Multi-Year Tariffs Crucial for Visibility and Growth of Open Access Solar Market
A stable multi-year tariff order helps developers plan and execute projects protecting the interest of the investor, developer, and consumer
September 9, 2021
The open access solar market is steadily growing in India, providing a viable alternative for developers who do not wish to participate in extremely competitive auctions for large-scale projects or smaller rooftop installations.
With open access, developers have the option of signing with creditworthy offtakers for the generated power and earn an attractive return on investment. The market also helps distribution companies (DISCOMs) address power shortages and encourage green power generation.
According to Mercom’s India Open Access Solar Market India Update Q1 2021, open access solar installations stood at 419 MW in India in the first quarter (Q1) of 2021, while the cumulative solar installations in the open access market have reached 4.3 GW as of March 2021. The open access project pipeline under development and pre-construction is estimated to be over 1 GW.
Open access project developers believe uniform regulations across states, long-term policies without retroactive changes and charges are necessary for the market to scale.
Most states revise the open access charges annually through one-year tariff orders, making open access charges unpredictable beyond a year. Developers prefer multi-year tariffs as it provides certainty on the charges and policy, which helps with the long-term planning and development of the projects.
Challenges with one-year tariff period
The current one-year tariff period in most states includes cross subsidy charges, additional surcharges, wheeling charges, scheduling, and system operation charges, among others. In addition, DISCOMs also introduce new open access charges.
Assistant vice president – commercial, Amplus Solar, Jatin Babbar, said, “Given the annual tariff period implemented by most states, open access charges vary every year that makes the viability of solar open access projects uncertain. In addition, new charges are levied or proposed to be levied – like parallel operation charges, grid support charges, additional demand charges – in the annual tariff order that impact the operational or under development projects.”
Babbar added that issues like banking of renewable energy and withdrawal process are not covered suitably in the tariff order or the open access regulations. As a result, developers face uncertainty and have to engage in the elaborate exercise of filing petitions.
Animesh Jain, Director and Finance Head – Global R&D, Cipla, echoed similar thoughts. He said that introducing or revising new open access charges from various state DISCOMs makes long-term contracting and financial models difficult for open access solar developers, consumers, and lenders. It also makes the financing of projects costly and difficult.
“Uncertainty in terms of hike or introduction of new open access charges every year keep the financial model at risk for all stakeholders and limits the adoption of renewable energy for commercial and industrial (C&I) consumers,” Jain added.
However, a senior executive of a Mumbai-based renewable energy company said that most states have lower open access charges than Maharashtra, even though Maharashtra has a multi-year tariff period.
He said, “Most states are implementing the open access charges retroactively, which affect the financial viability of the existing solar open access projects. However, introducing these new charges creates uncertainty and hinders the growth of India’s open access market.”
Multi-year tariff period benefits
In general, open access solar project developers believe implementing a multi-year tariff across states will provide developers certainty on the policy front to help the Indian market grow.
Babbar said open access solar projects are capital intensive and require long-term certainty on offtake and charges for commercial viability and bankability. The control period should give at least ten years visibility on the charges for the projects’ financial viability.
“Cross subsidy charges should come down progressively annually, as per tariff policy. Further, charges should be calculated on the cost to serve a particular consumer category rather than an average cost. In addition, the control period for regulations should provide reasonable certainty for projects’ long-term planning and development,” Babbar added.
According to a senior executive of a Mumbai-based renewable energy company, introducing a multi-year tariff period will boost the growth of the open access market in India as it provides long-term certainty to project developers. However, open access charges like cross subsidy charges and additional surcharges should be reduced over a period to 10% or below to enhance the growth.
Echoing similar thoughts, Jain said, “open access renewable projects involve significant capital investment and long-term commitments. So, a stable multi-year tariff order will help developers plan and execute projects protecting the interest of the investor, developer, and consumer. Five to seven years is an ideal period for a multi-year tariff order. For example, Maharashtra introduced a multi-year tariff order with a five-year period of 2020-25 that led to a significant addition of renewable capacity last year.”
Harsh Shukla is a staff reporter at Mercom India. Previously with Indian Express, he has covered general interest stories. He holds a Masters Degree in Journalism from Symbiosis Institute of Media and Communication, Pune.