Captive Gains

Key trends, business models and outlook

Commercial and industrial (C&I) consumers have been increasingly adopting renewable energy on a captive basis due to its greater cost economics vis-à-vis grid power. Grid tariffs for the C&I segment are among the highest across states. Greater access to debt financing, the emergence of the opex business model and a robust regulatory framework have further facilitated the adoption of captive renewable energy in the C&I segment. In a recent webinar on “Renewable Options for Captive Power” organised by Renewable Watch, industry experts discussed their renewable uptake plans, cost trends, business models and outlook for this space. Excerpts…

Pankaj Gupta

Deputy General Manager (Electrical), Corporate Technical Services, Oil and Natural Gas Corporation

We are actively exploring renewable energy production for the past five years as part of our green initiatives. This also helps meet our renewable purchase obligations (RPOs). We have recently received Rs 60 million as viability gap funding from the government for installing 6 MW of solar power plants in Goa and Ankleshwar. In total, we have installed 31 MW of solar and 153 MW of wind power plants to meet our RPO. Over the next one year, we are going to install more than 25 MW of additional solar power plants. In the future, we want to take up more offshore wind power plants because there is a huge potential in this space. ONGC wants to install 6-10 GW of offshore wind power by 2040.

We have installed all our plants on a captive basis in capex mode so that we consume all the power and any surplus power is sold to discoms. We have not installed our renewable power plants for earning money, but for generating savings by replacing the expensive power procured from discoms. We sell the excess power to discoms at around Rs 2.89 per unit. We also plan to explore hybrid renewable energy options since the capacity utilisation factor (CUF) is only 15-19 per cent in the case of solar and 17 per cent in wind power plants for small and medium enterprises (SMEs). Thus, if we integrate both solar and wind power to generate hybrid power, then our CUF can go up to 70 per cent. These energy sources have complementary generation patterns with solar power available during the day and wind power during evenings, which can help in getting maximum energy and CUF. Another area of interest is the use of biomass with solar power in captive energy generation. However, there is a challenge of biomass production in such large quantities. The solution lies in co-location of solar panels and biomass plantations. This has been tried and tested in a few countries, where plants are grown below solar panels. This enhances plant productivity and optimises the use of land for serving two purposes.

Siddarth Krishna Kumar

Senior Manager, Business Development, ReNew Power

The first and quite obvious advantage of captive renewable power plants is the financial benefit of going green with affordable solar and wind power as compared to grid power. No investment is required from the customer, which is an added bonus in opex models. We also provide capital at a low cost, which is the second benefit that we offer. Finally, lots of investors and consumers are asking for a proactive role in climate change mitigation, which is also driving renewable energy procurement. Thus, developers like us help our clients to avail of these benefits of captive renewable power. We are also exploring waste heat recovery and industry-specific renewable energy solutions and are already in talks with clients.

In the changing market dynamics, factories might shut down or people might move out of the business, mainly through the exit clause or out clauses, which will allow the client to buy out the plant at mutually agreed prices after a certain number of years. All our deals, especially for captive power plants, are protected through our comprehensive contracts, which keep us prepared for any negative situation. We do not recommend using banked solar power or messing around with contract documents.

Many capitalists come forward to fund renewable energy projects and that will continue, but going forward there will be more reforms focusing on the distribution side. It has already started happening as the Electricity Act draft amendments propose franchising of discoms. This particular proposal is expected to get more focus in the near future. Eventually, we have to address the question of grid balance and we believe grids might potentially get destabilised because of the huge solar capacity that is being installed. Thus, appropriate reforms and technologies are needed to prevent this. Going forward, another area that is going to get much attention is the proposed green market where corporate customers can exclusively buy green power on a short-term basis. This will definitely take off as more and more companies like ACC and RE100 come forward and create the right market conditions.

K. NarayanaRao

Director, Energy, Environment and Sustainability, ACC Cements

Cement is an energy-intensive industry with huge operating costs and a high carbon footprint. While the use of sustainable renewable sources of power is a top priority for the cement industry to reduce carbon emissions, it also helps in reducing the enormous electricity costs. We forayed into captive renewable energy generation by installing three wind power projects, one each in Maharashtra, Tamil Nadu and Rajasthan. We produced 19 MW of wind power through these. While there were some benefits of procuring captive wind power, the policies were not uniform across the country.

So we moved to the opex model from the capex model and started buying solar power through power purchase agreements (PPAs) in different states. Now we are moving towards captive solar power units because we have lots of empty space on our premises. In these large tracts of land, we are trying to produce 3-5 MW of solar power across all our plants and also driving the uptake of rooftop solar, wind power and hydropower through PPAs. We actually have a pan-India footprint due to our presence in almost every state, and we are exploring various renewable power options including wind, solar (both rooftop and ground mounted) and hybrid for these facilities. All our recent projects were based on the opex model, which is more economical than the capex model. In fact, last year we procured close to 200 MW of solar power through the opex model. Owing to market conditions, we will continue with the opex model for the next few years. When we do not have any expansion plans, we may opt for the capex model. Moreover, for our waste heat recovery projects within the plant boundary, we would like to opt for the capex model to avoid safety-and project-related challenges.

