Captive power plants (CPPs) are an important source of power supply for energy-intensive commercial and industrial (C&I) consumers. The key factors driving the development of CPPs include high industrial power tariffs, electricity supply disruptions from state utilities, and the development of smart cities and industrial corridors. CPPs provide reliable power supply at competitive rates, addressing the baseload and backup needs of C&I consumers. However, the sector faces challenges such as domestic coal shortage, volatility in international coÂal prices and stringent government poÂlicies for coal consumption. With frequÂent coal shortages and a decline in the cost of solar panels, C&I consumers are increasingly considering renewable energy options, particularly solar, to meet their captive power requirements.
Power Line takes a look at the key trends and developments in the captive power segment…
Sector size and growth
As per the Central Electricity Authority, the installed generation capacity of CPPs has been estimated at 83 GW as of March 2022, across industries that have a demand of over 1 MW. It has grown at a CAGR of 7.7 per cent between March 2012 and March 2022. On a year-on-year basis, the installed CPP capacity incÂreÂased by 5.4 per cent in 2021-22 from 78.5 GW in 2020-21.
Coal-based capacity accounted for the majority share of 61.6 per cent in the total CPP capacity, followed by diesel (21.4 per cent), gas (8.9 per cent), and renewables and hydro (8.1 per cent). NoÂtably, coal-based or natural gas-baÂsed plants are typically preferred by large industries in the metals and mining, ceÂment, and petrochemicals industries owÂing to economies of scale. MeanÂwhile, smaller plants (less than 10 MW) are typically based on solar, diesel and otÂher liquid fuels. However, renewable sources of power are emerging as competitive options owing to their rapidly deÂclining capital costs.
The cumulative power generation by CPPs was around 235 BUs during 2021-22, recording a year-on-year growth of 4.5 per cent, and a CAGR of 5.7 per cent from 134 BUs in 2011-12. In the overall captive generation mix, the largest share was held by coal (86.8 per cent), followed by gas (8.5 per cent), renewables and hydro (3.8 per cent) and diesel (0.9 per cent).
Market trends
Shift towards renewables: Over the past five years, the share of coal-based CPPs has remained relatively stable while that of renewable energy-based CPPs has increased from 3 per cent to 8 per cent. The majority of the industrial units with captive capacity were set up a long time ago and were based on thermal power. In recent years, several large industries have set up renewables-based CPPs to meet their renewable purchase obligations (RPOs) besides fulfilling their baseload/backup power requirements. Solar (especially rooftop solar), wind and biomass are the major types of renewable energy-based captive capacity. Solar power is suitable for installation in C&I units as it has fewer requirements compared to wind- or biomass-based power. Many sugar factories undertake bagasÂse-based generation, using by-products as raw material.
A number of big corporates have invested in CPPs. Recently, in April 2023, chemicals major, Inox Air Products commissiÂoned a 21.3 MWp captive solar power plant at Bangarmau in Unnao, Uttar PraÂdesh, to meet its power requirement.
Meanwhile, in 2022, telecom operator, Bharti Airtel commissioned a 14 MWp solar power plant at Tilhar (ShahjahanÂpur) to meet the energy requirements of its data centres in Uttar Pradesh. The facility is the first of the two solar plants being set up by Airtel in partnership with AMP Energy. It has also planned a second plant at Begampur.
In September 2022, Hindalco Industries Limited commissioned a 25 MW captive solar power plant at its Mahan aluminium smelting unit in Singrauli district of Madhya Pradesh to cater to the energy needs of the organisation and support aluÂminium production at its unit. In August 2022, Godawari Power and Ispat Limited’s 70 MW captive solar PV power plant in Rajnandgaon, Chhattisgarh, coÂmmenced commercial operations to meet the enhanced electricity requirement of their integrated steel plant. This will help reduce reliance on high-cost energy purchased from state discoms. In September 2022, Reliance Industries LiÂmited announced its plans to foray into captive offshore wind power ventures in Gujarat with a maximum starting capacity of 5 MW.
Hybrid and round-the-clock capacity: In recent months, several industries have expressed interest in developing hybrid renewable power as well as round-the-clock captive capacity. HyÂbrid renewable power is a combination of solar- and wind-based power set up on the same site. It helps reduce off-peak issues. ReÂnewable energy developers are exploring solar and wind hybrid projects, following the introduction of supportive government policies and waivers on open accÂess charges for such projects. Hybrid projects offer benefits such as reduced risk due to the lower generation variability of the combined technologies and better utilisation of the transmission infrastructure. Notably, Andhra Pradesh, Gujarat and Rajasthan have introduced policies for hybrid projects.
In 2022, ReNew commissioned a 17.6 MW wind-solar hybrid project in GujaÂrat to meet the energy requirements of textiles major, Grasim Industries’ chlor-alkali unit. Reportedly, this is the first hybrid project in the state. In June 2022, pharma major, Cipla commissioned a wind-solar hybrid CPP in Karnataka, with 9 MWp of solar and 2.7 MVA of wiÂnd capacity, in partnership with CleanÂMax Enviro Energy Solutions.
