Open access RE projects have regulatory headwinds: ICRA

V Rishi Kumar Hyderabad | Updated on June 24, 2021

Outlook for renewable energy sector remains stable

The renewable energy sector Independent Power Producers, selling power in the open access route, are faced with increasing regulatory constraints in the form of upward revision of open access charges, denial of open access approvals and tightening of energy banking norms.

With improving tariff competitiveness of solar and windpower segments, the renewable power policies in several States have been amended over the last 3-4 year period. States have either completely withdrawn or reduced the concessions and incentives on open access charges, in respect of procuring power from solar and wind power projects under the open access route.

Girishkumar Kadam, Senior Vice-President & Co-Group Head- Corporate ratings, ICRA, said, “The overall open access charges for third party based IPPs vary widely across the key states ranging between ₹2-5 per unit and have shown an increasing trend over the period, given the limited progress in tariff rationalisation for the grid tariffs set by the SERCs for the state-owned Discoms.

“In most cases State Discoms show a passive resistance, due to apprehensions of losing cross-subsidising high tariff paying commercial and industrial customers. This poses regulatory headwinds for capacity addition in open access segment for the renewables over the medium-term.

As per ICRA, the tariff competitiveness for group captive projects is relatively superior due to non-applicability of cross-subsidy surcharge and additional surcharge (except in Maharashtra) as against third party sale under open access.

Vikram V, Vice-President & Sector Head - Corporate Ratings, ICRA, adds, “Despite these challenges, the credit profile of renewable projects in the open access segment remains supported by a mix of factors such as relatively better tariff expectations as against the tariff discovered in the utility segment.”

Notwithstanding the regulatory headwinds in the open access segment, the outlook on the renewable energy sector remains stable. This is given the improved tariff competitiveness of renewables, must-run status availability in regulatory framework leading to satisfactory operating track record, a dominant share of capacity addition expected to continue in the utility segment as well as availability of liquidity buffer for the issuers rated.

Published on June 24, 2021

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