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Open Access for Solar sector has definitely been beneficial for the consumers as it allows them access to cheaper and clean solar energy to run their daily operations. The addition of Renewables under open access to fulfil RPOs turned out to be a big boon for the renewable industry as it allowed the RE power developers to work directly with the consumer. The consumers were also benefited significantly as they had access to cheaper renewable power and the ability to fulfil their RPOs and obtain associated benefits. This allowed for new players to enter the market and provided great growth in the solar industry.
However, consumers shifting from State Discoms to RE power developers due to tariff economics was a direct loss to Discoms as they started losing commercial and industrial consumers. Without storage RE is not a firm power and it has all the uncertainties connected to the solar energy reaching earth. This has led to uncertainty for Discoms in maintaining the grid. To allow for stability in the grid, Discoms have now started introducing Forecasting and Scheduling Regulations so as to gauge the RE generation.
Also, some Discoms have restricted the open access transactions on export of power when there is a shortage and import of power in case of oversupply. Open Access in some states has simply become uneconomical due to high regulatory charges and in some states, it is a challenge because of surplus capacity in that state. Despite this, open access will continue to be lucrative for customers in certain states, and in other states open access (group captive) model will pave the way for consumers who will reap the benefit of cheaper solar power.
Consumer having high power consumption but not enough roof or ground space to build captive solar plants within their facilities will always require power from grid to meet their demand. Number of such consumers are very high. Recently, Prime Minister Narendra Modi during the global climate summit exhorted the world to bring about behavioral change and pledged to double India’s RE target from existing 175 gigawatts (GW) to 450 GW. In order to achieve this target India will need to build many solar plants under open access model and will eventually turn out to be the key to success of solar sector growth.
In a nutshell, the answer is YES, but with a lot of provisos. Open Access enables large users with more than 1 MW connected load to buy cheap power from the open market. The concept is to allow customers to choose from a number of competitive power companies, rather than having no choice but to buy power from the local utility. Open access helps consumers meet their Renewable Purchase Obligations as well.
On paper, the open access solar looks like an attractive source of power for large consumers. However, the open access market is fraught with restrictive policies and a bunch of charges for consumers, which makes it unattractive.
The few models under which large consumers can buy open access power are third party sale, captive projects, and group captive projects.
Third Party is simply the purchase of power from a solar power developer under a PPA. However, a third party sale can attract charges between Rs. 2-4/kWh. These charges are state specific and generally comprise wheeling, cross-subsidy and other charges. These charges end up making this proposition unattractive. Karnataka has been a leader in the third party solar power development by having some friendly policies such as zero wheeling and cross subsidy charges for the first 10 years of a project. Other states have however not followed suit.
Large power consumers see captive projects as a big risk. Not only do they have to invest huge capital in setting up such plants, they are also obliged to operate, maintain and consume the power from such a plant. They see such plants as something that distracts them away from their core competency.
Now developers have started to look at group captive power projects as a business model to expand operations in the open access market. Unlike an individual captive or third party sale power project, group captive is an arrangement through which a developer sets up a power project for the collective use of multiple industrial or commercial consumers who have 26% equity in the project and must consume 51% of the power produced.
The primary advantage of a group captive model is that cross-subsidy, and additional surcharges are not levied on the power procured. Typically, in a group captive setup, a developer will build the project under a special purpose vehicle (SPV) company and offer 26% equity to the consumer. Further, an agreement is entered into to buy back the shares on the termination of the procurement contract.
Moreover, for industrial consumers, captive solar projects make sense as most projects or manufacturing units have poor quality or small roofs, which may only allow them to meet 10-15% of their energy consumption, whereas renewable purchase obligations for these companies are much higher. Besides, the consumers having to fund a certain percentage of the project gives the developer a sense of comfort as well. Land acquisition and development approvals remain to be the most significant challenges for group captive projects.
Open access in distribution is key to the healthy competitiveness in the energy sector. Presently, the open access is allowed for the load of 1 MW and above. The electricity charges are a key cost item for commercial and industrial establishments. In some of the heavy industries, it is sometimes equivalent to the raw material cost. It is very important for these heavy industries to procure the electricity at a cheaper cost. Now that the solar sector can provide the energy at cheaper tariff as the cost of generation has significantly come down, it is important for the state and the regulatory authorities to promote the segment so that the industries and the solar developers are both benefited with the cheaper tariff.
It is upsetting to see that the solar developers are discouraged to do the transaction under open access due to higher cross subsidy surcharge and additional surcharge which makes them commercially unviable to perform the transaction. The small solar projects which can act as a distributed generation are discouraged due to these charges.
Ideally, the cross-subsidy surcharge should be waived off completely in the coming future so that there is a healthy competition in the market. What is beneficial for the industry that if Discom lower down the aggregate technical and commercial losses which is hovering around 25 to 30%. If that is being reduced, then the weaker segment of the Electricity value chain which is the distribution companies would be benefitted and the cross subsidy charges would be subsided. Higher participation of solar projects generating at distributed location would facilitate in grid stabilisation and a competitive tariff would add value to the industrial and commercial establishments.