Policy and regulatory tools to assist achievement of India’s low-carbon energy goals

India is on an ambitious path

India has embarked on aggressive plans to reform its electricity sector in keeping with its nationally determined contributions (NDC) submitted to the U.N. Framework Convention on Climate Change (UNFCCC) and with its current and future energy needs. The importance accorded by the Government of India to electricity sector plans and targets reflects the place of electricity within the Indian growth story and its role in all major economic sectors.

Several reforms to meet these nationally determined contributions are underway, including a series of proposed amendments to the Electricity Act, a recent revision of the National Electricity Policy, modifications to wholesale power markets such as an expansion of security-constrained economic dispatch (SCED), enhanced renewable portfolio obligations for states, and expansion of the transmission grid to absorb more renewables. New instruments periodically drive further reforms, such as the 10-year Indian Electricity Grid Code (IEGC) and the Report of the Group on the Development of Electricity Market in India.

Power sector decision-makers are tasked with meeting national ambitions

India has many ways to meet its national goals. Decision-makers already face important choices and will have to grapple with more in the years ahead, including such questions as:

• How can the transition to competitive wholesale markets be achieved most efficiently and equitably?
• How will resource adequacy be secured?
• What can be done to improve the financial health of the distribution companies while maintaining affordable service for Indian homes and businesses?

India has robust and rigorous frameworks that capture such choices, in the form of legislative processes (Parliament approvals) and the subordinate legislative processes (rules, regulations and guidelines from the Ministry of Power [MoP], the Central Electricity Authority [CEA], the Central Electricity Regulatory Commission [CERC] and state electricity regulatory commissions). Regulatory processes are principally informed by local market conditions, as is apt. Even so, examples from other jurisdictions that have undertaken similar efforts and insights from other parts of the world where similar electricity reforms have been underway could be useful touchstones for decision-makers as they implement key changes in India.

RAP’s regulatory toolkit: A compendium of practical solutions

To that end, the Regulatory Assistance Project is launching a “living toolkit” as a reference source for electricity sector policymakers, regulators and other power industry actors in India. This toolkit is a web-based repository of policy briefs, best practices and recommendations, to be updated with new content as further topics of interest or fresh priorities emerge. This page is envisioned as a knowledge hub, to be ever expanding as the needs of India’s government, industry and civil society dictate. Where relevant, we also expect this toolkit to identify and document best practices in India, i.e., those demonstrated in the Indian power sector, as a helpful resource to other global practitioners.

The toolkit’s contents draw on our own experience in India and elsewhere in the world, to identify options that might be adaptable to India’s unique circumstances and, when feasible, the contexts of individual states. The practical solutions outlined will not be prescriptive; RAP, working across North America, Europe, China and India, understands that what works in one place might not in another. This is why we have chosen to call this resource a toolkit: The best tool for a job depends on many factors, and those applying the tools are best placed to make the final choice from an array of suitable options. Some may find certain tools more effective than others.

Which “tools” are in the toolkit?

RAP will populate this page with practical and succinct documents in which we will describe and interpret international experience on a range of topics identified through conversations with Indian public sector stakeholders. The full documents are available for download by clicking on their title.

• Resource adequacy[click to read more]: In the fall of 2022, the CEA issued Draft Guidelines for Resource Adequacy Planning. Putting in place sensible, enforceable resource adequacy requirements is, as the CEA notes, a necessary element of a power system in which “demand is reliably met in future, in all time horizons.” Of particular import, observes the CEA, is that the share of variable renewable energy sources in the system is growing significantly and, consequently, “a fresh look at the manner in which distribution licensees contract for power” is needed. In this component of the toolkit, we look at resource adequacy planning in the eastern United States and draw insights that we think might have particular applicability in India.
• Distributed energy resources (DERs) [click to read more]: The most recent Draft National Electricity Policy, 2021, issued by the Ministry of Power on 15 May, 2023, acknowledges the benefits of DERs and specifies requirements for the Forum of Regulators to implement a framework for DER aggregation in the country. Further, the newly issued Indian Electricity Grid Code references the utilisation of demand response and distributed generation resources in the context of demand estimation and resource adequacy. Deploying DERs at scale provides an opportunity to improve electric system efficiency, reduce consumer costs and reduce emissions. Drawing upon examples from the United States, this brief describes the benefits of DERs; the role of DER aggregators and private market players who can bring in capital and technical expertise; and the steps that regulators can take to facilitate DERs — including modifying distribution company business models, issuing business rules for DER aggregators and educating customers.
• Energy efficiency [click to read more]: Over the past two decades, the Indian power sector has seen two legislated acts of Parliament — the Energy Conservation Act (2001) and the Electricity Act (2003) — paving the way for enhanced energy efficiency in end-use sectors. Complementing the two pieces of legislation, a slew of subordinate legislation in the form of notified regulations by state electricity regulatory commissions — primarily the Demand-side Management Regulations — inform and direct distribution licensees to identify end-use energy efficiency and load shifting opportunities as system resources. In this component of the toolkit, we identify robust legislative and regulatory support measures the end-use efficiency sector has received in India and ways to maximise the potential of implementation opportunities at the end-use level. U.S. insights on on-bill financing and energy efficiency costs are also included.

