Uttarakhand has become the latest state to accept the Ministry of Power’s (MOP) revised RPO target of 43.33% by FY 2030. Six other states including Himachal Pradesh, Rajasthan, Haryana, Punjab, Chhattisgarh and Madhya Pradesh have already done so. Himachal Pradesh and Madhya Pradesh have issued final regulations whereas other states are still at draft stage. Six states have adopted MOP recommendations without any exception, while Madhya Pradesh has adopted a slightly lower target of 37.89%.
Getting states to accept a central RPO target and enforce it has historically been a major challenge affecting growth prospects for the sector. In the past, most states have chosen to set their own RPO targets, often significantly below the central government recommendation. It is therefore encouraging to see states adopting the MOP recommendation. The central government is also determined to push in that direction – the draft Electricity Amendment Bill 2022 seeks to bind states to the central target with non-compliance penalties of INR 0.25-0.50/ kWh.
On the compliance front, only four states – Karnataka, Telangana, Rajasthan and Andhra Pradesh – are believed to have met their RPO targets so far with all other states consistently behind. The DISCOMs have been able to successfully argue for a lenient regulatory treatment citing reasons such as delays in project commissioning, high cost of renewable power and temporary suspension in REC trading for their failure to meet RPO targets. In Gujarat and Tamil Nadu, the regulators have simply overlooked non-compliance. In many other states including Haryana, Himachal Pradesh, Chhattisgarh, Uttarakhand and Punjab, the regulators have allowed DISCOMs to carry forward unfulfilled targets to future years without any penalty. In Punjab, a portion of the unfulfilled target was even waived off.
However, there is some evidence of regulators getting stricter. In Madhya Pradesh, the DISCOMs have been penalised to the extent of REC forbearance price (INR 1.00/ kWh) and weighted average market price for unmet targets in FY 2021 and FY 2022 respectively. The Uttar Pradesh regulator went one step further by asking the DISCOMs to deposit funds totalling INR 55 billion (USD 665 million) to cover penalty for unmet RPO in FY 2021 and 100% of required renewable power purchase cost in FY 2022. In Maharashtra, the regulator allowed carry forward of shortfall in FY 2019 and FY 2020 until FY 2023 subject to ARR reduction of INR 0.10/ kWh in each year.
Figure: Future RPO trajectory and current compliance level in select states
Source: State commission orders, BRIDGE TO INDIA research
Note: Actual RPO compliance level is shown for select states for FY 2020 or FY 2021 depending on data availability.
But imposing a uniform RPO trajectory on states is not a panacea. For states with current renewable penetration less than 10%, the target is particularly steep. Each state faces multiple and unique challenges in procurement of renewable power based on its specific position on demand-supply of power, grid status, availability of natural resource as well as suitable land at reasonable price. A state specific roadmap addressing these factors is required to ensure meaningful progress.
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