Breaking Barriers

Solar-based open access gains some traction

The open access route for buying renewable energy first gained popularity in southern India, particularly in Tamil Nadu, where wind project developers were not paid by the utilities for 6-12 months. Under the open access mechanism, these developers could break away from power purchase agreements (PPAs) with discoms to a group captive model in order to sell power directly to consumers. This was a win-win situation for both wind power developers and consumers.

The second phase of growth in the open access segment began in 2010, when many states introduced their solar policies and gave incentives for open access. The incentives included a 5- or 10-year holiday on all charges, encouraging developers to adopt the third-party open access route as they did not have to sign share purchase and shareholder agreements with offtakers and only required a bilateral agreement to start selling power. This helped them avoid the cumbersome process of highlighting the equity share of the stakeholders from time to time.

However, issues started to emerge when Telangana stopped granting wheeling and banking approvals for projects that were already commissioned. The wheeling and banking approvals were given after the projects were commissioned and developers had to wait for 3-12 months to get the approvals. This slowed down capacity addition in these states. Meanwhile, favourable solar policies in Karnataka led to large-scale solar capacity installation by independent power producers (IPPs). These IPPs later entered the open access space. This worked in their favour as most offtakers had a better credit rating than that of discoms.

However, the regulations, charges and exemptions associated with open access keep changing every few months across states as discoms do not want to lose their high-paying commercial and industrial consumers. On the policy front, the lack of clarity on charges for a 25-year period remains a key issue. Further, there is a possibility of transmission charges rising in the future as less transmission capacity gets utilised with the scale-up of open access. The discoms fail to understand that load management can be improved with excess solar capacity generated under open access.

While some states have clear open access regulations and policies in place, developers face difficulties and risks in their on-ground implementation. That said, IPPs have made efforts to educate offtakers on the benefits of open access. Offtakers are aware that the savings range from Rs 2 per unit to Rs 4 per unit across states. With this awareness, they are willing to invest 26-30 per cent of the project cost and sign 25-year PPAs.

PTC India Financial Services Limited remains one of the biggest lenders to IPPs. Financial institutions like Tata Cleantech Capital and L&T have also started investing in select IPPs.

Case study: DMRC procures power from the Rewa solar park

On April 18, 2019, the Delhi Metro Rail Corporation (DMRC) started procuring solar power from the Rewa Ultra Mega Solar Park in Madhya Pradesh. With this, DMRC became the first large commercial consumer to procure solar power from another state through the open access route.

Current status

Owing to its large-scale operations, DMRC consumes a large amount of energy. It consumed 1,100 MUs during 2018-19. This entails significant power cost, which is increasing year on year due to the rise in grid tariffs as well as further expansion of the metro network. Currently, DMRC pays a special tariff of Rs 6.80 per unit to Delhi discoms for its power consumption. In order to reduce its operational expenses, the company uses solar power generated by many rooftop solar projects deployed on its depots, metro stations, parking spaces, and other buildings and workshops. As of May 2019, 28 MWp of solar capacity has been commissioned by DMRC in renewable energy service company (RESCO) mode, while 7-8 MW of projects are under execution.

Need

DMRC realised early on that the power generated by rooftop solar projects would not be sufficient to meet its growing energy requirements. Therefore, it decided to opt for open access power procurement to further increase its solar power penetration and reduce its carbon footprint. This resulted in savings of Rs 1.40 per unit. However, going forward, the cumulative impact of the goods and services tax (GST), safeguard duties and interstate transmission system (ISTS) charges on solar projects could hamper the viability of the open access option.

Challenges

Discoms are reluctant to let go of their premium-paying commercial customers like DMRC. Thus, a variety of charges have been imposed. At the time of conception, DMRC had expected a tariff of Rs 4 per unit from this project. However, soon after the signing of the PPA, the waiver of charges on ISTS was limited to the renewable purchase obligation fulfilment of discoms. Thus, while wheeling, additional surcharge and intra-state transmission charges are exempted in Delhi, DMRC has to bear interstate transmission charges, cross-subsidy surcharges and transmission losses. After incorporating these charges, DMRC expects the tariff to be in the range of Rs 4.50-Rs 5 per unit of energy, as against the tariff of Rs 2.97 per unit discovered during bidding at Rewa. If these open access charges are reduced, the ultimate benefit will be passed on to the end consumer as the metro fares for commuters will decrease. Another challenge for DMRC is policy and regulatory uncertainty. Open access charges can increase any time without warning and DMRC will be liable to pay these charges as per the PPA terms. For instance, since the signing of the PPA, three major policy changes have occurred – the introduction of ISTS charges, GST and safeguard duties on solar imports. These have impacted solar power tariffs.

While the open access arrangement seems viable, DMRC has had to cross several barriers before it could source power from the solar park. Other consumers may not be able to address these issues and many such open access projects may remain stranded in the future.

Recommendations

The government should devise strategies to address the discoms’ concern of losing their high-paying customers to the open access route of power procurement. For the discoms’ benefit, there should be no exemptions on any charges. More exemptions not only reduce discoms’ revenue, but also create more bureaucratic hurdles for developers. Going forward, no cap on the installed capacity for open access and no exemptions could be a win-win situation for both developers and discoms. Discoms should also play a supportive role and facilitate easy settlements. Developing a centralised open access policy that supersedes various state-level policies will further ease open access implementation. There should be a long-term (minimum 10 years) roadmap for exemptions. Further, ISTS charges should be rationalised.

Going forward, the rooftop segment and open access will be developed simultaneously to add more customers and increase scale. Despite the challenges and constraints, the future outlook for open access remains positive as large-scale projects (100-300 MW) are in the pipeline in different states. Each state now has five to six big developers. The states favouring open access include Karnataka, Tamil Nadu, Andhra Pradesh, Haryana and Uttar Pradesh. Moreover, a dialogue between the state regulators and developers has started regarding open access, and decisions are not being made by the state regulators unilaterally.

Based on remarks by Rahul Mishra, Chief Executive Officer, Rays Future Energy; and Ashish Arora, Senior Deputy General Manager, Electric, DMRC.

GET ACCESS TO OUR ARTICLES

Enter your email address