Discoms and states pivotal to making renewable energy via open access a success

A wind farm in Tamil Nadu. Open access for green energy could help minimise fossil fuel usage and promote country-wide trade of clean energy.

A wind farm in Tamil Nadu. Open access for green energy could help minimise fossil fuel usage and promote country-wide trade of clean energy. Photo by Narayana Swamy Subbaraman/Mongabay.

  • India’s power ministry recently came up with a set of rules to extend renewable energy’s open access to different sets of consumers and also to make the process faster and with fewer barriers.
  • The new norms allow consumers with up to 100 kilowatt of energy requirements to voluntarily opt for open access green energy. This is lower than the earlier cap of one megawatt requirement and opens up the market to newer consumers.
  • Experts say although the rules aid in green energy penetration in Micro, Small and Medium Enterprise consumers, the role of power distribution companies (discoms) and states would be crucial to increasing the use of renewable energy.

India’s Ministry of Power recently notified the Green Energy Open Access Rules 2022 to give an impetus to the growth of the renewable energy (RE) sector and promote its production, purchase, and consumption.

Under the open access system, eligible consumers – those with a contracted demand or sanctioned load of 100 kW or more – can purchase power from a green energy service provider of their choice. They can select such a service provider from among competing power companies (private and government-owned) in the open market. This system is a shift away from the closely regulated system where consumers had to use the services of only one service provider which usually had the monopoly in the particular region.

The Green Energy Open Access Rules 2022 were notified on June 6 after receiving public feedback and comments to the August 2021 draft rules. Open access has so far been available for regular electricity supply, under the Electricity Act 2003 norms for consumers (mostly large commercial and industrial units) having a minimum of one megawatt of power requirement. The 2022 Rules are specifically for using green energy under an open access system, which, according to the notification, refers to “the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations.” Under these rules, green energy refers to energy from renewable sources, including hydropower and storage (if the storage uses renewable energy). The new rules also classify waste-to-energy projects as green energy and have made it available for open access trade. The rules also specify special incentives if green energy is used to produce green hydrogen and green ammonia.

As the new norms have reduced the minimum requirement of energy, from one MW to 100 kW, for consumers seeking to purchase green energy via open access, it is likely to enable consumers with a lower energy requirement, usually commercial or industrial entities of various sizes, to purchase renewable power.  

“The rules have been framed to promote renewable energy through open access of green energy so that the use of fossil-fuel-based energy could be minimised and substituted within a definite time frame,” Anand Mohapatra, an Odisha-based power analyst and former member of the state energy regulatory commission, told Mongabay-India. “By these rules, the government has promoted the generation, trading, transmission, and consumption of green energy throughout India. Clean energy can be now traded from one part to another part of India.” He also, however, said that the rules would not be easy to implement. 

Image shows solar panels on top of a building in India
Under the open access system, eligible consumers are allowed to purchase power from the open market among the competing power companies. Photo by Wikieditor11221/Wikimedia Commons.

Read more: Can decentralised solutions empower India’s energy transition?

Fixed charges for transition

The new rules fix the charges for green energy open access consumers. These include transmission charge, wheeling charge, cross-subsidy charge, and standby charge. No other charges besides these were proposed to be levied, the rules said. It also said that cross-subsidy charges and additional surcharges shall not be applicable if green energy is utilised for production of green hydrogen and green ammonia.

Experts working in this area note that incentives and capping of cross-subsidy are likely to remove the hurdles to accessing green energy and increase the investments in the sector.

“Cap on increasing the cross-subsidy surcharge as well as the removal of additional surcharge, not only incentivise the consumers to go green but also address the issues that have hindered the growth of open access in India. The rules will help in streamlining the overall approval process for granting open access, including timely approval to improve the predictability of cash flows for renewable power producers. It will also bring uniformity in the application procedure,” Debanjana Choudhuri, Country Director, PowerforAll (India), a coalition focussed on decentralised renewable electricity, told Mongabay-India.

With the limit of open access transaction of green energy reduced from one MW to 100 kW, it could open up the space for the Micro, Small and Medium Enterprises (MSMEs) to shift to renewables via open access, say experts. 

