The open access (OA) market has been restrained largely because of policy and regulatory constraints, which stem from discoms’ unwillingness to part with their high-paying customers. As a result, the renewable energy OA market accounts for only a small share of the total private captive power capacity.
Skewed capacity distribution
Interestingly, the renewable energy OA capacity in the country is concentrated in a few states. Around 91 per cent of wind OA capacity is located in industrial states including Rajasthan, Gujarat, Maharashtra, Karnataka and Tamil Nadu. Meanwhile, 94 per cent of solar OA capacity is installed in seven states: Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Telangana, Andhra Pradesh and Tamil Nadu. As a result, the policies and initiatives of the renewable OA market are being controlled by a handful of states, which is impeding market growth.
While some states have progressed and eased regulatory pressures over the past few years, a number of states have regressed to older and more stringent policy structures. Further, additional levies have increased the cost of OA renewable power and compelled consumers to return to traditional grid power. The Karnataka Solar Policy, 2014-22 introduced interstate OA based captive and third-party business models with concessional banking and wheeling facilities. In 2015, Andhra Pradesh and Telangana exempted all OA projects from cross-subsidy surcharge (CSS). However, during the same year, Gujarat introduced CSS. Further, in 2016, 100 per cent CSS was introduced in Maharashtra. The Ministry of Power also proposed an increase in CSS and additional surcharges and imposition of more stringent scheduling conditions. However, in mid-2017, the Haryana government waived all OA charges in a bid to increase renewable energy uptake in the state.
OA business model
While the terms of a private power purchase agreement (PPA) can be negotiated to meet the expectations of both parties, government tenders are set in stone and cannot be altered. A key difference is in the size of projects. While private PPAs are in the range of 5-25 MW, discom PPAs usually range between 50 MW and 100 MW. Further, private players have a larger team to discuss the terms of the PPA with each consumer as opposed to a central team at discoms for drafting bidding and tender documents. The responsibility of land acquisition and power transmission is also with the developer in the case of private PPAs while solar parks are usually available for discom PPAs. On the financial front, private players find it challenging to secure debt. Further, private PPAs are usually signed for a period of up to 10 years while PPAs with discoms are signed for a 25-year period. Despite these concerns, private PPAs are preferred by developers since they provide better protection as compared to discom PPAs. Payment experience under private PPAs has been better as dues are cleared within three months unlike in the case of PPAs with discoms, which take a much longer time for clearing their dues.
The lack of a definite long-term policy is among the major challenges faced by the OA market. This can lead to volatility in OA costs and variability in scheduling and forecasting norms. Moreover, developers are cautious to enter the segment due to the huge credit risk of private consumers and no protection of their investment. The availability of cheap power on the energy exchanges is another deterrent to the growth of the segment. The probability of a backlash from the discoms and regulators is also seen as a challenge.
With the OA market concentrated in a few states, the policies of individual states dictate the market trends at present. A reduction in OA and associated charges across states is needed to drive the expansion of the OA market beyond a few states. Moreover, a definite long-term policy needs to be devised and implemented in order to realise the full potential of the OA renewable market.
Based on a presentation by Vinay Rustagi, Managing Director, BRIDGE TO INDIA