Power distribution companies (DISCOMs) in Karnataka, beginning this year, proposed revised tariffs for low-tension (LT) and high-tension (HT) consumers, introducing grid support charges that may discourage captive open access power projects.

The proposal is pending the approval of the Karnataka Electricity Regulatory Commission (KERC).

If the proposal receives the green light, captive power projects (CPPs) will have to factor in an additional grid-support fee ranging from ₹1.57 ($0.019)/kWh to ₹2.85 ($0.035)/kWh.

DISCOMs in the state have proposed the following grid-support charges for captive open-access consumers:

Mercom India research analysts have examined the effective impact on the cost of solar open access resulting from introducing these additional charges.

Currently, considering the solar open access charges for captive/group captive projects, the landed cost for the consumer is about ₹5.15 ($0.06)/kWh, translating to savings of ₹2.25 ($0.02)/kWh for industrial consumers and about ₹4.1 (~$0.04)/kWh for commercial consumers.

Karnataka remained the leading state for solar open access in the first quarter of 2023, accounting for over 34% of cumulative capacity as of June 2023, according to the Q2 2023 Mercom India Solar Open Access Market Report.

However, with BESCOM’s proposed grid support charge of ₹2.74 ($0.03)/kWh, the net cost for captive solar open access would escalate to ₹7.89 ($0.096)/kWh.

Net savings of commercial and industrial (C&I) consumers in case the grid support charges come into effect:

The table illustrates the impact on industrial consumers, who typically account for a larger percentage of installations. For them, the model’s viability is wiped out with a 21% reduction in savings.

In contrast, for commercial consumers, there would still be a saving of ₹1.36 ($0.016)/kWh, as compared to their existing savings of ₹4.1 (~$0.04)/kWh. However, this would signify a 66% decline in savings.

Akarsh Vishwanath, Co-founder and Managing Partner at Qutimo, a provider of transaction advisory services in renewable energy, said, “If the proposal gets approved, it’s certain that we’ll witness a decline in the number of people transitioning to renewable energy sources. They’re making substantial investments to shift towards renewables. Additional charges like these would extend the required return on investment (ROI) period. The retail tariff market would inevitably gain better traction in such a scenario.”

Several other states, including Gujarat, Chhattisgarh, Madhya Pradesh, Tamil Nadu, and Odisha, have implemented grid-support charges, which, according to Mercom India research analysts, has negatively impacted open access captive power project installations.

Debating Grid Support Charges

The proposal sent to KERC highlights how CPPs (Captives Power Plants), the utility’s transmission system, changes in electricity demand, and the resulting economic and operational impacts are all interconnected.

Captive Power Plants (CPPs), working alongside the main electricity grid, consistently depend on the grid to operate. Power distribution companies (DISCOMs) highlight that this setup gives CPPs an advantage because they commonly opt for parallel operations to guarantee safety and reliability.

CPPs currently benefit from a waiver of charges when they use distribution or transmission systems to access ancillary services that synchronize their electricity generation with the grid. This exemption was initially granted to stimulate the growth of captive power generation.

The proposal raises the point that the fluctuations in load from captive consumers are transferred to the grid, potentially affecting the efficiency of the utility’s operations. This adverse effect could extend to other consumers connected to the utility.

Moreover, when a fault occurs in the interconnecting line on the consumer’s side, especially in an ungrounded (or resistance-grounded) system supply, the entire system can experience interruptions.

The proposal also emphasizes that the utility must contend with highly fluctuating peak loads without receiving any compensatory return on the invested capital meant for creating system reserves. The variance in reactive power requirements leads to increased system losses and a decline in voltage profile leading to utilities incurring the costs associated with these incidents.

DISCOMs have highlighted that the lower voltage profile and the accompanying fluctuations degrade service quality for other consumers. This deterioration culminates in reduced revenue for the utility.

Financial losses also stem from the failure of meters to record sudden spikes in active and reactive power demand.

While the grid support charges would compensate the utility for fluctuations in the grid, CPPs feel they are already burdened by wheeling charges, and the levy of grid support charges could potentially increase their burden.

According to Ramesh Shivanna, the immediate past president of Karnataka Renewable Energy Systems Manufacturers Association (KRESMA), “The regulatory body holds the perspective that whenever economically viable, transmission companies should eventually recuperate fees for infrastructure usage and ancillary services.”

He added, “Interestingly, many CPPs are subjected to fixed charges, ostensibly meant to account for grid infrastructure expenses. These charges can pose an additional burden on CPPs unless they curtail their contracted power demand. This scenario discourages the growth of CPPs.”

Arunav Choudhury, DGM (Strategic Planning) at NTPC, said, “These charges could pose challenges for small and medium-scale businesses especially. Their core aspiration revolves around savings, primarily focusing on curtailing electricity expenses. While savings remain perhaps feasible for captive/group captive setups, it’s important to recognize that these gains might diminish significantly.”

Choudhury also cited the recent regulatory order of May 2023 wherein the Haryana Electricity Regulatory Commission (HERC) ruled that DISCOMs will not be allowed to impose reliability charges on green open access consumers as there is no defined clause for it in the Green Energy Open Access Regulations, 2023.

Choudhury added, “I’m uncertain whether a middle ground can be reached, considering that DISCOMs too must adhere to their fundamental principles and financial commitments. It’s a matter that necessitates thoughtful consideration on our part.”

Vishwanath suggested, “In terms of potential solutions, I believe the government needs to formulate a comprehensive, long-term plan for the next 10-15 years, outlining specific costs. Frequent change in rules with each new administration or every few years will undoubtedly hinder the progress of renewable energy not only in Karnataka but everywhere.”

Suggesting a solution, Shivanna opined, “In the realm of current renewable energy CPPs, the calculation of fixed charges is formulated to encompass the entire demand. It is advisable for the regulatory commission to maintain this approach. In contrast, certain thermal CPPs are opting to minimize their contracted demand. It is recommended that only these particular CPPs should be subjected to charges for grid support.”

There is an urgent need on the part of decision-makers to find a balanced regulatory approach that reconciles the operational needs of DISCOMs with the interest of the consumers who grapple with the potential impact of grid support charges.

In August last year, KERC issued the draft ‘Green Energy Open Access Regulations, 2022.’ Any consumer with a captive power project will have the right to open access under the proposed regulations. Consumers (except captive consumers) who have a sanctioned load of 100 kW and above will be eligible for open access under the proposed regulations.

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