The Bridge to 280 GW Of Solar. Corporate India Steps Up

They have the money, resilience, and execution ability that can leave an indelible impact on India’s economy; but can the country’s corporates (C&I sector) open up a new growth engine for India’s solar movement? The time, it seems, has arrived.

As always in India, among the stakeholders, there will be many who will want to take the credit for the change, but perhaps the key reason is a combination of market alignments and luck.

On the market side, the sharp drop in prices that sustained right upto 2020, before tapering off and even increasing a little in 2021-22, opened up the possibilities of solar for corporates like nothing else. What held most firms back was inconsistent policy, variations between states and very limited financing.

What has changed is a global energy crisis, that has made every renewable energy source, especially solar, critical to users. Add to that the steadily building pressure of national targets for 2030 and beyond, which will have no meaning without visible progress on the ground now. That has meant a second big push from the government in India to clear up the roadblocks to solar growth in India for the C&I sector.

For firms integrated with global markets, there is also growing pressure to reduce their carbon footprint from their large overseas buyers. While all this created perfect conditions for a domestic C&I capacity boom, there are challenges ahead, as always. Domestic manufacturing capacity will probably struggle to keep up with demand for some time, as new manufacturing capacities take time to come up. In the meantime, the 40% duty on module imports, and the 25% on cell imports, along with the ALMM requirements for government supported projects, will continue to create issues. But one thing the C&I sector has going for it is the ability to find solutions once they have decided on solar, so expect some very interesting months ahead in the segment.

So let’s dive in to understand the possibilities and the challenges.

The Potential Market Opportunity

Gyanesh Chaudhary, Vice Chairman and Managing Director at Vikram Solar, a leading manufacturer and EPC player itself, says that, “Corporate players are increasingly active in the captive and third-party solar PPA segments. A decline in solar power prices under private bilateral contracts as against significant grid power tariffs for C&I consumers has led many of these participants to adopt solar power to meet their power requirements through rooftop solar, captive power or open-access plants. Comprehensive solar rooftop policies, with net and gross metering regulations, exemptions on open access charges for solar power in many states and streamlined utility interconnection processes, have given confidence to the industry and led to rapid deployments in the C&I solar segment.”

It is this confidence that is sending industry rushing into adding more solar capacity for their captive as well as future needs. In the past 3 months tracked by Saur Energy International, there has literally not been a single week without a MW plus announcement by large corporates about adding or confirming plans to add solar capacity for their needs. While most will make it about their commitment to sustainability, not a single case could be faulted for the strong economic base it was built on for these 225 MW plus announcements during the period.  Between now and 2030, the numbers you hear vary anywhere between 60-85 GW of solar capacity for the corporate PPA market as it has come to be called now.

Brajesh Singh, President, Arthur D Little India, says “The opportunities for C&I are enormous, be it with solar farms, microgrids or rooftop solar, It is likely that in the next 2-4 years, 20% of all C&I installations will be connected to the grid, coupled with battery storage and technological innovations such as more cost-reflective time-of-day tariffs, smart meters, high-efficiency modules and battery storage will drive the growth of this market.”

Even power generators have latched on. If Tata  Power pioneered the shift with its pledge of no more thermal plants back in 2019, the backing of other major generators from NTPC, to Adani Power (and group) to Reliance with their large targets effectively ensures that the shift to solar will be decisive now.

Brajesh puts it in perspective when he says that, “Tata Motors, Infosys, Mahindra & Mahindra, Amazon India, and AB InBev India have committed to 100 per cent electricity consumption through RE (Tata Motors and Mahindra & Mahindra, 2019). Conglomerates like Adani, Torrent, Tata, Essel group have already invested in RE (Generation and Distribution)”.

The reason for this interest is two-fold. First, several companies have signed up to achieve 100 per cent electricity consumption through RE sources. Second, electricity contributes significantly to operating costs for industries. With rapidly declining RE tariffs, companies are looking to improve their competitiveness by procuring cheaper solar/wind energy.

“Open access (OA) allows corporates (commercial and industrial electricity consumers), typically with a load of 1 MW or above, to directly enter into a contract with an RE project developer or set up their own power generation project (captive) and use the state grid to transport electricity. In addition to the RE generation tariff, corporates are required to pay a variety of charges, such as transmission and distribution charges, cross-subsidy surcharges, additional surcharges, and load dispatch center charges. Going Solar can help corporates save on operational costs, enhance brand image, accelerated depreciation benefit and government support,” shares Brajesh further.

