Dark Clouds Gathering Over C&I Segment, Says ICRA

Dark Clouds Gathering Over C&I Segment, Says ICRA

In a report carried by wire agencies, ICRA’s (Formerly Investment Information and Credit Rating Agency of India) sector head and VP Girishkumar Kadam has been quoted as saying that renewable energy developers, based on third party or group captive off-take remain exposed to regulatory risk. The segment, called the C&I or commercial and industrial segment forms an important part of the market today. A hike in open access charges in such agreements  between the developer, discom and the corporate firm involved is a real risk now, thanks to the financial hit taken by discoms on both demand and collections, caused by the Covid pandemic.

That will hit RESCO’s or firms offering renewable energy to corporates and industrial units where it hurts. In an opex model, they take on the risk of capital cost and maintainance of the project, and get paid for the power purchased by their clients. The risk of higher open access charges is usually taken on by the RESCO, though some people we spoke to indicated it is not the case every time now. However, there is no doubt that a hike in open access charges will create serious friction, even where a provision exists to pass on the costs to the end customer.

Open access is probably the one area where states have had a field day with respect to policies, varying between the supportive, restrictive and even whimsical.

Discoms in most cases have been reluctant participants, seeing open access as an encroachment on their territory, especially when it comes to some of the their best customers. Keep in mind that the C&I category is not only important from a revenue perspective, revenues there usually cross subsidise other categories in many states.

That explains the apparent contradiction in policies becoming regressive, even as solar and wind generated power has actually become cheaper. As of now, it is regularly beating costs from the grid, and on a like to like basis, cost of thermal power in almost all large states.

A start has already been made with the Maharashtra regulator allowing am increase in open access charges recently, blamed on the Covid pandemic. The HERC or Haryana regulator followed suit last week, leading to fears tat this will not be the last one. Some regulators have found other ways, like GERC, which had to be cautioned for delaying the release of fresh regulations in March.

When solar and wind energy was expensive, and their contribution negligible, discoms were able to pass on concessions on a slew of additional charges, be it cross-subsidy surcharge or transmission and wheeling charges.

In an ironical twist, now that the renewable energy options are ever more competitive, they face a blast from the past, in terms of a more restrictive policy and additional costs. Which basically serve to fund inefficiencies and continuation of polluting energy sourcing in discoms. This also indicates that the environment does not even feature in the parameters being considered here so far. It will take far more than a one time stimulus, or even rules on contract enforcement as envisaged in the now threatened Electricity Amendment Bill 2020 to make India’s power sector healthy and progressive.

The C&I sector, for the record, contributes to close to 70 percent of total rooftop solar installations in India currently, and is headed for a 15 percent share of utility scale solar. Growth there is critical not only for the growth of the sector, but also allows the market to experience technological advances , as our utility scale solar parks, and residential rooftop segments remain trapped in a cycle of low cost, and subsidy driven purchases, respectively. India, with its punishing energy costs for commercial and industrial firms, is a market with huge potential for C&I focused firms, thanks to the price advantage they offer now. A global push and awareness for sourcing green power also meant some headwinds behind the segment here. It remains to be seen how the sector dodges the latest prediction of many more curveballs from the established heirarchy in the power sector.

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Prasanna Singh

Prasanna has been a media professional for over 20 years. He is the Group Editor of Saur Energy International