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Corporate Renewable PPAs in India: Market & Policy Update January 2021
Contents
1 Introduction | 3
2 Market trends | 6
3 Policy and regulatory updates | 13
4 Outlook for corporate renewable PPAs | 20
5 Conclusion | 23
Glossary | 25
Annex 1:
Summary of state-level updates for open access regulations | 26
Annex 2:
Recent amendments to rooftop solar regulations in India | 28
Annex 3:
Current banking regulations across different states | 29
Corporate Renewable PPAs in India: Market & Policy Update 2
1 Introduction
Corporate Renewable PPAs in India: Market & Policy Update 3
1 Introduction
More and more companies To increase the adoption of 2018). Because the Indian power
are procuring renewable corporate renewable PPAs in market is constantly evolving, we
power for their operations to India, members of the World are producing market and policy
help manage their electricity Business Council for Sustainable updates to keep our members and
costs while contributing to Development (WBCSD) formed other companies informed of the
corporate carbon emissions the India Corporate Renewable latest developments.
reduction targets. In India, PPA Forum in 2017 to exchange
the main drivers for many practical knowledge on the The first update, published in June
companies to do so are effective implementation of 2019, concluded that corporate
rising electricity tariffs for corporate renewable PPAs for both renewable PPAs flourished in India
commercial and industrial rooftop and utility-scale renewable in 2017-18 due to waivers on open
consumers, falling prices electricity installations in India. access charges offered by states
for solar photovoltaic (PV) such as Karnataka, Andhra Pradesh
technology and corporate We combined lessons learned and Telangana. The second update,
sustainability goals. from this work with research on the published in December 2019, found
regulatory environment and market that most states are withdrawing
A frequently used approach for conditions in India to produce the these waivers for third-party sale
companies to purchase renewable WBCSD Accelerating corporate renewable projects and leading
electricity is a corporate renewable procurement of renewable renewable electricity generators to
power purchase agreement (PPA). energy in India report (June shift to alternative business models
A corporate renewable PPA is a like the “group captive” model.
contract between a corporate
buyer(s) and a power producer
(developer, independent power
producer, investor) to purchase
renewable electricity at a pre-
agreed price for a pre-agreed
period. Corporate renewable PPAs
have become increasingly varied
and innovative and are now a
widely used approach worldwide –
companies had signed over 70 GW
of capacity globally as of the end of
November 2020, compared to just
300 MW in 2009.
India has also seen impressive
growth in corporate renewable
sourcing. According to Bloomberg
New Energy Finance (BNEF), India
was the second largest growth
market for corporate renewable
PPAs after the US in 2019, with
an addition of 1.4 GW of capacity.
However, in 2020, India witnessed
a significant slowdown in corporate
renewable PPA activity, primarily
due to regulatory changes and
exacerbated by the COVID-19
pandemic.
Corporate Renewable PPAs in India: Market & Policy Update 4
This third market and policy Despite the evident slowdown It is a pivotal moment for corporate
update for corporate renewable in PPA capacity in 2020, we renewable sourcing in India – in
PPAs in India provides readers see a positive outlook for 2021. combining company ambition
with a renewed overview of Company ambition for procuring with the right policy incentives
market trends, policies and renewable power is increasing, and electricity sector reforms,
regulations from 2020, as well company appetite for corporate the country can increase
as an outlook for 2021. It finds renewable PPAs is high, and power competitiveness and drive the
that due to falling technology demand has bounced back to pre- implementation of corporate
costs, corporate renewable PPAs COVID-19 levels. renewable PPAs. By enabling
in India are economically viable companies to procure renewable
without government waivers on Going forward, there is potential power, India can also support
open access charges. Despite for government reforms in the the government’s Make In India
this, additional signed corporate electricity sector to significantly initiative, which aims to improve the
renewable PPA capacity in India stimulate uptake of corporate country’s self-reliance and reduce
fell to 800 MW in 2020 (compared renewable PPAs in India. The its dependence on imports.
to 1.4 GW in 2019). This is government’s new draft Electricity
due to two factors that posed Amendment Bill means that This WBCSD report begins with
new challenges for corporate all states in India are likely to an overview of the corporate
renewable PPAs in 2020: bear higher penalties for non- renewable PPA market data in India
compliance with renewable and commentary on the market
• New restrictions at state-level, purchase obligations (RPO); dynamics that have impacted this
including limiting banking and the government is planning data. The second section outlines
provisions for power, reversing the privatization of loss-making policy and regulatory changes from
open access project approvals electricity distribution companies 2020 at both national and state
and imposing additional open (DISCOMs). These reforms are levels. The report concludes with
access charges. expected to face further delays an outlook for corporate renewable
and opposition, but if passed will PPAs in 2021. We recommend that
• The COVID-19 pandemic, drive corporate renewable sourcing readers who are not familiar with
which resulted in paused PPA competitiveness by encouraging options for corporate renewable
negotiations, delayed permit DISCOMs to explore PPA options to sourcing in India, such as third-party
approvals due to restricted site fulfill RPOs and will lead to cheaper sale PPAs, the group captive model
access and suspended project commercial and industrial (C&I) grid and the applicability of open access
construction due to labor and tariff rates. charges, refer to the explanations in
equipment shortages. the WBCSD Accelerating corporate
procurement of renewable energy in
India report (June 2018) to aid their
understanding of this report.
Corporate Renewable PPAs in India: Market & Policy Update 5
2 Market trends
Corporate Renewable PPAs in India: Market & Policy Update 6
2 Market trends
International context technology costs and growing updates’ for more detail) and the
Corporate renewable PPA uptake awareness of corporate renewable COVID-19 pandemic.
is growing around the world at PPAs among both corporate
buyers and developers are driving State-level regulatory changes in
a remarkable rate. According to Karnataka have had a particularly
BNEF, more than 100 companies this trend.
strong influence on total PPA
in 23 different countries signed capacity additions in India. In
19.5 GW of PPAs in 2019.1 This National market data 2018, nearly 81% of PPA capacity
capacity addition is around 6 GW According to BNEF, in 2019 India additions in India were located
higher than in 2018 and has tripled was the second largest growth in Karnataka as the state had
since 2017. And 2020 is set to be market for corporate renewable offered a 10-year waiver on most
another record-breaking year – for PPAs after the US, with an addition open access charges. After the
the first 11 months of the year, of 1.4 GW of PPA capacity. However, government withdrew these
companies signed 17.9 GW of for the first 11 months of 2020, exemptions, the market in India
corporate renewable PPAs globally, PPA capacity additions in India contracted somewhat in 2019 and
outpacing PPA capacity signed reached only 800 MW, mainly due significantly in 2020 (which the
in the previous year during the to state-level regulatory changes COVID-19 impacts exacerbated), as
same period (as shown in figure 1).2 (see section ‘Policy and regulatory shown in figure 2.