Vagisha Nandan, Programme Manager at the research collective, Initiative for Sustainable Energy Policy (ISEP), said that the new policy could be beneficial for captive power plants and other large electricity power consumers. “The  MSME sector was finding it difficult to purchase clean power because of the one MW limit (as their requirement is lower). The new rules will enable small electricity consumers like MSMEs to make the required shift. Recognising the purchase of green hydrogen/green ammonia by obligated entities towards meeting their Renewable Purchase Obligation (RPO) is a good step as it will ensure that the steel industry which is a hard-to-abate sector, can move towards renewable fuel,” she told Mongabay-India.

Image shows transmission lines over the sea in Chennai
Weak financial health is also often linked to the poor growth of the clean energy sector in the country. Photo by Aravindan Ganesan/Wikimedia Commons.

New challenges for discoms

As eligible power consumers shift to the open access system from local distribution companies (discoms), it may impact the discoms. Deepak Krishnan, Associate Director (Renewable Energy Programme), World Resources India (WRI), explained to Mongabay-India that there could be some reluctance from the discoms on the new rules as it might impact their business. He, however, said that household-level consumers would not find much use of the open access rules as the minimum requirement for open access stands at 100 kW (usually a household uses an electricity connection with a load capacity of three kW to five kW). 

“It’s most likely that they (discoms) will resist implementing these new rules. It was the same case with the regular open access limit of one MW which was prevalent till now,” he said. “At the same time, this is an opportunity for the discoms and the state governments to attract investment and retain these consumers within their network – by offering green tariffs. These tariffs currently exist as a premium, and the reaction to this is mixed. So, some pricing reforms will be needed along with a dedicated focus on better planning … the fate of discoms rests in their own hands,” he said.

Somit Dasgupta, a senior visiting fellow at the International Council for Research on International Economic Relations (ICRIER), said that open access could succeed only when there is enough transmission capacity. He added that if states do not offer enough transmission capacity, the open access system would not succeed. Thus, ensuring states were on board with this system, is important because states have the power to block the implementation of the rules.

Waste-to-Energy plant in Okhla. As per the new rules, waste to energy comes under the green energy umbrella and can be used in open power trade system.
Waste-to-Energy plant in Okhla. As per the new rules, waste to energy comes under the green energy umbrella and can be used in open power trade system. Photo by Kundan Pandey/Mongabay.

“The new rules are likely to increase the demand for renewable energy but if there is a shift of big players and medium players to open access, the financial burden on discoms is likely to escalate if they are allowed to serve only to the domestic and agricultural consumers who pay less cost of the service. So, their financial health will suffer. The private sector invests more in such areas where discoms are in good health. In most states, discoms are in losses except Gujarat and only a few other states,” Dasgupta said.

American credit rating agency Moody’s recently reported in a statement that the weak financial health of state-owned discoms in India had been a hurdle for the growth of renewable energy in India leading to increased working capital of renewable energy companies.

Read more: India’s coal crisis exposes power sector woes

Poor RPO compliance

The new rules, meanwhile, also bat for uniform Renewable Purchase Obligations (RPOs). Under RPOs, discoms are bound to purchase a portion of their energy requirements from the renewable sources of energy, according to the Electricity Act of 2003. However, in the past, many states have not complied with fulfilling this obligation.

Dasgupta said that RPO norms were flouted due to weak enforcement from the State Electricity Regulatory Commissions. But this could likely change with the Electricity Amendment Bill 2021, which is likely to be taken up in the Parliament soon. As per the draft of this bill, hefty fines are proposed for non-compliance of RPOs and this could help monitor flouting of norms.

Reports have indicated that some states in India like Jharkhand have failed to purchase their mandated share of renewable energy under their RPO. However, with the new open access rules, the large energy consumers are likely to aid in fulfilling the RPO mandates. 

“The captive power plants in Jharkhand fail to fulfill their RPO as they generate surplus electricity and since there is no shortfall, they feel it’s unnecessary to buy clean power just for the sake of fulfilling RPO. Reduction in eligibility limit of open access applicants from one MW to 100 kW will definitely help the large electricity consumers to fulfill their RPOs but I believe the discoms will not benefit from it. In fact, they might suffer from revenue losses when their biggest consumers move towards open access,” ISEP’s Vagisha Nandan said.


Banner image:A wind farm in Tamil Nadu. Open access for green energy could help minimise fossil fuel usage and promote country-wide trade of clean energy. Photo by Narayana Swamy Subbaraman/Mongabay.

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