Group captives: Group captives are also gaining traction among industrial consumers. These are CPPs set up by industries for the collective use of multiple inÂdustrial or commercial consumers that have 26 per cent equity in the project and must consume 51 per cent of the power produced, as per the ElecÂtriÂcity RuÂles, 2005. There is a shift from traÂdiÂtioÂnal open access and third-party power procurement to the group captive model. This is mainly due to the wiÂthdrawal of open access waivers for new third-party power purchase agreements across multiple states, unlike group captive projects that continue to enjoy a waiver of cross-subsidy surcharge. This trend is likely to continue with more consumers and independent power producers opting for group captive models to minimise risks and improve their financials.
Recently, Vedanta Limited announced its plans to source power through the group captive route. The company plans to procure 691 MW of renewable energy to power its operations across India. It will procure 91 MW of hybrid renewable energy – 50 MW for aluminium operations, 16 MW for copper operations and 25 MW for oil and gas operations – and 600 MW of solar energy for aluminium operations. To implement these renewable energy projects, Vedanta will create special purpose vehicles with Serentica Renewables India Private Limited.
Recently, in February 2023, TPREL signed an agreement with Vivarea ConÂdoÂminium to set up the first group captive solar plant for a residential society. The 3.125 MW solar plant will be set up at Himayatnagar, Maharashtra, and will provide green power to Vivarea CondoÂminium at approximately 40 per cent less than the cost of existing tariffs. The plant is expected to be commissioned by October 2023.
Policy and regulatory developments
In the past year, the captive power segment has witnessed several policy and reÂgulatory developments. Notably, unÂder the Electricity (Promoting RenewÂaÂble Energy through Green Energy Open AcÂcess) Rules, 2022, (Rules), captive coÂnÂÂsumers can now access green energy through open access without any limitations. Moreover, the Rules establish a 15-day timeline for approval of each application. If the approval process exceeds this time frame, the application will be deÂemed approved provided that the specified technical requirements are met. The Rules provide a much-needed relief to captive open access consumers, especially in states like Haryana where consumers and generators have faced several challenges in developing captive renewable energy projects due to the discoms’ refusal to grant open access approvals on arbitrary grounds. Also, in addition to resetting the RPO target to 43.33 per cent by 2030, the government released the energy storage obligations trajectory in 2022, which will go from 1 per cent in 2023-24 to 4 per cent in 2029-30. This mandates distriÂbutiÂon utilities, captive power producers and open acÂcess consumers to purchaÂse a minimum percentage of their annual power consumption from energy storage. TheÂre are strict penalties proposed for non-compliance.
Meanwhile, in a significant development affecting coal-baÂsed units, the Central Authority for QuaÂlity ManageÂmeÂnt (CAQM) implemented some stringent norms for CPPs in the National Capital Region (NCR), in March 2023. The CAQM has directed all the coal-based CPPs including cogenerating CPPs in the NCR to initiate co-firing of biomass-based pellets with coal. The plants have been directed to initiate immediate steps to co-fire biomass-based pellets wiÂth coal through a continuous and uninterrupted supply chain targeting at least 5 per cent co-firing of biomass pellets by September 30, 2023 and at least 10 per cent co-firing by December 31, 2023.
Further, in February 2023, the Ministry of Power notified the renewable generation obligation (RGO) as per the revised Tariff Policy, 2016 for thermal power plants (TPPs). However, it exempted caÂptive coal/lignite-based TPPs from the reÂquirement of RGOs on the condition that they fulfil RPOs as notified by the central government.
As per the Central Electricity Regulatory Commission’s Terms and Conditions for Renewable Energy Certificates for ReÂnewable Energy Generation RegulatioÂns, 2022, which came into effect from DeÂÂÂcÂÂember 5, 2022, captive generating staÂÂtions based on renewable energy soÂurces will be eligible for the issuance of certificates provided that the certificates issued for self-consumption are not eligible for sale. The certificates will be issÂued on the basis of the electricity generated and injected into the grid, or deeÂmed to be injected, in the case of self-consumption by eligible captive generating stations based on renewable energy sources. The certificates issued to captive generating stations based on renewable energy sources to the extent of self-consumption will stand redeemÂed on compliance with the RPOs.
Issues and the way forward
Coal-based capacity accounts for 51 GW out of the 83 GW captive capacity in InÂdia, as of March 2022. However, coal shÂoÂrtage and price volatility pose challenges for coal-based captive C&I units. As per data from the Ministry of Coal, coal despatch to CPPs has decreased from 66 mt in 2017-18 to 38 mt in 2021-22, registering a decline of 12.8 per cent. Therefore, C&I companies with captive coal capacity plan to diversify to renewables in the medium to long term. FurÂther, C&I units with coal-based captive capacity are required to maintain a large workforce dedicated to operations and maintenance, raising the operational cost.
While renewable-based units offer several advantages, they also face certain challenges that need to be addressed. For insÂtance, to balance the intermittent naÂtuÂre of renewable energy sources, generators will have to deploy storage solutions and batteries that are still expensive in India. Further, the high upfront cost associated with installing solar panels on rooftops, despite the decline in PV module prices, remains a challenge for small enterprises. Moreover, there can be difficulties related to grid integration, including the possibility of power flow reversal across the network and erratic behaviour of low volÂtage protection systems.
Despite these challenges, major C&I comÂpanies have set targets to achieve net-zero emissions before 2050. This is expected to drive the adoption of renewable energy for captive power generation over the next few years.
Nikita Gupta