The opportunity for developers is acknowledged by the market in other ways too. Financing support for one, long seen as a challenge to scale up, is available for the right developers aplenty. Firms like Cleantech Solar, ClearMax, Avaada, Fourth Partner Energy, Amplus Solar and more are well funded to achieve their most optimistic projections. For many investors across Singapore, Norway, the middle east, Australia and the US of course, the broader opportunity is attractive enough to make large commitments now. Local financing availability is also improving with better understanding and risk appetite for renewable projects now. That has made an obvious impact on the market, as the OPEX model can be taken to more firms, even as the CAPEX model remains the preferred route even now.

The opportunity is clearly huge, as recent momentum, and future projections indicate.

Developers Reorient For the C&I sector

Perhaps the biggest indication that the C&I sector is on the move comes from the developers who were earlier focused completely on utility scale projects. From the biggest players like ReNew Power, to strong, well capitalised players like Avaada Group, Cleanmax, Amplus Solar and more, there is a shift to the C&I segment like never before.

In August last year, when Cleanmax announced Rs 1650 crore equity investment from US’ Augment infrastructure, it added that the investment would be further used to further the company’s growth in the C&I segment.

For these developers, the focus on the corporate market is a no-brainer. It offers better margins, quicker decision making, and ancillary revenues that utility scale projects don’t yet.

ReNew Energy Global, for instance signed its largest ever corporate PPA deal of 50 MW with DCM Shriram. In its recent quarterly results the share of PPA deals has ascended from 3% to a robust 10% in its current portfolio. The company boasts of 1.3 GW of corporate PPAs, of which 616 MW has been commissioned. The RE leader seems to be an expansion spree as it has added 341 MW of fresh PPAs in the past 12 months.

Founder, Chairman and CEO of Renew Power, Sumant Sinha, speaking to analysts in the company’s earnings call said that 500 megawatts of new PPAs with corporate customers were signed in the month of May. The company is also in discussions with C&I businesses for about 1.3 gigawatts of additional new contracts. According to Sinha, the corporate business generally has higher returns than plain vanilla projects and provide additional confidence in maintaining the targeted 16% to 20% equity IRR. Corporate PPAs have represented about 30% of all portfolio additions during the last 12 months, a trend Sinha expects to sustain, if not accelerate in the future too.

He speaks for a lot of the large developers when he highlights how in India, corporate customers say about between Rs 6 to Rs10 per kilowatt hour to buy power from the grid. The price to buy power from the power exchanges is also around the same level. Developers like ReNew are able to provide power to these same customers at around Rs 3.5 per kilowatt hour before other charges, giving them a real selling point.

For large developers, even pre-building projects before they sell them is no longer the risk it was say, 5 years back, as they are confident of finding buyers for the power well in time by project commissioning. For corporates that do not like waiting between signing up and getting power, this takes away yet another challenge of shifting to renewable solar power.

M&A activity on large deals, always a good marker of prospects, has also been significant, with large deals like the Adani buyout of SB Energy for almost $3.5 billion completed last year, or the recent acquisition of  Mytrah Energy, another developer, by JSW energy for close to $1.3 billion.

The Price Challenge

Prices, which opened access to the corporate segment for solar developers until recently, have turned around to become one of the key challenges to manage. The unprecedented volatility in solar module prices, after the relatively predictable drop between 2013 to 2020, has meant a new variable to manage.

Price volatility, or actually price rise has been caused by a mix of disruptions in China, the main sourcing base, as well as policy moves in India to seek more energy security through a larger domestic manufacturing base. The latter is being achieved through both tariff barriers like the 40% import duty on Chinese modules and 25% on cells, and non tariff options like the requirement to be part of the ALMM list for government supported projects. With the definition of these projects being expanded significantly to encompass practically all projects of any scale currently.

Akanksha Tyagi from CEEW, a public policy think tank is convinced that “Rising module prices will impact the projects bid in the last year or so. The returns from these projects are likely to be low as these costs were not factored in.”

Kushagra Nandan, Co-Founder and Managing Director, at leading developer SunSource Energy, known for providing solar-based energy and storage solutions, and Vineet Tyagi, Head Sales & Marketing at solar manufacturing company, Insolation Energy, add their voice to the challenge for developers from rising costs.

Ketan Mehta, Managing Director & CEO, Rays Power Infra points out that, “The rising module prices will likely demand that solar developers have enough capital. The tariffs will need to increase. It is essential that while bidding, more practical & realistic cost assumptions are made. Projects are won at low tariffs backed by aggressive modules. Therefore, cost assumptions may face serious viability challenges, and implementation might slow down.”

