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India Corporate Renewable PPA Forum PPAs in India: Market & Policy Update for 2019
Contents
1
Introduction | 3
2
Key market trends | 5
3
Policy and regulatory update | 9
4
Outlook for 2019 | 12
PPAs in India: Market & Policy Update for 2019 21
Introduction
Energy is no longer merely a cost for companies to
manage. Energy is climbing up the corporate agenda
due to sweeping environmental, social and business
trends, including rising expectations about corporate
environmental performance, innovations in energy-related
business models and plummeting renewable energy
prices. These trends bring new paths for value creation.
PPAs in India: Market & Policy Update for 2019 3Introduction
Renewable power procurement In 2016 and 2017, members The Indian power market is
helps companies reduce of the World Business Council constantly evolving as the value
electricity expenditures for Sustainable Development chain learns, reacts and shifts to
and increase visibility over (WBCSD) spent 18 months accommodate to the changing
future electricity costs, while exchanging practical knowledge state-level electricity tariff, policy
contributing to a company’s on how they are implementing and regulation landscape.
carbon emission reduction corporate renewable PPAs in As power procurement is
or renewable energy target. India, covering both rooftop often not part of their core
Increasing grid power tariffs and utility-scale installations. business, these changes can
for commercial and industrial We combined this knowledge often become difficult to track,
consumers, falling prices for with research on the regulatory especially for corporate buyers.
renewable projects and the environment and market
growing importance of corporate conditions to produce the The objective of this paper is
sustainability commitments are Accelerating corporate to provide a market, policy and
leading companies to actively procurement of renewable energy regulatory update on corporate
procure renewable power for in India report (June 2018). renewable PPAs in India,
their operations. covering both utility-scale and
During this first growth phase rooftop projects.
Corporate renewable power of corporate renewable PPAs
purchase agreements, or PPAs, in India, many large commercial The first section outlines key
provide the benefits outlined and industrial customers had market trends observed in 2018,
above. They also address off-take their initial experiences with including information on market
risk for developers and financing renewable power procurement growth and a brief analysis of
parties, making them an important or at least evaluated renewable changes in sub-national (or
instrument in accelerating power procurement options. state-level) markets. The second
renewable energy deployment. Both have created learnings section provides an update on
for market players and policy- policy and regulatory changes
makers. The Indian corporate in 2018. We conclude with
PPA market is ready to move into an outlook for 2019, bringing
the second phase of growth, together how we expect
where more companies are changes in the market in 2018 to
starting to procure renewable impact corporate buyers in 2019.
energy and companies with
good initial experiences are
scaling up procurement.
PPAs in India: Market & Policy Update for 2019 42
Key market
trends
In 2018, the annual corporate PPA capacity addition
in India passed the 1 GW mark for the first time. Many
companies from across sectors are also switching to
renewable energy in India.
PPAs in India: Market & Policy Update for 2019 5Key market trends
Figure 1: Annual global corporate PPA market size
Corporate PPA market size (global)
16
14
Annual GW capacity addition
12
10
8
6
4
2
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Year
Global India
According to Bloomberg New switching to renewable energy clean energy favorably, in the last
Energy Finance, companies in India is worth noting. The list two years, more and more large
purchased a total of 13.4 GW of corporate buyers adopting companies have begun to make
of clean power globally in 2018, renewable power included tangible progress on renewable
which was a record amount of global technology providers energy. Whether or not they are
clean power procurement through (Adobe, Microsoft), automotive signatories of global campaigns
PPAs in a year (see figure 1).1 The manufacturers (Volvo, Mahindra), such as RE100, most leading
US was the single largest market, food and beverages companies companies today are aiming
with 8.5 GW deployed, while India, (United Breweries, Coca Cola) for anywhere from 50 to 100%
although farther behind, emerged and airports (Bangalore, Cochin). reliance on renewable electricity
as the second largest corporate within a defined timeline.
PPA market, deploying 1.3 GW. The logic underpinning the
rapid growth in and broadening The second factor is economics.
In 2018, the annual corporate customer base of renewable Depending on the location,
PPA capacity addition in India power comes down to two companies can source
passed the 1 GW mark for the factors. The first factor is renewable energy at a 15 to 40%
first time. The number and sustainability. While most discount on industrial grid tariffs
breadth of companies that are companies have always viewed in India (see figure 2).
