By Kushagra Nandan, Co-Founder, Managing Director and Chief Executive Officer, SunSource Energy
In the wake of the heightened demand for clean energy fuelled by net zero ambitions, economic viability and governmental impetus, India has witnessed significant strides in the renewable energy sector. The Green Energy Open Access [GEOA] Rules, introduced by the government in June 2022, constitute a pivotal measure that aims to catalyse India’s renewable energy programmes, ensuring accessible, sustainable and affordable green energy for all. The central idea involved a shift from government-led capacity installations towards consumer-centric decentralised solutions. However, the successful realisation of the benefits of the GEOA Rules faces various challenges, necessitating strategic solutions.
There has been encouraging progress, with states such as Karnataka, Haryana, Madhya Pradesh, Punjab, Gujarat and West Bengal moving ahead with open access regulations. Commercial and industrial (C&I) consumers, driven by financial and decarbonisation goals, increasingly procure renewable energy directly through corporate power purchase agreements, contributing to the momentum. As of August 2023, 10 states are at various stages of implementing the GEOA Rules.
To expedite its implementation, other states should emulate the swift action taken by Maharashtra. In August 2023, the Maharashtra Electricity Regulatory Commission (MERC) issued a directive to amend its distribution open access regulations to include relevant GEOA changes. As of today, this has been finalised in the state.
Resolving challenges
Impediments exist in fully reaping the advantages of GEOA, encompassing various challenges such as financing, land acquisition, contractual and infrastructure issues.
The market has evolved considerably, presenting a broader spectrum of financial options contingent upon project sizes and stakeholders involved, especially since there are better regulations in place now. Despite these advancements, financing clean energy projects continues to confront significant hurdles.
Conventional financial models often fail to consider the enduring advantages and external impacts, potentially resulting in insufficient investments. Furthermore, inherent uncertainties surrounding green technologies pose challenges for traditional financial institutions in accurately assessing risks. Notably, smaller companies within the C&I segment face the additional obstacle of lacking credit ratings despite possessing robust balance sheets. This absence of credit ratings poses a challenge as developers are unable to secure financing for projects involving strong private companies. Therefore, financial institutions should facilitate balance sheet-based lending for such clients, allowing them to obtain funding for their projects.
To foster market expansion, there is a need to streamline financing accessibility for smaller-scale projects. Uniform implementation of open access rules nationwide is crucial, ensuring clarity for both customers and developers. This standardisation could address issues such as the lack of banking facilities in specific states, eliminating barriers to participation. Employing blended finance mechanisms is emerging as a promising strategy to alleviate risks for traditional financial institutions. Blended finance – amalgamating public and private capital – holds immense potential in enticing investors by providing adaptable risk management avenues.
Another way to stimulate market expansion involves offering incentives for burgeoning energy-intensive sectors to adopt renewable energy. Granting industry status to emerging sectors, such as data centres, would empower them to access government incentives while navigating their energy transition. Consequently, this would not only facilitate the adoption of green energy within these rapidly growing segments but also propel the broader green energy industry towards accelerated growth by enabling more high-growth sectors to swiftly embrace green energy solutions.
Acquiring land for clean energy projects in India presents several challenges, primarily due to the scarcity of suitable lands and the associated and existing connectivity challenges. This issue is exacerbated by the diverse landholding patterns across states, further complicating land acquisition processes. However, implementing specific measures could rectify these challenges.
A potential solution involves establishing dedicated land banks tailored for solar projects, ensuring easier access to suitable land parcels. Further, incentives specifically designed for clean energy projects would increase developers’ confidence and ease financial burdens associated with land acquisitions. For example, offering subsidised lease rentals or providing 100 per cent exemption on chargeable stamp duty (like Uttar Pradesh has done) for acquired or leased land would significantly reduce the financial burden and encourage investment in clean energy ventures.
In terms of boosting investor confidence, virtual power purchase agreements (VPPAs) present an exciting avenue. They enable corporates or buyers to substantially increase their renewable energy share within a short period. These agreements facilitate the transfer of green attributes while allowing consumers to source power through various means without impacting discoms.
The registration of VPPAs under international frameworks like International Renewable Energy Certificates (IRECs) could further broaden opportunities for multinational corporations, expanding market access. IRECs provide a standardised mechanism for tracking and trading renewable energy certificates across international borders. Integrating these frameworks into the contracting process facilitates greater flexibility, allowing for adjustments in pricing and terms as per market dynamics and technological advancements. Through mechanisms such as VPPAs and IRECs, developers can mitigate business risks and expand their market reach. These avenues enable developers to sell their power to a wider array of buyers, thereby reducing their risk exposure. Moreover, this increased market accessibility attracts heightened interest from both investors and developers, encouraging the construction of more projects in the renewable energy sector. Indeed, IRECs and VPPAs provide innovative solutions to the rigidity associated with traditional long-term PPAs.
Infrastructure limitations pose substantial barriers to the seamless implementation of open access clean energy initiatives in India. Open access solar projects rely on the state transmission networks, which trigger state-imposed additional charges. Understandably, the reluctance of discoms to endorse open access for large commercial consumers primarily stems from the fact that these major consumers often subsidise the tariffs paid by low-income and agricultural consumers. Discoms rely on cross-subsidisation, where profits from higher-paying consumers offset the lower tariffs charged to economically vulnerable groups. Consequently, the introduction of open access to large consumers disrupts this cross-subsidisation model, raising concerns among discoms about revenue loss.
Strategies to mitigate these challenges could involve revisiting the tariff structures, where a fair distribution of charges among consumers is ensured. Balancing the interests of different consumer segments while incentivising the adoption of clean energy is crucial. Additionally, incentivising investments in infrastructure to improve connectivity to central transmission lines could help alleviate reliance on state networks and reduce additional charges.
Despite the prevailing challenges, India’s open access initiative stands out brightly in the country’s clean energy landscape. Notably, the solar open access segment witnessed an impressive 24 per cent surge in installations during the second quarter of 2023. This substantial growth is a testament to the resilience and potential of open access initiatives despite obstacles.
Looking ahead, the future seems promising as advancements in technology, the advent of innovative financing options and the emergence of storage solutions contribute to the robustness of the open acc-ess market. At a broader level, a new electricity act could effectively streamline these changes. This act would address existing challenges at both the central and state levels, paving the way for faster implementation of open access projects.
