There is a significant rise in the adoption of open-access solar projects by commercial and industrial (C&I) consumers, and this trend is particularly noticeable in Tamil Nadu. The state enjoys a favorable climate and supportive policies for the open-access model to flourish.

According to the Q1 2023 Mercom India Solar Open Access Market Report, the state had the third-highest cumulative open access solar capacity, with around 806 MW installed as of March 2023, accounting for 10% of the total capacity.

Most solar open access installations in Tamil Nadu during the quarter were driven by large-scale manufacturers. Currently, the state has approximately ~324 MW of open access solar projects at various stages of development, reflecting the growing interest among the industries and commercial units.

For C&I consumers in Tamil Nadu considering opting for open-access solar, here are some important points to consider.

Electricity Cost Savings

After the recent revision in the state’s retail tariff, which involved a 6% increase in electricity tariffs for the commercial and industrial (C&I) consumer segment, there has been an increase in consumers opting for solar to reduce their power costs.

The rise in tariffs has incentivized stakeholders to opt for captive open access models, which allow them to be exempted from additional surcharges and cross-subsidy surcharges imposed by the state.

Also, the state’s power distribution companies have been efficiently approving projects, which adds to the attractiveness of solar open access.

Here is the retail electricity tariff for C&I consumers according to the new tariff order, which will be applicable from July 1, 2023:

According to a prominent open access developer in the state, captive industrial consumers in Tamil Nadu can save up to ₹2 (~$0.024)/ kWh, while commercial consumers can save up to ₹4 (~$0.049)/ kWh.

These substantial savings hold particular significance for energy-intensive industries such as textiles and chemicals.

Note that for both captive and group captive models, cross subsidy surcharge and additional surcharge are exempted.

Third-Party Model for Open Access

Although industrial consumers do not benefit from this model, commercial consumers can reduce their power costs by nearly ₹1 (~$0.012)/kWh by opting for third party open access.

These findings underscore the value of exploring third-party open access options in Tamil Nadu, as they offer substantial financial advantages to commercial consumers with the potential for significant long-term savings.

However, the cross-subsidy for industrial consumers account for 27%, and for commercial consumers it is 32% of the net landed cost.

Return on Investment

Open access power offers the distinct advantage of facilitating early investment recovery. Despite the initial upfront payment and a 26% equity component, the payback period is typically short, from one to two years.

An open access developer said, “Consider a 1 MW project that generates 1.5 million units of electricity annually, with an estimated cost of ~₹40 million (~$487,809). The equity component of 7.8% means an investment of around ~₹3.1 million (~$37,805). For industrial consumers, assuming a savings rate of ₹1.5 (~$0.018)/kWh, the savings in the first year would amount to ~₹2.25 million (~$27,439). This represents a significant portion of the initial investment recovered within the first year.

“On the other hand, commercial consumers, benefiting from a higher savings rate of ₹3 (~$0.037)/kWh, would save around ~₹4.5 million (~$54,877) in the first year with the same generation of 1.5 MUs. This faster rate of savings enables swift recovery of the initial investment. So, both industrial and commercial consumers can anticipate substantial savings from a 1 MW project. With a considerable portion of the investment recouped within the first year, it proves to be a financially rewarding endeavor,” he added.

This financially appealing opportunity enables consumers to swiftly recover their investment, making it an attractive choice for various industries.

State Policies

When it comes to state policies regarding open access and third-party projects, Tamil Nadu has some work cut out. While the current state policy is partially favorable, significant areas require enhancements from a policy perspective.

Puneet Goyal, Co-Founder at SunAlpha Energy, an open access solar developer, said, “One of the major hurdles we face is the lack of a streamlined process. Instead of a single-window system, multiple departments need to be approached. This includes interactions with the DISCOM, transmission authorities, and the state load dispatch center. Simplifying the approval process by establishing a centralized department for all open access applications and approvals would greatly facilitate the implementation of projects.”

The state is yet to adopt the central government’s Green Energy Open Access Rules, which allows for faster approvals, lesser sanctioned load requirements, and a cap on cross-subsidy surcharges.

Another developer said, “Tamil Nadu has always been at the forefront of open access initiatives, and with new rules for green open access, the state can build on its pioneering role. Establishing a dedicated nodal agency within the government that coordinates all approvals for open access projects would significantly boost the market. This agency could serve as a focal point for producers, investors, consumers, and EPCs, streamlining the process and providing a strong impetus for the growth of the open access market in Tamil Nadu.”

Power Purchase Agreements

In addition to cost savings, C&I consumers should consider various factors, including the understanding of relevant basic charges, assessing the overall cost implications, evaluating the availability of energy banking mechanisms, analyzing maintenance costs, reviewing termination clauses specified in the contract, and ensuring a consistent and reliable energy supply for consumers before signing the PPA.

C&I consumers can enjoy several advantages over retail DISCOM tariffs by opting for long-term open access agreements. These advantages include enhanced price security and reduced fluctuations in electricity bills.

With fixed PPA prices throughout the agreed-upon term, C&I consumers can mitigate risks associated with price variations and gain stability in their energy costs. This enables better financial planning and budgeting for businesses in the long run.

“From a developer’s perspective, a minimum lock-in period of 10 years is generally considered a safe and reasonable proposition. During these ten years, consumers cannot terminate the PPA unless there is a default or if the consumer is not achieving any savings. However, we always advise them to go for a 25-year PPA as they can save a significant amount in the long run,” said one of the developers.

Mercom India will host the C&I Clean Energy Meet in Chennai on July 21 to bring together industry experts and C&I consumers looking to save power costs to discuss various energy transition options.

Interested entities can register for upcoming events by sending an email to events@mercomindia.com.

To find out more about the upcoming events, click here.