National workshop of Stakeholders on DDG - Ministry of Power

<strong>National</strong> Workshop <strong>of</strong> <strong>Stakeholders</strong> on
Decentralized Distributed Generation
Utility and Regulatory Interface for
DDG Operator
ABPS Infrastructure Advisory Advisory
Balawant Joshi – Managing Partner
February, 2008

Objective for the Presentation
• Several Pilot Projects have been implemented across the
country.
• Some <strong>of</strong> the States have undertaken aggressive programs for
rural electrification using DDG.
• Government <strong>of</strong> India is now keen to launch ‘Mass Mass Scheme’ Scheme
so that rural electrification could be enhanced significantly.
• Proposed scheme would result in installation <strong>of</strong> 40-60MW 40 60MW
capacity using DDG options.
• Institutional Mechanisms play crucial role in
implementation <strong>of</strong> any ‘Mass Mass Scheme’. Scheme
• In this Presentation, attempt has been made to present
feasible institutional framework and define ‘Roles Roles and
Responsibilities’ Responsibilities <strong>of</strong> key stakeholders.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Agenda
• Institutional Arrangements
• Regulatory Issues
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

ABPS Infrastructure Advisory Advisory
Institutional Arrangements
February, 2008

Several <strong>Stakeholders</strong>
• Several stakeholders have been identified in the draft Guidelines.
Guidelines.
Some <strong>of</strong> them are:
– Project Proposer
– Distribution Company
– Supply Provider
– Consumers/Village Energy Committee
– State Government
– Central Government
– State Electricity Regulatory Commission
– State Renewable Energy Agencies
– Implementation Support Group
– Monitoring Committee
– Panchayati Raj Institution (if it is not DDG operator)
– Original Equipment Manufacturer
– District Development Committees
• Is it possible to create viable Institutional Framework which will will
take
into account interests <strong>of</strong> so many stakeholders.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Likely Institutional & Contractual Structure
Government <strong>of</strong> India,
Ministry <strong>of</strong> Power
Rural Electrification
Corporation (ISG)
Funding, Subsidy
RE/DDG Policy
Funds, 540 Cr
Central Power Sector
Utilities/ Consultants
ABPS Infrastructure Advisory
State Government
Department <strong>of</strong> Energy
Land Allocation
Project Facilitation Agreement
& Support
Funds, if any
State Renewable
Energy Agencies
Funds, if any
DDG Project
Developer
Master Agreement
Tariff Guidelines
Supply Agreement
State Electricity
Regulatory Commission
Tariffs
Local Distribution
Licensee
Project Initiation, approval
Monitoring and Certification
Rural Consumers/
Beneficiaries
USO Monitoring
Practical Solutions to Real Life Problems

Structure <strong>of</strong> DDG Operator
• Structure <strong>of</strong> DDG operator would play significant role in
overall institutional arrangements.
• Draft Guidelines permit wide range <strong>of</strong> institutional
structures to be the project proposers. proposers
• It is necessary to limited the eligibility to ensure that it is
possible to structure and enforce contractual commitments.
• Sound financial background should be pre-requisite pre requisite for any
proposer in any form.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

DDG Operator
• DDG Operator will build, own, operate and transfer DDG
facility and associated LT distribution network for a
specified period <strong>of</strong> time.
• DDG and not distribution company will be the owner.
• Project to be transferred to Discom at the end <strong>of</strong> contract
period or as and when grid integration is feasible.
• DDG will be required to raise 10% <strong>of</strong> the cost <strong>of</strong> the project.
• Performance parameters in terms <strong>of</strong> load served will be set
for DDG Operator.
• DDG will supply power to consumers in identified rural
areas.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Distribution Companies
• Discoms will have to identify areas suitable for DDG.
• Discoms will confirm that grid is unlikely to reach the area
in next five years.
• Discoms may initiate the project on BOOT root.
• Alternately, if the project is proposed by the local
communities and/or entrepreneurs, Discom will provide
necessary certification.
– In such cases, BOOT requirement should not be imposed.
• Confirm that Tariff Guidelines issued by the Commission
are being adhered to by DDG Operator.
• Monitoring <strong>of</strong> various DDG operator in its area <strong>of</strong> supply
for technical and safetyrequirements.
safetyrequirements
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

