Green energy open access rules: Ripe conditions for private PPA market to make a mark

The 2003 Electricity Act allowed consumers to procure power directly from the generators by using the grid under Open Access arrangement. However, even almost two decades later, the Open Access segment remains nascent. As of March 2022, Open Access accounts for barely 8% of the total renewable installations in India. As power is a concurrent subject, the renewable Open Access market was dependent largely on the policies, regulations and guidelines of each state. This segment’s growth was volatile due to dependence on policy exemptions. Barring the financial year 2017-18, when Karnataka offered a 10-year waiver on all kinds of charges and projects came up, the annual capacity addition otherwise remained subdued. In addition, the regulatory landscape and on ground challenges limits the Open Access activities to a few states. Despite being a nascent market, only four states – Karnataka, Tamil Nadu, Maharashtra and Uttar Pradesh – account for around 70% of total renewable installations under the bilateral Open Access PPA arrangement. The renewable energy story in India is predominantly centred around government dominated PPA markets with Open Access segment lurking in the shadows. However, perhaps the biggest reform in the Open Access renewables space, “Rules for promoting renewable energy through green energy Open Access”, by The Ministry of Power is likely to completely reform the market landscape. The Rules addressed the constraints in three broad ways.

The first and the most important reform is to bring in transparency for getting approvals. Creation of a central nodal agency, single window systems and stipulated timelines would streamline the application process for Open Access. In fact, the Rules provide for deemed consent for the Open Access if applications are not processed within 15 days. While this will ensure timely and transparent approval process, it also open up the process of renewable adoption across all states in India.  

The second reform is relaxation in eligibility limits of connected load from 1,000 kW to 100 kW for the consumers. In the past, because of higher load requirement, only large industries and commercial complexes were eligible, but now with the relaxation, even SMEs and smaller commercial setups such as hotels and hospitals can also procure renewable power from the Open Access route. Incidentally, commercial and industrial consumers account for around half of the total electricity consumption. With the inclusion of a host of smaller entities and expansion of market across India, the potential requirement for meeting the demand of these customers would be 250-300 GW of renewable power after accounting for banking arrangements.  

The third reform is on the standardization and improvement of predictability. The Rules prescribe that Open Access charges can be levied only under six heads – wheeling charges, transmission charges, standby charges, Cross-Subsidy Surcharge (CSS), Additional Surcharge (AS) and banking charges – mitigating risks of levy of unknown charges.  The first three charges – wheeling, transmission and standby – anyways have historically been more stable and have high levels of predictability owing to well-defined methodologies in the regulations. The most volatile of these charges – CSS can’t be increased beyond 50% of the applicable CSS at the time of grant of Open Access approval for the first 12 years. AS can’t be levied as long as consumers continue to pay the fixed charges as per regular electricity bills. Banking rules are standardized and are permitted on monthly basis. The forum of regulators has been mandated to create a framework for computation of Open Access charges which would help in predicting the trajectory of the landed cost over the lifetime. 

As a result of streamlining of regulations, transparency in approval processes, regulatory risks are poised to go down, while other risks can be dealt at par with that of utility-scale space. This will help in mainstreaming financing in Open Access segment which is running 4-5 years behind the utility-scale market. As of now, there are handful of lenders active in this space fearing the complexity of the transaction. The Rules would allay part of this fear and usher in many lenders who currently restrict financing only to government backed PPA markets. Not only will the tenor for loans elongate with more predictability, but the segment will also garner attention of secondary markets. 

All and all, the time is ripe for renewable Open Access market to emerge from a nascent segment and shift the capacity installation trend from government backed PPAs to more consumer-driven, decentralised solutions. But to unlock the full potential of the Open Access segment, power exchanges needs to deepen significantly and ecosystem for capacity building of smaller consumers’ needs to be developed. With these, Open Access segment would become the most preferred mode of installation in India, a trend which is already prevalent in United States.