Decreasing renewable generation
Figure 1: Annual global signed corporate renewable PPA capacity
20
15
Capacity (GW)
10
5
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(Jan-Nov)
Global India
Source: Bloomberg New Energy Finance (BNEF), JMK Research. Note: Data for India includes all captive, group captive and third-party sale solar
and wind PPA projects.
Figure 2: Annual India corporate renewable PPA capacity additions
2
1,8
1,6
1,4
Capacity (GW)
1,2
1
0,8
0,6
0,4
0,2
0
2017 2018 2019 2020 (Jan-Nov)
Offsite PPA Onsite PPA
Source: JMK Research. Note: Data includes all captive, group captive and third-party sale solar and wind PPA projects.
Corporate Renewable PPAs in India: Market & Policy Update 7
Looking at the breakdown across and Rajasthan may also show a January 2019 to July 2020. In
states, Gujarat is the only state to year-on-year capacity increase. the onsite/rooftop segment,
have increased installation capacity Cleantech, Fourth Partner, Amplus
from corporate renewable PPAs Looking at developer capacity, and CleanMax commissioned the
in 2020 (January – November), as shown in figure 4, Greenko, largest PPA projects. Corporate
as shown in figure 3. With the Cleantech, Continuum Wind Energy, renewable PPAs in India with solar
addition of December 2020 Amplus and Adani developed PV assets continue to see higher
numbers, Tamil Nadu, Karnataka the largest offsite open access installation rates than those with
renewable projects in India from wind assets.
Figure 3: State installation of corporate renewable PPAs
250
200
Capacity (MW)
150
100
50
0
Tamil Nadu Madhya Gujarat Rajasthan Uttar Andhra Maharashtra Karnataka Others
Pradesh Pradesh Pradesh
2019 2020 (Jan-Nov)
Source: JMK Research
Note: Data includes all captive, group captive and third-party sale solar and wind PPA projects.
Figure 4: Solar corporate PPAs by leading developers
2019 2020 (Jan-Jul)
140 140
120 120
100 100
Capacity (MW)
Capacity (MW)
80 80
60 60
40 40
20 20
0 0
Fourth Partner
AMP Energy
AMP Energy
Fourth Partner
CleanMax
Cleanmax
Greenko
Cleantech
Amplus
Aditya Birla
SunSource
GRT Jewellers
Vedanta Group
Sun Pharma
Cleantech
Continuum Wind*
Adani
Prozeal Infra
Amplus
Aditya Birla
Rays Experts
Offsite PPA Onsite PPA
*Wind solar hybrid PPA
Source: JMK Research
Note: Data available to July 2020 only.
Corporate Renewable PPAs in India: Market & Policy Update 8
Figure 5: Companies procuring renewable power through corporate renewable PPAs in India (April 2019 – August 2020)
35,0
30,0
25,0
Capacity (MW)
20,0
15,0
10,0
5,0
0,0
Bharati Cement
ACC Ltd.
L&T Metro
Ambuja Cements
Tata Hitachi
Apollo Tyres
Skoda Volkwagon
Grasim Industries
Sangam Ltd.
United breweries
Schreiber Dynamix Dairies
Srinivas Farms
Pepsico
Titagarh Wagons
Snowman Logistics
Cipla
Navya Fashion
Tata Motors
MATE
Ajanta Pharma
Amazon
Ultratech Cement
Cargill
Delhi Cargo Service Center
Construction/infrastructure Automotive Textiles Food and beverage Logistics Healthcare E-commerce
Source: JMK Research
Note: Data is not comprehensive; but as a subset it is representative of the key customer categories in the Indian market. Data available to
August 2020 only.
In terms of sectors, construction, From a market perspective, submitted applications for more
infrastructure, automotive and textile the commissioning of the first than 1,900 MW but have reported
companies have been the leading hybrid open access project, the that state DISCOMs in Haryana –
consumer segments, procuring increasing adoption of rooftop Dakshin Haryana Bijli Vitran Nigam
more than 165 MW of renewable solar PPAs, the use of the newly Ltd (DHBVNL) and Uttar Haryana Bijli
power through PPAs in India between launched Green Term Ahead Vitran Nigam Ltd (UHBVNL) – have
April 2019 and August 2020, as Market, and continued company put approvals on hold for third-
shown in figure 5. During this period, appetite for corporate renewable party and group captive consumers
corporate buyers Grasim Industries, PPAs are all evolving market to use their transmission and
Ultratech Cement, Cargill and Apollo dynamics that are promoting distribution networks. The Haryana
Tyres procured the most renewable uptake, while the impacts of the state regulator is now planning to
capacity through corporate COVID-19 pandemic have caused convert the open access projects
renewable PPAs in the country. short-term market constraints. into DISCOM PPAs for 25 years
under cost-plus tariffs.
We examine each of these key
Key evolving trends evolving trends and market After thorough deliberations
and market dynamics dynamics in more detail below. between the developers and the
Several evolving market dynamics government, the Ministry of New and
are impacting the capacity trends Renewable Energy (MNRE) stepped
Reversal of DISCOM
outlined in the previous section. in and asked the state government
approvals for open
to honor the signed renewable
From a regulatory perspective, the access projects in
electricity contracts. We have yet
reversal of DISCOM approvals for Haryana
to see if the state government will
open access projects in Haryana In the previous market and policy uphold these contracts or proceed
and the imposition of additional update published in December with the policy reversal. This policy
surcharges on group captive 2019, we projected that Haryana inconsistency has impacted many
models are developments that are would add significant open access investors, project developers and
limiting the uptake of corporate solar PV capacity – about 550 corporate buyers.
