The draft National Renewable Energy Act 2015 is a good first step, but has substantial shortcomings; the government needs more substantial consultation with players outside its system before coming up with the next draft

(Image by Duke Energy)

The Indian government has released the draft National Renewable Energy Act 2015 (NREA) in July. Right now, over 70% of the country’s electricity is generated from fossil fuels, but the government has a target to generate 175 GW through renewable sources by 2022.

The draft NREA puts out the strategic reason for pushing renewable energy – apart from being environment friendly, it is reliable energy, since it is independent of imports, as well as of domestic fossil fuel supplies.

The proposed NREA takes into account the Electricity Act 2003, the Land Acquisition and Rehabilitation and Resettlement Act 2013 and the Environment Protection Act 1986 to address the issues of environment protection and displacement due to renewable energy (RE) installations. This is in view of the potential tensions on land acquisitions.

All the existing missions on RE are brought under the proposed Act to ensure complementary of actions and avoid duplication.

The main thrust of NREA 2015 is to establish an effective institutional mechanism and provide a direction to RE sector policies. Ever since the initiation of the first RE programme in the 1980s, the sector was never mainstreamed into the power sector. The proposed NREA attempts to break that by establishing a policymaking body and an implementation arm.

The proposed advisory body will develop policies in the sector, and a National Renewable Energy Committee will oversee implementation by ensuring facilitative mechanisms and coordination between different line ministries of the centre and states.

Apart from the institutional mechanism, the thrust on creating separate funds has been recognised, and in an attempt to reduce burden on the cash strapped distribution companies (discoms), a separate fund for RE promotion has been proposed at the state level. The initial funding is to come from the National Clean Energy Fund. There is also an attempt to provide space for private firms to be part of the programme through corporate social responsibility (CSR) initiatives.

In the proposed Act, state governments are given enough flexibility to formulate their own RE policies and targets and also to raise their own money. The idea is to set up separate State Green Funds, which can have different options to raise and allocate money without the oversight of the central government. This will hopefully create a competitive atmosphere in which private investors can flourish.

But there are certain important issues which are still not addressed adequately in the draft. They are institutional, financial, operational and stakeholder-related challenges.

Institutional shortcomings

The concept of two separate bodies for promotion of the sector is welcome since this will allow complementary actions. But bureaucrats are over-represented in both the National Renewable Energy Committee and the National Advisory Body, leaving little space for experts.

The omission of experts from decentralised RE sector is particularly glaring. The structure of the bodies does not allow even representations from them.

On top of that, there is no space for state government officials. This weakness will affect coordination and make it more difficult to address state-specific challenges.

Another big omission – there is no regulator who can help develop tariff and distribution policies.

Financial challenges

The National Clean Energy Fund (NCEF) now supports various projects based on proposals received. Funded by a cess of Rs 100 on every ton of coal that is mined, it has a capital base of a little over Rs 16,000 crore ($2.5 billion). The draft Act says a percentage of NCEF money will be directed to a RE fund. Since there is little difference between NCEF and the proposed RE fund, this may do no more than add a layer of red tape.

More fundamentally, NCEF money is inadequate to meet the 175 GW target. So the government has to increase the coal cess again, or attract more private investment, or both. As for private investment, the draft talks of CSR and investments in specified RE zones.

But there is no clear roadmap for what is globally the most successful way to raise money for RE – issuing green bonds. Instead, the draft talks mostly of cess, taxes and other fiscal incentives.

There is need for further thinking on this aspect. Solar panel manufactures and wind component importers have been asking the government for tariff rationalisation. The draft should have addressed their concerns.

The new law should also create appropriate import and export mechanisms for the RE sector. In their absence from the current draft, there is a big question mark on how effective RE zones can be.

The draft should have had a separate section on how to promote decentralised off-grid RE systems. There is separate recognition of decentralised systems, but that is not enough to promote the sector – it needs dedicated financial mechanisms.

Operational challenges

The draft proposes bodies for execution of plans and also for developing mid-term and long-term RE policies. It also proposes separate state level bodies for independent policymaking. The missing link is proper representation of state governments at the national bodies.

From the central government list too, the finance ministry is missing. Considering that it hosts the NCEF, this is a surprise. So is the absence of the National Bank for Agricultural and Rural Development, which is actually implementing several RE programmes and is the national designated entity for the UN’s Adaptation Fund.

Role of stakeholders

The draft is unclear on the roles private players and NGOs should play to push RE. The role of the private sector is limited to CSR initiatives. Considering the number of private entrepreneurs in India’s RE sector today, this is a major lacuna. They are the people actually implementing RE projects, and they know the problems and the prospects. They deserve a far more important representation in policymaking.

Similarly, NGOs, think tanks and policy analysts have been marginalised in the current draft. They need to be involved for effective policymaking as well as implementation – especially for off-grid RE.

Way forward

NREA 2015 is meant to create a conducive environment for the RE sector and its future growth. The current draft fulfils only a part of these objectives. In conceptual terms, the draft should put energy access as its highest priority and reorient some of its objectives and provisions to reflect this priority.

The current draft is a good beginning, but it has substantial shortcomings, and these may actually end up working against the growth of the RE sector. The government needs to carry out more extensive consultation with external stakeholders and take their comments on board before preparing the next draft.