Funding (VGF) for solar projects, ensuring fixed tariffs and funding up to 30% of project costs. The Insolvency and Bankruptcy Code (IBC), released in 2015, consolidated insolvency laws in India, and governs all companies, including government utilities. State-level mechanisms include Renewable Purchase Obligations (RPOs), which mandate bulk buyers to source a percentage of power from RE sources, driving demand for PPAs. Non-compliance requires purchase of Renewable Energy Certificates (RECs), traded nationally to meet RPOs.
Impact / Outcomes
A robust policy framework for enforcement of RE contracts increased investor confidence and helped advance clean energy investment, with the share of modern renewables in final energy consumption rising 50% from 2000 to 2020. As of February 2024, India ranked fourth globally in renewable installed capacity, with RE comprising approximately 43% of the power capacity mix in fiscal year (FY) 2023-24. In 2019 for example, corporate renewable PPAs added 1.4GW of capacity. For example, Idea purchased 6,576 MWh of solar power PPAs in FY 2018, saving 5,392 tons of CO2 emissions. Godrej, sourcing over 51% of its energy through renewables, reduced its GHG emissions by 42% since 2011, with its Godrej Tyson Food plant procuring 100% of its power through solar and wind PPAs.
Additional Sources
- National Institution for Transforming India. (2024). Renewable Energy Resource Adequacy Planning to meet RPO by the States in India. https://www.niti.gov.in/sites/default/files/2024-02/Policy%20Paper_Energy_12022024_V4.pdf
- World Business Council for Sustainable Development. (2023). Corporate Renewable PPAs in India, https://www.wbcsd.org/wp-content/uploads/2023/12/WBCSD_PPA_India.pdf
- Central Electricity Regulatory Commission. (2003). The Electricity Act, 2003 with amendments. https://www.cercind.gov.in/Act-with-amendment.pdf
- https://www.reuters.com/world/india/india-spend-up-385-bln-meet-renewable-energy-target-moodys-ratings-estimates-2024-06-06/
- https://www.mondaq.com/india/renewables/1254524/the-continued-rise-of-renewable-corporate-ppas-in-india
- https://ijpiel.com/wp-content/uploads/2022/10/Regulators-and-Regulation-under-the-Electricity-Act-2003.pdf
- https://www.wbcsd.org/resources/accelerating-corporate-procurement-of-renewable-energy-in-india/
- https://cercind.gov.in/Function.html
- National Electricity Policy | Government of India | Ministry of Power (powermin.gov.in)
- https://www.iea.org/countries/india
- https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1987752