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].