Open access-based renewable energy projects face constraints: ICRA

The distributed renewable energy generation developers that supply power to the commercial and industrial (C&I) segment by leveraging ‘open access’ provisions are facing regulatory constraints said rating agency ICRA.

The regulatory constraints include upward revision of open access charges, denial of open access approvals and tightening of energy banking norms.

Typically, open access allows large users of energy, typically those who consume over 1 megawatt (MW) of power, to buy power from the open market, instead of depending on a more expensive grid. 

However, the state electricity distribution companies (discoms) have been dissuading clean energy developers to use their power transmission and distribution networks to supply electricity to third-party and captive consumers.

With improving tariff competitiveness of renewables particularly in the solar and wind power segments, the renewable power policies in several states have been amended over the last 3-4 year period, an official statement said.

“The overall open access charges for the third party based Independent Power Producers (IPPs) vary widely across the key states ranging between Rs 2 – 5 per unit and have shown an increasing trend over the period, given the limited progress in tariff rationalisation for the grid tariffs set by the SERCs for the state-owned distribution utilities (discoms). Further, state-owned discoms in most cases show a passive resistance, due to apprehensions of losing cross-subsidising / high tariff paying C&I customers,” said ICRA’s senior vice president and co-group head- corporate ratings Girishkumar Kadam.

In fact, according to ICRA, states have either completely withdrawn or reduced the concessions / incentives on open access charges, in respect of procuring power from solar and wind power projects under the open access route.

Kadam said this poses regulatory headwinds for capacity addition in open access segment for the renewables over the medium term. However, demand for such power purchase Agreements (PPAs) with C&I customers is favourable, supported by tariff attractiveness, given the extent of discount, offered in such PPAs against the applicable grid tariffs as well as growing voluntary sustainability initiatives of corporate customers, as seen recently.

The tariff competitiveness for group captive projects is relatively superior due to non-applicability of cross-subsidy surcharge and additional surcharge (except in Maharashtra) as against third-party sale under open access. 

However, policy clarity on the proposed amendments in the eligibility criterion of with respect to the ownership/equity structure for group captive projects is still awaited and thus, the same can be monitored, said an official statement.

ICRA vice president and sector head – corporate ratings, Vikram V said, “Despite these challenges, the credit profile of renewable projects in the open access segment remains supported by a mix of factors such as relatively better tariff expectations by about Rs 1 – 1.5 per unit against the tariff discovered in the utility segment and their ability to ensure tariff competitiveness for the C&I customers. Further, the presence of diverse and credit-worthy C&I customers remains another supporting factor for the credit profile of most open access-based IPPs in the ICRA-rated portfolio”.

Notwithstanding the regulatory headwinds in the open access segment, the outlook on the renewable energy sector remains stable. 

Overall, ensuring open access will also help attract large green electricity consumers in setting up their own captive green energy plants.

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