Figure 2: Renewable energy vs. grid tariff in select states2
Open access solar
Industrial grid tariff
State Approximate landed cost of solar power Cost savings
(INR/kWh)
(INR/kWh) (%)
Karnataka 7.20 5.25 27%
Andhra Pradesh 6.66 5.33 20%
Tamil Nadu 6.67 5.40 19%
Uttar Pradesh 6.80 5.60 18%
1
BloombergNEF. (2019). “Corporate Clean Energy Buying Surged to New Record in 2018”. Bloomberg New Energy Finance.
28 January 2019. Retrieved from https://about.bnef.com/blog/corporate-clean-energy-buying-surged-new-record-2018/
2
Analysis by CleanMax Solar.
PPAs in India: Market & Policy Update for 2019 6Key market trends
Reductions in wind and Figure 3: States where rooftop solar and utility-scale
solar costs are making them corporate PPAs are viable
competitive with thermal
generation in many geographies.
Renewables reached grid parity
– when a renewable source of
energy costs the same as a
conventional source of energy
– about two years ago in India
and many other countries, and
have now gone beyond. In India,
companies bid for solar and
wind projects at well below the
average cost of coal power
procured by the National Thermal
Power Corporation (NTPC),
the national power generator.3
Utilities worldwide, including
in India, may face obstacles
in moving immediately to
cheaper and cleaner generation
technologies. However, private
electricity users can usually
move faster than utilities.
Given that solar power is
economical, scalable and
relatively less dependent on
location across India, it has taken
the lion’s share of corporate
renewable procurement
volumes. Wind power is a
distant second for new capacity
additions.
Solar power adoption by
companies can take two forms:
rooftop solar, where the solar
capacity is deployed onsite
and net metering is used to States where rooftop solar is cost-effective
manage power supply and
demand; and utility-scale solar,
States where open access group captive
where an offsite project is set solar is viable and cost-effective
up and the public grid is used to
wheel power to the corporate
buyer under an open access
mechanism.4
3
Dutta, Sanjay. (2017). “Solar power tariffs sink further below coal power at INR 2.44.” Times of India. 12 May 2017. Retrieved from
http://timesofindia.indiatimes.com/articleshow/58641464.cms.
4
Open access mechanisms allow power consumers to wheel power from a generating asset to their premises by paying relevant
regulatory fees and charges. For more information, see the WBCSD Accelerating corporate procurement of renewable energy in
India report.
PPAs in India: Market & Policy Update for 2019 7Key market trends
Figure 4: Percentage of demand that rooftop solar or open access solar can meet for various
customer types5
Max. percentage of Percentage of load that
Customer segment load typically met by utility scale open acess
rooftop solar solar can meet
Educational Institutions ~25%
Automotive Plant Manufacturing 5-15%
50-80%
Data Centers3
Policy and
regulatory
update
Broadly, central authorities set overarching rules for the
sector, propose model policies for tariffs and dictate
open access charges for interstate power sales.
PPAs in India: Market & Policy Update for 2019 9Policy and regulatory update
In India, regulations issued Since the interface with the One such change is the
by central authorities grid is an essential element of tapering of banking benefits
(government or regulators) and corporate renewable PPAs, they for renewable energy. In India,
state regulations issued by are heavily dependent on grid energy distributors allocate
government and regulators at regulations, especially for offsite electricity on a 15-minute block
the sub-national level control the installations. Changes in open basis, meaning that electricity
electricity sector. Broadly, central access regulation can impact companies match electricity
authorities set overarching their commercial viability. It is generated during a 15-minute
rules for the sector, propose thus important for companies to block with consumption
model policies for tariffs and consider these risks when they recorded at the consumer
dictate open access charges for plan to source renewable power. during the same 15-minute
interstate power sales. In this paper, we cover major block. If consumption is greater
policy and regulatory changes than generation, the consumer
State authorities operate within announced in the last year or pays for the shortfall in energy
the broad framework issued by expected in near future. delivered to the local distribution
central authorities to issue state- company – as per their electricity
specific regulations, tariff orders tariff. But if generation is higher
and open access charges for the than consumption, surplus
sale of power within their state. State regulations
generation gets lapsed.
Since the physical settlement During 2018, many states To promote corporate sourcing
of energy is the only permitted announced changes in open of renewable energy, most
option to source renewables access regulations. At first states have provided banking
in India, a company can source glance, these changes may benefits for renewable power.
renewable energy through appear to be negative as most This has allowed renewable
following two routes: were related to the withdrawal power companies to use an
of incentives or benefits for accounting duration of longer
• Onsite: behind the meter
open access renewable energy than 15 minutes, banking any
arrangements such as rooftop
transactions. However, at the surplus against any shortfall in
or backyard solar projects;
system level, as well as from subsequent months during the
• Offsite: wheeling of power from a long-term perspective, we same financial year. This benefit
renewable energy projects to see these changes as a shift has helped overcome vagaries in
the consumption point. towards market-led growth as the variable nature of renewable
corporate PPA projects become energy generation, thus allowing
Our Accelerating corporate economically viable without a companies to source a higher
procurement of renewable need for incentives or waivers. quantity of renewable power
energy in India report details the without requiring extra effort in
key provisions of net metering forecasting and scheduling of
and open access regulations, the renewable energy.
different types of open access
charges, the rationale for their
levy, and specific renewable
energy exemptions.
