Renewable Purchase Obligations: Ambitious or Arbitrary

In exercise of the powers conferred under the Energy Conservation Act, 2001, the Government has specified the minimum share of consumption of non-fossil sources (renewable energy) by designated entities to the extent of consumption of electricity as a percentage of their total share of energy consumption indicated in the Table below. The estimated YoY capacity addition and RE required is  also shown along-with the RPO:

Year	Wind	Hydro	DRE	Other RES	Total RPO	Total Electricity (TWhr) CAGR @5%	Total RE Required as per RPO (TWhr)	YoY RE Increase (TWhr)	Approx. YoY Capacity increase (GW) CUF 22%
2023-24  Actual					23.73%	1738	412
2024-25	0.67%	0.38%	1.5%	27.35%	29.91%	1825	545	133	69
2025-26	1.45%	1.22%	2.1%	28.24%	33.01%	1916	632	87	45
2026-27	1.97%	1.34%	2.7%	29.94%	35.95%	2012	723	91	47
2027-28	2.45%	1.42%	3.3%	31.64%	38.81%	2112	820	97	50
2028-29	2.95%	1.42%	3.9%	33.1%	41.36%	2218	917	97	50
2029-30	3.48%	1.33%	4.5%	34.02%	43.33%	2330	1010	93	48

These Renewable Purchase Obligations (RPO) targets set ambitious goals for the integration of renewable energy into the national grid. While the intention behind these targets is commendable, aiming to reduce reliance on fossil fuels and promote sustainable energy, the feasibility and consequences of these targets deserve a critical examination. This analysis highlights the potential pitfalls of the steep RPO targets, focusing on the unrealistic nature of these goals, the promotion of outdated technologies, and the resulting economic implications.

Ambitious or Arbitrary?

Earlier, the Renewable Purchase Obligations (RPO) were notified by the Ministry of Power (MoP) as part of the Tariff Policy 2016 under the Electricity Act, 2003, and were frequently amended, with the latest amendment on 22 July 2022. Since the Tariff Policy serves only as guiding principles and is not mandatory, compliance has been limited. Additionally, amending the Electricity Act, 2003 has been challenging because it falls under the concurrent list of the Constitution. Consequently, the central government opted to address this issue through the Rules under Energy Conservation Act making it with in legislative domain of central government and punishable

The current RPO targets outline escalating obligations for various renewable sources from 2024-25 to 2029-30. For instance, the total renewable purchase target increases from 29.91% in 2024-25 to a staggering 43.33% by 2029-30. While these targets are ambitious, they are increasingly unrealistic when considering the current capacity and generation data for 2023-24.

According to CEA data for 2023-24, the total installed capacity is 442,853 MW, with a generation of around 1,738 TWhr. Renewable sources, including wind, solar, hydro, and biomass, contribute 412 TWhr or 23.73% of the total generation. Achieving an increase of nearly 20% in renewable generation within six years requires substantial capacity addition, technological advancements, and significant investments in transmission and grid management, all of which pose substantial challenges. This target must also be considered alongside an expected annual electricity demand growth of at least 5%.

The RPO targets for wind are set at a modest 0.67% for 2024-25, rising to just 3.48% by 2029-30 for wind plants installed after March 31, 2024. To achieve 81 TWhr of renewable generation from wind out of a total projected generation of 2,330 TWhr by 2029-30 (assuming a 5% electricity growth rate), only 42 GW of new wind generation capacity (13.5% of total new capacity after 2024) needs to be added, compared to the required wind capacity of  around100 GW by 2029-30 as per CEA optimal generation mix (table below). The relatively modest wind energy targets, especially when offshore wind projects are yet to be tapped, reflect some arbitrariness and raise questions about the overall strategy.

On the other hand, the trajectory for other renewable energy sources, (which as a base line includes all existing solar, wind, hydro and biomass generation) contributed around 412 TWhr or 23.73%% in 2023-24, is proposed to increase from 27.35% in 2024 to 34% by 2030. This gives more space primarily to solar. In quantitative terms, solar generation capacity must rise from the current 82 GW in 23-24 to around 292 GW by 2029-30. This significant preference for solar over wind power raises questions about the overall strategy and coherence of the RPO targets. It is noteworthy that the load of discoms is different from each other and those serving higher share of domestic consumers have their peak demand during non-solar hours and may not be in position to absorb high share of solar.

