Experience of Policy Instruments used to promote renewable energy - Case study of Maharashtra, India

Abstract: Policy instruments are used to support the introduction and diffusion of renewable energy technologies as the cost of renewable energy is generally higher than fossil-based energy. The commonly used policy instruments for supporting renewable electricity are quota-based system and the price based feed-in system. While quota based systems specify minimum targets for renewable electricity procurement by electricity suppliers, price based systems provide fixed selling price for the entire renewable electricity generation over a long time frame. This research attempts to study the influence of policy instruments on the renewable sector in Maharashtra, an Indian state. In Maharashtra, Renewable Purchase Obligation (RPO), a policy instrument similar to feed-in system was operational for two years, from 2004 to 2006. Thereafter, RPO was replaced by a new instrument called Renewable Purchase Specification (RPS) in year 2006, which was similar to quota based system. The renewable sector experienced two different development patterns during the regime of the two policy instruments. While capacity growth rate increased rapidly under RPO regime, the same declined sharply under RPS regime. This study looks into the various issues that influenced the developments in renewable sector during the regime of these policy instruments. The results of the study show that the provision of penalty under the RPS for nonachievement of targets was one of the most significant issues that affected the renewable sector. While the purpose of penalty was to support renewable growth by ensuring compliance among the electricity consumers for meeting targets, it instead created barriers to capacity growth. As the supply of renewable electricity was much lower than what was required to meet the targets specified under RPS, the price of renewable electricity registered a sharp increase and the market started favoring the generators. The substantial gap between demand and supply of renewable electricity indicates that the market was not mature enough to support competition based RPS system. Based on the findings, it is felt that price based system would be better than quota based system in such markets which are yet to mature.