On 11th August, MEC Intelligence (MEC+) hosted an Expert Talk Session with Solar Quarter on ‘Corporate Renewable Energy Procurement in India: Analysing Role of Energy Buyers, Future Corporate PPA Trends & Market Innovation’. In this session, we informed corporate buyers and renewable energy companies about the constantly evolving landscape of India’s Corporate Renewable PPA Market and Global Corporate Renewable Power Procurement Models. We were joined by key stakeholders across the Corporate PPA value chain including developers, financiers, regulators, and off-takers.
Commercial and Industrial (C&I) consumers contribute nearly 50% of electricity demand in India, primarily serviced by DISCOM supply and conventional captive power plant capacity. Huge demand potential can be seen for RE corporate procurement in India since renewable is cheaper than these conventional power plants. Also, consumers can save between 20%-60% if they switch from DISCOM and even higher if they optimize diesel generator consumption. This makes C&I an attractive opportunity for investors.
The C&I market is divided into two parts – offsite and onsite. There was a shift seen in the market model from Offsite to Onsite after 2019. Onsite is putting up the panels on the roof, while in offsite, solar panels are located at a different location, and the grid is required to connect the generating station to the consumption station. Since offsite involves government infrastructure usage, it is subject to levy of charges and approvals. The corporate procurement for solar has doubled twice in the last three years showing very healthy momentum but it is still short of the 40 GW target.
Following are the two trends seen in the C&I market, till date:
- Offsite third-party PPA has taken the bulk of the volume, given no need for upfront payments, followed by onsite CAPEX and offsite group captive.
- The C&I solar open access market of India is sensitive in terms of regulatory environment & business case, leading to changing geographical opportunities. Fluctuating charges within offsite and narrowing of states with the net metering facility have been continuously altering the position of attractive geographies.
The C&I annual market is expected to lose the momentum built in the last two years with policy changes, economic downturn, and stalling of activity in the next 3-6 months. The market is projected to contract to 1.6 GW and further expected to grow at a 30% slower pace than earlier industry anticipation due to the ongoing health crisis of COVID-19. However, this is not a small market, with more than 2000 projects needed to reach the capacity.
On the supply side, the market is highly competitive with the presence of more than 180 players having experience of 50+ kWh installations. Among these 180 players, 77 have a critical size of 50 MW+ experience and only 9 players are focused solely on C&I. With changes in the regulatory environment, it remains to be seen how they shift their business model to suit both customer and state.
Three trends are likely to be seen in the market:
- Consolidation is likely to continue to capture a large share of the small and consistent market, especially as DISCOM risks increase
- Financing is key; a large scale of customer development and risk management is required to win the customers.
- Technical capabilities will be needed for installing larger and newer projects
In the Expert session, key stakeholders include Sanjeev Jain (CREDA), Srinivasappa Eswarappa (KREDA), Nitin Sabikhi (IEX India), Rahula Kashyapa (Renew), Jayant Prasad (cKers Finance), Anuvrat Joshi (Cleantech Solar), Shailesh Telang (CDP India). Following are the excerpts from the discussion are:
Mr Shailesh Telang shared his perspective that they are seeing a higher number of companies interested in renewable energy attributes and purchasing tracking systems to support their RE claims especially Renewable Energy Certificate (REC). They have also started procuring Indian or voluntary RECs, however, the cost is the most important parameter while choosing these. Global companies with their operations in India prefer sourcing renewable energy certificates at cost-competitive prices.
Mr Sanjeev Jain talked about the considerations taken in designing the rooftop policy for Chhattisgarh. He mentioned that the Chhattisgarh State Electricity Regulatory Commission (CSERC) has announced a consumer-friendly model of regulations on the model suggested by the Forum of Regulators (FOR). According to this model, consumers have multiple options to set up a project under net metering, directly or via a RESCO model, or avail attractive waive-offs on offsite projects.
Mr Srinivasappa Eswarappa stated that Karnataka is at the forefront of renewable energy development. Karnataka Electricity Regulatory Commission (KERC) has issued orders allowing different models for installation of rooftop solar such as RESCO or Third Party model. Net metering is also available as an option for residential consumers.
Mr Nitin Sabikhi cited that IEX operates for the contracts in the electricity-only market so far. They do not have any green contracts where buyers can buy electricity with a renewable component. IEX is willing to add renewable into their portfolio, but they need to understand how they are treating renewables differently in terms of subsidy or economic point of view. With the country expecting a 25% share of renewables in the energy mix in the future, renewables integration by DISCOMs in their grid infrastructure will be very difficult to handle and this will be a big challenge going forward. Therefore, it is the right time to explore market-based instruments for consumers. He highlighted that we should let the market decide what they would like to prefer, such as the green market in the exchange or long term PPA directly with the generator or group captive model, among other models.
Mr Anuvrat Joshi believes that getting long-term clarity in terms of contracts will always have a certain value for the infrastructure asset class. Both merchant plants and long-term contracts exist in the market, but infrastructure asset class gravitates more towards the long-term contracts, even if it may not be the wisest decision for developers and consumers to lock all their assets in the long run because these get better debt financing as compared to merchant plants. Developers are experimenting with both the options (Long term and merchant) to extract the most value of their asset.
Mr Rahul Kashyapa also agreed that long-term contracts will find favors as compared to merchant plants as far as financing is concerned. Developers are exploring options other than long-term contracts that could be made available on exchange from a short-term perspective. However, he believes that long term-contracts still have greater value right now because of the better debt structure. Over the period, we could see some part of the overall project portfolio experiment with short-term as well and this will help with the overall revenue realization of the specific project.
On asking about who would be their ideal customer for C&I to Renew Power and how are they planning to expand their customer base from a financing point of view, Rahul expressed that from the financing perspective, consumer rating is one of the most important drivers. The ideal consumer would be someone with a robust credit rating and with robust PPAs.
Mr Jayant Prasad highlighted that banks perceive the risk of ground-mounted or rooftop C&I models very differently from the DISCOMs risk. DISCOMs risk is tried and tested with multiple GW already funded but on the other side, there is a lack of familiarity around financing rooftop or ground-mounted or open access. There are apprehensions around the lower lock-ins and their PPAs seem to be weaker to bankers than DISCOM PPAs. They are also concerned about the retroactive charges levied and how would these charges be passed-on and sanctity of the contract. Financiers are also unsure about the production variation which will happen from ground-mounted to the rooftop and also about the policies of net metering. So, these are some of the questions which bankers struggle with while looking at the rooftop or open access financing. Within C&I procurement availability of multi-lateral lines to rooftop onsite has created more financing ease as compared to open access or offsite projects which are perceived to be most risky projects, due to shorter PPA and higher regulatory risks.
About MEC Intelligence (MEC+):
MEC+ has deep expertise in the RE corporate procurement space in India with the understanding of regulatory challenges, business case, customer needs as well as profitability. Write to us at info@mecintelligence for clarifications or starting a conversation and getting an exclusive copy of the complete video. For more interesting reads around the renewable energy sector, visit Expertise and Insights.
– India offshore wind masterclass (tentative 27th August)
– India Hydrogen strategy & roadmap- Expert Session
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