RE procurement

Procurement options for commercial and industrial consumers

Renewable energy is no longer optional for commercial and industrial MSMEs—CBAM begins January 2026, and even small suppliers of items like fasteners, nuts, and bolts will face indirect carbon costs through their buyers.

The Renewable energy landed cost under various modes of renewable energy ( RE) purchase varies considerably

1. Open Access. Most common procurement tool. However, it relies on state regulations. There are various surcharges whcih make the mechanism unviable at times

2. Green Tariff. Limited adoption yet. A premium is charged by the DISCOM on top of already high industrial commercial tariffs

3. Renewable Energy Certificates (REC) : Green attributes/certificates are sold on power exchange

4. Green Power on Power Exchange :: Direct purchase of green power from the power exchange – prone to market volatility

Green Power on power exchange

There are 2 options to purchase green energy on the exchange Green term ahead market (GTAM) & Green Day ahead market G-DAM)

As of 2022-2024, green energy accounts for roughly 3–6% of total power traded on the Indian energy exchanges, which is very low .It is because most renewable power is tied up in long-term PPAs (Power Purchase Agreements) with DISCOMs, not available for market trading. Additionally, limited flexible grid infrastructure and the lack of storage mean that variable renewables often can’t fully participate in real-time markets.

Share of G-TAM and G-DAM in IEX is only 6%

Additional Challenges related to G-TAM/G-DAM:

No price certainty: Clearing price of green power is dependent on market volatility and can become very high at times.

No volume certainty: Supply and demand crunches as volume is not high

Open Access

Open Access tariff/landed cost per Kilowatt-hour (kWh) consists of two components – Base tariff and Open access charges.

The Base tariff for solar is fixed at Rs. 3.8/kWh across states to highlight changes due to open access charges; actual tariffs may vary. In addition the landed cost of solar calculated for industrial consumers is at connection of 33 kV voltage. The grid tariff includes only the energy charges (does not include fixed charges). Hence, the actual retail tariff will be substantially higher ( after including fixed charges)

Open Access landed cost is increasing because of:

• Rising project costs affecting the base tariff

• Increase in Open access ( OA) charges

Challenges related to OA:

Policy risk: Compliance to various state regulations for C&I consumer is challenging at times – esp. when consumer is located in various states.

Financial risk: Uneconomical at times due to high open access charges like additional surcharge and cross subsidy surcharge.

Delay in getting open access approvals

Renewable Energy Certificates (REC)

Only 4% of India’s renewable power capacity is registered under the REC scheme. Which speaks this is not rearlly been a success.

There has been a unpredictable swings which has made developers who were relying on REC to install projects lose a lot of money. The writer of this article was working with an amazing Indian group who put 5MW in Bikaner under REC and lost around 80Cr ( $ 7mn ) in the project.

Jan 2020: Supply side constraints leading to high prices of solar and non-solar RECs

VS

July 2022: Increased inventory of RECs saw the clearing price for both solar and non-solar REC reaching floor-level

The final nail on the coffin was done by CERC order,

CERC order in June 2020 – floor price for solar and non-solar=0, forbearance price for solar and non-solar = 1000. Before this, forbearance price = 2400, 3000 (non-solar and solar RESPECTIVELY) and floor price = 1000 (FOR BOTH)

Petitioners contended that by reducing the floor and forbearance prices, CERC had prejudiced the interests of RE generators since RECs would be purchased at lower prices.

CERC said that the change in price was necessitated by the market changes, since tariff is also falling, and to attract the interest of buyers/obligated entities in REC markets.

NOVEMBER 2021: Trading resumed with price bands applicable as per 2017 order - FP: INR 1,000/MWh for both solar and non-solar

What does the graph tell you ? Jan 2020: Supply side constraints leading to high prices of solar and non-solar RECs ;; July 2022: Increased inventory of RECs saw the clearing price for both solar and non-solar REC reaching floor-level

Challenges related to REC.

No price certainty: REC price discovery is dependent on market volatility

No volume certainty: Supply and demand crunches. Only 4% of India’s renewable power capacity is registered under the REC scheme.

Power supply crisis leading to supply-demand mismatch

Green Tariff

Green tariff is priced higher than the conventional retail tariff by INR 0.5 -5.55 kWhr

Andhra Pradesh – first state to introduce green tariff in 2008

Green tariff is priced higher than the conventional retail tariff with premium ranging from INR 0.5-5.55/kWh

Green tariff premium by different states.

Few challenges related to "Green Tariffs"

Limited supply of RE: Green energy tariff is subject to the availability of surplus renewable power with the DISCOMs

Green tariffs are at a premium to the regular grid tariffs: This is in addition to fixed charge already being paid by the consumer

Regulatory barrier for consumer with RE 100 target: RE consumed by a consumer in excess of its RPO obligation is counted towards RPO compliance of DISCOM.

Final verdict

RE landed cost under various modes of RE purchase varies considerably

• RE landed cost varies drastically for procurement though power exchanges due to varying market clearing price

• Landed cost for RE is high for third party open access.

• RE purchase through Discoms is also costly

Analysis based on data from Dec 2021 to Sept 2022