Introduction
CERC has notified the waiver of
Inter-State Transmission System (ISTS) charges and transmission losses for new
Solar, Wind, Hydro Pump Storage, Battery Energy Storage Systems (BESS), and
Green Hydrogen projects, as outlined in various directives under Section 107 of
the Electricity Act. This decision is aimed at encouraging renewable energy
adoption and decreasing dependence on fossil fuels. However, there are concerns
that exempting ISTS charges could distort the power sector market and lead to
unintended consequences.
Renewable energy sources have already been prioritized in
scheduling and dispatching by receiving the "Must Run" status, which
disregards their generation cost compared to conventional sources. With the
waiver of ISTS charges and transmission losses, combined with the Must Run
status, renewable energy sources like wind or solar now have a preferential
position, despite posing stability challenges for the grid. These challenges
necessitate the use of Hydro pump storage or BESS.
By incorporating storage systems into the expanding list of
waivers, the ISTS and loss burden on conventional sources will grow exponentially, leading to an increase in the Average Pooled Purchase Cost
(APPC) and Cost of Supply for distribution companies (discoms). In this blog
post, we will explore the potential ramifications of waiving ISTS charges for
renewable energy projects and discuss the unique challenges associated with
BESS, Green Hydrogen, and Pump Storage projects.
Understanding ISTS Charges
ISTS charges are levied on power distribution systems users
like generating companies and distribution companies for using the transmission
system. They cover the costs of transmitting electricity across state
boundaries and maintaining the transmission infrastructure. ISTS charges are
not a tax but a fee or tariff that are determined by the Central Electricity
Regulatory Commission reflects the actual cost of electricity transmission
based on usage by the entity to the transmission company/licensee. The transmission
systems are built on commercial terms by the transmission licensee for which
they are entitled to return on their equity.
The Case Against ISTS Charges and transmission loss
waiver
Market Distortion and Unfair Advantages
Transmission wires carry power generated from various sources, including coal, hydro, and renewables. When ISTS charges are waived for specified sources, the ex-bus cost of these ISTS-exempt sources remains the same as their cost at the state periphery. As a result, the burden is shifted onto other sources of generation, such as coal, leading to an increase in their landed cost at the state periphery and making them more expensive, which distorts the pricing.
Waiving ISTS charges for renewable energy projects
effectively creates a hidden subsidy or cross-subsidization by other power
sources to the beneficiaries of ISTS-exempt sources. This distortion in the
power sector market provides an unfair advantage to renewable energy projects.
Meanwhile, conventional power plants remain subject to ISTS charges, putting them
at a competitive disadvantage in the power exchange.
Increased Burden on Discoms and Cross-Subsidization
Discoms are responsible for paying ISTS charges to the
transmission utility. ISTS charges and transmission loss waiver for renewable
energy projects shift this burden onto Discoms, potentially leading to
increased power tariffs for end consumers as Discoms recover their expenses.
Non-users of renewable energy sources may end up cross-subsidizing these
projects, creating a further imbalance in the market.
Inadequate Infrastructure Investment
ISTS charges fund the maintenance and expansion of the
transmission infrastructure. Eliminating these charges for renewable energy
projects could reduce available funds for infrastructure investment, leading to
transmission bottlenecks, power supply disruptions, and a slower transition to
sustainable energy.
Misaligned Incentives
Waiver of ISTS charges and transmission losses may encourage
projects in areas with high renewable energy potential, regardless of proximity
to load centres. This could result in increased transmission losses and higher
grid integration costs, negating renewable energy generation benefits.
Unique Issues with BESS, Green Hydrogen, and Pump Storage
Projects
Battery Energy Storage Systems (BESS), Green Hydrogen, and
Pump Storage projects are primarily energy storage systems rather than
generation sources. Granting ISTS charge and transmission loss waivers for
these projects could lead to accounting complications, given that their primary
function is energy storage rather than generation. This may
result in inefficient utilization of transmission capacity. Entities may opt to
use the transmission system for distant locations that are financially
beneficial to them, as they would not have to pay for power transmission
charges and losses, rather than employing on-site renewable energy generation
with storage.
Green Hydrogen is primarily a feedstock for
industries such as petroleum and fertilizers. ISTS charges and transmission
loss waiver for Green Hydrogen projects effectively subsidize these industries,
resulting in power users inadvertently supporting these sectors.
A Better Way Forward
Instead of providing ISTS charges and transmission loss
waiver, the government should consider other mechanisms to support renewable
energy adoption without market distortion, unfair advantages, or unintended
consequences. Potential alternatives include:
a)
Technology-neutral subsidies: Targeted financial
incentives for power generation technologies meeting specific environmental and
efficiency criteria, ensuring a level playing field and encouraging
competition.
b)
Carbon pricing: A carbon pricing mechanism
internalizes environmental costs associated with fossil fuel-based power
generation, making renewable energy sources more competitive without market
distortion.
c)
Investment in Transmission Infrastructure: By
providing budgetary support to prioritize investments in upgrading and
expanding transmission infrastructure for renewable energy, fair competition
for all power generation sources can be ensured.
The government seems to be aiming to protect taxpayers from
these promotional costs without recognizing that the ratepayer base
(approximately 300 million) in the country is much larger than the direct
taxpayer base of around 60 million. The difference includes poorer and
marginalized individuals who must pay extra because the central government has
chosen to overlook the spirit of Section 64 of the Electricity Act and not fund
the promotion of renewable energy. This section is intended for direction under
Section 108 by the state and does not cover Section 107 by the central
government. The central government is taking advantage of a grey area to
indirectly tax power consumers without legislative approval. Other countries like
EU, USA ($ 370 billion till 2030) etc have already committed large budgetary
support to fund the energy transition, and we need to step up our budgetary
funding to match our ambitions and NDC.
Conclusion
The decision of waiver of ISTS charges
and transmission loss for renewable energy projects, including BESS, Green
Hydrogen, and Pump Storage projects, may appear progressive, but potential
market distortions and unintended consequences warrant careful consideration.
Alternative policy mechanisms, such as technology-neutral subsidies, carbon pricing,
and infrastructure investments, can create a level playing field for all power
generation sources and drive the transition to a more sustainable energy
future. By addressing the unique issues associated with BESS, Green Hydrogen,
and Pump Storage projects, policymakers can ensure that the transition to
renewable energy is not only fair but also efficient and well-targeted. In
conclusion, a balanced approach that promotes renewable energy while minimizing
market distortion and accounting for the unique characteristics of different
energy sources and storage technologies is essential for achieving a
sustainable and resilient energy sector.
No comments:
Post a Comment