renewable PPAs in India. MW – in 2020. Project developers
Corporate Renewable PPAs in India: Market & Policy Update 9
Figure 8: State by state solar RPO compliance (as of FY 2020)
200%
177%
150%
100%
50% 35% 34% 33%
0%
-15%
-50% -37%
-50% -54% -59% -60%
-69% -70% -74% -76%
-100% -84% -89% -94% -98%
Kerala
Rajasthan
Karnataka
Telangana
Andhra Pradesh
Madhya Pradesh
Jharkhand
Gujarat
Punjab
Delhi
Maharashtra
Bihar
Chhattisgarh
Haryana
Odisha
West Bengal
Uttar Pradesh
Tamil Nadu
Source: Ministry of Power
The states initially approved these Imposition of the For financial year 2020-21,
open access projects to fulfill state additional surcharge on Maharashtra has once again
RPO obligations. As of financial group captive models imposed an AS of INR 1.31/kWh
year 2019-20, Haryana had a 94% To promote renewable electricity, on open access consumers
deficit in its solar RPO compliance. various state governments have (both captive and group captive
However, in its tariff order for introduced waivers for third-party consumers). The rationale given
financial year 2020-21, the Haryana sales. In the last two years, however, behind this move is that the
Electricity Regulatory Commission state governments have withdrawn DISCOM may no longer fully use its
(HERC) did not impose any penalty many of these waivers, leading to a existing tied-up capacity, leading to
for this deficit and waived the solar shift from third-party sale models losses for the DISCOM. Given that
and non-solar RPO backlog of to group captive models, where the it is under regulatory proceedings,
1,850 million units (MUs) and 905 cross-subsidy surcharge (CSS) and if approved, it is not possible to rule
MUs respectively. additional surcharge (AS) are not out the risk that other states may
applicable (according to the Indian introduce such a levy.
The removal of the RPO backlog is
one of the key reasons that Haryana Electricity Act 2003).
is backtracking on the approved However, in September 2018,
projects. Had the RPO backlog Maharashtra imposed an AS of INR
been upheld, it would have resulted 1.25/kWh on users of group captive
in the imposition of a penalty on models. The developers opposed
the DISCOM. The DISCOM claims this at the Appellate Tribunal for
that fulfilling the RPO would have Electricity (APTEL), which ruled that
resulted in the passing of an the state may not levy an AS on
additional INR 11 billion in costs to captive users (a judgement that is
electricity consumers. HERC did currently being challenged in the
not approve this, to avoid additional Supreme Court).
financial pressure on top of the
effects of the COVID-19 pandemic.
Corporate Renewable PPAs in India: Market & Policy Update 10Commissioning of the Figure 6: Landed cost of wind solar hybrid power for industrial consumers
first wind and solar 10
hybrid open access 9
project in India 8
Renewable developers are 7
Tariff (INR/ kWh)
exploring combined solar and 6
wind hybrid projects (also known 5
as multi-technology PPAs), due to
4
supportive government policies and
3
waivers on open access charges for
such projects. According to MNRE, 2
in a hybrid project, the rated power 1
capacity of one resource must be 0
Andhra Pradesh Gujarat Karnataka Maharashtra Rajasthan
at least 25% of the rated power
capacity of the other resource.3 Third party Captive Grid tariff
The benefits for hybrid projects Source: JMK Research
include waivers on open access Assumptions: (1) hybrid cost fixed at INR 4/kWh across states to highlight changes due to
charges (particularly when most open access charges; actual tariffs will vary; (2) landed cost calculated for industrial consumers
connected at 33 kV voltage; (3) the hybrid projects use a 75:25 ratio for solar to wind.
states are backtracking on CSS and
AS waivers for third-party sale from
solar plants), reduced shape and
volume risk due to lower generation Figure 6 represents the PPA The end-consumer pays for the
variability of the combined price a company consuming power generated under a PPA at
technologies,4 and better use of open access power from hybrid an agreed tariff for a fixed period,
transmission infrastructure (where projects pays. The captive typically 12-15 years.
wind and solar plants are located at model is best suited for hybrid
the same site). projects in the states indicated. Unlike open access models, growth
in rooftop PPAs is more secular.
India has seen the commissioning Of the total rooftop market, the
of a total of some 144 MW of Increasing adoption of proportion of the rooftop PPA
hybrid capacity to date. States rooftop solar PPAs market increased from 13% in 2016
like Rajasthan, Gujarat and Andhra As of 30 June 2020, rooftop PPA to 39% in 2020,5 as shown in figure
Pradesh have introduced dedicated projects made up nearly 32% 9. Though cash-rich fast-moving
policies for hybrid projects, as (1,851 MW) of the cumulative onsite consumer goods (FMCG) and
outlined in table 1. Andhra Pradesh solar installations in India. Under the multinational companies generally
initially introduced waivers on rooftop PPA model, a renewable prefer the CAPEX model, post
various open access charges for energy service company (RESCO) COVID-19, companies may face
hybrid projects before withdrawing funds, builds and maintains a liquidity issues and might consider
them in November 2019. rooftop or onsite solar power plant. the rooftop PPA model.
Table 1: Waivers on open access charges across different states for hybrid projects
Open access charges Gujarat Rajasthan Andhra Pradesh
50% concession for captive/third-party
50% concession for
Cross-subsidy surcharge - given in initial policy issued in 2018; waivers
third-party
withdrawn in November 2019
50% concession for
Additional surcharge - -
third-party
50% concession for
Transmission charges -
captive/third-party 50% concession for captive/third-party
given in initial policy issued in 2018; waivers
50% concession for withdrawn in November 2019
Wheeling charges -
captive/third-party
Source: JMK Research
Corporate Renewable PPAs in India: Market & Policy Update 11Figure 9: Rooftop PPA market installation trends in India to accommodate new risks. The
100% economic impacts of COVID-19
90%
13% have also resulted in credit rating
28% 28% downgrades for some corporate
80% 38% 39%
buyers,6 leading developers
70% to factor in greater credit risk,
Capacity (MW)
60% resulting in higher PPA prices
for new PPAs. Developers will
50%
undertake additional due diligence
87%
40%
72% 72%
on the corporate buyer market
30% 62% 61% position, their relationships with
20%
vendors, and goods and services
tax (GST) filing trends. They will
10%
likely introduce new contract
0% clauses to mitigate damages and
Until
June 2016
Year ending
June 2017
Year ending
June 2018
Year ending
June 2019
Year ending
June 2020
establish suitable mechanisms
to temper emerging risks and
CAPEX Rooftop PPA obligations for both parties –
Source: Bridge To India (2020). “Rooftop Map”. June 2020. during pandemics and other force
majeure events.