However, where most see the challenge, Kushagra retains the spirit of optimism and perceives opportunity, “However, if we look at the larger picture, this has also provided our country an opportunity to build domestic infrastructure. The 2030 and 2070 clean energy targets are massive and as a nation, we definitely can’t solely rely on imports to achieve them. Our country needs a strong manufacturing base and the imposed duties, along with schemes like PLI will add an impetus to it. Hence, this is going to be a net positive for the industry as a whole.”

However, since we are speaking about the corporate sector here and changing circumstances, the tolerance for higher costs is higher upto to a point in the C&I segment. Because not only are overall energy costs higher, especially thermal and diesel, but there is also the sustainability or ESG push, especially at larger corporates.

Kushagra adds that “Over the last couple of years, large corporates, who were the early adopters in India, have started seeing real savings in their balance sheets due to solar. Moreover, companies across the world have committed to timebound net-zero targets, which would also include greening of their entire supply chain. This has really rocketed the solar power demand from the C&I sector in India,” he concludes while also saying, “This has fortunately coincided with the opening up of the Open Access market in India, largely due to favourable regulations, maturity of OA financing, and its inherent benefit of being able to cater to larger energy demand. Today, Indian corporates see a real solution to their net-zero and cost reduction goals and the country is expected to see over 3.5 GW of Open Access installation in FY23, which is a 100% jump from what we had achieved last year.”

Virtual Power Plants- The Next Big Thing? As per a BridgeToIndia report, “C&I renewable developers would be the ideal VPP service providers.” The study postulates that high capital cost has been a roadblock for battery storage adoption. VPP could mobilise this and in turn, “kickstart” the distributed storage market while bringing in “additional income streams.” Kushagra supplements this study with his forecast, “There will be multiple technologies and business models that will play a role in net-zero transition of the corporates by providing them Round-the-clock firm power. Though still early days, Novel markets such as Virtual Power Plants and IRECs will promote the development of Open Access Solar as it will offer developers multiple revenue streams by enabling them participate in multiple markets.” Vineet, at the same time, has interesting inputs to add further, “Over the last two- three years we have seen the rapid growth of Virtual power plants (VPP) across the world. VPPs are gaining popularity as power grids need to cope with ever increasing capacity of the variable renewable power. VPP basically helps in providing grid services such as peak load management, grid balancing and fast frequency response. C& I sector can play an important role as a VPP service provider. C& I renewable developer can realize additional income through VPP. The power can be used for self consumption, backup & for revenue realization.” Waaree Energies, in a formal reply to us reveals that VPPs could land smaller plants in an advantageous situation, on a level playing field with the bigger ones, “Yes, the VPP not only helps stabilize the power grids. It also creates the preconditions for integrating renewable energies into the markets. Individual small plants in general cannot provide balancing services or offer their flexibility on the power exchanges. This is because their generation profile varies too strongly or they simply do not meet the minimum bid size of the markets. By aggregating the power of several units, a VPP can deliver the same service and subsequently trade on the same markets as large central power plants or industrial consumers.” The Virtual Power Plant Akanksha Tyagi, however, refutes the claim that just C&I will lend participation to VPPs and says instead, “VPPs are an important asset for the grid. They offer smooth demand side management by the DISCOMs. Not just C&I, but other segments too will participate to form a VPP.” She sheds light on the bottlenecks in this segment, “The lack of regulatory support is holding back this technology. Brajesh is also optimistic on VPPs. “Not only do VPPs provide reliability during extreme weather events, but they can also provide significant financial benefits to consumers. Homeowners grow the value of their assets, decrease their energy costs, and become key players in the energy trading market. Owners of renewable energy resources can sell their unused energy back to the power company for a profit. With VPPs, the software can do this intelligently to maximize profits. To prepare for this transition, we recommend that utilities seek out partners to move forward in the VPP space, identify successful organized market structures and support adoption of similar structures for regions of the world where VPPs have yet to gain traction”. “It is tough to find funding for below BBB+ rated companies. In fact, it isn’t easy to find the proper financial backing, even for cash-rich unrated companies. We need lending institutions to support some percentage of lower-rated companies in the overall portfolio mix. Higher tariffs can address the risk for such companies (which they are willing to pay because these companies save on their current power costs),” Ketan Mehta shares while putting forth a suggestion to address this gap. Vineet Tyagi shares his views, “Financing / credit rating have a huge impact on the adoption of solar by corporate. In the absence of good credit rating the corporate are finding it difficult to raise funds for the project. Banks & FI are reluctant to fund solar projects as they fear the viability & life of solar projects. Easy availability of cheap funds, giving solar a priority funding status, setting up of dedicated solar funds, offering tax benefits on solar are few of the ways to address the funding issues.”

