Cross-Subsidy Surcharge and Additional Surcharge Exemptions: Green Hydrogen, Green Ammonia, and Offshore Wind Projects

Posted On - 11 December, 2023 • By - King Stubb & Kasiva

Introduction

Cross-subsidy surcharges are critical in India’s energy market to strike a balance between revenue sustainability and affordability. The Electricity Act of 2003 mandates higher rates for certain consumers to subsidize the electricity of others. This can lead to utility inefficiencies and hinder service provision. Although increased cross-subsidies are regarded as necessary for rural electrification and assisting disadvantaged consumers, they may result in utility inefficiencies and a reluctance to supply services. While surcharges address revenue shortfalls, market-driven solutions are increasingly necessary. The present debate over the downsides of cross-subsidies is forcing a shift in focus towards a more sustainable and efficient power pricing mechanism.

In light of these problems, certain exemptions from cross-subsidy surcharges are provided, primarily for boosting electricity generation through renewable resources. This update will address three such sources which are exempted from these surcharges:

  • Power from a non-fossil fuel-based waste-to-energy plant
  • Power used for Green Hydrogen and Green Ammonia
  • Certain Offshore Wind Projects

Power from a Non-Fossil Fuel-Based Waste-to-Energy Plant

As per the 3rd proviso to Rule 9(2) of the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“2022 Rules”) [1], power generated from waste-to-energy plants supplied to the open access consumers is exempted from cross-subsidy surcharge and additional surcharge. The Working Group of the Forum of Regulators, in their recommendations, has further clarified the scope of the exemption to include only ‘non-fossil fuel or MSW-based’ waste-to-energy plants.[2] These have been implemented through State Electricity Regulatory Commission Regulations, individually for each state, for instance in Punjab[3], Maharashtra[4], Andhra Pradesh[5], and so on.

This aims to foster the growth of waste-to-energy plants and further encourage the proper waste management and the utilization of renewable energy sources for power generation.

Power used for Green Hydrogen and Green Ammonia

Similar to the previous exemption, the 4th proviso of Rule 9(2) of the 2022 Rules exempts the application of a cross-subsidy surcharge and additional surcharge if green energy is used to produce green hydrogen and green ammonia.[6] The same has been further incorporated by states in their State Electricity Regulatory Commission Regulations, such as Gujarat[7], Punjab[8] (with further clarification as to irrespective of whether such energy is sourced from a project located in the state or outside), and so on. It has also been incorporated through the hydrogen policies of states, for instance, Uttar Pradesh’s Hydrogen Policy.[9]

However, the Working Group of the Forum of Regulators had raised the concern that the cost of production of green hydrogen or green ammonia is so high that providing such exemptions will subsidize these industries at the cost of other power sector consumers.[10]

Certain Offshore Wind Projects

Post the identification of offshore wind zones off the coast of Gujarat and Tamil Nadu, exemption from additional surcharge has been granted for electricity produced and supplied to open-access consumers from offshore wind projects commissioned up to December 2032.[11] This has also been incorporated through the State Electricity Regulatory Commission Regulations, such as by Gujarat and recently, Telangana[12], among others. The aim is to enhance the offshore wind power generation capacity in the nation.

Conclusion

The exemptions from additional surcharges and cross-subsidy surcharges for power generated by waste-to-energy plants, green hydrogen and ammonia, and offshore wind projects are a great step towards fostering sustainable development and promoting renewable energy sources. These exemptions will boost renewable energy’s competitiveness compared to traditional fossil fuels by lowering its price. Nonetheless, it is vital to carefully monitor the effects of these exemptions on the total cost of power and ensure that they do not impose an undue burden on other consumers. India should continue to pursue ways to promote the growth of renewable energy and reduce its reliance on fossil fuels.

[1] https://greenopenaccess.in/assets/files/Green%20Energy%20Open%20Access_rules.pdf.

[2] https://forumofregulators.gov.in/Data/study/Final%20Report%20of%20FOR-GEOA.pdf.

[3] https://pserc.gov.in/pages/Regulation%20No.%20177.pdf.

[4] https://merc.gov.in/wp-content/uploads/2023/08/Draft-EM-to-2nd-Amendment-DOA-Green-Energy-2023-5-1.pdf.

[5] https://aperc.gov.in/admin/upload/APERCGEOAChargesandBankingRegulation2023.pdf.

[6] https://pib.gov.in/PressReleasePage.aspx?PRID=1831832.

[7] https://gercin.org/wp-content/uploads/2023/06/Final-Draft-regulationsGEOA-Regulations-2023-dated-23.06.pdf.

[8] https://pserc.gov.in/pages/order%20in%20Regulation%20No.%20177.pdf.

[9] https://upneda.org.in/MediaGallery/UPGH2_policy_II.pdf.

[10] https://forumofregulators.gov.in/Data/study/Final%20Report%20of%20FOR-GEOA.pdf.

[11] https://www.pib.gov.in/PressReleasePage.aspx?PRID=1941109.

[12] https://tserc.gov.in/file_upload/uploads/Regulations/Draft/2023/draftOAreg2023.pdf.