Low Landed Cost – A Must to Boost Open Access Solar Installations
High landed open access cost has impacted the open access growth in most states
The low landed cost for open access was identified as one of the primary factors contributing to the growth of open access installations across India, as per Mercom’s India Solar Open Access Market Report Q4 and Annual 2021.
The landed cost of open access is defined as the cost including all open access charges, including wheeling charge, additional surcharge, cross-subsidy surcharge, and the tariff set in the power purchase agreement (PPA).
According to Mercom India’s report, the tariffs for long-term open access (LTOA) range from ₹3.50 (~$0.047)/kWh to ₹5 (~$0.067)/kWh in most states, and the landed open access cost ranges between ₹3.70 (~$0.049)/kWh to ₹7.14 (~$0.096)/kWh.
Open access installations are usually driven by demand from consumers wanting to procure power at a lower price in comparison to the power procured from the commercial and industrial (C&I) retail supply.
In Uttar Pradesh, where the C&I retail supply tariff is in the range of ₹7.94 (~$0.10)/kWh to ₹9.91 (~$0.13)/kWh, the comparatively lower landed open access cost is driving the growth of open access. The state also waived off additional surcharges, which led to developers getting considerable margins on the net landed cost. Uttar Pradesh spearheaded the open access solar capacity additions in Q4 2021 with 113 MW, accounting for 38% of the total capacity additions in the quarter. In 2021, 397.5 MW open access projects were installed in the state.
In Maharashtra and Tamil Nadu, the growth was primarily driven by energy-intensive industries such as cement, pharmaceutical, metals, and electrical equipment manufacturers, which set up open access projects via captive and group captive models. These industries find open access as an ideal solution to reduce costs as electricity contributes a significant amount to their operating costs. Tamil Nadu installed 217 MW of open access projects in 2021, while Maharashtra witnessed 213 MW.
The C&I retail tariff in Tamil Nadu falls in the range of ₹6.35 (~$0.082)/kWh to ₹8.05 (~$0.105)/kWh. Although the difference between the landed open access cost, and the C&I tariff is moderate, the state is witnessing a lot of upcoming projects under the group captive model.
Maharashtra has a C&I retail tariff ranging from ₹6.96 (~$0.092)/kWh and ₹11.20 (~$0.146)/kWh, which is the highest in the commercial category among the top open access states. This makes open access solar the most viable option.
This year’s report included an analysis of open access installations in two new states, Kerala and Himachal Pradesh, where the installation numbers haven’t increased much during the last year.
The report notes that the tariffs for LTOA in Kerala range between ₹3.50 (~$0.045)/kWh to ₹4.00 (~$0.052)/kWh, whereas in Himachal Pradesh, it is ₹3.50 (~$0.045)/kWh to ₹4.50 (~$0.058)/kWh.
On the other hand, the commercial and industrial retail tariff in Himachal Pradesh falls between ₹4.30 (~$0.057)/kWh to ₹4.85 (~$0.064)/kWh. Kerala has a C&I retail tariff ranging from ₹5 (~$0.066)/kWh to ₹7.10 (~$0.094)/kWh.
The difference between the C&I tariffs and open access landed cost was minimal, leading the consumers in these states to opt for the C&I instead, thus reducing the open access projects commissioned in these states.
Mercom’s analysis suggests that in Karnataka and Maharashtra, where the landed open access costs are very high, reducing these costs to meet the consumer needs could facilitate even more substantial growth of the segment. In Karnataka, open access charges account for 51% of the overall landed cost and 50% in Maharashtra.
In nine states, including Punjab, Madya Pradesh, and Uttarakhand, open access charges account for more than 40% of the overall landed cost.
In sharp contrast, with the lowest landed cost, Chhattisgarh is one the most attractive states for the growth of LTOA. In Chhattisgarh, which did away with additional surcharges and cross subsidy surcharges, open access charges contribute to a mere 5% of the landed cost. Chhattisgarh saw 47 MW of open access installation in 2021, the highest ever in a calendar year.
Telangana, where open access charges contribute to 44% of the landed cost, increased its additional surcharge by 20% to ₹1.15 (~$0.015)/kWh. Uttarakhand reduced its additional surcharge by 45% to ₹1.07 (~$0.014)/kWh.
The recently published Mercom India Solar Open Access Market Report Q4 & Annual 2021 reported a record growth of 222% year-over-year in open access installations in 2021. The report provides a detailed analysis of trading markets and their impact on the sector.