The captive power market in India has witnessed remarkable growth in recent times, driven by high grid tariffs that are charged from commercial and industrial (C&I) consumers and the erratic power supply that often hampers the production process.
There are multiple options when it comes to the mode of captive power generation. Indian corporates are taking significant measures to increase the green power share in their energy mix, while making commitments to assist in the transition to low-carbon energy systems and investing in renewable energy-based captives is one such strategy. At present, renewable energy-based capacity accounts for 6-8 per cent of the total captive capacity. Within renewables solar-based captive projects have been popular. While some are installing on-premises rooftop solar systems or solar thermal units, others are procuring solar energy through the group captive route as well.
A look at the key trends in the solar energy-based captive power segment…
There has been a growing trend among industries to invest in captive solar power projects to meet their energy requirements. Industries such as manufacturing, textiles, chemicals and pharmaceuticals have adopted solar energy, both rooftop and ground mounted, to meet their electricity needs and reduce dependence on traditional energy sources. Also, amidst the pandemic-induced challenges, it has become a necessity for the C&I sector to optimise costs.
Hindalco Industries Limited, an Aditya Birla Group company, commissioned a 25 MW captive solar power plant at its Mahan aluminium smelting unit in Madhya Pradesh’s Singrauli district in 2022. The facility will be used to generate power to meet organisational requirements as well as support aluminium production at the Mahan unit. Also, pharma major Cipla announced the commercial operation of an additional solar power capacity of 16 MW in Maharashtra (in January 2021, Cipla had commissioned a 30 MWp solar project at Tuljapur). These projects have been commissioned in partnership with AMP Energy India.
Meanwhile, hybrid solar systems combine a photovoltaic system with another energy source such as battery storage, which is connected to the grid system. UPL Limited, a provider of sustainable agricultural solutions, and CleanMax Enviro Energy Solutions partnered to set up a hybrid solar-wind energy power plant in Gujarat in 2022. The companies will set up and operate a 61 MW hybrid captive power plant (with 28.05 MW of solar power and 33 MW of wind power capacity).
Another structure that has evolved to generate captive power is the group captive model, wherein a power plant is develop-ed for collective usage of many commercial consumers. Private players help form special purpose vehicles (SPVs) for group captive, where corporate buyers can hold a certain amount of equity in the project and then collectively consume power with a defined power purchase agreement. This makes it a highly feasible option for industries.
For instance, Vedanta plans to source 691 MW of renewable energy projects to power its aluminium, copper, and oil and gas operations across the country, wherein captive projects will be developed through SPVs formed with Serentica Renewables. Vedanta Limited and its subsidiaries will own 26 per cent of the equity in the respective SPVs, with the balance owned by Serentica Renewables. These SPVs will build renewable energy projects on captive and build-own-operate bases. The project will be funded on a 70:30 debt-equity basis.
Challenges and outlook
There are a number of policy and regulatory drivers promoting the uptake of renewable energy. There is support for renewable energy through the “must-run” status and renewable purchase obligations. The policy on energy storage obligations has also been introduced. Captive consumers are also exempted from paying additional surcharges and cross-subsidy surcharges, as opposed to open access consumers.
However, problems associated with solar energy-based captives include ensuring upfront capex and initial financing, which can at times prove tricky, and ensure the availability of land and rooftops to mount the panels. Owners need to ensure additional operational working capacity as well. To cover for all these issues, players can opt for group captive solar plants.
Most renewable CPPs also need to be backed by battery storage to manage the intermittent generation. Further, players should take into account the cost of assembly, battery and inverters. Also, there is a need for approvals from multiple government offices such as state nodal agencies, load despatch centres, municipalities (in the case of rooftop projects). Forecasting and scheduling of generation are other challenges which need to be considered when installing solar energy-based captives.
That said, the policy environment is favourable. Hence, it is the right time to invest in solar energy for captive power generation.