Banking of renewable energy

All you need to know about Banking of Renewable Energy

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Introduction

The global population has been on a rise and so has the global energy demand. Due to an increase in population and because of economic growth, the world is witnessing a rapid increase in the demand for energy especially in the emerging market economies[i]. Developed countries continue to consume huge amounts of energy while demand is increasing in developing countries[ii]. It is estimated that the demand would increase from 11.4 billion tons of oil equivalent to 17.7 billion in the following decade[iii]. A growing energy demand would thus require an increase in the production of energy. Fossil fuels remain the major source of energy for the world. However, recent times have seen the threat of environmental issues, increased carbon footprint, possible exhaustion of non-renewable resources and climate change to name a few. Consequently, the world has started looking towards a future based on green energy.

Banking of Renewable Energy has been introduced as a concept in the energy laws of many nations to fulfil their respective clean energy targets and goals. India has also set some very ambitious renewable energy growth targets. Renewable energy banking is supposed to aid these targets.

What Is Energy Banking?                          

Banking of energy has been in practice for quite some years now and yet it remains a widely unknown concept amongst the masses. Suppose there are two energy-producing units A and B. When Unit A has a surplus of energy, it transfers this surplus to Unit B. When Unit A has a deficit of energy, Unit B transfers back the same amount of energy that it previously received from A. This is the banking of energy or energy banking.

Instead of accounting for the exchange of energy, it is common practice in some areas for utilities to agree to a banking arrangement, whereby one of the systems acts as a bank and the other acts as the depositor[iv]. The depositor would deposit energy whenever it had a surplus and whenever the depositor needed energy, it would simply withdraw the energy up to the MWH it had deposited with the other system[v].

This exchange of electricity for electricity instead of cash[vi] is known as energy banking or banking of energy. This exchange can take place between two or more states as well as two or more countries. Recently, Nepal and India agreed to set up an energy banking mechanism[vii] and have begun the practice of energy banking[viii].

The concept of banking may vary from nation to nation as per their respective energy laws and policies.

Energy Banking In India

Energy laws in India are mainly governed by the Electricity Act, 2003. It is to be noted that this Act nowhere defines the term “banking”. However, it empowers the respective State Regulatory Commissions to formulate their own rules and regulations[ix].

States such as Tamil Nadu have introduced banking of energy, which allows the cooperatives to supply to the grid when there is an excess generation, in exchange for free supply during low generation periods[x].

Uttar Pradesh Electricity Regulatory Commission in its draft CRE Regulations of 2019 define banking of energy as[xi]:

“Banking of power is the process under which a Generating Plant supplies power to the grid not with the intent of selling it to either the third party or to a Licensee, but with the intention of exercising its eligibility to drawback this power from the grid for its own use as per the conditions provided in these Regulations.”

In Tamil Nadu State Electricity Board v Tamil Nadu Electricity Regulatory Commission & Others[xii], the Appellate Tribunal explained the concept of banking of energy by laying down a comparison between energy banking and the general concept of banking with a financial bank. The Tribunal stated:

“Banking of energy is analogous to a small saving bank account in a financial bank. A person deposits his surplus amount in a savings bank account. He can withdraw his money from the bank any time according to his requirements. For this deposited money, he earns some interest. The bank, in turn, gives loans to some other needy customers at a higher rate of interest. In this process, saving account holders as well as banks are benefited. Now come to electricity banking. Electricity is a commodity that cannot be stored. It is to be consumed at the very instant it is produced…It could be possible that electricity is generated when a captive user does not require it. In such a case energy generator banks it with a distribution licensee who supplies this energy to its consumers at applicable tariffs. However, for returning the banked energy, the Licensee may have to procure additional electricity from other sources. Unlike the Banks which pay interest to save account holders, here the licensee, banker of electrical energy, earns interest on this banked energy.”

Banking of Energy Mechanism in India

As stated earlier, the Electricity Act, 2003 empowers the State Regulatory Commissions to formulate their respective rules and regulations. Therefore, the energy laws with respect to the banking of energy vary from State to State.

