Green corporate power purchase agreements (PPAs) have garnered immense interest in the Indian market. Under this arrangement, the customer signs an agreement directly with the project developer for the purchase of renewable energy for a predetermined time period and tariff. The key drivers for the growth of this market segment have been high grid tariffs, falling renewable energy tariffs (especially for solar), ambitious climate goals of corporates, innovative business models, favourable policy impetus from the states in the form of exemptions in open access charges, etc. The recent introduction of the Green Energy Open Access Rules has given a boost to this segment. However, the market in India has been struggling due to regulatory uncertainties, especially in open access charges, net metering and approvals, supply chain disruptions as well as import restrictions and duties. At a recent webinar organised by Renewable Watch, industry stakeholders discussed the challenges and opportunities in the Indian green corporate PPA market. Excerpts…
Tamil Nadu is blessed with natural resources. The state is richly endowed, both in terms of wind and solar power generation capacity. The development of the earliest wind turbines date back to 1985; however, now more than ever, the sector is truly progressing and Tamil Nadu is leading the way for India in the wind energy sector. The state has almost 9,000 MW of wind capacity installed, connected both to the state transmission utility and the central transmission utility.
Moreover, right from the onset of the National Solar Mission, which had a target of installing 100 GW of solar power, the Tamil Nadu government has been standing shoulder to shoulder with the Government of India for achieving the national targets. We have almost 6,500 MW of captive wind generation and almost 2,000 MW of solar in the open access segment. Tamil Nadu has always promoted open access projects. For instance, almost a decade ago, the limit for open access was brought down from 1 MW to 100 kW of connected load for consumers.
In terms of different types of projects, Tamil Nadu primarily has captive and group captive, which make up 80-85 per cent of the total projects. The state has very few third-party projects. The exemption of additional surcharges in Tamil Nadu was implemented for captive projects unlike most other states.
Furthermore, being one of the most industrialised states in the country, Tamil Nadu has established various manufacturing hubs that rely on captive and group captive projects. In Coimbatore, for instance, a number of spinning industries and mills have been set up. Moreover, multiple automobile sector majors have established renewable energy plants in the state. Due to the renewable purchase obligations (RPOs) that these industries are required to meet, solar and wind projects are now being developed more rapidly. The Ministry of New and Renewable Energy (MNRE) has notified strict RPOs which are being meticulously followed in the state. Big corporates are doing their best to acquire power from renewables and the state fully supports them.
Before we shift focus on the use of offshore wind for commercial and industrial (C&I) users in Tamil Nadu, I believe we need to scale up onshore wind projects. If we are able to scale them up, we will get closer to meeting our national targets. The MNRE and NIWE are currently working on offshore wind development; however, it is likely that the cost of these projects would be higher at this stage. Although offshore wind power projects will be able to generate enough power for six to eight months, the tariff will definitely be above the national average tariffs and power purchase costs.
Given the fact that renewable energy is intermittent in nature, provision of round-the-clock power is vital. From the perspective of grid operators, a drop in generation due to cloud cover, for instance, would put tremendous pressure on them to meet the power demand through other sources when renewable power supply is erratic. While we have come a long way, utilities in Tamil Nadu will welcome green power with greater confidence if well-structured plans underlying how to supply peak power and at what cost are laid out. These plans must also cover how different consumers must be treated. As power is a concurrent subject, states will continue to take inputs from the ministries and central regulators.
All in all, we are definitely in a phase of rapid deployment and growth of renewable energy, supported by a conducive policy environment.
The green corporate PPA market in India has been evolving in a very fast-paced manner. A decade ago, the market was very small. Even getting a 100 kW project was a very big deal, and now nobody talks about even a MW project. Today, we are seeing that the market is moving from rooftop solar towards open access and further towards storage and other technologies and models. Moreover, the support from the government has been there in terms of resolving regulatory hurdles related to open access specifically. It is evident that some states, such as Karnataka, Maharashtra and Uttar Pradesh, have taken the lead in promoting open access and others following suit. As a result, it is expanding into new markets throughout India. Thus, it is undeniable how crucial the coming 10 or 20 years will be for this segment. And since this scale-up is supposed to occur right now, we must all prepare for it.
Developers, consumers and everyone else along the value chain have all been impacted by the global supply chain disruptions and commodity price swings. Many of the projects are in a rut. When the Covid-19 pandemic struck, the cost of raw materials started to rise while it was earlier witnessing a downward trend. Polysilicon served as a primary cost driver for a while, then the price of steel and other commodities followed. Thereafter, a 40 per cent duty was imposed on solar module imports from April 1, 2022. While supporting domestic manufacturers is a good thing, it will take two to three years before the situation starts to stabilise, especially as domestic manufacturing picks up. The entire supply chain disruption in the aftermath of the Covid pandemic has increased tariffs in some states. The good news is that depending on which state you are in, even with higher tariffs, one can save up to 30-50 per cent. We recently underwent a disruption period. Although things are beginning to improve, it would be preferable if the regulations were more clearly defined. At the moment, there are regulatory constraints on both the central and state government front. The policy modification will benefit the entire sector by enabling the continuation of ongoing initiatives. Another result of the Covid disruption is that global businesses are increasingly concerned about their net-zero impact. As a result, more multinational corporations are promoting the greening of their operations. However, one must also exercise caution in light of the impending inflation and rising interest rates.
