By Sarthak Takyar
Using renewable energy sources can help commercial and industrial (C&I) consumers lower their reliance on traditional fossil fuels, reduce electricity price volatility and enhance their sustainability credentials. Investing in on-site renewable energy projects, procuring power through open access projects or entering into power purchase agreements (PPAs) with renewable energy providers can deliver long-term cost savings and environmental benefits. Moreover, implementing strategic energy procurement practices, such as hedging strategies, forward contracting and supplier diversification, can help C&I consumers mitigate the risks associated with energy price fluctuations and volatile market conditions. By leveraging market intelligence and negotiating favourable contract terms, organisations can secure competitive energy rates and optimise procurement budgets.
Apart from the key drivers of high grid tariffs and corporate climate commitments, the C&I renewable market in India is also witnessing an increase in renewables’ uptake due to concessional credit lines, and open access and net metering regulations. In terms of open access and net metering regulations, renewable energy stakeholders have suffered from policy flip-flops and resistance from discoms as they do not want to lose their high-paying electricity customers to rooftop solar and open access projects. For instance, the net metering limit was earlier just 10 kW, which was considered too low by the industry and they demanded an increase of this limit. Finally, after some confusion, it was increased to 500 kW. Meanwhile, state governments have not been consistent with open access charges and exemptions and in fact, often put high open access charges to limit its uptake. Overall, the limit for allowing open access too was 1 MW, which was considered high. With the green energy open access rules, this limit was reduced to 100 kW by the central government so that C&I consumers with low loads too could take the open access route. For actual on-ground implementation of this transformative policy change, the state government had to follow suit and come up with their own green energy open access rules. Slowly, states are now releasing these regulations, which will open up even further the renewable C&I open access market across the country.
To achieve their corporate climate targets, C&I customers are, in fact, taking a holistic view and besides consuming more renewables, they are also investing in energy-efficient technologies to limit their energy use. Energy-efficiency applications were earlier not given the importance that they deserved but slowly this trend is changing as C&I customers also have to meet the government’s mandates on energy efficiency.
By reducing energy consumption and waste, companies can enhance their sustainability, environmental performance and operational efficiency. Lowering energy costs directly contributes to increased profitability, especially for energy-intensive industries. It also helps in complying with energy-efficiency regulations, mitigating risks associated with energy price fluctuations and avoiding potential penalties.
According to the Bureau of Energy Efficiency (BEE), the cumulative electricity consumption by all sectors (industrial, domestic, agriculture, commercial) stood at 1,296,300 GWh during 2022-23. Of the total consumption, the industrial sector accounted for the largest share (41.16 per cent), followed by the domestic (25.77 per cent), agricultural (17.67 per cent) and commercial (8.29 per cent) sectors.
The adoption of energy efficiency schemes/programmes reduced the overall electricity consumption by 249.89 billion units (BUs), leading to a 19.28 per cent reduction in the electrical energy requirement across various sectors of the economy in 2022-23. The domestic sector had the highest contribution, accounting for 80.12 per cent of the total electrical energy savings from all energy-efficiency interventions during 2022-23.
The adoption of energy efficiency schemes/programmes resulted in an overall energy savings of 50.81 million tonnes of oil equivalent (mtoe) in 2022-23. Various energy efficiency measures led to an overall thermal energy saving of 25.28 mtoe, while the overall electricity savings stood at 307.33 BUs. These energy savings translated into monetary savings worth Rs 1,883.12 billion per annum. The equivalent reduction in carbon dioxide emissions was around 306.57 million tonnes (mt) annually.
The energy efficiency schemes at both national and state levels carried out by the BEE and other agencies led to a reduction of 33.35 mtoe on the demand-side energy consumption. The industrial sector contributed 61 per cent of the total energy savings, while the domestic sector contributed 30 per cent. The remaining sectors contributed around 8.13 per cent of the total energy savings during 2022-23.
The way forward
The demand for renewable energy in the C&I segment is expected to remain robust due to grid tariffs that still remain high and increasing sustainability efforts by C&I companies to meet their energy needs through renewables. According to ICRA, the C&I segment represents about 40-45 per cent of India’s total energy demand. If 20 per cent of this demand is met through renewables, the required renewable energy capacity is estimated to be nearly 80 GW. Although discoms offer green tariffs to C&I customers, these tariffs are higher than regular grid tariffs and less competitive compared to those offered by renewable energy independent power producers. As per ICRA’s estimates, in FY 2023, discom tariffs for industrial consumers ranged from Rs 6 to Rs 8 per unit across states, an increase over the previous year, owing to rising power supply costs. The rising power purchase costs, driven by higher usage of imported coal and increased short-term tariffs, put upward pressure on discom supply costs. This means the renewable C&I market is here to stay.
Sourcing renewable energy through open access is generally cheaper than grid tariffs after accounting for open access charges in most states. However, renewable energy-based open access projects face regulatory risks due to reliance on open access approvals, charges and banking requirements, which vary significantly across states. Within the open access market, group captive projects face lower regulatory risks compared to third-party PPA projects because they are exempt from cross-subsidy surcharge and additional surcharge. Hence, the past trend has been that group captive projects have been the preferred choice among C&I customers and this trend is expected to continue. BRIDGE TO INDIA, a CRISIL subsidiary, forecasts 47 GW of new corporate renewable energy capacity additions till 2027, denoting a 23 per cent compound annual growth rate, with the majority of additions coming from open access solar projects.
To meet its solar and wind target of 420 GW by 2030, India still needs to install around 300 GW of renewable capacity. Assuming that 40 per cent of the new annual solar and wind installations will come from the C&I segment, about 120 GW of additional C&I renewable energy capacity must be established by 2030. According to JMK Research and Analytics, this will require an investment of approximately $89 billion between 2024 and 2030. This investment will lead to an annual carbon reduction of about 177 million tonnes after 2030.
Despite the market potential of 15 GW for rooftop solar in MSMEs, it remains largely untapped. A significant barrier is the lack of access to affordable institutional finance, as traditional lenders are hesitant to invest in this distributed and risky market segment. The government’s support, similar to that provided for residential solar, is crucial to unlocking the potential of MSMEs to adopt rooftop solar. Industry stakeholders are now increasingly talking about the enhanced role of discoms to aggregate demand of small C&I customers and then floating a tender. This could be a gamechanger for the uptake of distributed solar by industries.
Select state governments are in fact providing support in this space. For instance, Tamil Nadu has waived 50 per cent of networking charges for MSMEs installing solar rooftop. In Uttarakhand, the state solar policy offers an interest subsidy of up to 10 per cent (maximum Rs 800,000) and a capital subsidy of up to 40 per cent (maximum Rs 4 million) for MSME consumers investing in solar rooftop. In Gujarat, the government provides waivers and incentives on energy charges along with interest subsidies.
Apart from consistent policies on open access and net metering, the C&I segment still needs low-cost financing; hence, the role of concessional credit lines from various multilateral development banks will remain the key. Refinancing and blended finance are other effective methods to lower the capital cost in the C&I renewable energy market.
Going forward, the C&I renewable market in India is expected to get more interesting with greater adoption of green hydrogen by oil and gas, fertiliser, cement, steel and transport industries. With this, the uptake of renewable energy projects in this segment will witness significant growth as well. In light of this trend, the government should free the C&I renewable industry of stringent and confusing policies.