6
In the context of India’s power sector, model policies are standardized documents usually created by central government agencies
that state government agencies can adopt with or without changes.
PPAs in India: Market & Policy Update for 2019 10Policy and regulatory update
During the last few years, • As previously mentioned, • Haryana announced the waiver
Indian states have tightened or Karnataka saw the highest of open access charges for 10
withdrawn banking provisions for renewable power capacity years for solar power under its
renewable power. Some of the addition for corporate policy in 2018. However, a few
major states have introduced renewable procurement over months later, it modified this
a 15-minute settlement period the last couple of years due provision to limit waivers only
for renewable power and others to waivers offered on most to captive power projects. This
have restricted the withdrawal open access charges. is a setback for many players
of banked energy to a few This policy was instrumental as it has created uncertainty
months. We expect this trend in accelerating the growth of and discouraged third-party
of tightening regulations to corporate PPAs in Karnataka, PPA structures in the state.
continue; over the next few but the local government
years most states will require has not extended it beyond
15-minute settlement periods. the 31 March 2018 deadline.
Central regulations
If renewable power, which was However, the Karnataka
close to 9% of India’s total Electricity Regulatory
electricity generation in Commission (KERC) has The central government led
2018-19, is to become issued a discussion paper several important regulatory
mainstream, grid operators on rooftop solar installations changes in 2018 that have
need to be able to manage the in Karnataka under the PPA impacted renewable power
mismatch that arises due to model. This paper envisages sourcing:
banking. A lack of rationalized 38 GW of cumulative grid- • Until recently, the central
banking provisions could lower connected rooftop solar government did not
the grid operator’s appetite for installations by 2022. categorize large hydropower
renewable capacity on the grid. generation (>25 MW) as
• The Appellate Tribunal
A few specific regulatory for Electricity (APTEL) in renewable energy. To promote
changes led by state Maharashtra delivered an hydropower plants and
governments in 2018 have important order on the levy increase consumer usage
impacted the sourcing of of an additional surcharge on of electricity generated by
renewable power: group captive PPA consumers them, India’s Ministry of
by the state. APTEL held Power issued a notification
that the imposition of the categorizing large hydropower
additional surcharge on projects (>25 MW) as
group captive consumers is renewable energy projects.
against the provisions of the We expect the government
Electricity Act as there should to announce a separate
be no distinction between requirement to consume
a captive and group captive a minimum quantity of
consumer. This is a positive hydropower as part of the
ruling for group captive overall Renewable Energy
renewable energy consumers Purchase Obligation (RPO)
in the state. However, the regulation.
Maharashtra Electricity
Regulatory Commission
(MERC) announced that it will
no longer allow consumers
to have more than one open
access power supplier,
thus reducing flexibility for
corporate renewable PPA
consumers.
PPAs in India: Market & Policy Update for 2019 11Policy and regulatory update
• The Central Electricity • The Ministry of New and iii. Separation of utilities’ wire
Regulatory Commission Renewable Energy set up and supply businesses,
(CERC) issued a discussion a Renewable Purchase thus promoting more
paper titled “Market Based Obligation (RPO) compliance competition at the
Economic Dispatch of department in early 2018 distribution level;
Electricity: Re-designing of to coordinate and take up
Day-Ahead Market (DAM) in matters related to RPO non- iv. Capping of some of the
India”. The proposed model compliance across states open access charges; and
described in the discussion and to publish monthly v. Direct benefit transfer (DBT)
paper would function on reports/updates. We expect of subsidies to consumers,
a day-ahead time horizon this to improve adherence instead of cross-
to schedule and dispatch to RPO requirements and subsidization of tariffs.
all generation purely on promote renewable energy
economic principles, subject procurement. In conclusion, we view the
to technical constraints. changes in the regulatory
CERC has directed the • The central government landscape for corporate
Power System Operation proposed to rollout major renewable procurement across
Corporation (POSOCO) to reforms in the electricity India as mixed. However, we
pilot this model. We expect sector through its draft see the overall transition to
this to increase liquidity in the Electricity (Amendment) mainstreaming of renewable
short-term market, support Act 2018. However, the power and market-led
new product development government was unable to growth models as positive
and reduce overall energy enact this within its latest term. developments for long-term
costs for the utility and for We expect the government certainty.