As long as there are no issues at the substation or transformer level, we believe there should be no restrictions on net metering kilowatts. Additionally, if you look at it from the perspective of electricians, installers and manufacturers, everyone enters the ecosystem, and then there are savings, which end consumers have.
The discussions are moving towards RTC power supply. From a larger perspective, solar provides power only during daylight and there is already a great infrastructure in place, which can be optimised further if we have storage, wind, or any other form of renewable energy. The challenges lie in addressing them from both a technological and a regulatory perspective. So, in a sense, some initiatives are progressing in that direction, but going forward, this will play a broader role in strengthening the transition to renewable energy sources.
There is a lot of optimism in the C&I solar segment. The scale of projects is increasing from 10-15 MW to utility-scale projects. Today, customers have different requirements as the market is moving towards RTC availability of renewables. Customers are demanding 70-90 per cent of RTC renewables. In addition, there has been a shift in the preference by customers towards the interstate transmission system (ISTS) to avoid regulatory challenges within the states. Another change has been the demand for virtual power purchase agreements (VPPAs) even though the traditional captive market continues to grow. The regulatory framework currently does not allow VPPAs in India. A favourable regulatory environment in this space is needed as big corporates that have raised ESG funds in international markets have been demanding this route.
Going forward, C&I players will have to act and start thinking more like utility-scale developers and take the additional risk that comes with the handling of large projects with ISTS connectivity. The C&I space will be key to meeting the climate and renewable capacity goals set by the government and this is reflected in government policies.
For instance, the Ministry of Power has issued the Electricity (Promoting Renewable Energy Through Green Energy Open Access Rules), 2022. Under the new regulations, consumers with a contracted demand or sanctioned load of 100 kW or more will be eligible for green energy open access. This limit has been reduced from 1 MW. This policy initiative can increase the open access market size manyfold. The government is also making it easy for investors and developers to invest in this space, thereby supporting the ongoing energy transition in India.
The discoms unfortunately have an adversarial relationship with the concept of net metering. It is usually seen as a tool, which adversely impacts discom finances. The discussion should become more nuanced and rooftop solar should be seen in a positive light. The advantages of rooftop solar systems should be factored in to frame favourable policies for this segment. The benefits outweigh the losses incurred by the discoms, therefore, I too believe that there should be no limit on net metering.
It is the best of times and it is the worst of times for the C&I space. While we are witnessing an increase in demand and capacities, the segment, which earlier witnessed a slowdown during the Covid-19 pandemic, is getting burdened by various duties and levies. There has been an increase in the cost of modules due to disruptions caused by the pandemic, and tariff and non-tariff barriers implemented by the government. The government policies to promote domestic manufacturing were initiated when global disruptions were not present, therefore justifying the timing. However, now, the government should review its stance on putting tariff and non-tariff barriers to reduce import dependence and give breathing space to industry stakeholders to adjust to the new realities caused by global disruptions.
Tariff barriers, such as basic customs duty, as well as non-tariff barriers in the form of the Approved List of Models and Manufactures (ALMM) are impeding growth in the industry. There has been an attempt to increase the scope of the ALMM to include C&I and open access projects as well. The C&I segment needs a breather as the manufacturing capacity available in India is not sufficient to meet demand.
The knowledge sector employs a large number of people, creating the need for larger buildings and office spaces. As a result, offices and buildings account for the majority of power consumption in this sector. Our three-step strategy for achieving the goal of carbon neutrality has been very clear from the beginning. First, we aim to reduce our consumption in order to reduce our demand. Second, we aim to source renewable power as much as possible. Third, offset whatever remains with the help of carbon offset projects. Our goal is to achieve carbon neutrality and net zero emissions. We want to offset all of the emissions we produce, whether directly or indirectly.
We have established a set of goals to reduce demand and achieve carbon neutrality. However, the renewable energy goal that we established for ourselves has yet to be met. We have invested in rooftop solar for the majority of our buildings. Our campuses have approximately 20 MW of solar capacity. We also have a captive 40 MW plant about 150 km away from our Bengaluru campus. We are currently at 52 per cent renewable energy in our overall energy mix, giving tremendous scope for further deployment of renewables. Somewhere, the challenge has been an unstable policy scenario. Today, the majority of our renewable energy supply comes from our own clients. We have PPAs in Tamil Nadu and Karnataka. In Odisha, we have green power coming in from the discom itself.
Until now, the PPAs that we have signed have been roughly on par with the existing tariffs in that particular location. We did not want the benefits of clean energy to be counted twice. So, if the utilities can supply us with green power, that will probably be our first choice rather than entering into a PPA. Considering all of the evolving regulatory scenarios, it is preferable to proceed in a way wherein utilities are supplying power as it is more reliable and does not involve many uncertainties related to regulatory scenarios.
Going forward, we will be looking at new and emerging technologies, with a focus on battery energy storage. We are looking forward to constructing building-integrated photovoltaic systems. In addition, we are actively looking for carbon offset projects that use renewable energy, such as solar-assisted electric cookstoves. We hope to achieve our goals of carbon neutrality and offsets by the year 2030.