Open access II: India's attempt to expand scope of green energy initiatives

The new guidelines expanding consumer choices to green energy will remain subject to the uncertainties and quirks of state policy

Nearly two decades after former Prime Minister Atal Bihari Vajpayee threw open the electricity sector to competition via The Electricity Act of 2003, Prime Minister Narendra Modi is attempting the same by extending and expanding the choices available under the Act to consume and produce green energy.

Open Access (OA) amendments, which offer an easier road to both harried consumers and green power developers to somewhat sidestep inefficient host utilities and expand India’s renewable potential, is a welcome addition to New Delhi’s commitment to gradually loosen the grip of state electricity companies on India’s power sector.

The problem, though, remains the states. “As power is a concurrent subject, timely implementation of these rules across the states by the respective commissions and distribution utilities remains to be seen,” said Sabyasachi Majumdar, senior vice-president, ICRA, in a recent note. “Regulatory risks such as obtaining open access approvals and uniformity in open access charges, remain key challenge for OA projects,” he added.

“The complexity of OA was so high, varying from state to state, different nodal agencies, rates and policy unpredictability, that it kept developers away,” said Shubhra Mohanka, director, Gautam Solar, a solar equipment supplier.    

But the fate of India’s revised OA policy rules, a pit stop in its race to more than quadrupling renewables capacity by 2030, still lies with state administrations — entities that had tripped the older OA regime, and with which the Modi government has not had the best relations.

“It is a very positive and encouraging step if we have to meet target of renewable energy, but state distribution companies will find the new policy  challenging,’’ said A K Saxena, a senior director at energy think tank TERI, with 37 years of experience in the power sector, including stints in in the Central Electricity Authority and Central Electricity Regulatory Commission.

As he explained, “The host utility will be worried as to how it will cater to subsidised consumers if well-paying industries migrate. Distribution companies (discoms) have liabilities, as 85 per cent of their power is tied up in long-term purchase agreements for which they have to pay fixed charges.”

The highlights of the amended OA rules include lowering the capacity threshold for consumers to avail of green energy by a factor of 10, eliminating or capping surcharges, broadening the definition of renewables-derived electricity to include hydro and storage, green hydrogen and green ammonia, standardising rules to bank unused green energy with utilities, and setting up a central nodal agency to monitor OA requests.

India’s OA policy first found a place in the Electricity Act of 2003, enacted to consolidate laws relating to production and use of electricity, promoting competition, rationalising tariffs, and setting up regulatory bodies. But the spirit of the older OA regime to promote choices and competition was crushed by utilities in many states—framing complex rules, approval delays and surcharges that crippled consumer choices. For instance, West Bengal did not have an OA policy; Odisha barred banking of electricity; while Tamil Nadu never allowed a tariff hike in the past eight years, burdening the state utility with such debt that new OA rules weigh further on its finances.

“Each state has notified their own OA regulations, and under the Electricity Act, the state electricity regulatory commission (SERC) has the power to determine OA charges and OA capacity limits for their respective states,” said Pranav Master, director, energy, CRISIL. “Hence, the actual implementation of green OA rules rests with the states. If these provisions are applied rigorously by states, then it will create a conducive environment for consumers to avail of open access,’’ Master added.

The revised OA rules offer medium and small-scale enterprises more choices and renewables developers more business but render debt-laden discoms vulnerable. That may prompt utilities to place hurdles in the way of widening consumer choices.

This was evident in the fact that soon after New Delhi notified the new OA guidelines, Tamil Nadu steeply hiked OA tariffs, violating the spirit of the guidelines. Cross-subsidy charges rose 40 per cent, and wheeling tariffs, which is paid to a host utility to transport electricity from a generator to consumers, surged more than seven-fold.

The new OA guidelines are well-meaning. They expand the universe of captive power consumers, which account for 90-95 per cent of the OA users, and invest at least 26 per cent equity in power projects, said Shriprakash Rai, a senior director at solar power developer Amp Energy India. Reducing the threshold for consumers to avail of electricity via OA to 100 KW from 1 MW has democratised the field for Micro, small and medium enterprises, he added.

More important, the new guidelines have done away with the amount of renewable power you can demand. Most states do not allow unlimited OA. For instance, in Maharashtra, it’s 1.5 times your contract demand, in Gujarat it’s 50 per cent, while in Uttar Pradesh there is a restriction on technical grounds, Rai added. Such restrictions can be carried forward to the new policy where utilities can restrict green power consumed by a business on the basis of voltage limitations.

Nobody can question the utility’s arguments on limitations of a distribution network, Rai said. The alternative is to add new transformers and strengthen the grid. Solar power follows a parabola curve where generation is lowest in the morning and evening but industries’ power needs are constant. So the policy allows 30 per cent of a factory’s solar power demand to be banked with the host utility for use in the same month, after paying a fee, Rai said.

But state restrictions may apply. In UP — where there’s a 6 per cent charge on the units banked — stored power cannot be drawn during evening when demand peaks but consumers can bank their power for six months; Odisha has no banking provision; Gujarat levies a banking fee on the entire load rather than on the power banked.

Yet another uncertainty is that the tariff for green energy under OA will be determined by SERCs after considering the power costs, cross-subsidy charges, and service charges, the policy says. This provision could partially negate the market expansion, particularly for small and medium-sized independent power producers focusing on the open access market, CRISIL’s Master said.

Eventually, the success of OA depends on how well states implement the policy. When states see a flight of consumers to other utilities some may reduce tariffs to prevent switching, while others may impose prohibitive charges to stop that transition, Saxena said.

Power points
 

The new guidelines:

• Lower the capacity threshold for consumers to avail of green energy by a factor of 10
• Eliminate or cap surcharges
• Broaden the definition of renewables-derived electricity to include hydro and storage, green hydrogen and green ammonia
• Standardise rules to bank unused green energy with utilities
• Set up a central nodal agency to monitor OA requests to be 
• Offer MSMEs more choices and renewable developers more business

The problems

• Power is a concurrent subject so states have their own rules for OA and SERCs will determine pricing etc
• Results in highly variable policy. Eg: West Bengal does not have an OA policy; Odisha bars banking of electricity; Gujarat, UP have different charges on banking unused power; Tamil Nadu raised tariffs sharply after the new OA policy was announced
• State distribution companies fear the migration of paying customers, leaving them struggling to supply to subsidised customers