Given the economic impacts of the
PPA tariffs for projects installed volumes on the power exchange. COVID-19 pandemic, corporate
under the rooftop PPA model are Its market clearing prices were on renewable PPAs may gain more
also falling – in line with declining average about 30% higher than traction in the coming years as C&I
solar module prices. The tariff trend in conventional markets from consumers with liquidity issues may
for rooftop PPAs declined from INR September 2020 to November opt for this model to limit capital
5.5-5.0/kWh in 2017 to INR 4-3.5/ 2020. With the absence of policy investment, while still being able to
kWh in 2020. and regulatory consistency linked to buy renewable electricity.
long-term open access renewable
purchasing (as explained in Policy
Use of the newly Continued company
and regulatory updates), GTAM may
launched Green Term appetite for corporate
prove to be a more attractive option
Ahead Market (GTAM) renewable PPAs
for certain corporate buyers.
The Green Term Ahead Market Despite limited capacity additions
(GTAM) is a newly launched in 2020, company interest in
alternative platform for renewable Short-term impact of the
corporate renewable PPAs remains
developers to sell power in the COVID-19 pandemic
high. Power demand in India has
open market without long-term The COVID-19 pandemic is bounced back to pre-COVID levels7
PPAs. With GTAM, corporate buyers widely considered to have and we expect negotiations paused
can buy renewable power and slowed PPA implementation in in 2020 due to the COVID-19
fulfil their RPO obligations, while India in 2020, though there is no pandemic and resulting economic
meeting their short-term electricity published quantitative data to uncertainty to resume in 2021.
demand at competitive prices. confirm the extent of its impact. Going forward, there is a likely to
GTAM gives corporate buyers the Information gathered from industry be a spur in demand for corporate
option to purchase renewable stakeholders shows that during renewable PPAs due to corporate
power from power exchanges the initial lockdown: (1) companies sustainability commitments by
while continuing to procure power paused negotiations for new PPAs; leading corporate buyers. This
from DISCOMs. When using GTAM, (2) restrictions on travelling to includes companies such as Tata
corporate buyers do not need to sites led to permit approval delays; Motors, Infosys, Dalmia Cement,
tie up capacity in advance or sign and (3) project construction was Mahindra Holidays & Resorts, Ikea,
power purchase agreements with suspended in some cases due to Accenture, Adobe, Carlsberg Group,
DISCOMs or electricity generators. the government declaring force Sony, Starbucks and Panasonic, all
majeure and due to supply chain of which have voluntarily pledged
GTAM trade activity has been constraints for component parts. to meet 100% of their electricity
encouraging since its launch
demand with renewable electricity
on 21 August 2020. Its trading The unprecedented impact of
through the RE100 initiative and
volumes are becoming competitive COVID-19 is likely to result in PPA
have electricity load in India.
with the conventional market contracts becoming more complex
Corporate Renewable PPAs in India: Market & Policy Update 123 Policy and regulatory updates
Corporate Renewable PPAs in India: Market & Policy Update 133 Policy and regulatory updates
The uptake of corporate Central policies and the renewable targets in
renewable PPAs in India regulations consultation with state
is highly dependent on regulators, which is likely to
policies and the regulatory Draft Electricity result in higher targets for each
environment at both the (Amendment) Bill 2020 state (due to the inclusion of
national and state levels. The Ministry of Power issued the hydropower compared to the
In December 2019, RE100 draft Electricity (Amendment) Bill current RPO). This will ensure a
companies cited India as 2020 on 17 April 2020. There are higher proportion of renewable
the sixth most challenging certain provisions in the draft bill electricity in the power
market for corporate sourcing that – if put into law – will impact generation mix in each state,
of renewables.8 Companies corporate renewable PPAs. which can further stimulate
reported the main barriers to corporate renewable PPAs.
be a fragmented policy and • Strict RPO compliance: The
regulatory framework that draft regulations impose stricter • Cross-subsidy surcharge
differs from state to state, penalties on DISCOMs in the (CSS) reduction: C&I
and uncertain charges and case of non-compliance with consumers currently pay
taxes on the procurement of the RPO. We expect higher an additional CSS, leading
renewable power. penalties for a shortfall in the to higher-than-average
purchase of RPOs to push electricity tariffs, while the
Over the past year, state-level DISCOMs to grant open access government subsidizes the
regulatory hurdles have negatively permission for third-party sale tariffs paid by residential
impacted the corporate renewable and hence fulfill their targets, and agricultural users. The
PPA market, including backtracking thereby increasing the number proposed amendment
on previously provided waivers of signed corporate PPAs. The mandates the state electricity
and approvals, new restrictions penalty trajectory would be as regulatory commission to
on power banking provisions, the follows: abide by the National Tariff
levying of additional surcharges Policy (which had no mention
on captive and group captive in the previous Electricity Act,
Shortfall Proposed
renewable energy projects and penalty 2003) to reduce the CSS.
limiting net metering regulations to This would result in a further
only residential consumers. First year INR 0.5/kWh strengthening of the open
shortfall
access framework. According
At the national level, the Second year INR 1/kWh to current regulations, the CSS
government is trying in bring in shortfall should go down year-on-year,
electricity reforms through its draft though many states have been
Beyond second INR 2/kWh
National Electricity Amendment year shortfall reluctant to adhere to this, as
Bill and through the privatization shown in figure 10. The average
of DISCOMs that are loss-making, • National Renewable increase in CSS in the last few
as well as by reducing exposure to Energy Policy: The draft years across various states
imports and focusing on domestic regulations propose a National was about 1-5%, while some
manufacturing as part of its Make in Renewable Energy Policy, states like Karnataka and Uttar
India initiative. which promotes electricity Pradesh have seen the CSS
generation from renewable increase by 12-25% in the last
We examine national- and state- sources and prescribes five years.
