Strong demand prospects for RE projects in C&I segment; regulatory risks key challenge: ICRA

Highlights :

  • The C&I segment accounts for about 40-45% share in all India energy demand.
  • Even assuming 20% of the energy requirements to be met by C&I segment through RE, RE capacity addition requirement is estimated to remain significant at about 75 GW.

Demand prospects for renewable energy (RE) capacity addition in the commercial & industrial (C&I) segment remain solid, given the improved tariff competitiveness and growing sustainability/green initiatives by C&I players to meet their energy requirements through renewables, going forward, finds ICRA. If that sounds obvious, then the agency also flags risks, that really shouldn’t be there at this stage for the sector.

The C&I segment accounts for about 40-45% share in all India energy demand. Even assuming 20% of the energy requirements to be met by C&I segment through RE, RE capacity addition requirement is estimated to remain significant at about 75 GW. Further, the policy focus by the Government of India (GoI) in the renewable segment remains strong, with a net zero energy transition target by 2070.

From the C&I off-taker’s perspective, cost of sourcing of renewable energy through open access remains at a discount to grid tariffs after factoring the applicable open access charges. The grid tariffs have shown an increase over the years, with the energy charge varying between Rs. 6-7/unit and Rs. 6-10/unit for HT industrial and commercial segment respectively, across the states.

Nonetheless, the regulatory risk remains inherent for open access-based RE projects, due to dependency on open access and banking requirements. The open access & banking charges/norms vary widely with effective cost ranging between Rs. 1.5 to 5.0 per unit across key states. Further, the quantum of open access charges have shown an increasing trend, given the upward pressure on cost of power supply & continued high level of cross-subsidisation in the tariff structure for the discoms.

Recent directive by the apex court in December 2021 for non-applicability of additional surcharge for captive projects, remains a positive for captive RE projects. The clarity on waiver of inter-state transmission charges (ISTS) for projects to be commissioned by FY2028 also remains a positive.

Moreover, draft rules on RE open access by Ministry of Power, dated August 2021 are yet to be notified and would benefit RE players, if the same is notified & implemented by SERCs given the certainty & clarity proposed in open access & banking norms.

What the report hasn’t yet flagged is the risk of higher costs for projects going forward, as high customs duties on imports kick in from April onwards. With stricter rules on ALMM based sourcing also being enforced, the picture will be clearer only by June, when pricing by Indian manufacturers becomes clearer.

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