Cement Energy and Environment

norms and rationalization of interconnectivity charges. One of the key factors discouraging investments in the sector is lack of adequate supporting infrastructure, particularly grid connectivity. Several potential wind and small hydro sites have become unviable due to lack of transmission connectivity, both for evacuation and intrastate transmission . In states like Tamil Nadu, capacity addition has almost come to a· standstill because of grid saturation. Though some states have initiated steps to resolve the issue, there is a need to institutionalize transmission development and planning at the highest level. As the WISE report recommends, transmission planning and development should be institutionalized at the levels of the Central Electricity Authority (CEA), state electricity utilities and state nodal agencies. Also, the union government should provide financial support to the state utilities for development of transmission lines. In addition, fine-tuning some of the existing incentive mechanisms can make a difference. Determination of Renewable Purchase Obligations (RPOs) by the State Electricity Regulatory Commissions (SERCs) and the launch of Renewa~le Energy Certificates (RECs) can be game changers for the renewable energy sector. That said, there are several fundamental issues associated with these mechanisms that need to be addressed. The REC mechanism must be strengthened through capacity building of the state nodal agencies, bringing out smaller denominations of RECs and allowing their banking. Moreover, there is a need to real ign RECs on the lines of certified emission reductions in order to make them financially more viable. This could be achieved by adding liquidity to the renewable energy market through the introduction of bilateral contracts as well as a secondary market for RECs. Meanwhile, strengthening of RPOs is key to the success of the REC market. Investors are unsure about the state governments' commitment towards ensuring RPO compliance. At a time when there is a need to revise RPOs upward to align them with the NAPCC target, there have been instances (in Tamil Nadu, Rajasthan, Haryana and Madhya Pradesh) of regulators revising them downwards to align the requirement with the actual achievement. This is not encouraging for the REC market. In this regard, the WISE report recommends that the CERC and the Forum of Regulators (FoR) should take initiatives to persuade the SERCs to set RPO targets in line with national objectives. In addition, to boost the wind energy sector, which is likely to lead renewable capacity addition over the next decade, the government needs to strengthen the generation-based incentive (GBI) and REC mechanisms. So far, the industry has responded well to GBis as over 1,000 MW of wind projects have registered for the mechanism. According to Shruti Bhatia, deputy general manager, Vestas Asia Pacific, "The GBI mechanism needs to be continued as the wind power density-based zonal preferential tariffs in most states are not in accordance with CERC's guidelines. Moreover, the GBI should be increased in order to bring it at par with the benefits available under accelerated depreciation." The FoR has initiated three studies to facilitate greater renewable integration during the Twelfth Plan period. These pertain to RPO, grid infrastructure and GBI. Funds requirement ·As expected, the funds requirement for developing new capacities and supporting infrastructure in order to meet the NAPCC target is unprecedented. The WISE report estimates this to be Rs.2 ,367 billion to Rs. 3,710 billion during the Twelfth Plan, depending on the share of different renewable energy sources. This translates into a debt requirement of 1,657 billion to Rs. 2597 billion of an equity requirement of Rs.710 billion to Rs.1,113 billion. Financing requirements of this magnitude necessitate innovation to fund projects. A suggestion made by WISE in this regard is to allow commercial banks and the Indian Renewable Energy Development Agency to issue tax-free bonds for providing soft loans to renewable energy projects. Extension of priority status to these projects could also go a long way in securing low-interest funding. The government would require additional funds for providing direct and indirect support to the state utilities that would face financial issues due to a higher renewable energy intake. One possible option for the government is utilization of 22 '