level policy and regulatory updates a minimum percentage
in 2020 and their impact on of purchase of electricity
corporate renewable PPAs in India from renewable sources –
in detail below. including hydropower.9 The
Central Ministry will propose
Corporate Renewable PPAs in India: Market & Policy Update 14Figure 10: Cross-subsidy surcharge trend from FY 2016-17 to FY 2020-21
2,5
2
1,5
Rs./kWh
1
0,5
0
2016-17 2017-18 2018-19 2019-20 2020-21
Rajasthan Andhra Pradesh Gujarat Maharashtra Madhya Pradesh
Karnataka Tamil Nadu Chhattisgarh Haryana Uttar Pradesh
Source: Tariff regulations of various State Electricity Regulatory Commission (SERC’s), JMK Research
Impact of DISCOM with the government’s target As the DISCOM tariffs would
privatization to complete the privatization become more competitive
DISCOM losses in India are of DISCOMs in UTs by January with respect to corporate PPA
significant and have increased 2021, there are also efforts to tariffs, there would be little to
from Rs 338.94 billion in financial encourage this process in states no imposition of restrictions
year 2016-17, to Rs 496.23 billion such as Uttar Pradesh, Haryana, on availing benefits like waivers
in financial year 2018-19. The Gujarat, Karnataka and Assam. in the corporate open access
government has taken various market, allowing the latter
Transformation in the governance market to grow unrestrained.
measures in the past to address and operational management of
this. However, these have not DISCOMs through privatization Despite these efforts, the
generated substantial results would enable an upgrade of government’s DISCOM
to date. The privatization of DISCOM assets, more efficient privatization initiative has
DISCOMs is now under discussion, asset management, quality faced hurdles. Setbacks to
with C&I consumers poised to customer service and improved DISCOM privatization extend the
be one of the most impacted metering and billing processes. deterioration of their financial
beneficiaries of this move. These improvements would lead health, which will in turn continue
In September 2020, the Ministry to greater revenue and profit to adversely affect growth and
of Power issued draft Standard generation for the DISCOMs. the expansion of corporate
Bidding Documents (SBD) for With lucrative business models renewable procurement.
the privatization of DISCOMs managed under private companies Therefore, if delays in the
across all states and Union or public-private partnerships DISCOM privatization procedure
Territories (UTs). The first-of-its- (PPPs), DISCOMs will be able to continue, the amount of additional
kind draft SBD was prepared with lower their tariffs for electricity charges levied on corporate
the objective of enhancing the consumers, especially for C&I renewable PPAs will increase.
operations and finances of India’s consumers as tariffs are currently
loss-making DISCOMs. Along highest for this segment.
Corporate Renewable PPAs in India: Market & Policy Update 15Figure 11: Indian states with the most underperforming DISCOMs
60% INR 200
INR 180
50%
INR 160
INR 140
40%
INR 120
Billions
30% INR 100
INR 80
20%
INR 60
INR 40
10%
INR 20
0% INR 0
Rajasthan
J&K (including Ladakh)
Jharkhand
Bihar
Madhya Pradesh
Maharashtra
Punjab
Karnataka
Telangana
Andhra Pradesh
Delhi
Uttar Pradesh
Tamil Nadu
AT&C losses (%) State government dues (Rs) Delayed payments to gencos and transcos (Rs)
Data source: Ministry of Power
It is important to note that the and basic custom duties (BCDs) on current SGD regime. These taxes
state-owned non-banking financial imported modules. will lead to increased project costs,
companies (NBFCs) appointed altering the trajectory of solar tariffs
to provide financial assistance to The Ministry of Finance first in India and threatening project
the loss-making DISCOMs (the introduced SGDs between July pipelines. Figure 12 shows the SDG
Power Finance Corporation and its 2018 and July 2020 to promote rate applicability over time.
subsidiary, the Rural Electrification domestic manufacturing and curb
Corporation), have sanctioned imports from China, Taiwan and In the short term, these additional
nearly INR 1.2 trillion under the Malaysia. It subsequently extended duties are likely to increase tariffs for
central government’s liquidity SGDs to 29 July 2021 for all solar corporate renewable PPAs because
package scheme. In addition to cells and modules imported from of cost increases. However, in the
substantially reducing outstanding China, Thailand and Vietnam. From longer term, corporate demand for
DISCOM dues, this liquidity infusion April 2022, the Ministry is expected renewable electricity procurement
could also improve DISCOM to impose 25% and 40% BCD on may significantly drive the market
attractiveness for privatization the import of solar cells and solar for domestic module manufacturers
going forward. modules respectively, to replace the and increase competitiveness.
Impact of the Safeguard Figure 12: SGD rate applicability
Duty (SGD) and Basic 30%
Custom Duty (BCD) 25%
COVID-19 has highlighted the 25%
risk of overdependence on 20%
SGD applicable (%)
20%
imported component parts and
15% 14,90%
the importance of self-reliance. 15%
14,50%
As part of the government’s Make
in India initiative, there is a new 10%
emphasis on building domestic
module manufacturing capabilities. 5%
To provide a level playing field for
0%
domestic module manufacturers, Jul 2018- Jul 2019- Jan 2020- Jul 2020- Jan 2021-
the government is planning to Jul 2019 Dec 2019 Jul 2020 Jan 2021 Jul 2021
impose safeguard duties (SGDs) Source: MNRE, Directorate General of Trade Remedies (DGTR), Ministry of Finance
Corporate Renewable PPAs in India: Market & Policy Update 16State policies and Table 2 outlines examples of several states may move from
regulations waivers and benefits and annex net-metering to gross-metering for
1 lists full details of state- C&I consumers, further threatening
Open access regulations level changes in open access growth of corporate renewable
Open access regulations determine regulations. power procurement. Annex 2 lists
the procedures and charges for the details of recent state level
changes in net metering provisions.
using the public grid to wheel Net metering regulations
power from an offsite renewable Net metering is a regulatory As an example of such
power plant to the premises of a provision that helps to increase inconsistencies, Maharashtra –
corporate buyer. These regulations demand for and the penetration of India’s largest industrial state – had,
are determined primarily at the state rooftop solar installations. With net in January 2020, proposed the
level under a framework provided at metering, a company consumes the Grid Support Charges (GSC), a new
the national level. Changes in these electricity generated by its rooftop impost for electricity consumers
regulations can materially affect the solar system and injects any that have a sanctioned load above
viability of renewable procurement excess electricity into the grid. The 10 kW for rooftop solar. The cost of
from offsite projects. company can also import electricity building distribution infrastructure
from the grid when its demand and the cost of balancing the grid
Over the past few months, various
exceeds the generation from the and power banking will be at the
state governments have withdrawn
rooftop solar system. At the end of foundation of these charges. The
previously agreed waivers for open
the settlement period, the electricity state issued a new notification
access charges. This has negatively
consumer only pays for the “net” declaring that unless it achieved
impacted market sentiment as
electricity used – the difference its 2,000 MW rooftop solar target,
developers have invested in some
between the electricity produced it would not apply any GSC. But in
states where earlier open access
through the rooftop solar system the long term, GSC rates will be
provisions were favorable.
and the electricity consumed over applicable and will be the deciding
Some states are also putting the billing period. factor in the viability of large rooftop
restrictions on the sanctioned or solar installations in Maharashtra.
