Corporate Renewable PPAs in India:Market & Policy Update January 2021

More and more companies are procuring renewable power for their operations to help manage their electricity costs while contributing to corporate carbon emissions reduction targets. In India, the main drivers for many companies to do so are rising electricity tariffs for commercial and industrial consumers, falling prices for solar photovoltaic (PV)technology and corporate sustainability goals.A frequently used approach for companies to purchase renewable electricity is a corporate renewable power purchase agreement (PPA). A corporate renewable PPA is a contract between a corporate buyer(s) and a power producer (developer, independent power producer, investor) to purchase renewable electricity at a pre- agreed price for a pre-agreed period. Corporate renewable PPAs have become increasingly varied and innovative and are now a widely used approach worldwide – companies had signed over 70 GW of capacity globally as of the end of November 2020, compared to just 300 MW in 2009.India has also seen impressive growth in corporate renewable sourcing. According to Bloomberg New Energy Finance (BNEF), India was the second largest growth market for corporate renewable PPAs after the US in 2019, with an addition of 1.4 GW of capacity. However, in 2020, India witnessed a significant slowdown in corporate renewable PPA activity, primarily due to regulatory changes and exacerbated by the COVID-19 pandemic.

This third market and policy update for corporate renewable PPAs in India provides readers with a renewed overview of market trends, policies and regulations from 2020, as well as an outlook for 2021. It finds that due to falling technology costs, corporate renewable PPAs in India are economically viable without government waivers on open access charges. Despite this, additional signed corporate renewable PPA capacity in India fell to 800 MW in 2020 (compared to 1.4 GW in 2019). This is due to two factors that posed new challenges for corporate renewable PPAs in 2020:

  • New restrictions at state-level, including limiting banking provisions for power, reversing open access project approvals and imposing additional open access charges.
  • The COVID-19 pandemic, which resulted in paused PPA negotiations, delayed permit approvals due to restricted site access and suspended project construction due to labor and equipment shortages.

Market trends

INTERNATIONAL CONTEXT Corporate renewable PPA uptake is growing around the world at a remarkable rate. According to BNEF, more than 100 companies in 23 different countries signed 19.5 GW of PPAs in 2019.1 This capacity addition is around 6 GW higher than in 2018 and has tripled since 2017. And 2020 is set to be another record-breaking year – for the first 11 months of the year, companies signed 17.9 GW of corporate renewable PPAs globally, outpacing PPA capacity signed in the previous year during the same period (as shown in figure 1).2 Decreasing renewable generation technology costs and growing awareness of corporate renewable PPAs among both corporate buyers and developers are driving this trend.

Annual global signed corporate renewable PPA capacity

Annual India corporate renewable PPA capacity additions

Looking at the breakdown across states, Gujarat is the only state to have increased installation capacity from corporate renewable PPAs in 2020 (January – November), as shown in figure 3. With the addition of December 2020 numbers, Tamil Nadu, Karnataka and Rajasthan may also show a year-on-year capacity increase.

Companies procuring renewable power through corporate renewable PPAs in India (April 2019 – August 2020)

In terms of sectors, construction, infrastructure, automotive and textile companies have been the leading consumer segments, procuring more than 165 MW of renewable power through PPAs in India between April 2019 and August 2020, as shown in figure 5. During this period, corporate buyers Grasim Industries, Ultratech Cement, Cargill and Apollo Tyres procured the most renewable capacity through corporate renewable PPAs in the country. Several evolving market dynamics are impacting the capacity trends outlined in the previous section. From a regulatory perspective, the reversal of DISCOM approvals for open access projects in Haryana and the imposition of additional surcharges on group captive models are developments that are limiting the uptake of corporate renewable PPAs in India.

Policy and regulatory updates

the uptake of corporate renewable PPAs in India is highly dependent on policies and the regulatory environment at both the national and state levels. In december 2019, Re100 companies cited India as the sixth most challenging market for corporate sourcing of renewables.8 Companies reported the main barriers to be a fragmented policy and regulatory framework that differs from state to state, and uncertain charges and taxes on the procurement of renewable power. Over the past year, state-level regulatory hurdles have negatively impacted the corporate renewable PPA market, including backtracking on previously provided waivers and approvals, new restrictions on power banking provisions, the levying of additional surcharges on captive and group captive renewable energy projects and limiting net metering regulations to only residential consumers. At the national level, the government is trying in bring in electricity reforms through its draft National Electricity Amendment
Bill and through the privatization of DISCOMs that are loss-making, as well as by reducing exposure to imports and focusing on domestic manufacturing as part of its Make in India initiative.

