Sizeable Investments Waiting to be Unlocked in India’s Solar Open Access Market
Group captive model dominates the open access market
The total installed solar capacity in the open access market reached 3.6 GW at the end of the calendar year (CY) 2019 and the pipeline of projects under development and in pre-construction phase is estimated to be approximately 1.5 GW, according to Mercom India Research’s newly released report, Open Access Solar Market in India – Key States.
The report finds that the open access solar market in India has been offering parallel opportunities for stakeholders, including large corporates, solar project developers, investors, and power distribution companies to participate in the solar growth story.
Karnataka was the largest market for open access based on cumulative installations as of December 31, 2019, followed by Andhra Pradesh, Maharashtra, Uttar Pradesh, Telangana, and Haryana.
Karnataka was a very attractive state for open access projects through 2018, when the state showed how open access can thrive in a conducive environment helping it become the top solar state in India. But now the state has become much more restrictive.
Uttar Pradesh, Haryana, Tamil Nadu, Maharashtra, and Andhra Pradesh have favorable policies for captive and group captive projects. The average open access tariff in these states range from ₹3.50-5.00/kWh (~$0.047- 0.068/kWh) with a yearly escalation of 1-2% depending on the contract terms.
Attractive state policies haven’t necessarily turned successful on the ground. According to the report findings, approvals are tough to get and government agencies are making open access projects implementation harder.
Open access provides an excellent prospect for developers and investors who are hesitant to participate in aggressive reverse auctions and invest in large-scale projects. It is also an ideal model for those who do not want to go for smaller rooftop installations and limit themselves to specific geographies.
Open access solar also provides an attractive option for larger power consumers of over 1 MW in selecting their power suppliers, accessing quality power, reducing power costs, and going green.
Third-party sales and captive power generation primarily make up the open access market in India. But due to a slew of charges and regulations, third-party sale projects have come to a standstill. Under the captive power generation, a single entity sources the power. The same captive power sourced by a group of companies is known as group captive projects.
Long-term open access power purchase agreements (PPAs) are preferred by developers, while a lot of consumers favor short-term contracts. Under the group captive model, the PPAs are largely for 15-20 year terms. Short-term PPAs witnessed an increase of 6% to 12% over the past decade from the financial year (FY) 2009 to FY 2019. Short-term contracts generally range from one month to one year.
The report found that open access consumers in top states pay transmission and wheeling charges and additional cross-subsidy charges of about ₹2.32-3.79/kWh ($0.031- 0.051/kWh). These charges are in addition to the open access tariffs in the states.
There is a growing demand for serious players to develop open access projects and sell power to multinational companies (MNCs) that are choosing group captive solar to go green. These companies have strict norms to ensure the counterparty or the open access developer is financially sound and will stay invested for the long-term.
Industries like steel manufacturing, mining, refineries, cement manufacturing, chemical manufacturing, which operate round the clock, have a huge requirement for power, according to the report. These industries always opt for cheaper power irrespective of the source. Open access makes sense for such industries with high, round the clock power demand as their consumption can be off-set by cheaper renewable power.
The government needs to be aware that open access solar projects need adequate policy support to takeoff. The central government needs to urge the states to enable consumers and developers by giving them more regulatory flexibility and reducing the number of charges levied on them.
“A sizeable investment can be unlocked from large corporates and multinationals who are ready and willing to invest in open access projects to meet their renewable obligations. Instead of encouraging and working towards the country’s goal of 100 GW of solar by 2022, states have instead erected hurdles at every step,” commented Raj Prabhu, CEO of Mercom Capital Group. “A serious push from the center to get states to reduce regulatory hurdles is needed for the open access market to take off again.”
Rays Power Experts, CleanMax Solar, and Amplus were the top open access developers as of 1H 2019. ReNew Power and Avaada Energy are other developers in the top five positions according to Mercom’s India Solar Market Leaderboard 1H 2019.
For the complete report, visit: https://mercomindia.com/product/open-access-solar-market-india-key-states