It took several years for the central Such changes in regulations
contracted load for open access
government to ensure that all states usually create confusion among
consumers. In 2020, states like
offer net metering regulations to stakeholders.
Gujarat and Maharashtra withdrew
promote rooftop solar installations.
waivers from open access
Recent policy changes restricting
consumers. However, states like
net metering for C&I consumers
Chhattisgarh have developed
in certain states are a major
coherent policies to promote
setback in that effort and in 2021,
open access.
Table 2: Examples of waivers and benefits in selected states
State Highlights
Chhattisgarh • The Chhattisgarh Electricity Regulatory Commission (CSERC) has waived the CSS for electricity consumers
using open access solar
Uttarakhand • Waived CSS charges for third-party sale
Gujarat • Withdrawal of all waivers for third-party sale, but to promote wind solar hybrid projects it has offered 50%
concession on CSS and AS
• No restriction on project capacity and the existing ceiling of 50% of the contracted load for setting up rooftop
solar projects will no longer be applicable
Odisha • No CSS payable for one year by consumers using renewable power
• 20% transmission & wheeling charge is payable for one year by consumers using power from renewable sources
(excluding co-generation & biomass)
Corporate Renewable PPAs in India: Market & Policy Update 17Banking restrictions trend. Because of generally large corporate buyers from opting
When a generator is wheeling rising grid tariffs, companies are for this model and, as a result,
electricity from an offsite renewable adopting alternate renewable companies are increasingly moving
power plant to the premises of a procurement models in the form towards group captive models.
corporate buyer, it can virtually bank of PPAs. These are often not only
the electricity for consumption cheaper and greener, but also offer
State tariff trends for
by the customer at a later date. tariff certainty for 10-12 years.
open access projects
Accounting methods ensure the under the group
virtual banking of the electricity. State tariff trends for captive model
Banking provides renewable open access projects Tariffs for group captive models are
developers with a mechanism to under the third-party usually lower than third-party sale
use excess generation at a later sale model due to CSS and AS exemptions,
point in time and, in some cases, Tariffs for third-party sale are which form a substantial portion
avail financial benefits. generally high across states of open access charges (as a
We have recently observed that due to the withdrawal of various provision of the Electricity Act
regulators are restricting banking waivers granted to renewable 2003). States such as Chhattisgarh
of renewable power in many power projects earlier on. States and Orissa have the same tariffs
renewable resource-rich states like Maharashtra, Gujarat, Madhya for third-party and group captive
by moving from annual banking Pradesh, Karnataka, and Haryana as these states provide waivers for
to monthly banking periods. Solar have third-party open access renewable open access projects, as
resource-rich states like Gujarat charges that are higher than shown in figure 13.
and Maharashtra, which often have grid/DISCOM tariffs. This makes
third-party sale unviable in these The group captive model is
surplus generation, have already viable in almost all states, except
moved to monthly banking for the states. However, states like Gujarat,
Rajasthan, Andhra Pradesh, Orissa, Gujarat which does not permit the
third-party sale of renewable power. group captive model. Recently,
This move will affect the viability of Uttar Pradesh, Chhattisgarh
Karnataka and Tamil Nadu have Maharashtra has also levied an AS
renewable electricity projects. of INR 1.31/kWh on group captive,
third-party sale charges lower than
In addition, Rajasthan, Andhra the grid tariff, but still higher than which may make the group captive
Pradesh and Madhya Pradesh have the group captive model. Increasing model unviable.
recently completely withdrawn the third-party sale tariffs will deter
banking provision for renewable
projects, while Karnataka is planning
to restrict it to a 15-minute period.
Figure 13: Landed cost of solar power for industrial consumers
Annex 3 summarizes the current 9
banking regulations across
different states. 8
7
Tariff (Rs/ kWh)
Impact of regulatory
changes on electricity
6
tariffs 5
C&I consumers in India are likely to
4
pay high grid tariffs due to cross-
subsidization. In the last four years, 3
grid tariffs have increased by
Rajasthan
Maharashtra
Karnataka
Madhya Pradesh
Gujarat*
Uttar Pradesh
Andhra Pradesh
Telangana
Chhattisgarh
Haryana
Odisha
Tamil Nadu
about 2% (excluding financial year
2020-21) across the key industrial
states of Tamil Nadu, Maharashtra,
Gujarat, Andhra Pradesh, Karnataka,
and Uttar Pradesh. Though tariffs Grid charges (Rs/ kWh) Third-party sale Group captive plant
have mainly declined or remained
Source: JMK Research
the same in financial year 2020-
Assumptions: (1) solar power purchase cost fixed at INR 3.50/kWh across states to highlight
21, this is primarily due to the changes due to open access charges; actual tariffs vary; (2) landed cost of solar calculated for
COVID-19 pandemic and is not industrial consumers connected at 33 kV voltage; (3) Grid charges are estimated DISCOM net
representative of the underlying tariff for consumers; (4) the group captive model is not permitted in Gujarat.
Corporate Renewable PPAs in India: Market & Policy Update 18Figure 14 provides the means to analyze the viability of the third-party sale model and the group captive model for
different states.
Figure 14: Viability of third-party sale and group captive models by state
Haryana
Rajasthan Uttar
Pradesh
Gujarat Chhattisgarh
Madhya Pradesh
Odisha
Maharashtra
Telangana
Andhra
Pradesh
Karnataka
Tamil
Nadu
Third-party sale & group captive
Group captive
None
Data source: JMK Research
Note: While open access projects are feasible in states like Rajasthan, Haryana and Andhra Pradesh, these states are no longer giving approvals
or are reluctant to give approvals for new renewable open access projects.
