Can India ensure smooth sail for corporate buyout of renewable energy?
The Centre needs to facilitate, standardise the corporate buyout of renewable energy projects and simultaneously ensure security, stability of electricity grid
In India, the Commercial and Industrial (C&I) sector accounts for nearly 45 per cent of the electricity consumption. The Central Electricity Authority forecasts for national power requirement in 2021-22 shows demand increasing to over 50 per cent. Although renewable energy shares in the grid have increased over the last few years, thermal sources still account for 64.3 per cent of the power mix. If the new demand arising from the C&I sector can be met by renewable energy (RE), it would inch India that much closer to the 175 GW target by 2022.
Corporations across continents are committing to sourcing 100 per cent of their electricity needs from renewable energy too. Today RE 100, a global collaborative introduced at COP21 has 144 companies and this does not account for the many who have not signed up but have taken active measure to clean up their supply chain. Large corporations like IKEA, Apple, Facebook and Coca Cola are some of the big international names. Indian signees include Dalmia, Hatsun Agro Industries, Infosys and Tata Motors among others.
At the 2nd Global RE-INVEST held in October first week, discussions on Corporate Power Purchase Agreements garnered a lot of attention and rightly so. At the end of 2017, India had a cumulative 1.8 GW of corporate RE PPAs (WBCSD). Globally, 2017 was a record-breaking year for corporate RE PPAs; across 10 countries, 43 companies signed PPAs worth over 5.4 GW.
Corporate PPAs for renewable energy projects, is a relatively novel idea, where businesses can source their energy demand directly from renewable energy, through independent power producers (IPPs). It is most attractive for large industries. In India cement, steel and paper, who gain long term visibility on their revenue. Corporate PPAs, like utility PPAs are long term agreements that detail rates and conditions for sale and purchase of electricity. Additionally, the added benefit from a direct PPA reduces the risk for both the energy generator and the buyer.
India’s parity market and unreliable grid electricity should be reason enough for large C&I consumers to turn to renewable energy. At the session on Corporate Renewable Energy Buyers’, K S Venkatagiri kick started the conversation by stating that “long-term corporate PPAs in India today present an economically sustainable business proposition”.
On the slow movement in India, the overall consensus at the panel discussion was that policy flip flops were the primary hindrance. Although they all believed that India’s current PPA model (especially under the auction regime) is sound; views on the optimum duration of the PPA varied. For instance, project developers prefer longer PPAs, corporate buyers prefer shorter PPAs with long term set tariff whereas the lenders are undecided.
Charles Donovan from the Imperial College, London, UK cautioned that as the renewable energy tariffs continue to fall, small and large businesses will migrate from utilities to third party suppliers, to procure cheaper power. This led to what was called the “utility death spiral’ in Germany, in 2013-2014. The case could be much worse for India – with the transmission and distribution networks already running in losses. States with open access facilities or heavy cross-subsidisations would suffer the worst.
The government needs to facilitate and standardise the corporate buyout of renewable energy projects while simultaneously ensuring security and stability of the electricity grid. Bruce Douglas, Solar Power Europe Corporate said that there were 14 different corporate PPA models available worldwide. The government of India should facilitate all of them, so corporate buyers can adopt models based on their specific electricity demands, thereby facilitating competition within the industry. To extend the pool to small and medium industry consumers, several panelists suggested aggregation of demand.
He further emphasised on the need for ‘origin of energy generation’ guarantees. This could be tricky, especially since the synonymous renewable energy certificates (REC) mechanism in the country has failed to take off.
In India, integration to the grid presents a few challenges that the government is struggling to address, such as financially struggling DISCOMs, weak transmission infrastructure and RE integration challenges.
On the other hand, generation at point of consumption would bypass the grid; efficient technology and smart metering would further help optimise consumption, and benefit the corporate buyers. The additional cost of storage would be minimal for such large consumers and recent policy on hybrid projects refer to third party purchase.