Open access charges under a utility-scale renewable project vary with location and procurement models. It is worth noting that renewable power plants under a captive or group captive model are generally exempted from many of these charges, varying by state. Various charges under the Open Access mechanism include the following:
1. Contractual Challenges
- Tenor mismatch between PPA and loan : A new renewable energy plant typically requires debt with a tenor of 10 - 15 years. Some corporate buyers may be looking for short-term PPAs (as low as one year). Non-recourse financing will not be offered if there is a mismatch between the corporate buyer’s lock-in period and the developer’s debt tenor.
- Contract enforcement : To be able to finance a project, investors need to ensure that the proposed offtaker is bankable with strong and consistent financials. Solar and wind tariffs have rapidly declined in the last two years, creating a risk that corporate buyers may wish to renegotiate existing corporate PPAs. In contrast to solar rooftop projects, alternative corporate buyers for an off-site project may partially mitigate this risk. In that case, investors may ask for a payment security to cover the cost of transferring the contract to a new corporate buyer.
- Contract standardization : There are currently no regulatory guidelines or template contracts setting out common positions for all stakeholders of a corporate PPA. Corporate buyers and developers must agree on all contractual terms on a case-by-case basis – though some terms have informally become commonly taken positions. The absence of standard contracts increases the due diligence effort and raises costs for all the parties.
2. Operational Challenges
- Grid curtailment risk : Open Access projects are typically smaller than projects contracted by state-owned power distribution companies. They are often connected to state grids at 11/33 kV. As a result, there is a risk of grid unavailability. However, corporate buyers are not typically willing to take any grid availability risk. They may even want to impose penalties on the developer for power unavailability.
- Performance risk : The renewable energy sector has attracted an increased number of inexperienced entrants over the past years, primarily due to higher tariffs and tax benefits such as accelerated depreciation. There is a risk that such developers may compromise the project quality, which could result in lower generation, leading to penalties or even the termination of PPAs.
- Performance risk : The renewable energy sector has attracted an increased number of inexperienced entrants over the past years, primarily due to higher tariffs and tax benefits such as accelerated depreciation. There is a risk that such developers may compromise the project quality, which could result in lower generation, leading to penalties or even the termination of PPAs.
3. Regulatory Challenges
- Uncertainty around Open Access regulations and charges : Corporate buyers must pay Open Access charges to wheel power from the generation site to their premises. State regulators determine these charges periodically, so they are generally only valid for one to three years. As a result, corporate buyers cannot accurately budget for these charges beyond a couple of years. Furthermore, some charges, such as the Cross-subsidy surcharge (CSS) and the Additional surcharge (AS), can vary from one approval period to the next. Uncapped and unpredictable changes to Open Access charges discourage long-term corporate PPAs and investments in new capacity. As a recommendation, visibility for Open Access charges should be provided for 5 - 10 years. Alternatively, changes to such charges should be curbed or at least capped, particularly for existing projects with signed PPAs.
- Inconsistency in eligibility and operating criteria for Open Access : The SERCs in each Indian state frame the Open Access regulations applicable in their jurisdictions, while utilities prepare the relating operating procedures. There have been efforts by utilities and/or by central authorities to create standard processes across different states. The variation in eligibility criteria, application processes and electricity accounting across states makes it a difficult task for corporate buyers to own a PPA portfolio across India.
- Exclusion from Open Access : Most of the power consumers in India have a connected load of less than 1 MW and are ineligible to procure power through Open Access.
- The utilities point of view : Delay or refusal to grant Open Access permission by utilities can be due to lack of procedural knowledge at the local level or a commercial resistance due to potential loss of revenue as the corporate buyer is leaving the utility. It is a hurdle that corporate buyers and developers face regularly. The procedure for obtaining approvals should be clearly defined, training could be provided to local utility employees and regulations should be defined such that utilities are fairly compensated for the use of their network and have the flexibility to compete with private sector developers for sale of renewable power to corporate customers.
- Paper-based approval process : Open Access approval forms are often paper-based. A digital process would improve transparency in decision making and could improve process time. States could implement an online approval process that works across multiple states, utilities, system operators and regulators
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