This is corroborated by POSOCO data, which analyzed the contributions of various sources to solar and non-solar peaks each month from 2019 to 2022. During non-solar winter peaks, renewables (solar and wind) contributed only around 2.08%, hydro around 14%, and thermal power nearly 80%. In contrast, during the solar summer peak, solar contributed around 10%, wind around 7%, and hydro around 16%.

                           CEA's optimal generation capacities mix for 2029-30

Unfair to Discoms

The RPO trajectory is unfair to the discoms, especially given the current inadequacy in renewable generation. With total renewable generation at only 23.7% in 2023-24 and an RPO target of 29.91% for 2024-25, achieving an additional 6.2% or 133 TWhr in a single year is simply not feasible. This would require around 69 GW of new solar, wind and other renewable capacity in one year i.e., 2024-25.

It is important to note that generation is a delicensed business, and investments occur only if there is sufficient demand or if Power Purchase Agreements (PPAs) are secured. Without adequate renewable generation capacity, expecting discoms to meet their renewable purchase obligations is unrealistic and places undue pressure on them.

Front Loading of Renewables deprives of future Technological advancements

A notable concern with the current steeper RPO targets is the emphasis on front-loading renewable energy, particularly solar. While solar energy is a crucial component of a sustainable energy mix, the rapid pace of technological advancement means that the currently deployed technology quickly becomes obsolete. Front-loading investments into these older technologies can result in stranded assets, where the infrastructure becomes outdated before it has reached its full economic potential.

Further, the push for distributed renewable energy projects, including small-scale solar installations, while beneficial in specific contexts, may not always be the most efficient or cost-effective solution. The targets do not adequately consider advancements in grid management technologies, which could offer more sustainable and economically viable solutions in the long term. This approach reflects governance bias driven by quotas rather than grounded in engineering or economic principles, making it more of a political tool than a well-thought-out strategy.

Economic Implications and Price Volatility

The aggressive push towards renewable energy mandated by the RPOs has significant economic implications, particularly for thermal generation assets. During solar hours, the influx of solar power can lead to the under-utilization of thermal plants, which must operate at lower Plant Load Factors (PLF) or technical minimum levels. This increases their O&M costs and results in stranded generation assets. This mismatch not only impacts the financial viability of these plants but also creates a supply-demand imbalance in the power market.

During non-solar peak hours, the reduced availability of renewable energy can cause prices to skyrocket in power exchanges. This volatility can lead to higher costs for consumers and instability in the energy market. This imbalance is evident in the current fluctuations in power exchanges, where peak demand of around 250 GW is met with lower Day-Ahead Market (DAM) prices during solar hours, but prices hit the cap during non-solar hours. The intermittent nature of renewable energy sources necessitates robust backup from conventional sources, which the current RPO framework does not adequately address.

Beyond Nationally Determined Contribution (NDC)

India has committed to achieving approximately 40% of its cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 under UNFCC. However, given the low-capacity utilization factors of solar and wind energy in India, which are around 20% and 24% respectively, the Renewable Purchase Obligation (RPO) of 43.3% by 2030 translates into about 65% of the total installed capacity of 2030. This high share of renewable capacity is an unfair burden could potentially delay economic growth, as it may lead to staggered increases in per capita energy consumption.

Conclusion

While the Renewable Purchase Obligations aim to drive the country towards a greener future, the current targets appear to be overly ambitious and potentially counterproductive. The promotion of obsolete solar technologies, the risk of stranding thermal assets, and the economic volatility in the power market are significant concerns that need to be addressed. A more balanced and realistic approach, incorporating advancements in energy storage and grid management, along with a gradual transition to newer renewable technologies, would be more effective in achieving sustainable and economically viable energy goals.

The focus should shift towards creating a flexible and resilient energy infrastructure that can accommodate the rapid advancements in renewable technologies while ensuring economic stability and reliability of power supply. Only through such a balanced approach can India achieve its long-term energy sustainability goals without compromising economic growth and stability.