Following are some of the features of the energy banking mechanism in India:

Banking Agreement

Generally, a banking facility is provided to the energy generators for injecting the surplus energy into the grid. The energy generator cannot inject such surplus without prior permission of the requisite authority.

In order to avail the banking facilities that are being provided by a particular State, the energy generator must become a party to a banking agreement with a distribution/transmission licensee. Such an agreement lays down the complete framework to be followed by the parties to such agreement. It may specify terms and conditions such as how much energy can be banked, who can bank energy, when can surplus energy be injected or withdrawn among others.

Banking Period

The period within which the banking of energy takes place is known as the period of banking. It is usually taken up to be a monthly affair i.e. banking of energy is done on a monthly basis.

Banking Charges

The charges that are levied upon the energy generator for utilizing the energy banking mechanism are known as banking charges. These charges are different for renewable energy and non-renewable energy. They are to be paid to the Distribution Licensee.

Banking charges are a kind of tariff that has to be paid for the supply of electricity from the generating company to a distribution licensee. It is the State Regulatory Commissions which are empowered to determine and compute the banking charges while keeping in mind the provisions of their respective Tariff Regulations.

These charges can be paid either in cash or kind as specified by the appropriate Regulations.

Unutilized Banked Energy

It is not necessary that surplus injected into the grid has been utilized completely. Preferably, at the end of every Financial Year, the fate of such unutilized energy is decided depending upon the terms and conditions laid down in the banking agreement. The general rule is that the unutilized surplus energy is not carried over to the next year. It is either considered as lapsed or is purchased by the Distribution Licensee.

Banking of Renewable Energy & Its Need in India

The concept of banking of renewable energy remains the same as that of energy banking (discussed above) except the fact that here the energy banked is renewable.

Renewable Energy (RE) banking is a financial and accounting mechanism under which a service provider earns credit for excess RE supplied to the grid[xiii]. In India, several discounts, promotional benefits and concessions are given for banking of renewable energy. The various banking initiatives vary from State to State.

For instance, the Karnataka Electricity Regulatory Commission (KERC) exempts all solar power generators in the state (achieving commercial operation date between April 1, 2013 and March 31, 2018) selling power to consumers within the state on open access or wheeling from payment of wheeling and banking charges for a period of 10 years from the date of commissioning[xiv].

The Haryana Electricity Regulatory Commission (HERC) allows for the banking facility for a period of one year by the licensee/utilities free of cost[xv].

Why Do We Need RE Banking As Part of Our Energy Laws?

Following are some reasons to justify why we need the renewable energy banking mechanism as part of our energy laws:

Clean Energy Goals

India has a vast renewable energy potential that remains unharnessed[xvi]. There is an estimated renewable energy potential of about 900 GW from sources like Wind – 102 GW, Bio-energy – 25 GW, Small Hydro – 20 GW and Solar power – 750 GW[xvii].

Keeping this in mind along with India’s obligations under the Paris Agreement, the Indian government has aimed to achieve 175 gigawatts (GW) of renewable energy by 2022 through 100 GW of solar, 60 GW of wind, 5 GW of small hydro, and 10 GW of biomass-based power[xviii].  Prime Minister Modi reaffirmed India’s goal to achieve this target during U.N. New York Climate Week and also announced a further commitment to increase its renewable energy capacity to 450 GW[xix].

Sustainable Development Goal 7[xx] has also influenced India’s latest renewable energy ambitions and achieving this will require increasing access to electricity, the take-up of clean fuels and renewable energies, and energy efficiency[xxi].

Varied Demand of Energy

Variations in geography and seasons can be seen all across India. Though they contribute to making India the land of scenic beauty, such variations are responsible for the varied demand of power across States. Consequently, it becomes rather difficult to strike a balance between the production and demand of energy within a State. RE Banking plays a pivotal role in such a case by ensuring access to energy even when the production is low.