As additional topics linked to decarbonisation take centre stage in India’s electricity regulatory landscape, RAP will produce and share helpful examples from other jurisdictions worldwide that will be responsive to the concerns that are front and centre for India’s central and state decision-makers.

If you would like RAP to keep you abreast of new briefs added to the toolkit, would like to share suggestions and requests on major topics that the toolkit should cover, or have feedback on any of the publications already included in the toolkit, please contact us at [email protected].

Integrate to zero: Policies for on-site, on-road, on-grid distributed energy resource integration

To meet decarbonisation goals, global renewable power capacity will need to more than triple by 2030, according to leading energy agencies. Centralised renewable generation will not deliver this level of change on its own, nor should it. Distributed energy resources (DERs) such as heat pumps, electric vehicles, small-scale solar generation and battery storage are essential to ensuring that clean power is the most affordable and reliable option for all countries.

Distributed energy resources must be effectively integrated with the grid if they are to fulfil their potential. Integration allows them to be used flexibly to draw power from or feed power into the grid according to the value their flexibility provides to the electricity system. This reduces carbon emissions from fossil generation used to meet peaks in electricity demand, increases system resilience, and benefits all consumers through the lower prices resulting from avoided generation and network capacity costs.

RAP sets out four key policy approaches that will help promote the effective integration of behind-the-meter distributed energy resources:

1. A strong set of enabling policies can remove barriers to DER integration. Together, they augment the flexibility potential of DERs and enable their participation in power system optimisation.
2. Price signals should reflect power system optimisation needs. Payments for energy services should vary in proportion to how much, when and where they are used or delivered.
3. Cost-reflective price signals should be combined with fair market access for distributed energy resources. With nondiscriminatory access to energy service markets and with pricing that reflects the full value of DERs, third-party service providers can shield consumers from price volatility in return for flexible management of DERs within agreed boundaries.
4. International collaboration among policymakers and regulators can spread best practice. Cross-border knowledge transfer among regulators is a growing phenomenon and can help each place to find its own way, guided by local circumstances, politics and experience.

The authors explore each of these insights in greater detail. They also highlight best practices from around the world, with contributions from RAP colleagues Raj Addepalli, Max Dupuy and Jessica Shipley.

Climate Action is Energy Security: Recent Developments in the Power Sectors of India, China, and Europe

Significant progress has been made in the renewable energy sector, with wind and solar power making up a substantial portion of global power production, accounting for almost one-quarter of noncarbon-emitting generation. This is a considerable improvement from just a decade ago when they produced less than 1% of total global electricity. Furthermore, wind and solar power are now often the long term, least cost options, making them an attractive investment for countries looking to decarbonize their energy systems.

Despite the growing momentum towards renewable energy, global coal-fired generation still totaled a record high in 2021, up by 8.5% from the previous year. The lion’s share of CO2 emissions still come from countries committed to becoming net-zero carbon in the next few decades. Nonetheless, this article suggests that a decarbonized global power system is still possible and the transition can be achieved at a low cost while maintaining high levels of reliability.

To support this clean energy transition, the article discusses the power sector reforms that are currently underway in India, China and Europe. Despite their different institutions, history and power system setups, these regions share some common trends: they rely heavily on planning and recognize the value of demand-side resources. These regions offer promising pathways for power sector reform and they provide hope for a decarbonized energy future.

