Let us discuss renewable energy. Recently, state governments increased the standard charges on open access renewable projects and incentives were cut back. So, what can be implications of such steps? Read to know…

What open access power user mean?

• Open access allows large users of power – typically those who consume more than 1 MW – to buy power from the open market.
• These open access buyers don’t have to depend on a more expensive grid.
• Through incentives given by state governments, these non-grid avenues of power purchase have been encouraged in renewable energy projects.

Now, state governments increased standard charges on open access renewable energy projects or are cutting back on incentives.

Reason given by state: Tariff competitiveness of wind and solar power has shown a significant improvement.

Implications:

• Credit rating agency ICRA said that with the changes in policy, the viability of open access – against grid-connected energy – is no longer as attractive.
• The open-access charges applicable in case of third party sale of power have also increased highlights the rising regulatory risk for such independent power producers (IPPs).
• Earlier,  concessions were available from levy of cross-subsidy surcharge, transmission and wheeling charges as well as favourable banking facilities to promote the renewable sector.
• Now, the power policies in many states have either completely withdrawn or reduced incentives given to open access  customers.

Issues for group captive projects

• A group captive scheme is where someone develops a power plant for collective usage of many commercial consumers.
•  At present, a power project is considered ‘captive’ if consuming entity or entities consume at least 51% of the power generated and owns at least 26% of the equity.
• The State Electricity Regulatory Commission (SERC) in Maharashtra has recently approved the levy of additional surcharge on group captive projects in renewable sector.
• Group captive consumers were earlier exempt from such levy in Maharashtra.
• Risk of other state following holds.

Challenges

• The viability of power procured under the open access route depends on discount offered by the power producer as compared to the grid tariffs.
• The applicable open access charges across the key states are estimated to vary quite widely from Rs.2.5 per unit to Rs. 5 per unit.
• Open access projects have tenure (5-10 years) of the power purchase agreements (PPAs) under the third-party sale route as against the 25 year-tenure for PPA in case of utility scale projects.
• Net tariff realised for such projects remains exposed to regulatory risk given the likelihood of revision in open access charges by the regulators.
• It is also subject to tightening of energy banking norms being observed by SERCs across the states.

Consider the question “Examine the implications of policy changes adopted by the state with regard to open access charges and phasing out of other incentives to Independent Power Producers (IPPs)”

Conclusion

Move by states could jeopardise many projects and also threaten the progress made towards the adoption of clean energy.

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