Corporate Renewable PPAs in India: Market & Policy Update 194 Outlook for corporate renewable PPAs
Corporate Renewable PPAs in India: Market & Policy Update 204 Outlook for corporate renewable PPAs
Expected project Figure 15: Developers with known open access projects in the pipeline
pipeline for 2021 450
Going forward, there is likely to be 400
a spur in demand for corporate
350
renewable PPAs due to increased
corporate sustainability ambitions 300
Capacity (MW)
and action by leading corporate
250
buyers in India. The number of
RE100 member companies with 200
electricity loads in India continues 150
to grow: 74 RE100 members report
operations in India as of December 100
2020 and their average renewable 50
electricity share has increased from
32% in 2018 to 39% in 2020.10 0
AMP Energy
CleanMax
Avaada
Cleantech
Fourth Partner
Aditya Birla
Amplus Solar
Hinduja Renewables
Prozeal Infra
SunSource
Enrich Energy
Various developers have entered
the open access segment and
are planning substantial additional
capacity development in the
coming years: Source: JMK Research
• CleanMax: 200 MW of planned
capacity in Karnataka, Gujarat • Amplus Solar: 75 MW of renewable electricity projects in
and Haryana. planned capacity in Haryana, India. The country is likely to see
despite regulatory setbacks in another 500-550 MW added under
• AMP Energy: 400 MW of the state. onsite rooftop OPEX models. As a
planned capacity in Uttar result, capacity additions in 2021
Pradesh and Rajasthan. Based on this pipeline, JMK in India are likely to achieve similar
Research estimates that in next or could even surpass volumes
• Enrich Energy: 150 MW of 12-18 months, companies will observed in 2019.
open access solar projects in likely commission more than 1
Maharashtra. GW of new open access offsite
Corporate Renewable PPAs in India: Market & Policy Update 21Emerging PPA (4) the corporate buyer continues The inter-state structure is similar
structures to purchase its electricity at the to the growing trend in Europe of
variable market price, which the cross-border or pan-European
To meet this growing demand and
VPPA now hedges (see figure 15).11 PPAs, where a PPA signed with a
the diverse needs of corporate
renewable project in one or more
buyers considering PPAs, we expect To our knowledge, corporate countries covers electricity demand
alternative corporate renewable buyers have not yet signed any in another country or in several
PPA structures to gain interest VPPAs in India to date, due in part countries. This allows the corporate
in India, in addition to increased to unfamiliarity with the structure buyer to simplify renewable
uptake of rooftop solar PPAs, hybrid and in part to low liquidity in the electricity purchasing by covering
PPAs and GTAM. We outline three Indian power market. However, many loads across different
examples of alternative structures some large-scale corporate buyers countries, as well as choosing the
below: virtual PPAs, interstate PPAs, are now considering this contract renewable project with the most
and round-the-clock PPAs. structure, particularly those advantageous conditions (in terms
who have already implemented of electricity price and production).
Virtual PPAs conventional rooftop solar,
In a virtual PPA (VPPA), the group captive or third-party sale For the inter-state model to work
corporate buyer agrees to purchase structures and who are looking to in India, the parties to the PPA will
renewable power through a raise their ambition to reach 100% need to engage with the respective
corporate PPA, without physical renewable power. VPPAs may also DISCOMs in both states. Once
delivery of electricity and therefore be attractive for those looking for corporate buyers have signed and
without sleeving or transmission shorter contract terms in India (e.g., proven the first project, we expect
fees. VPPAs are more flexible5 Conclusion
Corporate Renewable PPAs in India: Market & Policy Update 237 Conclusion
This report finds that Despite these market and In the meantime, corporate buyers
additional corporate regulatory hurdles, government have started to explore new
renewable PPA capacity efforts to introduce electricity business models to steer their
in India fell substantially, sector reforms have the potential renewable power procurement
to 800 MW in 2020, due to to significantly stimulate uptake needs. New PPA offerings like
regulatory hurdles imposed of corporate renewable PPAs in hybrid PPAs have already gained
by state regulators and India. If implemented successfully, traction. Alternative options like
the COVID-19 pandemic. the privatization of loss-making GTAM are now also available to
However, the market is set to DISCOMs can open new pathways fulfill consumers’ renewable power
grow in 2021 as companies to reform the power sector. C&I requirements. In the coming months
seek to meet their renewable consumers would be one of the we also expect corporate buyers
electricity targets, manage most impacted beneficiaries if this to investigate alternative PPA
their electricity costs reform is successful, as it would structures, such as VPPAs and inter-
and obtain tariff certainty facilitate access to a wider array of state PPAs. These structures may
in the longer term. electricity procurement options for compete with the existing models in
corporate buyers at lower prices. the longer run, as open access may
In the short term, COVID-19 caused become a less desirable option due
a market slowdown and project The provision of stricter RPO to the risk of state governments
delays due to site access and compliance according to the withdrawing waivers. In the longer
supply chain constraints. Financial draft Electricity Amendment Bill term, structures including battery
repercussions from the pandemic will also drive the market for new storage, such as utility-scale RTC
also resulted in credit rating open access renewable power PPAs, may also be applicable for
downgrades for some corporate projects. A stable and transparent corporate PPAs.
buyers, which has led project policy framework is crucial to
developers to factor in a greater keeping corporate renewable PPAs Going forward, we expect to see
credit risk, resulting in higher PPA attractive and states should ensure greater demand for corporate
prices for new PPAs signed. In the the implementation of consistent renewable PPAs due to ever-
longer term, PPA prices are likely statutory requirements to ramp up growing corporate sustainability
to stabilize or drop again, owing growth. commitments by companies with
to falling technology costs along operations in India. The current
with an increase in demand from Furthermore, with the Indian PPA project pipeline and the
corporate buyers. Government’s renewed focus on expected increase in demand show
the Make in India initiative to limit that signed PPA capacity additions
In addition to impacts from the the country’s dependence on in 2021 are likely to recover to
COVID-19 pandemic, state- imports, corporate demand from reach the higher volumes
level regulatory hurdles, such the renewable PPA market will be observed in 2019.
as backtracking on waivers to imperative to driving domestic solar
open access charges, imposing module manufacturing.
additional surcharges, restricting
banking provisions for power,
limiting net metering connections
for C&I consumers, and reluctance
in giving net metering connection
approvals to renewable projects,
have also impacted corporate
renewable PPAs in 2020.
