Open access: A game changer for green energy?

A quick glance at the recently notified green energy open access rules gives the impression that it has the potential of making a paradigm shift for the growth of renewable capacity in India.

While India’s target for 2030 is 500 GW of non-fossil generating capacity, the present grid connected installed capacity (including large hydro) is about 165 GW. To reach the magical figure of 500 GW, the renewable capacity will have to be ramped up from about 10 GW per year to about 40 GW per year for the next eight years. This is going to be an extremely difficult task. It will need incremental investments to the tune of Rs 13 trillion. This is purely the investment requirement for setting up renewable capacity at the rate of Rs 4 crore per MW. The bigger question is, who is going to invest in such huge capacities, knowing fully well the financial condition of the distribution companies (discoms)? The accumulated losses of discoms (as of March 2020) is about Rs 5 trillion, or 3.5 per cent of gross domestic product (2019-20). Each unit of energy sold results in a loss of 60 paise for the discoms.

The tempo of solar capacity has slackened since 2018-19. The imposition of safeguard duty for two years was one reason why developers simply postponed their investments and decided to wait for the duty period to end. The regular reopening of power purchase agreements, at least by some states, was yet another reason. Then there are the usual issues like land acquisition. The prospect of growth of solar capacity hereon also does not seem to be bright. There has been an upsurge in solar tariff after reaching a figure of Rs 1.99/unit in December 2020. Recent bids show solar tariff at Rs 2.17/unit to Rs 2.29/unit. The imposition of basic customs duty (being levied since April 2022) is going to increase the cost of capital expenditure (capex) and hence, tariff. Capex will also rise on account of an increase in commodity prices the world over. Besides, there has been an increase in freight charges due to a shortage of containers and the increase in goods and services tax on solar cell/modules from 5 per cent to 12 per cent. The directive to buy solar panels from an approved list of models and manufacturers (ALMM) for government projects will also hamper growth. Incidentally, only domestic manufacturers are included in ALMM and only a few amongst them make high grade panels.

In such a gloomy scenario, it is difficult to dream of a target of 500 GW of non-fossil capacity by 2030. Therefore, we need to think of alternative plans to spur growth of renewable capacity and the recently notified green energy open access rules may just provide the required fillip. The decision to lower the eligibility for open access from 1 MW to 100 KW is the prime driver and has the potential to spur demand. The move to limit open access charges for green power is also expected to help in demand growth, though the wording of this particular section [1st proviso of 9(2)] of the rules could have been constructed better. The rules also mention that a decision to grant open access or not would have to be taken in 15 days failing which it would be treated as deemed permission.

There are a few points to ponder here. First, the open access rules for green power, though helpful to the consumers, will put the discom finances under further strain. With open access now available to consumers with a connected load of 100 KW and above, a larger number of commercial and industrial consumers will become eligible. India is perhaps reaching a stage where only the subsidised consumer will remain in the billing fold of the discoms. It has to be borne in mind that if India really wants 500 GW of non-fossil capacity, the financial health of the discoms need to improve since nobody will invest in renewable capacity if they are uncertain about their payments. To improve the financial condition of discoms, the following needs to be done: Retail tariffs need to be raised, the discoms need to bring down their commercial losses and the government needs to pay the promised subsidy to the discoms. Whatever capacity addition these rules may bring about will have to be weighed against what may be lost due to the worsening health of the discoms. Second, the states will still be able to thwart open access citing technical issues, meaning a lack of transmission capacity. In fact, some states have been thwarting open access to even the mighty railways citing technical issues. So refusing the request of individual consumers would pose no problem if any state so desires. After all, it is the state load dispatchers and the state transmission utility that will decide whether spare capacity exists.

Finally, a point of order. Should the government indulge in tariff related issues, such as, open access cross subsidy surcharge since this is the job of regulatory commissions? The government has used the small window that is available under section 176(2)(z) of the Act which allows them to frame rules for the working of the Act. Though not specifically mentioned, it is only natural to assume that the government can only frame rules for those activities which are under its domain and tariff is not one of them. In the previous occasion when the government framed the principles of calculating cross-subsidy surcharge, it used the tariff policy to enunciate it. It did not have the desired effect since many states are of the view that the tariff policy is merely advisory. Perhaps, the government chose not to go through the tariff policy route because then it would have to discuss it with the states and it is well-known that some states would oppose these rules.

However, given the predicament of how to increase renewable capacity, the green energy open access rules need to be supported. Whether these rules will have the desired effect or not is something which is to be seen at a later date.

The writer is former member (economic and commercial), Central Electricity Authority