consumers. to consider the reform again
during its new five-year term, The government may undertake
• The Ministry of Power has starting in 2019. Some of the larger power sector reforms in its
issued guidelines allowing major reforms in the proposal second term.
for the import and export of include:
electricity and power trading
with neighboring countries. i. Mechanisms to improve
Thus, utilities can export consistency in open access
coal power (with certain rules across states;
restrictions), renewable
ii. Guidance on the
power or hydropower to
appointment and
companies in neighboring
performance review of
countries directly or via central/state commissions
trading licensees in India,
(regulators) to ensure they
after receiving government
are truly independent;
approval.
PPAs in India: Market & Policy Update for 2019 124
Outlook for
2019
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.
PPAs in India: Market & Policy Update for 2019 13Outlook for 2019
However, the local government the past by structuring project Indian Energy Exchange (IEX)
has not extended this policy holding companies such that has proposed Central Electricity
for new projects and other they do not follow the spirit of Regulatory Commission (CERC)
governments have not replicated the law. Corporate buyers should to allow trading of renewable
it elsewhere, although some states approach group captive projects energy on the exchange. In May
are still providing limited waivers only after ensuring that the 2019, CERC invited comments
for shorter time periods. developers have structured the from stakeholders for Green – Day
projects in full compliance with Ahead Markets (G-DAM) contracts.
These regulation changes are the law and that experienced Launch of such contracts will
leading to growing corporate and ethical project developers be a positive development for
interest in market-led group have taken up the co-investment the private renewable energy
captive projects. so as to not expose corporate procurement market.
buyers to undue project risks.
Group captive projects are those In addition to solar, wind can also
where the consumer of the Predicting capacity addition for play a larger role in corporate
power holds at least 26% of the 2019 and beyond is difficult in sourcing of renewables, as it has in
equity ownership. Under India’s the corporate renewable PPA the US in particular. However, this
Electricity Act (2003), these segment, but there is no mistaking will require certain policy changes.
projects are exempt from the the overall trend. Fundamentally, In India, only six states are actively
cross-subsidy surcharge (CSS). the economics of solar power pursuing wind power generation.
CSS is the largest and most for corporate buyers continue to It is also highly seasonal,
unpredictable component of grid improve. With so many corporate which makes it heavily reliant
charges for open access power. buyers leading the way in solar on the availability of favorable
The Electricity Act protects fully procurement in 2018 in Karnataka, banking policies from states
compliant group captive projects many others are looking to that need to allow companies
from the CSS, making it a suitable follow. Demand for group captive to carry surplus generation
way for corporate buyers to projects in large industrial states over to subsequent months.
secure power at low costs and such as Maharashtra, Haryana,
avoid regulatory uncertainty. Andhra Pradesh and Telangana will The underlying logic for
likely fill the space vacated by the renewable energy procurement
In the past, many companies by corporate buyers becomes
withdrawal of open access waivers
have not considered group stronger every year and
in Karnataka.
captive projects in order to avoid underpins the growth in this
the complexity of holding shares Another nascent trend is the sector. As the focus shifts from a
in a project holding company. rise of group captive renewable single state (Karnataka) in 2018
However, corporate buyers are projects over the procurement to a broader range of states in
increasingly accepting that of traditional power on power 2019, corporate buyers need
group captive projects are the exchanges. Most consumers to keep track of regulatory
most cost-effective and low risk compare the financial evaluation developments in the states
structures available to help them of group captive solar or wind to where they have operations
make further progress on their the cost of grid electricity, but a and plan their energy sourcing
renewable sourcing targets. large number of companies also strategy accordingly.
procure power on exchanges such
While group captive projects
as the Indian Energy Exchange
offer a credible path to meeting
(IEX). Companies that want to
corporate renewable sourcing
avoid power price volatility on the
targets, a word of caution is
exchanges favor renewable power
necessary as some developers
procurement via open access or
have misused this mechanism in
group captive solar.
