India plans to ratchet up its Renewable Purchase Obligation to 10% from 3%, even as state regulators fail to comply with the reduced targets

The India central government is planning to increase the Renewable Purchase Obligation (RPO) from the current 3% by 2022 to 10% by 2022, for all distribution utilities operating in India. This will be done in order to comply with the government’s target of meeting 15% of its electricity needs from renewable energy by 2020, as part of its climate change commitments. However the increase in target makes little sense, since the state electricity regulators are not forcing the large consumers to comply even with the lower targets which are in force right now. While the central government can make all the grand schemes it wants, the states are needed on board to implement these schemes. In India’s federal structure, the central government has limited powers to force the state governments to do anything given that electricity is a concurrent subject.

One of the major reasons why the India’s power sector has been in a sick state especially the distribution part, is because the political parties in the states have used electricity as an election tool rather than as an economic good. They have provided free power to farmers which makes no economic sense, leading to poor quality outcomes. Some states like J&K and others run almost a billion dollar in losses every year, as they provide electricity much below costs to their residential consumers. This has resulted in $80 billion debt burden on different states discoms. This debt is all set to go up with additional losses being made as many states have not increased tariffs.

India’s new UDAY scheme plans to curtail all losses by 2019, through a mix of measures such as increasing efficiency and reducing operational losses. There are also plans to incorporate Demand Side Management by implementing PAT scheme, as well as distributing LED bulbs. However, the success of this scheme remains a question as two restructuring plans in the past came a cropper with the discoms still remaining mired in debt. What is interesting is that the current UDAY scheme also includes RPO compliance, but execution remains a question.

Most Indian states are not meeting their RPO compliance, as many entities do not have the financial wherewithal to buy expensive renewable energy power. In fact many organizations do not have the money to buy even the cheap thermal power. Just putting out a scheme will not help till the nitty gritty of these schemes are sorted out.