State Renewable Energy Agencies
• Assistance in development <strong>of</strong> project, essentially
coordination between the Project Proposer and Consultant.
• Disbursement <strong>of</strong> State Subsidies, if any.
• Assistance in acquisition <strong>of</strong> land.
• Technical backup support for various RE technologies.
• Capacity building in various functions mentioned in Section
22 <strong>of</strong> the Draft Guidelines.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

State Electricity Regulatory Commission
• Monitor Universal Service Obligation <strong>of</strong> the utilities and
force utilities to take up DDG schemes wherever network
cannot reach.
• Develop guidelines for determination <strong>of</strong> tariff for various
technologies that may be adopted by the DDG operators.
• Monitor compliance <strong>of</strong> various DDG schemes through
Distribution Company.
• Intervene in case <strong>of</strong> complaint regarding non-adherence non adherence <strong>of</strong>
tariff guidelines or monopoly behaviour <strong>of</strong> DDG operator.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Institutional Framework
• It is necessary to avoid involvement <strong>of</strong> multiple institutes.
• Roles <strong>of</strong> other agencies mentioned in the draft guidelines
need to be clarified:
– Implementation Support Group
– Monitoring Committee
– Panchayati Raj Institution (if it is not DDG operator)
– Original Equipment Manufacturer
– District Development Committees
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

ABPS Infrastructure Advisory Advisory
Regulatory Issues
February, 2008

Criteria for selection <strong>of</strong> the Project
• Section 7 (ii) <strong>of</strong> the Draft Guidelines suggest that ‘Any Any
proposal to be covered through the Scheme will ensure sustainable sustainable
arrangement for project implementation.’
implementation.
• Further, Section 10(c) states, ‘it it is necessary to seek least cost
options after taking into account full life cycle costs and explicit explicit
as
well as implicit subsidies in different delivery options and
mechanisms’.
mechanisms
• Still further Section 14 (b) states ‘Selection Selection <strong>of</strong> technology is to
be based upon (1) the most appropriate technological option
with (2) the lowest marginal cost. Technology specific
projects must evaluate alternatives to ensure that the
proposed option is the most appropriate and least expensive
option.’ option.
• Some <strong>of</strong> these criteria are conflicting.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Criteria for selection <strong>of</strong> the Project
• If criteria for selection <strong>of</strong> the project is to be linked to either either
cost to serve or cost <strong>of</strong> supply or marginal cost, involvement
<strong>of</strong> Regulator would be crucial.
• Currently, regulators use different methodologies to
calculate these numbers.
• Development <strong>of</strong> criteria would involve extended stakeholder
consultations, as larger utility issues are involved.
• It is necessary to have simpler criteria for selection <strong>of</strong> the
project such as non-availability non availability <strong>of</strong> grid and utility
certification regarding non-extension non extension over five year period.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Regulatory Process
• In case <strong>of</strong> areas exempt under eighth proviso to Section 14,
the Regulator can not set the tariffs.
• However, Regulator is required to specify framework for
determination <strong>of</strong> tariff.
• It may be good idea to provide guidelines for Regulators
which may be taken into account by the Regulators while
developing their tariff framework.
• Regulator can also set standard price for supply <strong>of</strong> electricity
to consumers from DDG facility and selection <strong>of</strong> the DDG
Operator may be done using ‘Competitive Competitive Bidding’ Bidding process.
• Village Electrification Committees agreeing to purchase
power at price set by the Regulator may be given preference.
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

Factors which may be included in guidelines
• Subsidy disbursement methodology
– Annuity based Vs Upfront Subsidy
– Annuity mechanism would increase cash flow requirement
– Part upfront and part annuity would be best model for PSP
• Period <strong>of</strong> the contract and amortization
• Termination Clauses in Master Agreement
• Return on Investment to DDG operator
• Requirement <strong>of</strong> the security deposits and guarantees
• Operating costs <strong>of</strong> the DDG operator
– Cost <strong>of</strong> OEM contractor
– Cost <strong>of</strong> biomass/ fuel
ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems

ABPS Infrastructure Advisory
Practical Solutions to Real Life Problems
ABPS Infrastructure Advisory Advisory
ABPS Infrastructure Advisory
703/704, The Avenue,
Opposite The Leela, International Airport Road,
Andheri (East), Mumbai 400 069
Ph: +91 22 2825 0050 / 6575 4734
Fax:+91 22 2825 0051
Email: contact@abpsinfra.com
February, 2008