PPAs in India: Market & Policy Update for 2019 14Disclaimer About WBCSD’s About the World
REscale project Business Council
This publication is released for Sustainable
in the name of the World REscale brings together leading Development (WBCSD)
Business Council for Sustainable companies representing
Development (WBCSD). This the full renewable energy WBCSD is a global, CEO-led
document is the result of a value chain to accelerate the organization of over 200 leading
collaborative effort between deployment of renewables and businesses working together
WBCSD, CleanMax Solar, CLP the transition to a low-carbon to accelerate the transition to
India and representatives from electricity system. REscale a sustainable world. We help
companies participating in the members share the ambition to make our member companies
India Corporate Renewable scale up renewable deployment more successful and sustainable
PPA Forum. A range of WBCSD beyond average growth. by focusing on the maximum
members reviewed the material, positive impact for shareholders,
thereby ensuring that the This paper builds on the
the environment and societies.
document broadly represents previous WBCSD report on
the majority view of the India corporate renewable PPAs in Our member companies come
Corporate Renewable PPA India: Accelerating corporate from all business sectors and all
Forum. It does not mean, procurement of renewable major economies, representing a
however, that every company energy in India (June 2018), combined revenue of more than
within the forum agrees with which discusses options for USD $8.5 trillion and 19 million
every word. The paper has renewable power procurement employees. Our global network
been prepared for general in India and examines key PPA of almost 70 national business
informational purposes only and terms, regulatory landscapes councils gives our members
is not intended to be relied upon and market barriers. It unparalleled reach across the
as accounting, tax, legal or other also delves into financing globe. WBCSD is uniquely
professional advice. options and concludes positioned to work with member
with recommendations for companies along and across
To contact WBCSD about this corporate buyers. The platform value chains to deliver impactful
paper: undertaking this work is called business solutions to the most
the India Corporate Renewable challenging sustainability issues.
Jasmeet Khurana PPA Forum.
Manager, Climate & Energy Together, we are the leading
khurana@wbcsd.org To find out more about REscale, voice of business for
the Corporate Renewable PPA sustainability: united by our
Forum and previous reports, visit vision of a world where more
Acknowledgements our webpage or contact: than 9 billion people are all living
well and within the boundaries of
Lucy Hunt
WBCSD, CleanMax Solar and our planet, by 2050.
Associate, Renewable Energy
CLP India drafted this paper. We hunt@wbcsd.org www.wbcsd.org
thank the following co-authors:
Follow us on Twitter and LinkedIn
• Andrew Hines, CleanMax
Solar; and
• Dipjay Sanchania, CLP India.
PPAs in India: Market & Policy Update for 2019 15Other partner initiatives
RE100 Green Power Market Renewable Energy
Development Group Demand Enhancement
RE100 is a collaborative, global (GPMDG) India (REDE)
initiative uniting influential
businesses committed to Green Power Market The Renewable Energy Demand
100% renewable electricity, Development Group (GPMDG) Enhancement (REDE) initiative
working to massively increase India is an industry-led initiative aims to build an alliance among
demand for – and the delivery aimed at rapidly increasing the corporate buyers (commercial
of – renewable energy. Led by share of renewable energy in and industrial consumers)
The Climate Group in partnership the overall energy consumption to increase commitments to
with CDP, RE100 brings together of commercial and industrial renewable energy procurement
the world’s most significant, establishments. This will be and to catalyze solutions to
ambitious and forward-thinking accomplished by addressing address challenges that are
companies that are accelerating the policy, regulatory and market significantly restricting demand.
the transition to a zero emissions barriers that currently impede By means of developing an
economy by committing to the growth of renewable energy appropriate interface between
100% renewable electricity sector. GPMDG works with buyers, suppliers and policy-
across their operations. government agencies and other makers, the initiative intends to
relevant institutions to help create a cohesive and informed
Shailesh Telang
member companies voluntarily market to meet corporate
Technical Manager (Renewable
set and achieve their renewable renewable energy demand.
Energy)
energy goals. REDE is built on the success of
CDP India
the Renewable Energy Buyers
shailesh.telang@cdp.net Deepak Krishnan Alliance (REBA) founded in June
Manager, Energy Program 2016 in the USA.
Atul Mudaliar
World Resources Institute India
Program Manager
DKrishnan@wri.org Bhavna Prasad
The Climate Group
Director, Sustainable Business
amudaliar@theclimategroup.org Ravi Chander Rangavajjula WWF-India
Principal Counsellor bprasad@wwfindia.net
Confederation of Indian Industry
ravi.c@cii.in Shuva Raha
Deputy Director and Head, New
Initiatives
Confederation of Indian Industry
shuva.raha@cii.in
PPAs in India: Market & Policy Update for 2019 16World Business Council for Sustainable Development Maison de la Paix Chemin Eugène-Rigot 2B CP 2075, 1211 Geneva 1 Switzerland www.wbcsd.org
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