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Indian corporations are increasingly looking for options to
reduce their carbon footprint by procuring green energy. These
attempts are largely policy-driven through renewable purchase
obligation (RPO) targets for large consumers of electricity as well
as voluntary corporate sustainability targets. Another key driver
that has helped increase the pace of adoption of green power
despite high regulatory risks is the improved economics of
renewable projects and the potential for savings compared with the
retail tariffs for commercial and industrial (C&I)
consumers.
Electricity demand for C&I consumers constitutes about half
of India's total utilities demand and more than 70% of the captive
demand. Meanwhile, most C&I electricity consumption is through
the grid (about 65%), followed by conventional captive projects
(about 22%) and short-term transactions on power exchange (about
10%). However, there is an increasing number of C&I consumers
looking to meet their electricity demand through direct renewables
procurement. This result is reflected by the more than 20 renewable
projects for about 1 GW of capacity announced in the first four
months of 2021 for corporate consumers in various industrial
sectors.
About half of the total projects announced in 2020 in India are
in just three states: Tamil Nadu, Maharashtra, and Karnataka. In
most of these states, solar photovoltaic (PV) is the most preferred
renewable technology among C&I consumers, constituting roughly
half of the projects announced in 2020. The prevalence of solar is
driven by falling PV capex and the relative ease of implementation
compared with other technologies.
Going forward, demand for hybrid wind-solar projects is expected
to increase because of their potential for more steady supply of
green power. So far, hybrid projects with storage have not been
announced for C&I consumption, but it can be expected that as
the batteries capex declines in the mid- to long term, the demand
for renewable projects with storage may rise as well.
Overall, India's market for renewable procurement through direct
power purchase agreements (PPAs) including captive, group captive
and third party PPAs is estimated at 10-12 GW at end-2020. IHS
Markit expects that in the coming years, the annual average demand
for new corporate PPAs may be 1.5-2.0 GW, taking the market to a
cumulative 18-21 GW by 2025.
However, there is high regulatory risk for open access project
about levels of charges, open access regulations, and concessions
for renewables, as they are frequently updated by states. There is
also a risk of delays in getting permits for open access projects.
All these factors combined result in high policy and administrative
risks for upcoming projects. Due to high grid and regulatory
charges, which could constitute about 20-55% of the landed cost of
renewables, open access projects result in potential savings for
corporate consumers in select states only including Telangana,
Karnataka, Rajasthan, and Tamil Nadu. Group captive PPAs offer the
highest savings across states on grid tariffs. As the competitive
landscape for corporate PPAs evolves beyond the turnkey model to a
renewable independent power producer (IPP)/developer-dominated one,
these pure-play renewable IPPs prefer the group captive model of
setting up an open access utility-scale project while tying up PPAs
with multiple C&I consumers.
Ankita Chauhan, Senior Research Analyst on the Climate
and Sustainability team at IHS Markit, has more than seven years of
experience in the renewable energy and climate change sectors, with
a special focus on market and policy trends for wind and
solar.