Cross-subsidy surcharge trend from FY 2016-17 to FY 2020-21

DISCOM losses in India are significant and have increased from Rs 338.94 billion in financial year 2016-17, to Rs 496.23 billion in financial year 2018-19. The government has taken various measures in the past to address this. However, these have not generated substantial results to date. The privatization of DISCOMs is now under discussion, with C&I consumers poised to be one of the most impacted beneficiaries of this move. In September 2020, the Ministry of Power issued draft Standard Bidding Documents (SBD) for the privatization of DISCOMs across all states and Union Territories (UTs). The first-of-its- kind draft SBD was prepared with the objective of enhancing the operations and finances of India’s loss-making DISCOMs. Along with the government’s target to complete the privatization of DISCOMs in UTs by January 2021, there are also efforts to encourage this process in states such as Uttar Pradesh, Haryana, Gujarat, Karnataka and Assam.

Viability of third-party sale and group captive models by state

Outlook for corporate renewable PPAs

Going forward, there is likely to be a spur in demand for corporate renewable PPAs due to increased corporate sustainability ambitions and action by leading corporate buyers in India. The number of RE100 member companies with electricity loads in India continues to grow: 74 RE100 members report operations in India as of December 2020 and their average renewable electricity share has increased from 32% in 2018 to 39% in 2020. Various developers have entered the open access segment and are planning substantial additional capacity development in the coming years:

  • CleanMax: 200 MW of planned capacity in Karnataka, Gujarat and Haryana.
  • AMP Energy: 400 MW of planned capacity in Uttar Pradesh and Rajasthan.
  • Enrich Energy: 150 MW of open access solar projects in Maharashtra.

Amplus Solar: 75 MW of planned capacity in Haryana, despite regulatory setbacks in the state. Based on this pipeline, JMK Research estimates that in next 12-18 months, companies will likely commission more than 1 GW of new open access offsite renewable electricity projects in India. The country is likely to see another 500-550 MW added under onsite rooftop OPEX models. As a result, capacity additions in 2021 in India are likely to achieve similar or could even surpass volumes observed in 2019.

To meet this growing demand and the diverse needs of corporate buyers considering PPAs, we expect alternative corporate renewable PPA structures to gain interest in India, in addition to increased uptake of rooftop solar PPAs, hybrid PPAs and GTAM. We outline three examples of alternative structures below: virtual PPAs, interstate PPAs, and round-the-clock PPAs. In a virtual PPA (VPPA), the corporate buyer agrees to purchase renewable power through a corporate PPA, without physical delivery of electricity and therefore without sleeving or transmission fees. VPPAs are more flexible in their structure than physical PPAs as the corporate buyer and power producer do not have to be connected to the same electricity network. VPPAs are most common in liberalized power markets.The financial settlement of a VPPA has four steps: (1) the corporate buyer and power producer agree to a PPA price; (2) the power producer delivers the renewable electricity to the grid and receives the variable market price; (3) the power producer and corporate buyer settle the difference between the agreed PPA price and variable market price; and (4) the corporate buyer continues to purchase its electricity at the variable market price, which the VPPA now hedges (see figure 15). To our knowledge, corporate buyers have not yet signed any VPPAs in India to date, due in part to unfamiliarity with the structure and in part to low liquidity in the Indian power market. However, some large-scale corporate buyers are now considering this contract structure, particularly those who have already implemented conventional rooftop solar, group captive or third-party sale structures and who are looking to raise their ambition to reach 100% renewable power. VPPAs may also be attractive for those looking for shorter contract terms in India (e.g., <10 years) to reduce tenor risk.

Structure of a VPPA

Another emerging option that corporate buyers are exploring is the inter-state PPA. Under this structure, a corporate buyer can use the group captive model to build its own renewable power plant in a preferred state to meet its electricity demand in another state. To date all corporate renewable PPAs signed in India have been in-state, i.e., where renewable electricity generation and consumption take place within a single state.The inter-state structure is similar to the growing trend in Europe of cross-border or pan-European PPAs, where a PPA signed with a renewable project in one or more countries covers electricity demand in another country or in several countries. This allows the corporate buyer to simplify renewable electricity purchasing by covering many loads across different countries, as well as choosing the renewable project with the most advantageous conditions (in terms of electricity price and production). For the inter-state model to work in India, the parties to the PPA will need to engage with the respective DISCOMs in both states. Once corporate buyers have signed and proven the first project, we expect this model to gain popularity quickly, particularly in states with high policy incentives. In May 2020, the first utility-scale round-the-clock (RTC) renewable electricity and storage PPA tender was awarded. This tender specified for the first time an average monthly capacity utilization factor (CUF) of 70% and an annual CUF of 80% (previous tenders had been in the range of 18-22% for solar, 20-25% for wind and 30-40% for wind and solar hybrid power plants). This is an important development for India’s renewable power sector, as, if developed at scale, this model can help to stabilize variable generation from renewable power sources to contribute to grid stability. It is too early to say when it may become cost-effective to apply the utility-scale RTC PPA structure to corporate PPAs. In the meantime, we are seeing increased interest from corporate buyers in battery storage projects to enable them to increase the renewable portion of their electricity consumption.

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