In recent years, there has been a noticeable surge in the number of commercial and industrial (C&I) consumers in India embracing open-access solar projects to fulfill their energy requirements.

Leading the charge is Karnataka, which has emerged as a shining example of progress in adopting solar power.

In Q1 2023, Karnataka remained the leading state, accounting for over 37% of cumulative solar open access capacity as of March 2023, according to the recently launched Q1 2023 Mercom India Solar Open Access Market Report.

Situated in the southern region of India, Karnataka benefits from a favorable climate and policies that create an enabling environment for solar power generation.

For C&I consumers in Karnataka who are considering opting for open-access solar, here are some key points to consider.

Electricity Cost Savings

The financial advantages of open-access solar projects cannot be overstated. On average, a C&I consumer saves roughly 30% annually on their electricity bills in Karnataka according to developers.

Anuvrat Saboo, Co-Founder at SafEarth Clean Technologies, a renewable energy transition platform catering to the C&I segment, said, “Consumers annually could anticipate significant savings on their electricity bills, ranging from ₹3 million (~$36,386) to ₹4.5 million (~$545,803) per MW per year. These savings contribute to improved financial performance and enhanced sustainability for C&I consumers.”

Karnataka’s solar tariffs are highly competitive compared to the state’s average retail tariff, enabling businesses to optimize their operational expenses and improve their competitiveness.

The state has recently increased the average retail tariff by ₹0.70/kWh for the financial year 2023-24.

Here is the revised retail electricity tariff for the C&I consumers according to the new tariff order.

The table below illustrates the breakdown of landed cost and net savings for C&I consumers opting for the Captive or Group Captive Open Access model in Karnataka.

On average, in Karnataka, the net landed cost for a captive/group captive project comes to ₹5.15 (~$0.06)/kWh.

Taking this under consideration, on average, a commercial consumer can expect to save ₹4.10 (~$0.04)/kWh while an industrial consumer can save up to ₹2.25 (~$2.25)/kWh from captive/group captive projects.

These cost savings have been a significant driver for open access solar adoption amongst C&I consumers in the state.

It is to be noted that for both captive and group captive models, cross subsidy surcharge and additional surcharge are exempted.

Third-Party Model for Open Access

For most C&I consumers, choosing the third-party model in Karnataka might not be financially feasible due to the expenses related to cross-subsidy charges and other additional fees.

Under the third-party model, an industrial consumer in Karnataka must pay cross subsidy charges of ₹2.05 (~$0.025)/kWh, while a commercial consumer must pay ₹2.80 (~$0.034)/kWh.

Additionally, C&I consumers are subjected to an additional surcharge amounting to ₹1.48 (~$0.018)/kWh.

So, despite the absence of an equity requirement, these charges render the third-party model unworkable for most industrial and commercial consumers.

Return on Investment

The early recovery of investment is another advantage of open access power. Despite the initial upfront payment and 26% equity component, the payback period is typically short, ranging from 10 to 12 months.

Rahul Tyagi, Head of C&I Business at a renowned renewable energy company, said, “Savings are typically very high in captive, and group captive projects, and therefore the return on investment (ROI) is favorable. On average, an industrial consumer can expect to make the money back within a year. This period is cut even shorter to seven months for a commercial consumer.”

Tyagi explains, out of the 100% project cost, 70% is debt, and 30% is equity. Out of the total equity, the consumer should cover 26%; therefore, the actual project cost becomes 7.8%. The developer takes care of the remaining 92%.

This financially appealing opportunity allows consumers to recoup their investment quickly, making it attractive for various industries.

State Policies

The state government has taken supportive measures, such as clear regulations and a streamlined process for approvals, making it easier for C&I consumers to participate in the open-access market.

Santosh Yadav, a renewables expert, adds, “Karnataka is at the forefront when it comes to promoting solar among C&I consumers due to supportive policies in place, a streamlined process of obtaining approvals, and the presence of an effective energy settlement mechanism.”

Yadav explains that earlier, the state had an annual energy banking mechanism which was highly preferable and was one of the most favorable policies of the state. However, this was not beneficial to DISCOMs, and to ensure better grid stability, the government recently allowed monthly energy banking for renewable projects.

One of the significant advantages also lies in the absence of restrictions on the contract demand, allowing C&I consumers to procure desired power capacity from open access solar projects.

Moreover, the flexibility extends to the power source, enabling consumers to combine solar with wind or other technologies rather than being limited to pure solar projects.

The recently approved Green Open Access Rules, 2022 allow any consumer with a load of 100 kW or more to procure green energy through open access. Karnataka is the only state to emulate it at the state level, and the reduction in the load requirement is expected to make green energy more accessible to small and medium-sized businesses.

These initiatives have created a conducive environment for investments in solar power, attracting a wide range of industries, including manufacturing, IT, textiles, and hospitality.

Power Purchase Agreements

Apart from cost savings, experts in the C&I sector emphasize the need for consumers to consider multiple aspects when making decisions and before signing the power purchase agreements (PPA).

These aspects include being mindful of the relevant basic charges, understanding the overall cost involved, assessing the availability of banking mechanisms for energy transactions, evaluating maintenance costs, reviewing the termination clause specified in the contract, and ensuring the provision of a consistent and reliable energy supply for consumers.

Tyagi said, “Consumers should have long-term and short-term goals to get the best offtake of their investments. Before opting for open access, they should be aware of all the products available in the market. The best option is the captive/group captive model for C&I units due to the huge savings apart from the obvious advantages that they can go green.”

“C&I consumers should understand that the sector is heavily regulated by the state. So, there are timelines and due procedures that developers need to take under consideration,” Tyagi added.

Compared to retail DISCOM tariffs, C&I consumers can benefit from better price security and lesser variations on electricity bills through long-term open access agreements (LTOA), as the PPA prices would remain the same throughout the term.

 

“On average, reports point out that power tariffs have increased by up to 3-5% yearly in the country. Compared to that, consumers can find themselves better secured from price fluctuations if they sign LTOA,” Saboo said.

By locking in these agreements, businesses can hedge against future price fluctuations, ensuring stability and predictability in their energy budgets.

Another significant benefit of open access solar projects is the environmental impact. By shifting to solar power, C&I consumers in Karnataka are actively contributing to reducing greenhouse gas emissions.

This shift aligns with global efforts to combat climate change and promotes sustainable development in the region.

Adopting solar power enhances businesses’ corporate social responsibility (CSR) initiatives, strengthening their brand image and resonating with environmentally conscious consumers.

Mercom India will host the C&I Clean Energy Meet in Pune on June 30. 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.