Tracking Captive Power

Growth, trends and forecast

Over the years, captive power plants (CPPs) have emerged as an effective alternative for commercial and industrial consumers to fulfill their energy requirements and hedge against the possible consequences of high grid power tariffs. As per India Infrastructure Research, the aggregate installed capacity of captive power plants of 1 MW and above stood at over 87 GW during 2018-19, increasing at a compound annual growth rate of 3.8 per cent since 2014-15. A look at the key trends in captive power capacity…

Key trends

India Infrastructure Research tracked the total captive power capacity of nearly 70 GW across various industries. An industry-wise analysis shows that metals and minerals have the largest share (of 40 per cent) in the tracked captive capacity. Among states, Gujarat and Odisha lead in terms of CPP deployment, together accounting for nearly one-third of the tracked captive capacity.

Source-wise, coal continues to be the key fuel source for the majority of CPPs, with a share of over 52 per cent in the tracked capacity. This includes CPPs that use domestic coal, imported coal, and coal blended with washery rejects, petcoke and lignite. The abundance of fuel and the competitive capital cost of setting up large-scale coal-based CPPs are the two biggest reasons for their greater adoption. Natural gas comes next with an 11 per cent share in the tracked capacity. These CPPs are typically installed by petrochemical and fertiliser industries, which use gas as an input for production processes as well.

Bagasse-based CPP capacity accounts for 9 per cent of the tracked capacity. Such CPPs are typically set up by sugar industries, where bagasse is a key by-product. Meanwhile, the share of wind and waste heat recovery/cogeneration stands at 7-8 per cent each.

Even though coal-based captive power plants (CPPs) continue to occupy the largest share in the tracked capacity, their share declined from 56 per cent to 52 per cent between 2014-15 and 2018-19, according to India Infrastructure Research.

Meanwhile, the share of solar power-based captive plants increased from almost nothing to 2 per cent during 2018-19. Solar rooftop power plants, in particular, have emerged as key captive power sources for institutional users. This can be primarily attributed to a decline in capital costs, especially of solar energy projects, and a favourable policy and regulatory framework for promoting solar, including rooftop technology. Further, renewable energy-based CPPs help industries meet their renewable purchase obligations (RPOs), which are a key driver for their growing adoption in the commercial and industrial segment. A key outcome of the increased share of renewable energy-based CPPs is the fall in diesel or liquid fuel-based captive plants from 5 per cent during 2014-15 to 3 per cent during 2018-19.

Challenges and the way forward

There is an acute shortage in domestic coal supply to coal-based captive power plants, which presents a daunting operational challenge. However, a key positive for the segment has been the liberalisation reforms announced recently for the commercial coal mining sector under the stimulus package. Once commercial mining picks up, captive power plants would be able to substitute their annual coal imports.

A key hurdle faced by renewable energy captive power plants is the uncertainty in open access frameworks. Restrictions in open access by states as well as a plethora of charges hamper investments in renewable energy-based captive plants. To circumvent these risks, a key trend that has emerged in the segment has been of group CPPs. These are being preferred by industrial users to meet their electricity needs and lower their power costs. These projects are set up by developers for the collective use of many industrial and commercial consumers. Group CPPs enable small and medium industries that do not have the required investment and experience in setting up and managing an individual CPP but need uninterrupted power for their business operations. The primary advantage of a group captive model is that cross-subsidy and additional surcharges are not levied on the power procured.

As per India Infrastructure Research, over 16 GW of captive power capacity is at various stages of development across all fuel segments. Given the significant role that this segment plays in meeting the power requirements of industrial consumers, more steps are needed to resolve the issues facing it. Going forward, supportive government policies for renewable energy and mandates on bulk consumers to comply with their RPO targets will drive the installation of renewable energy CPPs.

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