PPAs: 'Outlook for 2019' by World Business Council for Sustainable Development

PPAs: 'Outlook for 2019' by World Business Council for Sustainable Development

Much of the utility-scale renewable energy capacity addition for corporate renewable power procurement in India in 2018 came from Karnataka, led by a complete waiver of grid charges for wheeling of power for 10 years

PPA, Forum, WBCSD, World Business Council for Sustainable Development, Solar power, Wind power, Power generation, Outlook

The local government has not extended this policy for new projects and other governments have not replicated it elsewhere, although some states are still providing limited waivers for shorter time periods. These regulation changes are leading to growing corporate interest in market-led group captive projects.

Group captive projects are those where the consumer of the power holds at least 26% of the equity ownership. Under India’s Electricity Act (2003), these projects are exempt from the cross-subsidy surcharge (CSS). CSS is the largest and most unpredictable component of grid charges for open access power. The Electricity Act protects fully compliant group captive projects from the CSS, making it a suitable way for corporate buyers to secure power at low costs and avoid regulatory uncertainty.

In the past, many companies have not considered group captive projects in order to avoid the complexity of holding shares
in a project holding company. However, corporate buyers are increasingly accepting that group captive projects are the most cost-effective and low risk structures available to help them make further progress on their renewable sourcing targets.

While group captive projects offer a credible path to meeting corporate renewable sourcing targets, a word of caution is necessary as some developers have misused this mechanism in the past by structuring project holding companies such that they do not follow the spirit of the law. Corporate buyers should approach group captive projects only after ensuring that the developers have structured the projects in full compliance with the law and that experienced and ethical project developers have taken up the co-investment so as to not expose corporate buyers to undue project risks.

Predicting capacity addition for 2019 and beyond is difficult in the corporate renewable PPA segment, but there is no mistaking the overall trend. Fundamentally, the economics of solar power for corporate buyers continue to improve. With so many corporate buyers leading the way in solar procurement in 2018 in Karnataka, many others are looking to follow. Demand for group captive projects in large industrial states such as Maharashtra, Haryana, Andhra Pradesh and Telangana will likely fill the space vacated by the withdrawal of open access waivers in Karnataka.

Another nascent trend is the rise of group captive renewable projects over the procurement of traditional power on power exchanges. Most consumers compare the financial evaluation of group captive solar or wind to the cost of grid electricity, but a large number of companies also procure power on exchanges such as the Indian Energy Exchange (IEX). Companies that want to avoid power price volatility on the exchanges favor renewable power procurement via open access or group captive solar. Indian Energy Exchange (IEX) has proposed Central Electricity Regulatory Commission (CERC) to allow trading of renewable energy on the exchange. In May 2019, CERC invited comments from stakeholders for Green – Day Ahead Markets (G-DAM) contracts. Launch of such contracts will be a positive development for the private renewable energy procurement market.

In addition to solar, wind can also play a larger role in corporate sourcing of renewables, as it has in the US in particular. However, this will require certain policy changes. In India, only six states are actively pursuing wind power generation. It is also highly seasonal, which makes it heavily reliant on the availability of favorable banking policies from states that need to allow companies to carry surplus generation over to subsequent months.

The underlying logic for renewable energy procurement by corporate buyers becomes stronger every year and underpins the growth in this sector. As the focus shifts from a single state (Karnataka) in 2018 to a broader range of states in 2019, corporate buyers need to keep track of regulatory developments in the states where they have operations and plan their energy sourcing strategy accordingly.

Most Popular