Open Access Solar
Solar Performance Specialist
Solar energy is growing at a rapid rate and the Indian solar sector is one of the fastest-growing economies in the world. At present, this market is performing amazingly. It is the open-access solar market that is going to drive the Indian Solar Industry's future.
As of now, the Indian solar tariff is at the record low point of INR 1.99/ kW. The way solar tariff is going down, solar developers are exploring the open market to sell their energy directly to the customers at a mutually agreed tariff.
Moreover, the new policy introduced in the budget of FY 2021-22 allows customers to choose where they want to purchase electricity. Under the Electricity Act of 2003, power selling was not delicensed. Now the power developers can sell the electricity directly to the customer. This has opened a lot of new avenues in the solar energy sector of India.
What is the Open Access Solar Market?
An open access solar market refers to a situation where the client/customer purchases power directly from one or more solar developers instead of the grid.
Solar developers can sell the power directly to the clients on a mutually agreed tariff. The DISCOM buys electricity from the solar developers at a lower price and sells it to consumers at a higher price. Now with the Open access market, consumers can get the power at a lower rate and solar power developers can sell power at a higher rate. It's a win-win situation for both of them.
Although, the solar developers have to pay for the power distribution lines of DISCOMs they use to transport the power to the client. Open access solar market is a mechanism where multiple power consumers and solar developers will have access to an interconnected power transmission and distribution system. This mechanism enables the power consumers to get the power from whomever they want. The open-access solar market currently serves industries with connected loads over 1 MW.
The principle governing the contract for solar power through open access is a long-term (10 years or more) Solar Power Purchase Agreement (PPA) signed between the consumer and the power producer. The power producer agrees to supply a certain number of units annually at a certain tariff during the term of the PPA. Taxes and open-access fees are as per the state regulations.
Image source: Rays Power Infra
According to the location of the electricity consumer and producer, Open Access is divided into the following categories:
● Inter-State Open Access: In this case, the customer and electricity producer is from separate states and must adhere to State Electricity Regulatory Commission laws.
● Intra-State Open Access: In this case, both the customer and the electricity producer are from the same state and must abide by the rules of the State Electricity Regulatory Commission (SERC).
What are the benefits of Open-access solar?
● Sustainability: In recent years, solar power has become a major driver for many businesses as a clean form of energy generation.
● Solar Energy May Be Sourced Up to 100%: With unrestricted access to solar energy, businesses can often source a considerable portion of their power from the sun. (Typically, you won't have enough roof space to generate enough power to fulfill the bulk of your power demand if you have a rooftop solar plant.)
● No investment Model: A solar power plant's complete investment is made by either the solar developer or a third party. Furthermore, there is no expense to the consumer upfront as they sign a PPA for a considerable period of time.
● Reduced Energy Costs: Solar power tariffs are much lower than the cost of electricity.
What makes open-access solar electricity better than regular power?
Electricity buyers and sellers can choose between group and bilateral agreements. A Power Purchase Agreement is formed between the seller and the consumer to purchase power at a mutually agreed tariff for a predefined number of years in the case of a bilateral transaction. Many of India's biggest solar companies using the OPEX model are relying on bilateral agreements with commercial and industrial clients to determine tariffs.
Now let’s see what’s happening here, the consumer is getting electricity which is clean and at a lower tariff. Lastly, the consumer does not have to invest the entire cost of the solar power plant at once.
Open-access fee varies state to state
Let's have a look at open-access pricing with DISCOM tariffs in Renewable Energy-rich states to better understand the economics of open access to renewable energy. The tariffs (in INR per kWh) were estimated assuming a third-party solar project with a generation cost of INR 3 per kWh and a 1 MW industrial user (or an 80% load factor).
It is found that open-access policies and fees differ greatly between states. Furthermore, many jurisdictions do not allow interstate open access since it could result in revenue losses for state discom. States like Karnataka and Andhra Pradesh, have low open-access charges, others, including Gujarat, Haryana, and Maharashtra, have lesser incentives.
Rise of Open Access in India
In the calendar year (CY) 2021, India added 1.2 GW of new solar open access capacity, representing a 222 percent year-over-year (YoY) increase, making it the country's second-best year for open access. The total installed solar capacity in the open-access market had reached 5 GW as of December 2021.
By the end of 2021, there were 1.5 GW of solar open access projects in the pipeline. Seventy-five percent of the pipeline is split across three states: Karnataka, Haryana, and Uttar Pradesh. Uttar Pradesh was the most populous state in CY 2021, followed by Tamil Nadu and Maharashtra. During the year, the top five states accounted for 80% of total installations.
In the fourth quarter (Q4) of CY 2021, the country added 298 MW of new solar open access capacity, a 75 percent increase over the same period in 2020. Telangana (329%), Karnataka (102%), Andhra Pradesh (88%), Maharashtra (52%), and Uttar Pradesh (52%) are the top five states with the largest QoQ increase (4% ).
Uttar Pradesh was the leading state in terms of installations in Q4 2021, accounting for 38% of the total capacity installed. The growth of the open access segment in the state was fueled by a strong policy and regulatory framework, which included favorable banking policies, the exemption of additional surcharges, the state's willingness to adopt group captive business models, access to arable land, and efficient power evacuation facilities.
Maharashtra had the second-highest capacity built. During the quarter, the top five states accounted for 90% of all installations.
Karnataka continues to be the leading state in terms of cumulative open access solar installations, accounting for 38% of all installations as of December 2021.
Even though open-access solar is rising in India, there are still some hurdles. There are four major hurdles to scaling up renewable energy on an open-access basis, as well as potential solutions.
● Open access and restricted supply are frequently switched by consumers.
The price of electricity has dropped significantly due to excess power in the grid. Large consumers have begun to take advantage of the low price by utilizing short-term open access to obtain cheaper power from the market when the price is lower than the discom's tariff. It is more challenging for discoms to plan when these customers shift their load between the market and the discom, stranding generational capacity, upsetting grid stability, and negatively affecting small customers of the discom.
● Charges for open access are frequently revised.
Consumers are unable to enter long-term contracts with power generators or developers due to frequent changes in open-access pricing. Non-tariff barriers, such as forced continuous withdrawal for a minimum of eight hours, round-the-clock scheduling, and hefty standby rates, are other deterrents to open access. Despite the fact that the National Tariff Policy 2016 calls for a gradual reduction in cross-subsidy surcharges, most states' surcharges have gradually climbed. Consumers face a significant financial barrier as a result of this.
● Discoms procedural barriers.
Procedural delays are frequently cited by both generators and consumers as a major impediment to scaling up open access. Technical constraints, such as insufficient transmission or the grid's wheeling capacity, cause regulators to reject proposals. States such as Andhra Pradesh, Telangana, Maharashtra, Gujarat, and Rajasthan have been slow to approve open access applications.
● Open access is made more difficult by the inconsistency of renewable energy.
The intermittent nature of renewable energy output does not match open-access customer demand, resulting in a demand-supply mismatch. Regulations offer the facility of "theoretically parking" unused power generated by the discom and employing it at a later time under the banking mechanism. The economics of open access is becoming increasingly problematic for discoms due to an increased share of renewable energy and large fluctuations.
Open access allows consumers with power requirements > 1 MW connected load to access cheap power from large off-site solar plants. It is estimated that on-site solar can only fulfill 10% to 20% of energy demand in most cases, which means that a large amount of energy is still dependent on the grid at much higher prices. As open access is not limited to the limitations of rooftop solar, such as scalability and rooftop space, it bridges this gap and provides energy to meet the remaining needs. To know more about solar plants and their installations, schedule a call with us.