Open Access Route

Industrial consumers look for cheaper power

Although the Electricity Act, 2003 allows consumers to avail of power through open access, its implementation in the true sense is still contested. Of late, there has been growing willingness among the gencos to supply power through open access, especially with the increasing renewable energy capacity. Meanwhile, consumers are also looking for other competitive sources of supply to ward off high industrial and commercial tariff, and ensure quality power.

In the past, many states like Gujarat, Maharashtra, Rajasthan and Andhra Pradesh have allowed open access, but have later withdrawn it in order to protect the interest of their distribution companies. Discoms rely on industrial and commercial consumers for a major part of their revenue, and open access with its promise of cheaper power threatens to take away these consumers.

Key drivers

Renewable sources of power have become quite popular for availing of open access owing to a steady decline in solar and wind energy tariffs. While the solar power tariff has dropped to as low as Rs 2.44 per kWh, wind power tariffs have reached Rs 3.42 per kWh in recent auctions. The cost of power generation from renewable energy sources has become competitive with that from conventional sources. Besides, renewable energy project developers find it more attractive to sell power through open access. Renewable energy plants are very location specific (in terms of resource availability) and dependent on land availability (especially solar), thus the only means for captive or third-party users to transport power from these plants to their facilities is through open access. Further, as renewable plants typically generate a small quantum of power, it is more convenient for developers to sell power directly to buyers through open access. Besides, owing to the deteriorating financial health of discoms, renewable power generators face the issue of untimely payments. Therefore, developers are looking at other more reliable avenues for the sale of power like open access.

Another growth driver for open access is the falling energy prices at the power exchanges. There is availability of surplus power in many regions owing to muted demand, which is driving down energy prices at the exchanges. Subsequently, the number of consumers availing of power from the exchanges through open access is steadily increasing. Between March 2010 and March 2017, the number of open access consumers on the Indian Energy Exchange (IEX) increased by four times to reach 4,017 consumers.

Moreover, the increasing retail power tariffs, especially for consumers in the industrial and commercial categories, have been driving the demand for power through open access. Therefore, industrial consumers are increasingly opting for open access from their captive power plants, renewable energy projects and power exchanges.

Challenges

One of the key concerns pertaining to availing of energy supply from open access is the high open access charges imposed by the state, which significantly reduces the competitiveness of power available from these sources in contrast to the power supplied by the discoms. The key charges imposed by discoms on open access consumers are cross-subsidy surcharge (CSS) for subsidising other consumer categories; additional surcharge to compensate for the fixed cost borne by the discoms in an event of honouring the existing power purchase agreements (PPAs); and standby charges for making standby arrangements for supplying power to open access consumers in case supply from their generators stops.

The imposition of open access charges is envisaged in the Electricity Act, 2003 to compensate the discoms for losses that they may incur if consumers in their distribution areas opt for open access. However, the act also stipulates that the charges need to be gradually done away with. On the other hand, these charges have steadily been increasing, making open access uneconomical. Over the years, more and more states have been imposing additional surcharge on open access consumers. Rajasthan, Himachal Pradesh, Punjab and Delhi had introduced an additional surcharge for open access consumers in 2015-16. Meanwhile, there has also been an increase in the quantum of additional surcharge levied by the states. A number of states including Haryana and Punjab have an additional surcharge of as high as Re 1 per unit. With regard to CSS, there has been an increase in the quantum of charges with the revision of the cross-subsidy formula in the amendment to the Tariff Policy, 2016. Subsequently, there has been an upward revision in the surcharge levied in the states of Daman & Diu, Dadra & Nagar Haveli, Gujarat, Maharashtra, Haryana, Himachal Pradesh, Chhattisgarh, Karnataka and West Bengal, among others.

In order to hinder consumers from availing of open access, some states even impose various other charges. For instance, the Maharashtra government has imposed electricity duty on consumers buying directly from generators. Furthermore, it has put restrictions on consumers in IT and software technology parks regarding the purchase of power from private generators.

As far as renewable energy in concerned, several states have offered concessions in open access charges in case the competitive source of power supply is renewable energy. These concessions are provided in the form of reductions in CSS, transmission charges, or energy-banking charges compared to those imposed on thermal power generators. As a result, renewables-based power through open access can be less expensive for consumers than power from conventional sources. Although the Central Electricity Regulatory Commission (CERC) guidelines lay down that renewable energy sources must be exempted from the imposition of CSS, many states continue to impose these charges.

The Electricity Act, 2003 allows consumers with load greater than 1 MW to obtain electricity from suppliers other than the local discoms, using the transmission and distribution networks. However, the state governments have been imposing restrictions on power export and import by state generators and consumers and issuing statutory orders by invoking Section 11 of the act. It allows state governments to restrict open access in extraordinary circumstances and also empowers them to direct their load despatch centres to take measures for maintaining a stable transmission system.

There have been many instances where the state governments have imposed restrictions on open access. In October 2015, the Karnataka government imposed a ban on open access citing monsoon failure. In March 2014, the state government had directed all generating companies to produce the maximum possible power and supply to the state grid as it was facing power shortages due to the breakdown of certain generating units. At the same time, Gujarat had imposed restrictions on the purchase of power from outside the state as a huge difference in the industrial tariff in the state (Rs 6 per unit) and the power price on the exchange (Rs 4 per unit) was driving industrial consumers away from the discoms. Apart from this, the state load despatch centres often reject requests from open access consumers seeking no-objection certificates (NOC) for purchasing power through power exchanges.

Conclusion

A thriving open access market can go a long way in driving further growth in the renewable energy sector, especially solar. For instance, the Center for Study of Science, Technology and Policy proposes that residential complexes that wish to go green but do not have adequate rooftop space available can hire a contractor to install a ground-mounted photovoltaic system nearby, allocate capacities to consumers within the complex and supply power under open access. A contractor’s cost of setting up the plant is expected to be much lesser than the cumulative cost of each resident installing a separate rooftop PV system. Similarly, industrial and commercial consumers can set up renewable energy-based group captives.

Net, net, in order to promote healthy competition in the power distribution segment, opening up of the sector to open access is vital. However, the current market structure, which is highly regulated and has cross-subsidisation, is not very conducive to developing a robust open access market. For the open access market to grow, consistency in regulations at the state level and an effective power market mechanism is important.

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