Corporate Renewable PPAs in India: Market & Policy Update 24Glossary
average power purchase cost commercial and industrial (C&I): open access: A regulatory
(APPC): The weighted average A business segment set up with the mechanism allowing a grid-
pooled price at which the sole motive of gaining profit. connected bulk consumer, holding
distribution licensee has purchased a valid contract demand for 1,000
commercial operation date
the electricity, including cost of self- kVA or more, to meet part of or
(COD): The date on which the
generation. its entire electricity requirements
commercial operation of the power
through alternative sources.
additional surcharge (AS): plant begins, after successful
DISCOMs impose an additional testing and injection of power at OPEX: An operating expenditure-
surcharge to recover stranded costs the point of delivery (the metering based model in which an investor
due to stranded power purchase point between the power producer invests the upfront capital cost
agreements (PPAs) and stranded and the utility at the pre-determined of the project and the consumer
assets due to consumers procuring voltage level). pays for the electricity consumed/
power through open access. supplied by the project developer.
corporate renewable PPA: An
Appellate Tribunal for Electricity agreement between a private power purchase agreement
(APTEL): Hears appeals against the company and a power producer (PPA): A contract between a power
orders of the adjudicating officer (developer, independent power producer and a buyer of electricity
or the Central and State Electricity producer, investor) to purchase for an agreed tariff, tenor and
Regulatory Commissions under the renewable electricity at a mutually capacity.
Electricity Act, 2003. agreed tariff, tenor and capacity.
renewable purchase obligation
banking: When a generator is cross-subsidy surcharge (CSS): (RPO): Obligations imposed
wheeling electricity, it can virtually A charge levied to recover the cost by a state electricity regulatory
bank the electricity for consumption of the utility providing subsidized commission (SERC) on certain
by an end-customer later. The power to certain categories of entities to purchase electricity from
bank is not a physical electricity consumers, such as the poor, renewable sources.
storage facility; rather, accounting religious entities and agriculture.
state electricity regulatory
methods ensure the virtual banking
DISCOM: A local electricity commission (SERC): The electricity
of electricity.
distribution company. regulator in each Indian state; one
basic custom duty (BCD): A tax of their key responsibilities is to
group captive model: Under this
imposed under Customs Act 1962 determine retail electricity tariffs
unique structure provided under the
that is applicable to imported items; and open access charges.
2003 Electricity Act, C&I consumers
the government has the right to
can set up power plants for their safeguard duty: A tax imposed
create exemptions or reduce the
collective use; they should have at on imported products in order
BCD on any item.
least 26% of the equity in the plant to protect the domestic industry
capacity utilization factor: and must consume at least 51% of against a surge in imports of a
The ratio of the actual electricity the power produced. competing products.
generated by a renewable electricity
independent power producer tariff: The cost per unit of
project over the year to the
(IPP): An entity that is not a public electricity that a buyer pays.
equivalent electricity output at its
utility but that owns facilities to
rated capacity over the year. virtual PPA (VPPA): A contract
generate electric power for sale to
structure where the corporate
captive buyer: The end user of the utilities and end-users.
consumer agrees to purchase a
electricity generated by the captive
net metering: A billing mechanism project’s renewable electricity for a
generating plant.
allowing onsite projects to feed pre-agreed price, without physical
captive model: A power asset in excess electricity to the grid, delivery of electricity.
which the captive buyer consumes reducing their own electricity bills;
hybrid PPA: A contract structure
at least 51% of the electricity usually limited to solar rooftop,
combining the renewable electricity
generated and owns at least 26% of though some states allow other
sources of solar and wind to
the equity. sources to qualify as well.
generate power.
off-taker: The buyer of electricity
in a PPA.
Corporate Renewable PPAs in India: Market & Policy Update 25Annex 1: Summary of state-level updates for
open access regulations
State Earlier provisions on Update on open access regulations
open access regulations
Uttar Pradesh In September 2019, the state In December 2019, the state introduced the Uttar Pradesh Electricity
introduced its regulations for Regulatory Commission (Terms and Condition for Open Access) Regulations,
captive and renewable energy 2019, including:
generating plants, including: • Consumers availing open access facilities will have to pay the transmission
• A 50% exemption on wheeling & wheeling charges, CSS, AS, standby charges (to the distribution
and transmission charges for companies), imbalance charges (if applicable) as described in the regulation
captive and third-party sale and amended from time to time
• A 100% waiver on transmission • No additional surcharge for FY 2020-21
for interstate sales and 100%
exemption of state CSS for
interstate sales of power for
captive/third-party use
Gujarat CSS exempted for third-party sale In May 2020, GERC issued a tariff framework for the procurement of solar
and captive renewable power plants power, including:
• Wheeling charges applicable for third-party sale, while 50% exempted for
captive power
• Transmission losses and charges applicable for both third-party and
captive
• CSS applicable to third-party at 50% of normal CSS
• Additional surcharge of INR 0.37/kWh for open access consumers (third-
party sale only) to be effective from 1 April 2020 to 30 September 2020
Maharashtra Transmission charges increased for According to tariff for FY 2020-21:
all open access transactions. • All open access charges applicable to third-party sale projects
• Additional surcharge applicable to captive consumers as well
• Additional surcharge of INR 1.34/kWh for open access consumers (both
third-party and group captive) to be effective for FY 2020-21
Odisha • CSS waived for both third-party No changes in earlier provisions.
and captive power. No additional surcharge for FY 2020-21
• Transmission and wheeling charges
80% exempted for both third-party
and captive power plant
Rajasthan The government had waived CSS In December 2019, the state introduced the Rajasthan Solar Energy Policy
for all solar plants commissioned 2019, with transmission and wheeling charges exempted for solar projects of
between April 2014 and March maximum 25 MW capacity, setup between December 2019 and March 2023,
2019; however, it did not extend the as per the following criteria:
exemptions beyond 31 March 2019 • For solar projects setup for captive consumption outside the premises of
the consumer, there is a 50% exemption for transmission and wheeling
charges for 7 years
• For third-party sale open access projects, there is a 50% exemption for
transmission and wheeling charges for 7 years
• For solar projects with storage, for captive/third-party sale, there is a 75%
exemption for transmission and wheeling charges for 7 years.
Additional surcharge of INR 0.80/kWh for open access consumers (third-party
sale) for FY 2020-21.
In November 2020, the state incorporated the RERC (Terms and Conditions
for Tariff determination from Renewable Energy Sources) Regulations, 2020,
including:
• Renewable energy with storage projects installed after the date of
notification of these regulations and before 31 March 2023, shall receive
a 75% exemption in intra-state transmission and wheeling charges. These
projects could be for captive use or for third-party sale under open access.
This exemption is applicable for the first seven years of operation from the
project’s date of commissioning.
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