Rural Electrification

Banking of renewable energy can ensure a reliable power supply and can thereby help achieve the goal of rural electrification.

Limitations of RE Banking

Banking of renewable energy has its share of limitation as well some of which can be summarized as follows:

  • Lack of Implementation

RE banking-related provisions of India’s energy laws lack proper implementation. In Tamil Nadu, for instance, TANGEDCO seldom honours the banking obligations[xxii].

  • Changing Cost of Power

There are holes in the RE banking mechanism begging to be addressed. The major hole would be the constantly changing price of electricity. Within the energy banking mechanism, the power is exchanged at different points of time due to which the price of energy would differ. This difference is bound to cause severe losses to one of the parties in the banking agreement.

  • Other Issues

Banking of renewable energy comes with the usual danger of failure of contract, political, procedural and other similar issues. Default by the second party to the banking agreement and hoarding of energy are two of the most common issues that

Judicial Decisions

The Appellate Tribunal in Tamil Nadu State Electricity Board v Tamil Nadu Electricity Regulatory Commission & Others[xxiii] stated that unlike the Banks which pay interest to save account holder, in energy banking the licensee i.e. the banker of electrical energy, earns interest on this banked energy. Thus, the banking rate of electrical energy should be nominal.

On the question of an abnormal rise of banking charges, the Appellate Tribunal in Beta Wind Farm (P) Limited v Tamil Nadu Electricity Regulatory Commission & Others[xxiv] held that there is no doubt that the State Commission is empowered to determine banking charges but there should be a rationale behind its decision to radically change the banking charge as well as the banking period. Curtailing the banking period from one year to one month can render the whole banking mechanism useless.

In Maharashtra State Electricity Distribution Company Limited v Maharashtra Electricity Regulatory Commission & Others[xxv], the Appellate Tribunal observed that banking of wind energy is an essential feature to enable commercial viability of a wind energy generator supplying power to a consumer through open access. Different banking facilities are provided to wind energy generators by different State Commissions so as to discharge their function of promoting renewable energy under the Electricity Act, 2003. The Tribunal further held that there is no illegality in the State Commission’s decision for the continuation of banking facility for wind energy generators and that such a banking facility should not come at the cost of other consumers of the Licensee.

In Madhya Gujarat Vij Company Limited v Ankur Scientific Energy Technologies Private Limited & Others[xxvi], the Appellate Tribunal held that Renewable Energy Certificate (REC) Regulations, 2010 provide that a renewable energy-based independent power plant (IPP) which supplies power to the third party via open access is entitled to concessional benefits such as transmission/wheeling charges etc. Such an IPP can also simultaneously avail the benefit of REC if permitted by the concerned State Commission.

In Renew Wind Energy (AP) Private Limited v Karnataka Electricity Regulatory Commission & Others[xxvii], the appellant had injected energy into the grid without the prior permission of State Load Dispatch Centre. Here, the Tribunal decided that such an act tantamount to grid indiscipline and can endanger grid security. This grid indiscipline cannot be tolerated whether the energy so injected is renewable or non-renewable. The Tribunal further decided that the injected energy cannot be stored and gets consumed instantly. The respondents had no option but to accept this absorbed power. The act of appellant was not lawful and hence, section 70 of the Indian Contract Act is not attracted here. Consequently, no payment is owed to the appellant by the respondents for making use of the injected energy.

Conclusion

With the growing danger of climate change, the world is now moving towards cleaner energy. Despite many efforts, 80% of the world’s energy is still produced through conventional sources. Banking of renewable energy can play a revolutionary role in such a situation. It can not only help keep the environmental issues at bay but also aid in providing energy to each and every household. In India, the RE banking mechanism has been introduced for quite some time now and varies from State to State. But it has still failed to have a remarkable impact. The banking mechanism suffers from many limitations. The need of the hour is the proper attention of the government and a significant improvement in energy banking regulations.