Policy And Regulatory Environment

The whole energy sector, as a core engine of the economy, perforce operates under a heavy regulatory hand. And solar growth has come to be affected and depends on it as much as any other part of the sector.

Vineet Tyagi quotes the delayed adoption of solar in the C&I this segment due to regulatory roadblocks, net metering limits, issues with implementation of Approved List of Models & Manufacturers (ALMM), lack of availability of finance, policy flip-flops in terms of SGD & BCD etc, adding that the “reluctance on the part of DISCOMs to part with their premium clients is a major hurdle.” clients is a major hurdle.”

Some states, owing to the regional disparities in policy and its implementation, are armed with a more conducive environment for C&I development, while other states, find themselves in a dilemma because of several reasons, as Ketan says, “Only a handful of states are supporting the C&I segment. Rest have, as of now, closed their doors for captive solar C&I plants. The central government’s current policy for supply of power to C&I consumers through the ISTS network and centralised approving authority for all states has raised hopes for the C&I focussed IPPs.”

Kushagra, on the other hand, says that “cheap financing has always been an issue for smaller C&I customers.” He  attributes the delays in the adoption of rooftop solar projects to scale and financing-related limitations. However, he envisions, with newer technologies for reliable power like battery storage, and attractive solutions like off-site solar available, this segment is expected to drive the country’s push for clean energy.

“I think the biggest barrier for adoption by C&I segment has been financing and limited deployment modes constrained by metering arrangements. I think regulatory recognition of innovative deployment modes (on site, off site etc.) and flexibility in electricity transactions (green open access market etc.) have been the biggest enablers for the C&I segment. Easy financing and consumer awareness have also played an important role,” Akanksha further reflects on Nandan’s analysis.

Waaree Energies, a major player in the solar PV industry, is strongly of the view that the present landscape is ideal for the solar rooftop growth, which has found favour with C&I consumers. “Net Zero and RPO, Green

Energy Tariff is also giving 100 per cent positive boost to FDI single-window clearance, an open-access order, focus on energy storage, fiscal benefits, tariffs and duties on imports, an extension of the Approved List of Models and Manufacturers (ALMM) deadline, in addition

to government policies and subsidy schemes such as SRISTI and PM-KUSUM—to popularise rooftop solar installations in the residential market segment are serving to provide the rooftop solar industry with a favourable regulatory landscape.”

However, things seem to be changing, and fast. Kushagra finds that with respect to the regional solar policy disparities, ”Many states are now discovering the benefits of solar power and FIs are also more open to providing funds at more competitive rates of interest. In addition, progressive steps by the Government such as the Green Open Access Rules, 2022 in which the open access transactions limit has been reduced from 1 MW to 100KW to enable small consumers to procure RE, are a shot in the arm of the segment. The market size is likely to grow manifold due to this and other policy changes such as electricity amendment bill, the establishment of carbon trading mechanism, etc., announced in the recent past.”

A simple approval process and uniform banking are certain to open up the market in an unprecedented way in various states.

Gyanesh adds that “C&I users consume approximately 51% of the electricity generated in India, but only a small percentage of the energy procured by them comes from renewable energy sources. This indicates huge untapped potential in the C&I renewable energy market. Even though the present market size is small, specialised developers catering to C&I consumers have emerged, with innovative business models and competitive prices. The C&I segment currently accounts for 70-80% of the country’s rooftop solar installations and is making headway in the utility-scale solar space as well through open access and group captive routes.”

Ketan Mehta, however, points out that  “It can take anywhere between four to six months to close a private bilateral PPA. Corporates are aware of the savings they can make from buying solar power directly. But it also involves an investment decision (they need to invest 26% of the equity for the project), timelines related to power supply commencement, selection of a reliable and experienced IPP in the relevant state— the connectivity approval process is also longer and chaotic, unlike in the case of utility-scale plants (won in a government tender) and corporate credit rating is vital to determine the tariff and availability of financing.”

Conclusion

The challenges are aplenty, but as always for a large market like India, the opportunities are too big to be ignored. Most developers we spoke to pointed to the inevitability of positive moves, if the country is to achieve its climate pledges.

Against such a backdrop, Vineet Tyagi,  sees a ray of hope in the Electricity Amendment Bill, “Electricity Amendment Bill will be the most effective and will have far reaching consequences. It is meant to give more power to regulators, sort out centre – state policy lacunas, improving health of DISCOMs, reducing transmission losses & power thefts & gives freedom to the customer to choose service provider of their choice.”