The growth of renewable energy in the country has become a symbol of India’s ability to quickly adopt new renewable technology and a focal point of the efforts the country puts forward to avoid greenhouse gas emissions from various power plants while meeting the country’s energy needs that are rapidly growing.
One option for companies in India to get renewable energy is the Corporate Renewable Power Purchase Agreement (PPA). This is a contract between the corporate buyers and various power producers (developer, investor, independent power producer) to buy renewable electricity at a pre-agreed price. Corporate renewable power purchase agreements are very important for accelerating the deployment of renewable energy in the country.
Key Market Trends
With the increase in the establishment of renewable energy companies in India and the corporate increasingly adopting renewable power to operate their plants and offices, with a global share of 7.4%, India has become the second-largest growth market in the world for corporate renewable power purchase agreements (PPAs). However, annual corporate PPA renewable addition in India during 2019 is estimated to be about 35% lower than the installations in the country during 2018.
Over the past few months, several key trends in the market have affected growth. These are:
- The corporate renewable PPA market of India transition from predominantly third-party models of PPA to group captive PPA models.
- The emergence of two states, Uttar Pradesh and Haryana, as significant markets due to the approval of group captive solar projects of capacities more than 1 GW.
- The leadership of automotive, electrical manufacturing, information technology, construction, and metal companies in adopting corporate renewable PPAs.
- Growth of the rooftop solar market in the country resuming to dominate growth in captive installation projects, due to the reduction in rooftop solar power plant cost and increase in efficiency of the solar panel for industries in India.
- Corporate buyers and developers aligning schedules for projects to avoid spending money on safeguard duty on solar panels.
Policy and Regulatory Update
Since the Indian corporate renewable PPA market is closely conveyed to the regulatory environment and evolving policies, tracking such changes are significant for both the renewable energy companies and the buyers. Over the past few months, the government has withdrawn many exemptions for banking provisions and open access charges. Though some of these changes may have a negative impact, these changes do bring open-access renewable power. Since corporate renewable PPA market is supported by the key regulatory mechanisms, net-metering and open access, here are some relevant changes in these regulations:
1. Net-Metering Regulations
This is a key regulatory provision that will help increase the penetration of and demand for rooftop solar installations and energy monitoring systems in the country. Though it took many years to bring most states in the country on board to provide net-metering, some Indian states have already started to bring restrictions and are asking for a change to gross-metering.
2. Open Access Regulations
This determines the procedures and charges for using the public grid to generate power from offsite power plants to the premises of the corporate customer. These are mostly regulated at a state level using a framework given at a national level.
Challenges and Risks for Corporate Renewable PPAs
The current growth is far lower than the country’s potential even though the country is the second-largest growth market for corporate renewable PPAs. Most challenges and risks impeding its growth pertain to limited cooperation with DISCOMs and policy uncertainty. Some of the key challenges that have emerged during the past few months are:
1. Poor performance on DISCOM approvals
Despite the progress in Haryana and Uttar Pradesh, acquiring the DISCOM’s open access approval has been a significant challenge. Often, the reason for the denial of approval is the local substation’s technical inability to allow drawing power from industrial solar power systems. It is often very difficult to identify such limitations.
2. Rollback of beneficial banking provisions
Due to the wide seasonal variation in the generation of power from renewable sources, annual power banking is very important for enhancing project bankability. Through annual banking, the excess power produced during the peak season can be used by customers during non-peak seasons. A few states have shifted from annual banking to monthly banking, which leads to solar energy suppliers not being able to sell a portion of the power generated. As a result, the power tariffs increase.
3. Rollback of favorable net-metering provisions
To promote the solar energy solution of rooftop solar installations, it took many years for the central government to make all the Indian states offer net-metering. Policy changes in states restricting net-metering, for many corporate customers, is a major setback.
Outlook for corporate renewable PPAs
The government of India is currently considering many new policy initiatives that are supposed to have a positive impact on the corporate renewable PPA market. These include:
1. New Power Tariff Policy and Amendments to the Electricity Act
A new power tariff policy is being considered by the Union Cabinet for approval. The policy will also consider various reforms that focus on empowering buyers by giving each customer the right to choose their own supplier of solar energy in India or any other renewable energy source. The government is additionally considering a direct transfer of benefits to the bank account of customers that are eligible for subsidies. There may also be a proposal for an amended Electricity Act or a tariff policy to eliminate cross-subsidy charges imposed on private renewable energy procurement.
2. Green Term Ahead Market (GTAM)
The Green Term Ahead Market is an initiative planned by the Indian government that would, through power exchanges, permit spot trading of renewable energy. This would allow corporate buyers to purchase renewable power without getting into the PPA agreement.
With wind and solar power with zero investment offered by renewable energy companies, when businesses use renewable power for functioning, they can reduce electricity expenditure while contributing to carbon reduction targets and renewable energy sectors.
To know more, please check Amplus Solar.
