Adoption of Solar Through Open Access_ Roadblocks and The Road Ahead

In the Indian power sector, open access means a mechanism in which large consumers have access to the transmission and distribution network so that they are free to obtain power from suppliers other than the local power distribution company. The rationale behind its introduction was to provide an opportunity for the energy-intensive industries and commercial establishments to source power directly from the market to remain competitive. Open access solar offers an attractive option for larger power consumers of over 1 MW in selecting their power suppliers, accessing green power, and reducing power costs.

The open access solar market in India offers parallel opportunities for stakeholders, including large corporates, solar project developers, investors, and power distribution companies, to participate in India’s solar dream.

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.

Open access has not seen the kind of growth that was initially expected of it. This segment suffers from a variety of constraints and disadvantages on account of regulatory ambiguities and lackluster implementation.


The Roadblocks

One of the primary reasons for the slow down in the open access segment has been inconsistencies in policies across states. These inconsistencies range from levy of charges like for banking and wheeling of energy to favoring one business model over the other. For instance, states like Gujarat insist on the beneficiary opting for the CAPEX model while discouraging OPEX. These inconsistencies also include the introduction of new surcharges or changes in the structure of existing charges like cross-subsidy every year. Such inconsistencies make the long-term planning for open access projects difficult and unviable. States like Madhya Pradesh and Maharashtra have cases where surcharges have been levied even when the project in question was installed in the premises of the beneficiary.

Recently, Mercom reported that Haryana imposed an additional surcharge on the purchase of open access power. Before that, Maharashtra and Gujarat announced an additional surcharge for open access consumers.

Also, for large consumers in special economic zones or those with shared premises who do not have a meter connection in their names, there is no provision to avail open access power. Besides this, getting approvals for open access projects is also an arduous process with a plethora of approvals required from several departments of the state government.

For those who have already availed open access facility, there are other problems. For instance, the arbitration process is lengthy as any dispute needs to be addressed in a petition before the state electricity regulatory commissions, which are then escalated to the appellate tribunal if needed. Usually, cases take as long as six months to be heard.

Another significant issue that has been gravely affecting the expansion of open access is the reluctance of distribution companies to help this segment grow. Often, they see open access as a competition eating into their revenue and thwart the growth of this segment by imposing unreasonable rules and processes. Developers also say that there have been arbitrary restrictions on open access, like restricting solar capacity to contract demand (power demand agreed between the consumer and the DISCOM). Then, the DISCOMs are also known to delay payments to open access projects and often curtail renewable power.

Curtailment of electricity generation has long been a regular occurrence in the electric power industry. It occurs for a variety of reasons, including a lack of transmission access or transmission congestion.

Recently, the National Solar Energy Federation of India (NSEFI) wrote to the Government of Telangana, asking it to address the issue of the state load despatch center haphazardly restricting solar power generation in the state.

Alok Verma, Vice President at Amplus Solar, told Mercom, “Like other infrastructure projects, investment (debt and equity) in open access projects are recovered in the long run and therefore, needs long term certainty to sustain. Open access is a completely regulated business and follows the provisions laid by the regulations. Here, we see a clear conflict of interest in the fundamentals. While state regulations have empowered DISCOMs to facilitate open access, they are the most affected ones, as they lose their revenue. This causes hurdles in open access. Haryana is a recent example where the DISCOM is completely denying open access and has ignored the investment made already. This is where the government needs to re-look at the fundamentals and have a neutral body to facilitate open access.”

The Way Forward:

After interacting with several open access developers, Mercom found that consistent and long-term policies can bring about a sea of change in this neglected segment. Easing the complicated approval processes through single-window clearance, providing incentives to developers, and establishing an independent ombudsman, are some of the other ways to propel open access projects across states.

An ombudsman is an official appointed by the government to investigate complaints against businesses, financial institutions, or government departments, to resolve the conflicts or concerns raised, either by mediation or by making recommendations.

Andrew Hines, chief commercial officer at CleanMax, told Mercom, “We are witnessing a very strong demand for open access and group captive supplies of power from commercial and industrial customers across India seeking a combination of cost savings and environmental benefits. We are able to supply renewable energy via open access in most major states in India, and we are expecting strong growth in this segment. What would enable stronger growth in this segment would be a more consistent policy and regulatory approach to these contracts. Investors, developers, and power consumers all require long-term clarity before getting into long-term contracts. So, more predictable, rational charges for usage of grid infrastructure, and more consistent approvals for projects would be beneficial to this segment.”

Several developers also support the launch of Green Term Ahead Market, which would allow spot trading of renewable energy through power exchanges. This trading window lets corporate consumers buy renewable power without entering into power purchase agreements with the DISCOMs.

Most DISCOMs in the country are suffering from the poor financial health of their own making. The DISCOM revenues are substantially lower, with power tariffs not reflecting true cost coupled with a growing number of subsidized customers. To make up for this loss of revenue, DISCOMs resort to levying high charges on open access. Developers believe that the introduction of the “Direct Benefit Transfer” (DBT) program would save the money for DISCOMs that are currently draining out as subsidies. This is expected to make the DISCOMs financially stable and hopefully decrease their inclination to hike open access charges. The DBT program was introduced by the government to reduce leakages and delays in the disbursal of subsidies by directly transferring them into the bank accounts of the recipient.

Incentivizing DISCOMs by letting them claim RPOs (renewable purchase obligation) for green open access transactions and providing flexibility for open access and captive projects to supply power to a combination of off-takers is another suggestion by the industry.

While there are several challenges in this segment, there are plenty of solutions also. These problems have persisted in the segment for too long, with little done so far to encourage consumers to adopt solar power through the open access mechanism.

The total installed solar capacity in the open access market reached 3.6 GW at the end of the calendar year 2019. The pipeline of projects under development and in the pre-construction phase is estimated to be approximately 1.5 GW, according to Mercom India Research’s report released in March –  Open Access Solar Market in India – Key States.