Tarun Katiyar, Chief Executive Officer, Tata Power Trading Company Limited
Emergence of energy services
As the Indian power sector enters a new fiscal year, it leaves behind a year marked with both turmoil and optimism. The previous year was marred by unprecedented circumstances, such as a severe heatwave that caused a sudden increase in electricity demand. The supply side has been affected by the shortage of coal and gas, which drove up fuel prices. The electricity supply chain has been subjected to tremendous strain as a result of the demand-supply imperfections/imbalance. Spot power prices have been high since early 2022, even during the low demand months of the winter season, with average prices on the Indian Energy Exchange (IEX) hovering around Rs 5 per kWh (IEX, November-December 2022) as compared to the Rs 3-Rs 3.5 per kWh during the same period in the preceding year. The prices found in the tenders issued by distribution companies for the upcoming months of 2023 remain unchanged, ranging from Rs 8 to Rs 11 per kWh, as per DEEP tenders for April to September). These prices, paid by discoms to generators, would ultimately be “trued up” by the regulatory commission and passed on to the end consumers. Needless to say, to subsidise the domestic consumers, the increased costs would be passed on to the industries and commercial establishments, thus pushing up their energy costs. This is resulting in C&I consumers having trouble obtaining power through Open Access (OA), which is exacerbated by the fact that they are also subject to relatively high OA charges/cross-subsidy charges from their discoms.
The overall generation capacity in India has increased from 344 GW in March 2018 to 416 GW in March 2023, with the maximum addition of around 45 GW coming from renewable energy capacity. At the same time, the peak deficit has increased in 2023.
With soaring energy prices and rising costs of inputs, commercial and industrial (C&I) establishments in India are seeking a relief on the power consumption front. However, the power supply situation is likely to stay the same for some time now, forcing large customers to devise their own solutions to address this peril. A growing number of C&I consumers are now sourcing their electricity requirements through the captive mode, a regulated method wherein an entity can own a power plant by investing at least 26 per cent in the plant’s equity, giving it the benefit of a relatively cheaper power compared to the tariff charged by discoms, along with the opportunity to procure green power if they set up a renewable plant.
Building a secure and sustainable energy future
Since the promulgation of the Electricity Act of 2003, OA has faced significant challenges, with a number of charges imposed on power sourced via OA, rendering it unviable for a segment of C&I customers. Several states and utilities have shifted from kWh to kVAh invoicing for their HT customers, placing the responsibility of ensuring unity power factor (PF) on the consumers. Customers in the industrial sector, particularly in the iron and steel industry, have encountered multiple obstacles in maintaining unity PF.
The Green Open Access Rules, 2022, notified by the Ministry of Power, Government of India, reduced the OA limit from 1 MW to 100 kW, allowing small consumers to access renewable power. Continuous efforts are being made to encourage the state regulators to implement the rules. Energy services can be used for providing end-to-end green, reliable solutions to large C&I consumers.
Intriguingly, the year 2022 has proven to be quite favourable for energy service companies (ESCO). ESCOs are set to play an important role in the transition to a carbon-neutral economy. This year’s budget emphasises the promotion of energy efficiency and savings through the ESCO business, which will facilitate capacity development and raise awareness regarding audits focused on energy efficiency, resulting in overall energy cost savings for C&I consumers.
The Bureau of Energy Efficiency (BEE) is actively promoting the conservation and efficient use of energy resources. BEE has implemented a number of initiatives aimed at the C&I sector, including PAT (Perform-Achieve-Trade), energy efficiency via demand-side management, and the Energy Conservation Building Code (ECBC). BEE’s PAT initiative incentivises energy efficiency in energy-intensive sectors through the trading of energy savings certificates (EScerts), which has resulted in savings of 14 million tonnes of oil equivalent and Rs 310 billion for PAT Cycle-II (BEE Annual Report). This initiative has opened a floodgate of opportunities for the ESCO sector in India, which consists of over 120 ESCOs, including 12 Grade-1 ESCOs, according to the most recent list available on the BEE website. BEE’s Framework for Energy Efficient Economic Development mandates the Partial Risk Guarantee Fund for Energy Efficiency and the Venture Capital Fund for Energy Efficiency to support financing mechanisms for energy efficiency.
The Energy Conservation (Amendment) Act of 2022 has provided the necessary impetus to energy efficiency measures and opened doors for ESCO companies. It has modified the ECBC to establish the “Energy Conservation and Sustainable Building Code”, which will establish standards for energy efficiency and conservation, use of renewable energy and other requirements for green buildings. In addition to defining a Carbon Credit Trading Scheme, the bill mandates the designated consumers to meet a minimum percentage of their energy consumption from non-fossil sources.
India has set an ambitious target to reduce the emissions intensity of its GDP, with the long-term objective of achieving net-zero emissions by 2070. In the forthcoming era of energy supply and consumption, ESCOs will play a significantly larger role. The ESCO market in India provides a range of services, including energy audits, energy management, energy savings contracts and energy supply services via assured savings and shared savings contracts. The HVAC, compressors, motors and overall energy management in buildings provide C&I consumers with opportunities for energy savings. Innovative technologies such as IoT and cloud connectivity signal the need for cost-effective solutions and present ESCOs with a substantial business opportunity. Recent developments and the increasing proportion of renewable energy in the energy mix are increasing the maturity of energy markets and facilitating their transformation in India and globally, presenting ESCOs with a significant opportunity to optimise the current energy consumption pattern. Traditional players must transition from a focus on power trading to a broader perspective that incorporates the entire energy value chain. The global energy and utilities landscape has undergone significant changes, and energy optimisation has become a necessity for industries. Creating this ecosystem will require policy implementation, financial incentives and social interventions that empower and enable utilities and ESCOs to play a crucial role in India’s energy transition journey. To survive in this dynamic environment, players in the power sector must adopt an energy-as-a-service framework and prioritise the requirements of their customers.