India’s renewable energy sector continues to experience transformative growth, propelled by advancements in technology and supportive government policies. However, the sector’s rapid evolution has exposed vulnerabilities in its regulatory and procurement framework, particularly in the context of declining prices for solar energy and battery energy storage systems (BESS). The Central Electricity Regulatory Commission (CERC)’s recent rejection of the Solar Energy Corporation of India’s (SECI) petition for tariff adoption in a 500 MW/1000 MWh BESS project, awarded to JSW Renew Energy Five Limited, underscores these challenges.

This case highlights key issues surrounding delays in contract execution, the implications of falling prices, and the potential for developers to gain undue advantages. It also signals the need for enhanced regulatory mechanisms to protect consumer interests and maintain market fairness.

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The Context: Delays and Market Dynamics

The 500 MW/1000 MWh BESS pilot project was awarded to JSW Renew Energy Five Limited through a competitive e-reverse auction on August 25, 2022. This project, aimed at supporting grid stability and ancillary services, revealed a competitive tariff of ₹10,83,500 per MW per month. SECI issued the Letters of Award (LoAs) on January 18, 2023, initiating the contractual process.

However, the project faced significant delays:

• The Battery Energy Storage Sale Agreement (BESSA) with Gujarat Urja Vikas Nigam Limited (GUVNL) was signed on June 26, 2023, 160 days after the LoA issuance.
• The Battery Energy Storage Purchase Agreement (BESPA) for 150 MW of the contracted capacity was finalized as late as February 27, 2024, while the remaining capacity remained unexecuted.

These delays, stretching over two years from the auction, coincided with declining costs for solar modules and BESS technology. As prices fell, developers like JSW gained the opportunity to reduce project costs significantly while retaining tariffs established at higher price points. This created an economic imbalance and raised questions about the fairness of the procurement process.

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CERC’s Observations: Safeguarding Market Integrity

CERC’s decision to reject SECI’s petition was based on the following key observations:

1. Unjustifiable Delays
   As per procurement guidelines, BESPA should be executed within six months of LoA issuance unless mutually extended. While extensions were granted, the cumulative delay exceeded acceptable limits, undermining the integrity of the process.
2. Undue Economic Advantage
   The prolonged timeline allowed developers to benefit from falling prices of solar panels and battery systems without reflecting these cost reductions in the agreed tariffs. CERC highlighted that this undermined consumer interests, as the cost savings were not passed on.
3. Misalignment with Market Prices
   CERC emphasized that tariffs must remain aligned with prevailing market conditions. Locking in outdated tariffs, despite reduced costs, was deemed inequitable and contrary to the principles of competitive bidding.
4. Regulatory Oversight
   The Commission reinforced its responsibility to prevent market distortions caused by procedural inefficiencies, ensuring that developers do not gain disproportionate benefits at the expense of consumers and procurers.

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Broader Implications: A Pattern of Challenges

The JSW-SECI case is emblematic of broader issues in India’s renewable energy sector. Similar delays and disputes have surfaced in other projects, often resulting in regulatory intervention:

• NTPC Solar Auction (2021)
  A 1,200 MW solar tender experienced delays in signing PPAs, enabling developers to leverage falling solar prices for financial gain.
• ACME Solar’s Rajasthan Project (2020)
  ACME Solar faced disputes over tariffs for its 600 MW solar project after module prices dropped significantly post-auction. The case eventually required regulatory mediation.
• GUVNL Solar + Storage Tender (2023)
  Gujarat Urja Vikas Nigam Limited canceled a 500 MW solar-plus-storage tender due to prolonged delays in contract finalization and misalignment with current market conditions.

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The Role of SECI and CERC

SECI’s Responsibilities

1. Enforcing Timelines
   SECI must ensure strict adherence to bidding, award, and agreement timelines to avoid delays that distort market dynamics.
2. Dynamic Tariff Reviews
   Mechanisms to periodically review and align tariffs with changing market conditions should be institutionalized to safeguard fairness.

CERC’s Oversight

1. Regulatory Vigilance
   CERC’s role as a market watchdog is critical in addressing procedural inefficiencies and ensuring that falling prices benefit consumers, not just developers.
2. Balancing Stakeholder Interests
   By upholding the principles of competition and transparency, CERC protects the interests of developers, consumers, and utilities alike.

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The Way Forward

To address these challenges, India’s renewable energy sector must adopt the following measures:

1. Time-Bound Execution
   Stricter penalties for delays in signing contracts and agreements should be enforced, discouraging procedural laxity.
2. Flexible Tariff Structures
   Tariff mechanisms should include provisions for adjustments based on significant market price fluctuations to reflect real-time costs.
3. Transparency and Accountability
   Public disclosure of project timelines, cost implications, and delays can foster greater accountability among stakeholders.
4. Consumer-Centric Policies
   Ensuring that cost reductions are passed on to utilities and consumers should remain a core objective of regulatory interventions.

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Conclusion

The CERC decision to reject SECI’s petition highlights the delicate balance required in India’s renewable energy sector. While the sector must continue its trajectory toward ambitious green energy targets, it is imperative to address structural inefficiencies that allow developers to gain undue advantages in falling markets. Strengthened regulatory oversight and dynamic procurement mechanisms are essential to create a fair, efficient, and sustainable renewable energy ecosystem. By tackling these challenges head-on, India can ensure equitable growth in its pursuit of a cleaner energy future.