Why is open access quickly gaining momentum in India?

Why is open access quickly gaining momentum in India?

Why is open access quickly gaining momentum in India?

 

Most corporates today strive to source as much of their power as possible from renewable sources, particularly because of global commitments like RE100 gaining traction. While rooftop or onsite solar is a great way to get started, many of our clients don’t have sufficient space within their facilities to install a solar power plant to supply the bulk of their energy requirements.

Open Access (OA) in the power sector is a way wherein consumers with more than 1MW connected load can buy cheap power from the open market. It’s an important measure in bringing healthy competition into the electricity industry. This way, consumers will have access to transmission and distribution (T&D) network to obtain electricity from suppliers in their area rather than just relying on the local distribution company. This promotes regular electricity supply and positively encourages consumers to meet their own Renewable Purchase Obligation (RPO) requirements.

 

Commercial and Industrial (C&I) customers make up 22% of share of total solar installations in India the capacity adding upto 6.5 GW[1]. When broken down even further, this segment holds about 70% of all rooftop solar installations in the country, adding up to almost 3 GW[2].

 

India offers Open Access Rights under the Electricity Act 2003, broadly divided into two:

  1. Inter-State Open Access: The purchasers and sellers belong to different states so they have to follow Central Electricity Regulatory Commission (CERC) regulations.
  2. Intra-State Open Access: Here, the purchasers and sellers are in the same state hence the name - ‘intra’. They must State Electricity Regulatory Commission (SERC) regulations.

 

Each of the above two can be divided based on the length of the contract:

  1. ‘Short Term’ i.e. for less than a month period,
  2. ‘Medium Term’ i.e. for 3 months to 3 years period, and
  3. ‘Long Term’ i.e. for twelve to twenty-five years period.

Open Access Transactions can be broadly divided into three types:

  1. Captive
  2. Group-captive 
  3. Third-party sale

 

Simply put, the Captive OA transactions occur when a consumer sets up a plant within their site (or at another’s site), and then uses the T&D network to transport power for their consumption.

Group Captive OA transactions are described by developer firms coming together and investing in the OA project with usually 30% equity (with investments making up 26% of the equity) and 70% debt.

 

In third-party sales, as the name suggests, a third part is involved. The consumer does not own the power plant; the transaction is conducted via a power purchase or bilateral agreement between the generator and consumer.

As of FY2019, nearly 85% of OA transaction[3] took place through the group captive mechanism. This was primarily due to the increasing cross-subsidy surcharge, a key component of open-access charges that is waived off for captive/group captive consumers.

 

The aforementioned third-party sale model is gaining traction. However, approvals, from DISCOMs (local distribution companies), for OA projects remain large hurdles as the C&I segment is the biggest contributor to DISCOM revenue. Any shift towards other sources of power will lead to a loss for DISCOMs. Large C&I’s loads are usually greater than 1MW and totally account for a whopping 50% of total electricity consumption in India[4]. There’s no way around it, the C&I segment needs cheaper power. OA is an attractive way to reach this goal, especially when you take into account the fact that renewable energy tariffs lie in the range of INR 3 per unit. This leads to savings on grid power, but also complies with international regulations and mandates aimed towards reducing carbon emissions.   

 

 

 

[1] JMK Research

[2] JMK Research

[3] CEF (CEEW)

[4] CEF (CEEW)

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