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The Power Ministry proposal to provide a compensation mechanism for existing renewable energy projects against grid curtailments will be a major positive, according to India Ratings Research.
The move will protect the cash flows from grid curtailments. When the proposal is adopted, it would ensure a favourable operational environment for renewable energy projects — both solar and wind energy developers.
Over the year, the Power Purchase Agreements (PPA) signed for renewable energy projects have failed to address the grid issues and lacked a mechanism to compensate for energy loss.
The developers have bridged cash flow shortfall in debt service through a combination of or individually tapping debt service reserve or drawing working capital limits or sponsor support.
The provision for curtailment is proposed to be applicable only to renewable power plants providing day-ahead forecast and schedule. The compensation is suggested to be part of the PPA provision for future projects.
Compensation mechanismFor existing projects, the compensation mechanism may be notified by the respective Electricity Regulatory Commission.
The recent reverse auction of 750 MW solar capacity in Rewa solar bid included the provisions for compensation for deemed generation in case of curtailment. The recommended PPA format for future wind and solar projects should also include provisions for curtailment compensation.
Normally, Tamil Nadu discom shuts down one or two of the state-owned thermal plants during high wind season to enable full evacuation of wind power generation. In FY17, grid curtailment was prevalent for wind projects in Rajasthan and solar projects in Tamil Nadu.
The compensation to renewable projects will incentivise grid operators and distribution utilities to reduce curtailments, will benefit renewable energy developers in scheduling and forecasting and enable integration of increasing renewable energy capacity.
The falling levelised cost of energy of renewable energy in the current national energy surplus situation fuels the debate of gaps in implementation of must-run status of renewable energy compared to merit order dispatch of conventional energy.
The must-run status is part of India Electricity Grid Code notified by the Central Electricity Regulatory Commission and adopted by the State Electricity Regulatory Commissions.
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