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COMMERCIAL AND INDUSTRIAL MARKET TO REMAIN AN ATTRACTIVE NICHE FOR INVESTORS

Corporate procurement of Renewables has a long ramp-up potential in India owing to the high demand for captive power use and favorable economic and environmental profile. Indian commercial and industrial (C&I) establishments consume almost 50% of the country’s power generation. Out of which, nearly 40% is coming from the captive use of power plants. Within the captive power plants, renewables account for only 9% of the total installed base.

The C&I (Commercial and Industrial) setup of RE plants in India initiated rather strongly during 2005-2012 when states provided tax benefits to corporates for the installation of wind turbines. This lasted until the technology got stable and started to find aggressive deployment in PPA based schemes and utility-scale projects. The market for wind C&I PPA is expected to be 0.3 to 0.5 GW per year over the next three years.

The corporate PPA market got its real headwind – with the decline in prices of solar technology since 2015. This was also followed by the introduction of incentive policy, targets for net metering and open access during FY 15-FY 17. The market for solar C&I PPA increased 5X from 0.4 GW of annual installations to 2 GW in FY 18 and FY 19. This was driven by the easing of restrictions in one state after another on open access and after the introduction of net metering. During this time, as many as 100+ companies started to compete in the market doing everything from EPC to the development of PPA, to selling power to an end customer. This was also the time during which first investments started to come in the market and the firms raised capital from Private Equity firms and Oil majors.

The installation rush seen during this period caught the regulators and licensed distribution companies by surprise. The regulators then moved in to remove the waive-offs to protect the business of DISCOMS and introduced charges on the evacuation of power which limited the amount of power that could be evacuated.

Going forward, even after the removal of waive-offs and adjustive for earning decline due to COVID, a robust volume of 1.5 GW is expected to be installed during the FY 21 to FY 23 as compared to the installation of 2 GW in FY 20. This is still a fraction of the overall annual 12 GW volume of DG sets sold in 2019. This volume is only going to increase as the costs of solar decline further and become competitive to purchasing power from DISCOM even after incorporating maximum charges that the DISCOM can apply for evacuating it. This is expected to happen during the next 2 years.

In parallel, the large renewable energy firms are also getting very strong and competing on their ability to raise finance which allows them to offer PPA to customers. Nearly, 10 firms in the market have raised finance to offer PPA and are spearheading the transition of the market from CAPEX and EPC to OPEX and PPA. The more financing they can raise, the higher are the amounts of PPA that can be signed which lower the cost of renewable PPA and provides them a higher volume and longer contracts. Hence, large players will continue to remain busy and grow while the market concentrates leading to robust PPA prices.