The captive power market in India has witnessed remarkable growth in recent times, driven by high grid tariffs that are charged from commercial and industrial (C&I) consumers and the erratic power supply that often hampers the production process.
There are multiple options when it comes to the mode of captive power generation. Indian corporates are taking significant measures to increase the green power share in their energy mix, while making commitments to assist in the transition to low-carbon energy systems and investing in renewable energy-based captives is one such strategy. At present, renewable energy-based capacity accounts for 6-8 per cent of the total captive capacity. While some are installing on-premises rooftop solar systems or setting up bioenergy units and solar thermal units, others are procuring renewable energy through the group captive route.
A look at the key trends in the renewable energy-based captive power segment…
Technology for captive renewable power
Solar: There has been a growing trend among industries to invest in captive solar power projects to meet their energy requirements. Industries such as manufacturing, textiles, chemicals and pharmaceuticals have adopted solar energy, both rooftop and ground-mounted, to meet their electricity needs and reduce dependence on traditional energy sources. Also, amidst the pandemic-induced challenges, it has become a necessity for the C&I sector to optimise costs.
A solar captive power producer can produce energy on-site or near-site. Off-grid systems work independent of the grid and have batteries that can store solar power. The panels store adequate power during the day so that it can be used at night as well. This system is self-sustaining and can provide power for critical loads. These systems require specialised equipment, making them expensive to install. Meanwhile, on-grid solar power systems are directly connected to the utility power grid. These systems send excess power generated to the utility grid and consumers get compensated for the extra power. These systems work in collaboration with the power grid and the system works on the power supplied by the grid in the absence of power. These systems are best suited to high consumption sectors. They can be installed with or without net metering and can withstand outages, being connected to the main grid.
Hindalco Industries Limited, an Aditya Birla Group company, commissioned a 25 MW captive solar power plant at its Mahan aluminium smelting unit in Madhya Pradesh’s Singrauli district in 2022. The facility will be used to generate power to meet organisational requirements as well as support aluminium production at the Mahan unit. Also, pharma major Cipla announced the commercial operation of an additional solar power capacity of 16 MW in Maharashtra (in January 2021, Cipla had commissioned a 30 MWp solar project at Tuljapur). These projects have been commissioned in partnership with AMP Energy India.
Meanwhile, hybrid solar systems combine a photovoltaic systems with another energy source such as battery storage, which is connected to the grid system. UPL Limited, a provider of sustainable agricultural solutions, and CleanMax Enviro Energy Solutions partnered to set up a hybrid solar-wind energy power plant in Gujarat in 2022. The companies will set up and operate a 61 MW hybrid captive power plant (with 28.05 MW of solar power and 33 MW of wind power capacity).
Another structure that has evolved to generate captive power is the group captive model, wherein a power plant is developed for collective usage of many commercial consumers. Private players help form special purpose vehicles (SPVs) for group captive, where corporate buyers can hold a certain amount of equity in the project and then collectively consume power with a defined power purchase agreement. This makes it a highly feasible option for industries.
For instance, Vedanta plans to source 691 MW of renewable energy projects to power its aluminium, copper, and oil and gas operations across the country, wherein captive projects will be developed through SPVs formed with Serentica Renewables. Vedanta Limited and its subsidiaries will own 26 per cent of the equity in the respective SPVs, with the balance owned by Serentica Renewables. These SPVs will build renewable energy projects on a “captive” and “build-own-operate” basis. The project will be funded on a 70:30 debt-equity basis.
Wind CPPs: Many states in India have the potential to establish wind energy and many private players offer competitive services with wind energy. Areas that are closer to wind power projects or are located in potential zones can opt for wind CPPs, as they are economical and stable sources of energy. For instance, Tamil Nadu has about 10 per cent of India’s wind potential (at a hub height of 120 metres). In Tamil Nadu, the local textile and cement industries invested extensively in wind energy CPPs. As per industry estimates, the state hosts nearly 51 per cent of the country’s captive wind capacity. More recently, big industry players are also gearing up to offshore wind. Reliance Industries Limited has announced plans to set up captive offshore wind power projects with up to 5 MW of capacity set to come up in Gujarat. The capacity will be increased with time.
Bagasse-based power generation: Sugar mills generally use bagasse as a captive raw material source of generating power and steam required during the process of manufacturing sugar. The surplus bagasse available after meeting the captive power and steam requirement is either sold to paper manufacturers, as bagasse can also be used for manufacturing paper and particle boards or utilised for generating electricity. Bagasse-based cogeneration projects help sugar mills in arresting the cyclicality of the sugar industry by generating a stable source of revenue. Power is insulated from price fluctuations and is not cyclical in nature. This helps sugar mills protect their overall margins during the down cycle of the sugar business.
Meanwhile, agricultural units have numerous bio-wastes, which can be taken to a digester to be converted into sludge, or effluent. The digested slurry is then evacuated to a tank via a pump, which then creates biogas. With the help of a biogas flow meter, desulphurisation unit and pressure release valve, biogas is ready to be used to generate power. Owing to the technology’s ability to tackle multiple problems such as agricultural waste treatment, captive electricity generation and fertiliser production, it is being widely adopted by industries and utilities alike. The Gujarat Energy Development Agency has been operating a biogas CPP since November 1997, based on 300-350 cattle and generating 110-120 units a day in five to six hours of operation.
Challenges and outlook
There are a number of policy and regulatory drivers promoting the uptake of renewable energy. There is support for renewable energy through the “must-run” status for renewable sources and renewable purchase obligations for captive power plants. The policy on energy storage obligations has also been introduced. Captive consumers are also exempted from paying additional surcharges and cross-subsidy surcharges, as opposed to open access consumers.
However, problems associated with renewable energy-based captives include ensuring upfront capex and initial financing, which can at times prove tricky, and ensure the availability of land and rooftops to mount the panels. Owners need to ensure additional operational working capacity as well. To cover for all these issues, players can opt for group captive solar plants. All renewable CPPs also need to be backed by battery storage to manage the intermittent generation. Further, players should take into account the cost of assembly, battery and inverters. Also, there is a need for approvals from multiple government offices such as state nodal agencies, load despatch centres, municipality (in the case of rooftop projects). Forecasting and scheduling of generation are other challenges which need to be considered when installing renewable energy-based captives.
That said, the policy environment is favourable. Hence, it is the right time to invest in renewable energy for captive power generation.
