C&I Chaos: Opportunities and uncertainties in the segment

Opportunities and uncertainties in the segment

For developers, working in the commercial and industrial (C&I) solar space in India has been nothing short of a circus. They have had a good time benefiting from corporate demand for renewable energy and high grid tariffs. However, the segment has not realised its true potential owing to policy uncertainty, flip-flops, and high and regularly changing open access charges. At the 15th Annual Solar Power in India conference, organised by Renewable Watch, senior executives from leading C&I developers shared important insights on this market. Edited excerpts…

Anuvrat Joshi, Head, Business Development (India), Cleantech Solar

Anuvrat Joshi

Cleantech Solar operates in the commercial and industrial (C&I) space, and our focus is on Southeast Asia and India, the latter representing about 75 per cent of our volume. In about seven ye­ars since our inception, our portfolio has reached about 700 MW. These days, there is a lot more focus on open access

pro­­­je­cts, namely, off-site solar projects. Our portfolio is roughly divided equally bet­we­en rooftop (on-site) and open access (offsite) solar projects.

There is no difference between group ca­p­tive and captive projects. They are ess­en­tially the same thing, and except in some states such as Uttar Pradesh, you may ignore the concept of group captive. It is just that multiple SPV’s are being allowed to buy power from a single SPV. In short, 26 per cent of equity – which should be no less than 30 per cent of the capital structure – must be held by the recipient in order for a project to be able to transmit power without being charged cross-subsidy surcharges and additional surcharges.

In Karnataka, over a period of one to one and a half years, developers were allow­ed to put up any capacity without any eq­uity investments from the recipients, and the power was transmitted entirely free of cross-subsidy surcharges and additional surcharges, and I think transmission and wheeling charges as well. In general, tra­ns­mission charges and losses, and whee­ling charges and losses are being char­ged de­pending on the state, while cross-subsidy surcharges and additional surchar­ges, amounting to around Rs 2.50 per unit, are waived. As this amount is significant, group captive is more lucrative today.

We do have complaints about the system, but keep in mind that the Indian solar market has some pluses as well. We are working in seven or eight countries, but India is the only place where we are in a position to take the open access route. Around 50 per cent of the volume in the last three years has been built in the open access space, as in, off-site open access plants, and today you can build around 50 MW for each customer (varying with the connected load across different states). In some states, even more is allowed. In two to three years, we have built as many open access off-site projects as we have built rooftop solar projects in five to six years.

Currently, there is a lot of uncertainty surrounding the procurement of solar modules and the prices at which they will be available.

In the C&I space, for smaller projects, the cost of power at which we produce is around Rs 4 per unit. In the utility-scale solar space, we have seen tariffs touching Rs 2-2.50 per unit, but anything below Rs 3 per unit is really not sustainable. On top of that, the cost depends on state regulations. If you do a captive structure, typically, the additional cost is Re 1 per unit, while without a captive structure it is pretty much unviable, because you have to add about Rs 2 per unit in cost.

As an unintended consequence of this, rooftop solar has regained some interest simply because none of these charges apply, in most states, to rooftop projects. Some states are trying to charge a certain amount of money for rooftop projects for no good reason. Once a rooftop solar project is set up, less power is purchased from the grid. Already the financial health of the discoms is in the doldrums.

Ritu Lal, Senior Vice-President and Head, Institutional Relations, Amplus Solar

Ritu Lal

Amplus Solar started in 2013 as a start-up bringing solar energy to the C&I space, and taking the power purchase agreement (PPA) model that was available in the utility sector to the C&I space. In 2014, we set up our first plant of 100 kW capacity. In March 2022, our portfolio has rea­ched 1 GW. This is almost entirely made up of C&I clients and over 400 projects. The portfolio is almost equally split bet­ween on-site and open access projects. Our company is not really in the utility space, though we have acquired one utility plant of over 150 MW capacity, and have another plant that was originally open access but ended up being utility scale because of state regulations that were changed midway in Haryana. We also offer energy efficiency, storage and other such solutions, including renewable energy certificates – anything that helps clients get closer to their net zero goals.

The open access market has faced many restrictions in the past. When Karnataka launched a time-bound open access window, I think in March 2018, they did not di­ff­erentiate between third-party and captive plants. So, they gave the same exemptions to third-party projects, which is why you see a huge quantum of renewable open access projects in Karnataka, mostly set up during that time. In this space, a key operational challenge for a developer is getting into an equity partnership with the company they are supplying power to. Neither the customer nor the developer needs this system, so it just works as a kind of barrier today. It only complicates the paperwork, as you have to set up a number of SPVs.

When we do open access projects that are utility scale, we do not achieve the same kind of prices that are seen in bids for ground-mounted solar projects in the utility-scale segment. This is because, while getting access to the transmission network is usually more expensive for us, in utility bids a lot of things are already in place, thus enabling very competitive bidding. In some cases, aid is also provided for land acquisition for such projects. But when we do private projects, we do everything on our own.

For large rooftop solar projects (1-2 MW), the tariff ranges from Rs 3.50 to Rs 4 per unit. If the project is 200-250 kW in capacity, it becomes a little more expensive. If we were to execute or sell a system which is in the range of 2-5 kW, then the cost of generation would be Rs 5-Rs 6 per unit.

As for state-wise reception to C&I solar, it is a mixed bag. Some states such as Karnataka had a time-bound policy for exemptions. It is not that you cannot set up an open access project without these exemptions, but the cost becomes much higher. There are certain states that seem to have come out with helpful policies to aid the growth of open access, but the same states have very restrictive on-site and rooftop solar policies. Gujarat is a very strange state in this space. Despite being solar rich, C&I players like us have extremely limited on-site or rooftop portfolios there because the policy does not permit it, leading us to, sometimes, face hindrances. In Uttar Pradesh, you can still do open access, but they have taken away the option of net metering from large corporates. Haryana came up with a first come, first served policy with the idea that until they achieve 300 or 500 MW of capa­city, they will allow the setting up of open access solar projects in the state. I think we were among the first few to manage to identify two pieces of land, and we wanted 75 MW in each space. While we were still setting up out first plant, the state tur­ned around and said that a project would not be allowed to sell power if it is not captive. Earlier, they had been allowing third party sales. So, we had to rush and convert a lot of our PPAs into captive arrangements. This was a setback, as not all organisations are comfortable with equity investments. There were some organisations that did not get permission from their parent entities. But we managed to overcome this hurdle.

We ended up selling to the discoms and had to forfeit PPAs with our clients that we had signed entirely on the basis of the state’s policy. Even today, we do not have a determined agreed tariff for the sale of energy. We are selling at the in­­terim tariff of Rs 2 per unit, and hopefully we will close out on a mutually agreed number that makes it commercially vi­able for us to make the project successful. Needless to say, the second 75 MW facility has been junked. Policy uncertainty is something that probably should be bothering us a little more than it does. Somehow, these hindrances do not seem to dent investor confidence. Per­haps people have learnt to live with these hindrances.