Abstract

Energy can neither be stored nor be destroyed. However, the developing societies and the modern capitalistic business models led to the development of something known as the Banking of Renewable Energy. The concept deals with storing the surplus of energy generated and withdrawing it whenever needed. It is similar to the functioning of any other commercial bank. The concept was first introduced in the state of Tamil Nadu in 1986 and since then has been adopted by various states having surplus of energy production. This article throws light on what the concept of Banking of Energy is and goes onto explaining the take of various courts on it. It details the functioning of these energy banks and the role of Electricity Regulation Commissions in regulating and framing the rules for the same. Explaining the need for India to develop the systems to meet the Sustainable Development Goal 7 of the United Nations and the obligations under the Paris Agreement it moves onto explaining the issues with banking of energy. The article concludes with suggesting towards a need of creating a more focused and concerted legislative and executive effort towards the renewable energy banking system. This will bring a positive impact making India a strong primary energy market. 

Introduction

India has come a long way in the development of its legal framework. From regulations on the use and trade of insecticides to provisions for mergers of major companies, the laws are progressing in every direction. One such law, known as The Electricity Act (2003), is the primary statute under the header of ‘Energy Laws’. With the advancements of modern capitalist business models, Energy Laws are developing expeditiously. Quantity and ease of availability of energy (or electricity) have become one of the major selling points of a land area, for commercial consumers.

“Energy can neither be created nor be destroyed”; however, the demands and development of the contemporary world have led us to something commonly known as ‘Banking of Energy’. Banking of energy is not a new practice; however, it is not much known. States like Maharashtra, Gujrat, Tamil Nadu, and other areas that receive a surplus of wind and solar energy to harness have already developed systems like banks to store renewable energy.

As the term suggests, ‘Banking of Energy’ is similar to depositing money in a bank and withdrawing it whenever required. The entire concept is aimed at saving and storing the excess of electricity generated but not consumed. This excess of energy can be deposited in a ‘bank’ like a unit and can then further be used when the electricity production is insufficient.

‘Banking’ as a concept was introduced by the Tamil Nadu Electricity Board in 1986, to encourage the generation of wind energy. [1] In Tamil Nadu State Electricity Board v. Tamil Nadu Electricity Regulatory Commission & Ors., [2] the Appellate Tribunal observed:

“…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 at 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…”

Although ‘Banking’ has not been defined under The Electricity Act, there are provisions that delegate the responsibility of making rules and regulations to State Regulatory Commissions. [3] Inspired by the success of energy banking development in various other countries, Electricity Regulatory Commissions (ERCs) of many states like Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, et al have introduced ‘banking facilities’ for energy. Banking of energy was defined by the Uttar Pradesh Electricity Regulatory Commission as:

“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.” [4]

In other words, to understand the concept, suppose E1 and E2 are two energy units, where E1 is the ‘depositor’ and E2 is the ‘bank’. When there is surplus energy at Unit E1, the same can be transferred to Unit E2. If and when Unit E1 has a shortage of energy, Unit E2 transfers back the same amount of energy that it received from Unit E1.

How Energy Banking Operates

The Appellate Tribunal in Maharashtra State Electricity Distribution Company Limited v. Maharashtra Electricity Regulatory Commission & Ors. [5] observed that 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. Though the Tribunal did not define what constitutes a ‘banking facility’, it has been observed that the facilities and even the procedures are similar to a regular commercial bank.

For example, in Beta Wind Farm (P) Limited v. Tamil Nadu Electricity Regulatory Commission & Ors., [6] the Appellate Tribunal observed that the State Commission is empowered to determine banking charges and banking period, just like in the case of commercial banks. Similarly, the Appellate Tribunal had observed that in energy banking the licensee i.e., the banker of electrical energy, earns interest in this banked energy. [7] Thus, the operation of energy banking is similar to that of commercial banking and therefore, is conveniently understandable to all.

Need for Banking of Renewable Energy

Energy banking has now widened its ambit to even cover the renewable energy sector. Renewable energy (RE) refers to the energy generated from sustainable sources, something that does not deplete after use. The Electricity Act [8] mandates the state ERCs to promote cogeneration and generation of electricity from renewable sources by providing suitable measures for grid connectivity and sale of electricity to any entity; it also specifies that, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area should be from a distribution licensee. [9]

With India already a part of the Paris Agreement, [10] and its various other commitments towards the environment internationally and domestically, it has become an essential practice to conserve energy and maximize efficiency in the same regard. Sustainable Development Goal 7 of the United Nations [11] has influenced India to take step towards ‘Affordable and Clean’ Energy and to achieve the same, it becomes mandatory that a consistent supply of energy is available even during variations in geography and seasons. Moreover, the production of energy varies from State to State. Therefore, energy banking, especially RE banking, plays a pivotal role in fulfilling the demands domestically and subsequently, internationally.

With the advancements in infrastructure and ease of commute, the availability of energy is no more just an urban luxury but has reached even the corners of various rural areas across the country. The aim of ‘rural electrification’ would only become unchallenging with defined and stringent rules of RE banking. Not only that, with RE banking, a load of production on conventional sources of energy would substantially reduce, thus would lead to efficient and complete usage of available energy.

Issues with RE Banking

  • Cost Dynamics

Indian Subcontinent with its varied land altitudes and extreme seasonal shifts experiences a fluctuating climate. Climate affects not only the demand for energy but also the supply of it. For instance, during the non-windy season when the system demand is higher and consequently the cost of power is also high, the use of banked energy by the captive and third-party users results in more costly power purchase by the distribution licensee to service such banked energy. [12]

Due to the cost dynamics, parties involved in the RE banking system are perpetually in a mindset to maximize their profits even at the expense of financial loss to others. Quite often, in the event of their inability to buy expensive power during any period, the distribution licensees’ resort to load shedding.