[i] Foreword to OECD Green Growth Studies Energy available at https://www.oecd.org/greengrowth/greening-energy/49157219.pdf

[ii] Reasons For Increase In Demand For Energy, BBC available at https://www.bbc.co.uk/bitesize/guides/zpmmmp3/revision/1

[iii] Ibid.

[iv] Allen J. Wood, Bruce F. Wollenberg, Gerald B. Sheblé, Power Generation, Operation And Control 505 (John Wiley & Sons, 3rd edition)

[v] Ibid.

[vi] Bibek Subedi, Nepal and India agree on energy banking, The Kathmandu Post, December 27, 2018, available at https://kathmandupost.com/national/2018/12/27/nepal-india-agree-on-energy-banking-deal

[vii] Ibid.

[viii] Ramesh Lamsal, Nepal Practices Energy Banking; Sends 200 MW Electricity to India, Nepal 24 Hours, July 16, 2019, available at https://www.nepal24hours.com/nepal-practices-energy-banking-sends-200-mw-electricity-to-india/

[ix] Section 181, The Electricity Act, 2003

[x] DTE Staff, Renewable Energy in India: Tamil Nadu One of The World’s Top 9 Green Power Markets, Down to Earth, January 20, 2019, available at https://www.downtoearth.org.in/news/energy/renewable-energy-in-india-tamil-nadu-one-of-the-world-s-top-9-green-power-markets-62887

[xi] Section 6(1)(c), UPERC Draft CRE Regulations, 2019

[xii] Tamil Nadu State Electricity Board v Tamil Nadu Electricity Regulatory Commission & Others, Appellate Tribunal of Electricity, Appeal No. 98 of 2010 available at http://aptel.gov.in/old_website/judgements/98%20of%2010.pdf

[xiii] Wheeling and Banking Strategies for Optimal Renewable Energy Deployment: International Experiences available at https://www.nrel.gov/docs/fy16osti/65660.pdf

[xiv] Ibid.

[xv] Ibid.

[xvi] Ibid.

[xvii] Envecologic, Renewable Energy  In India: Potential, Growth And Policies, June 27, 2017, available at https://envecologic.com/renewable-energy-in-india-potential-growth-and-policies/

[xviii] Anjali Jaiswal, Transitioning India’s Economy To Clean Energy, November 05, 2019, available at https://www.nrdc.org/experts/anjali-jaiswal/transitioning-indias-economy-clean-energy

[xix] Ibid.

[xx] SDG 7: Affordable & Clean Energy available at https://in.one.un.org/page/sustainable-development-goals/sdg-7/

[xxi] Mahyar Eshragh Tabary & Edie Purdie, Sustainable Development And Demand For Energy, World Bank Blogs, May 04, 2016, available at https://blogs.worldbank.org/opendata/sustainable-development-and-demand-energy

[xxii] Supra 10

[xxiii] Supra 12

[xxiv] Beta Wind Farm (P) Limited v Tamil Nadu Electricity Regulatory Commission & Others, Before Appellate Tribunal, Appeal Nos. 197, 198, 200, 201 & 208 of 2012 and 6 of 2013 available at https://indiankanoon.org/doc/22221088/

[xxv] Maharashtra State Electricity Distribution Company Limited v Maharashtra Electricity Regulatory Commission, Before Appellate Tribunal, Appeal No. 59 of 2013 and 116 of 2013 available at https://indiankanoon.org/doc/14213299/

[xxvi] Madhya Gujarat Vij Company Limited v Ankur Scientific Energy Technologies Private Limited & Others, Before Appellate Tribunal of Electricity, Appeals No. 22 & 24 of 2014 available at https://indiankanoon.org/doc/73425242/

[xxvii] Renew Wind Energy (AP) Private Limited v Karnataka Electricity Regulatory Commission & Others, In Appellate Tribunal For Electricity, Appeal No. 117 of 2016 available at https://indiankanoon.org/doc/108597822/


Shalu Bhati

Shalu Bhati

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