[Commentary] Building the future of renewable energy procurement in India

Climate change has been identified as possibly the greatest challenge for our generation. The recent report released by the Intergovernmental Panel on Climate Change (IPCC) further emphasises the necessity of immediate action on this front. While the 1.5 degree Celsius global warming threshold is likely to be crossed by mid-century even in the best-case scenario, there is still time to drive the future course of climate change and bring down the temperatures by the end of the century.

However, this will require drastic emission cuts and for countries across the world to meet their net-zero targets. India has emerged as a frontrunner in tackling it head-on. India is well on its way to meeting the commitments made at the Paris Agreement and is one of the few countries that are currently ‘2 degree compatible’.

Commercial and Industrial (C&I) consumers play a very important role in meeting India’s goals as they account for around half the total electricity consumption. Additionally, corporates are actively seeking to procure renewable energy for a number of reasons, including economic advantages, regulatory compliance, sustainability and energy security. However, the avenues available to C&I consumers to procure renewable energy in India are currently limited to rooftop solar installations, Open Access (OA), and Renewable Energy Certificates (RECs).

In fact, during a survey by WWF, 50 percent of corporates identified policy and regulatory issues as their primary challenge in the procurement of renewable energy. Open Access has been the preferred method of renewable energy procurement for C&I consumers with large demand, but to date only around 17 gigawatts (GW) of corporate power purchase agreements (PPAs) have been signed, accounting for around five percent of the total C&I demand.

The rooftop solar sector has similarly struggled to pick up. The viability of rooftop solar for C&I consumers depends on the net metering policies, including capacity limitations, ease of integration into the grid and the tariffs for the sale of power. These vary widely across the country. Further, some distribution companies in some states fear losing high paying consumers to rooftop solar and have withdrawn favourable policies.

At the national level, net metering had earlier been limited to 10 kilowatts, with all loads above that being shifted to gross metering. This would have been a huge blow, and the proposed rates of gross metering compensation were not viable, and further, the C&I consumers would not be able to use the units generated from their own system for self-consumption. Fortunately, this has since been relaxed to 500 kW.

However, if India is to meet the national target of 40 GW for rooftop solar, a significant shift in rooftop solar policies are needed. Establishing an incentive scheme for distribution companies and securing their buy-in could go a long way towards scaling up rooftop solar.

Read more: Is India’s rooftop solar sector being ignored for large-scale projects?

Need for alternative renewable power procurement model

There is a need to create certainty in the market and increase the avenues for renewable energy procurement by introducing alternative renewable power procurement models in India that have been successful internationally.

India has recently taken some very positive steps in this direction recently. The first was the announcement of a green tariff policy. While some states like Karnataka and Maharashtra have introduced green tariffs in the past, they met with mixed results in price-sensitive markets.

According to the announcement, the new green tariff will be lower than the conventional tariff and will allow consumers to procure renewable energy directly from the DISCOMs. Additionally, the union ministry of power has also recently issued “Draft Electricity Rules, 2021” which include a number of provisions that are being welcomed by stakeholders. It significantly promotes OA purchase of power, by limiting cross-subsidy and additional surcharges, setting deemed approvals and establishing model formats and regulations which will promote uniformity across the states. It also allows C&I consumers to meet a percentage of their consumption through green tariffs. These changes are expected to be a game-changer for Indian C&I consumers.

Virtual PPAs is another model that has been hugely successful globally. In fact, almost 80 percent of the PPAs in the United States in 2019 fell under this model. Virtual PPAs are essentially contracts where a consumer agrees to buy a specified power output from a project developer, at a fixed price for a fixed duration. This provides a guaranteed income for the developers and serves as an investment opportunity for the buyer. In India, virtual PPAs can help C&I consumers overcome state barriers in the purchase of Open Access renewable energy. However, the virtual PPA model is unlikely to be viable until there is a liquid renewable power trading market.

Read more: India proposes new green energy rules to promote renewable power

Is renewable power trading market a solution?

Another innovative model being explored in India is Peer to Peer (P2P) trading, where blockchain-enabled online platforms bring together power producers and consumers to trade renewable power. This model provides flexibility and promotes a distributed form of rooftop solar generation. India has already begun exploring this concept through pilots in Delhi and Uttar Pradesh. There is significant potential to scale it up in future.

Other options include internationally tradable RECs and the creation of a dedicated renewable power exchange, which can be used to trade renewable power, as compared to electricity and the RECs being traded separately. These models have significant potential to improve market transparency and efficiency and provide consumers with customised solutions as per their requirements.

It is clear that C&I consumers in India are excited at the prospect of renewable energy procurement, but are struggling with market and policy challenges. The Renewable Energy Demand Enhancement (REDE) initiative by WWF-India and Confederation of Indian Industry (CII) was set up in part to address these challenges and provide a national forum to discuss the challenges to large-scale corporate renewable energy procurement and develop practical and commercially viable solutions.

REDE has been actively engaging with the government for the last year, providing recommendations for enabling renewable energy procurement by C&I consumers, including green tariffs and easing of open access regulations. The announcement of a green tariff policy and the recent draft electricity rules is a positive indication that the Indian government is proactively coming forward with innovative solutions for renewable energy procurement.

The ecosystem of the Indian renewable energy policy market is also likely to evolve rapidly in the near future in light of proposed changes to the Electricity Act 2003 and the proposed National Electricity Policy. These developments would be likely to revitalise the Indian electricity market and provide new renewable energy solutions. Initiatives like REDE are working with both corporates and the government to explore how new models and systems can be best adapted to suit the Indian market.

The adoption of innovative renewable energy procurement models from around the globe will play a big part in achieving the renewable energy targets for India, which has a target of installing 175 GW of renewable energy capacity by 2022 and 450 GW by 2030. India recently achieved the installation of 100 GW of renewable energy capacity.

Apoorva Santhosh is Senior Expert-Climate and Renewables Policy with WWF India & Varun Aggarwal is Associate Director-Sustainable Business with WWF India.

Banner image: A solar pump at a private farm. Photo by Prashanth Vishwanathan (IWMI)/Flickr.