  • State-wise availability

The varied land altitudes in India, not only affect the climate but also the availability of energy resources. Depending on whether a state is rich in renewable resources, has power shortages, a surplus in the generation, and other factors, the state may be interested in providing discounted banking mechanisms for renewable generators. Several southern states facing power shortages have announced concessional banking mechanisms at promotional rates, whereas states like Gujarat and Maharashtra, which have surplus generation, are not in favour of extending such benefits in the event of third-party sale of RE power. [13]

  • Absence of legislature and/or execution

Lack of implementation of rules regarding RE banking provision or restrictive facilities is huge setbacks for the RE sector. Recently, Karnataka ERC had issued a proposal to discontinue the banking facility extended to Solar, Mini-hydel, and wind power projects. [14] The absence of banking facilities leads to non-utilization of the surplus generation of energy and hence leads to losses in terms of economy as well as the environment. 

  • Other issues

In Renew Wind Energy (AP) Private Limited v. Karnataka Electricity Regulatory Commission & Ors., [15] the appellant had injected energy into the grid without the prior permission of the State Load Dispatch Centre. The act of appellant was held as unlawful and hence, provisions of the Indian Contract Act were attracted. Contractual or procedural failures are a usual part of a working system. RE banking often faces issues involving and attracting civil as well as criminal liabilities. Without the creation of deterrence mechanisms in the system for energy banking, it would become difficult for RE banking to sustain itself in India.

Conclusion

Ernst and Young (EY) in its Renewable Energy Country Attractiveness Index (RECAI) ranked India as the fourth most attractive renewable energy market in the world. Regulatory authorities are already in process of redesigning the Energy markets in India. The Deendayal Upadhyaya Gram Jyoti Yojana (in rural areas), the Saubhagya scheme (last-mile connectivity to households), and the Integrated Power Development Scheme (IPDS) (in urban areas) are few among several domestic schemes covering the budgetary support to state government DISCOMs. Despite these developments, the statutory and supervisory goals towards energy banking have a long way to go.

With energy banking being not only a fiscal upliftment idea but also a step towards the protection of the environment, it is essential for the government to take steps towards reviewing and amending the energy banking rules and regulations. Agencies like NITI Aayog must work on policy analysis of by-laws of different States and suggest means of energy banking that strengthens the cooperative federal structure of the nation.

The country should try out other sources for generation, that are cost-effective and energy-efficient than the current conventional sources. Such developments could even lead to scientific inventions that help ease the technical process of energy banking. With just a more focused legislative and executive approach, the limitations in the process of energy banking can be curbed down and the entire process could actually result in a remarkable positive impact, ultimately strengthening the establishment of India as one of the primary energy markets and henceforth a prosperous representation of the country in global relations. 

About the Authors

Ankit Rajgarhia is a Senior Associate at Karanjawala & Co.

Rhythm Katyal is a 4th-year law student at Symbiosis law School, Noida.

Jhalak Srivastav is a 4th-year student at Amity Law School (Delhi) and is also an Associate Editor at the Indian Journal of Projects, Infrastructure and Energy Laws (IJPIEL).

Editorial Team

Managing Editor: Naman Anand

Editor-in-chief: Akanksha Goel

Senior Editor: Varun Pandey

Associate Editor: Jhalak Srivastav

Junior Editor: Adarsh Kumar

Preferred Method of Citation 

Ankit Rajgarhia, Rhythm Katyal, and Jhalak Srivastav, “Banking of Renewable Energy” (IJPIEL, 19 March 2021)

<https://ijpiel.com/?p=2981&et_fb=1&PageSpeed=off>

Endnotes

[1] Tamil Nadu State Electricity Board v. Tamil Nadu Electricity Regulatory Commission & Ors., 2011 SCC OnLine APTEL 38.

[2] Id.

[3] The Electricity Act, 2003, Section 181, Acts of Parliament, 2003 (India).

[4] Draft CRE Regulations, 2019, Section 6(1)(c).

[5] Maharashtra State Electricity Distribution Company Limited v. Maharashtra Electricity Regulatory Commission, 2014 SCC OnLine APTEL 166.

[6] Beta Wind Farm (P) Limited v Tamil Nadu Electricity Regulatory Commission & Others, 2013 SCC OnLine APTEL 89.

[7] Id. at 1.

[8] The Electricity Act, 2003, Section 86 (1) (e), Acts of Parliament, 2003 (India).

[9] Alliance for Sustainable Energy, Wheeling and Banking Strategies for Optimal Renewable Energy Deployment: International Experiences, (March 2016), https://www.nrel.gov/docs/fy16osti/65660.pdf.

[10] The Paris Agreement, (Signed on April 22, 2016, Ratified by India on October 2, 2016).

[11] SDG 7: Affordable & Clean Energy, United Nations in India (Feb. 24, 2020), https://in.one.un.org/page/sustainable-development-goals/sdg-7/.

[12] Id. at 9.

[13] Id.

[14] Karnataka Electricity Regulatory Commission, Discussion Paper on ‘Wheeling Charges and Banking Facility’ for Renewable Energy Power Projects, (Aug. 24, 2020), https://jmkresearch.com/wp-content/uploads/2020/08/Inviting-Comments-Suggestions-views-from-Stake-Holders-on-Discussion-Paper-on-Wheeling-Charges-.pdf.

[15] Renew Wind Energy (AP) Private Limited v. Karnataka Electricity Regulatory Commission & Ors., Appellate Tribunal for Electricity, 2017 SCC OnLine APTEL 59.