One other option that we started using this year is waste heat recovery from flue gas waste. We are actually generating power from this and we are in the process of installing eight waste heat recovery power stations. However, there is a policy challenge as waste heat is not considered a part of renewable energy. We have requested the government to classify it as renewables. In this way, the cement industry can actually bring in lots of renewable power. Another aspect that we are looking at is the conversion of our coal-based captive plants into solar assets. Within ACC facilities, we have around 18 MW of coal-based power plants, where instead of coal, solar thermal technology can be used to generate the steam required for producing power. We already have the other infrastructure in place including power acquisition systems and water facilities and all we need to do is use solar steam instead of coal steam as well as steam from the waste heat recovery system.

Regarding costs, charges vary across states and on an average the cost of renewable power lies in the range of Rs 4-Rs 5 per unit, which gives us direct savings than using any other mode of power. In addition, it helps us in fulfilling our RPOs. The real challenge for renewables is to provide constant power input to our cement plants because the company wants to have 100 per cent renewables in the future. Thus, we need to have multiple power options including waste heat recovery and solar thermal along with energy storage to ensure that plant operations are stable with proper management of the fluctuating load. Another challenge is the policy variation across states in terms of transmission facilities, taxes and surcharges. It has become a deterrent to the growth of the renewable energy sector. We recommend to policymakers to have a nationwide policy and if a particular state is losing revenue, it can be compensated from the central government in a manner similar to GST implementation. This will address the business risk of suppliers in terms of the constantly changing policy regime. In addition, we should be able to trade green power at the energy exchanges, which we are currently unable to do. The upcoming green term-ahead market is expected to address this issue. Moreover, lending for green power development needs to be made more affordable with optimum interest rates. Finally, a big push is required for promoting solar thermal, which gives stability to captive consumers in terms of power generation within the plant boundary.

Dr G.C. Datta Roy

Founder, CEO and Adviser, Development Environergy Services

We mostly work in the SME sector, where we witness most players shying away from the capex mode due to the upfront investment required. Thus, the opex model is certainly preferred by the kind of customers we are dealing with, provided there is a substantial reduction in cost. Also, we work for industries with continuous operations, where the intermittency of renewables like solar and wind power is an issue and significant charges for deviation have to paid. Thus, in the opex mode, if for a particular year, X is the cost of renewable power and Y is the cost of other sources and X+Y is lower than the present tariff, then the client will obviously go for the opex model. Textile and paper are two major industries consuming substantial amounts of power. Assuming other sources of power are connected as well, a 1 MW solar power plant will be sufficient for the paper industry in opex mode. For the textile industry, 200-500 kW is sufficient particularly for small processing mills, which operate during the day time.

Solar power has already gained momentum with more and more industries opting for it to offset their operating costs and manage carbon emissions. Regarding wind power, there is no surety whether it will remain competitive if grid charges are applied. The biomass segment is still struggling because of logistics issues. One or two companies have emerged for managing biomass logistics. Another issue in biomass is that of investment. Even if developers in this space are able to get investors on board they are quite small. An area with some merit is combining solar power generation with biomass. There are many unutilised tracts of land in India, which are used as grazing lands. Instead of competing for solar power production or crop cultivation, they can be used to serve both the purposes.

Regarding renewable energy developers that cater to solar and wind power, they obviously do not deal with stand-alone cogeneration projects. However, they can give integrated solutions like other non-carbon energy sources hybridised with solar or wind power, which will enhance the uptake of renewable energy across all segments. Today, not only big industry players like cement manufacturers are opting for renewables but even the smaller industries are looking to decarbonise, particularly those companies that supply products to big global conglomerates. Thus, affordable hybrid customised solutions can be ideal for such establishments.

Manoj Vyas

Head, Renewables, Kreate Energy

We basically deal with short-term contracts and give a one-month notice period to our clients since tariff determination is done every year. In addition, there is a lot of uncertainty due to open access charges. So, pricing and the contract duration vary as per the requirement. Thus, some portion of the deal is for captive power while the other part may include open access. We optimise the cost by combining a mix of offerings for our clients. We customise the product as per the discounting model. For example, we provide a 10-20 per cent discount on the landed energy cost, and all risks and regulatory exposure is in our account since we take the calculated risk as the energy trader. We give net savings to our clients while the transaction and operational headache is part of our scope. As an energy trader, we can book the transmission corridor and can even shift the source of power for a client. For instance, we can supply power from Mizoram in the Northeast to customers in Delhi and we can shift the source to either Himachal Pradesh or Jammu. So C&I buyers and sellers are comfortable in dealing with energy traders as they can sell or change their power source anywhere across India to maintain adequate power supply. We are also complementing solar and wind power in Maharashtra to create a hybrid solution. Thus, during the daytime, we are supplying solar power from 6 a.m. to 6 p.m. to commercial establishments with office staff or data centres. Since wind power is more efficient after sunset we supply wind during the night. In this way, we are carrying out hybrid transaction for renewable energy balancing. Moreover, during the monsoon season, hydro and wind power are on the surplus side and then we use hydropower to maintain the balance. We do energy portfolio optimisation from all possible resources across the renewable energy space including wind, solar, hydro and municipal solid waste. Bagasse season is from October to March, when we optimise bagasse-based power. In this way, we maintain constant round-the-clock power availability according to the season of these sources and commercially trade this electricity.

As far as open access procurement is concerned, we have to optimise the energy pattern of the C&I customer base and also stay updated with the ongoing regulatory changes. Technology will play a major role in the future because everything will be managed by automation and technology-enabled solutions, thus reducing the decision-making time. Energy trading markets will give us only 30 minutes and within that time duration we will have to take all the decisions. Thus, all the interfaces and integration will change the dynamics and landscape of the energy space.

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