Betting on open access to green energy

‘Green’ is the word in the energy space today and, therefore, it was no surprise when the Ministry of Power came out with the Draft Electricity (Promoting renewable energy through Green Energy Open Access) Rules, 2021.

Open access is nothing new to the existing framework and rule books. In fact, it was the soul of the Electricity Act and was supposed to allow choice of suppliers to consumers that could have led to a vibrant and competitive market. But what is also evident is that in State after State, electricity distribution utilities (Discoms) have ensured that open access never emerged a viable and sustainable alternative for industries or for generators.

Issues like delays in governemnt approval for such an arrangement, restrictions imposed on open access transactions, transmission charges, cross-subsidy surcharges, wheeling losses and charges, and transmission and distribution losses have ensured open access remains economically unviable.

Therefore, questions arise on the successful implementation of this Green Energy Open Access.

“Agreed, implementation challenges are there, but the process of reforms should not get affected because there are challenges. In fact, one has to find way forward,” Alok Kumar, Secretary, Ministry of Power, said.

Elaborating on the intent behind the proposed Rules, he said, “it is with a clear focus on making cheaper, greener electricity available in the long-term while ensuring the sector is incentivised enough to attract higher investments.”

Kumar acknowledges that there might be reluctance from Discoms as they fear that there will be loss of cross subsidy, “but we are committed to protect the legitimate interests of all the consumers. We are working on the bottlenecks and ensuring a transparent system is put in place, including a quicker system of giving approvals. We are also aware that at present respective state regulators have their own regulations for open access and, therefore, we proposed to bring in uniformity among the regulations.”

Access to consumers

Another challenge is to ensure that consumers with lower consumption also have this green access, he added. “It is proposed that minimum volume of power should be 100 kW, that is, any consumer having connected load of 100 kW and above can get open access. Thus, industrial and commercial consumers like office complexes, hotels, hospitals, shopping malls and other large establishments can get open access. And other consumers can purchase green energy through Discoms.”

“The government is also encouraging a hybrid procurement model where green and thermal can be supplied together so that distribution companies can optimise total costs,” he added.

On August 16, the Ministry had placed the draft Rules on its website seeking comments within 30 days. These Rules are proposed for purchase and consumption of green energy, including the energy from waste-to-energy plants. The draft rules have the following subheads: ‘Renewable Purchase Obligation (RPO)’; ‘Green energy open access’; ‘Nodal Agencies; Procedure for grant of green energy open access; banking’; and ‘Cross subsidy surcharge’.

As regards tariff, the Rules propose that the rates for green energy “shall be determined by the Appropriate Commission, which may comprise the average pooled power purchase cost of the renewable energy, cross-subsidy charges (if any) and service charges covering all prudent cost of the distribution licensee for providing the green energy.”

On green hydrogen, it states that it is the hydrogen produced using electricity from the renewable sources. The obligated entity, including the industries, can also meet their Renewable Purchase Obligation by purchasing green hydrogen. The quantum of green hydrogen would be computed by considering the equivalence to the green hydrogen produced from one MWh of electricity from the renewable sources or it’s multiple. The norms will be notified by the Central Commission.

These draft rules also propose guidelines for green energy open access and state that “the Appropriate Commission shall put in place regulations in accordance with this Rule to provide Green Energy Open Access to consumers who are willing to consume the green energy.”

Sabyasachi Majumdar, Senior Vice-President & Group Head - Corporate Ratings, ICRA, is of the view that the Draft Rules have been framed to promote the adoption of renewable energy through certain measures.

“These measures, once implemented, would be a significant positive for RE developers, especially for the growth of open access-based RE capacity. However, the implementation would require support from SERCs (State Electricity Regulatory Commissions) and State Discoms, given that the intra-State open access regulations are governed by the respective State regulators. There could be resistance from the Discoms given the risk of losing high paying commercial and industrial customers, which in turn adversely impact the revenues for the Discoms and increases the cross-subsidisation requirement. Also, the implementation of a centralised single window clearance mechanism could face challenges from States,” he said.

Implementation matters

While it is a positive move to let renewable generators supply directly to consumers and regulators now will have to make the required rules, what needs to be seen is its implementation by the Discoms. As critics would say, there is no use decorating the shelf if the rules will only remain in the rule book, and are not implemented in both letter and spirit. While introduction of competition at the generation end has yielded better generation options, the same cannot be said for customers, where reforms have been confined to the rule books.

Even as the original framework for open access is yet to taste success, a resource-specific variant is now being proposed. However, the elephant in the room — cross-subsidy surcharges and transmission charges — still remain unaddressed. In such a scenario, one can only hope it doesn’t further muddle the situation.