本报告已有中文版

气候行动就是能源安全：印度、中国和欧洲电力行业的最新发展

可再生能源领域在近年取得了巨大进展：十年前，风能和太阳能仅占全球电力生产的1％，而现如今，这些资源已成为全球电力生产的重要组成部分，占非碳排放发电的近四分之一。这与它们成本的不断降低有很大关系。长期来看，目前风能和太阳能通常是成本最低的选择，这使其成为了有能源系统减碳目标国家的有利投资。 

尽管可再生能源增长势头不减，全球燃煤发电在2021年仍达到了创纪录的高度，比上一年增长了8.5％。二氧化碳排放的绝大部分仍来自于承诺在未来几十年内实现净零碳的国家。尽管如此，本文认为，一个脱碳的全球电力系统仍然是可能的，并且可以在保证高水平可靠性的基础上，以低成本实现过渡。 

为了支持这种清洁能源转型，本文讨论了目前正在印度、中国和欧洲进行的电力行业改革。尽管它们有不同的机构、历史和电力系统设置，但这些地区有一些共同的趋势：这些转型都以可靠的规划为基石，同时越发重视需求侧资源的价值。这些地区为全球各国电力行业改革提供了可实现的途径，为脱碳能源的未来带来了希望。 

English version is also available.

Review of Integrated Resource Planning and Load Forecasting Techniques in India

Accurately forecasting electricity demand in India is imperative for governments, utilities and industries when it comes to investment and planning decisions. Over the years, forecasting has becoming even more challenging as planners must take into account changes in technology, load profiles, consumer energy end-use, and economic growth. The changes are the leading cause of uncertainty when it comes to future electricity demand.

In Review of Integrated Resource Planning and Load Forecasting Techniques in India, the authors provide an overview of India’s system of load research and integrated resource planning (IRP), describe related experiences in other developing countries, and deliver recommendations that could strengthen the process in India. The goal is to enable India’s power sector to reliably, efficiently and sustainably meet the country’s demand for electricity.

Ira Prem

Discom Business Models Require Changes to Promote Distributed Energy Resources

In this third part of our distributed energy resources (DER) in India series, we look at changes to the current distribution company (discom) business models. These models can overcome the financial disincentives DERs often face. Instead, discoms can embrace and promote DERs to improve system efficiency, increase consumer savings, and address climate change goals.

This short paper discusses the reasons the current discom model should change and how regulators should listen to concerns many discoms have when it comes to the changes associated with promoting DERs.

The paper also discusses the steps regulators can take when it comes to transforming the current discom business model, including:

• Require discoms to evaluate non-wires alternatives to meet system needs where practical and cost effective
• Require discoms to create distribution system platforms
• Require discoms to modify tariff design to send unbundled granular price signals to facilitate DERs
• Require discoms to develop DER programs
• Develop a process to effectuate changes to the discom business model

Read Part 1: Empowering Retail Customers: Improve Efficiency, Lower Costs and Reduce Emissions

Read Part 2: Facilitating Distributed Energy Resources Requires Policy Actions 

Shravya Reddy

Alejandro Hernandez

A policy toolkit for global mass heat pump deployment

Heat pumps, a critical technology for clean energy systems, are poised to become the most important technology for heating decarbonisation. Currently, the vast majority of heat is provided by fossil fuels. In order to promote and encourage heat pump installations across the globe, the Regulatory Assistance Project, CLASP and the Global Buildings Performance Network have developed this heat pump policy toolkit, which provides a suite of tools, and advice on how to use them, for policymakers interested in promoting this critical technology.

The structure of the toolkit is loosely based on that of a Greek temple, with foundations and pillars, supporting a rapidly growing heat pump market. The interactive toolkit (which includes clickable links throughout) also features short videos that give an overview of each relevant element of the toolkit. These videos make up a short series which complements this document.

This toolkit works as a synthesis of policy approaches to heat pump deployment and a guide to designing the best packages of policies. As you’ll see in the toolkit (and in the graphic below), a complete policy package needs to consider foundational elements and must also take account of each pillar. We provide details, examples and potential issues, and solutions within the various policy elements discussed.

Foundational elements of this toolkit recognise the need for coordination and communication around heat pump policy efforts and strategies.

Pillar 1 considers economic and market-based instruments. These instruments are fundamentally associated with balancing the economics of heat use towards clean options, such as heat pumps, so that their lifetime costs are cheaper than fossil-based alternatives.

Pillar 2 considers financial support. Within this pillar, we identify three key elements of financial support for heat pumps — grants and tax rebates, loans and heat-as-a-service packages.

Pillar 3 considers regulations and standards. We look at buildings codes and standards, appliance standards and heat planning and zoning.

To build an effective heat pump policy package, policymakers must consider foundational elements as well as each of the pillars. And even within each pillar, combinations of elements may be appropriate.