08 August 2020 | BRIDGE TO INDIA
Last week, Norfund, Norway’s development finance institution, announced a USD 100 million investment together with Siemens into Berkeley Energy Commercial Industrial Solutions (BECIS). The two companies have agreed to invest USD 50 million each into BECIS, which offers rooftop solar and other energy solutions to C&I consumers under PPA model. BECIS, founded by Berkeley Energy, is a new C&I renewable energy platform spanning south and south-east Asian countries. Another C&I renewable platform, Radiance Renewables, has been recently set up by Green Growth Equity Fund with investments from India’s National Investment and Infrastructure Fund (NIIF), Department for International Development (DFID UK) and Lightsource BP.
- Strong supply and demand side forces point to attractive growth prospects in the C&I renewable business;
- Renewable developers are competing for a small pool of acceptable counterparties;
- Hostile policy scenario is further limiting growth of the market;
There is strong investment interest in the C&I renewable business. BECIS and Radiance would be competing in a crowded market alongside other specialist C&I focused developers including Amplus (Petronas), Cleantech Solar (Shell), CleanMax (KKR), Fourth Partner (TPG) and AMP. Some utility scale IPPs (ReNew, Avaada, Mahindra, Aditya Birla, Tata) are also present in the market. The investment premise is to go after large blue-chip clients with A+ credit rating (low offtake risk), high energy consumption and presence across multiple countries (scalable business).
There is equally strong demand pull from the consumer side. Companies across the board are rushing to procure renewable power for both cost and environmental reasons. The push is getting stronger as renewable power becomes cheaper and corporate boards accelerate timeframe to achieve carbon neutral status. The good news for IPPs is that the C&I consumers have an overwhelming preference for OPEX model. It offers them assured savings, no operational or technology risk and most importantly, requires no upfront financing (crucial in COVID times).
But we see two major growth constraints. The pool of large, A+ rated counterparties is relatively small in India. Within the total 80 GW C&I power demand, we estimate that only about 8-10 GW comes from suitable counterparties. All IPPs are competing for this relatively small client pool, leading to an extremely competitive and price driven market. We estimate annual C&I renewable PPA market size at only about 1,200 MW excluding public sector consumers. And as the chart below shows, growth has begun to taper off.
Figure: New deployments in C&I renewable PPA market, MW
Source: BRIDGE TO INDIA research
Notes: Rooftop solar data excludes projects supplying power to public sector consumers. Wind open access market size is estimated at between 100-200 MW per annum; year wise data is not available.
The other major constraint to this market comes from strong resistance from DISCOMs, who are reluctant to see their best and highest tariff paying customers go away. Many states including Uttar Pradesh, Haryana, Rajasthan, Gujarat, Karnataka, Andhra Pradesh, Telangana and Tamil Nadu have announced regressive policy measures withdrawing incentives, denying approvals, limiting banking provision and/ or imposing grid charges on C&I renewable projects. We expect policy scenario to grow even more hostile as COVID-19 causes a serious dent in DISCOM finances. Proposed amendments to the Electricity Act (reduction of CSS, tariff reform), if implemented, may also pose additional short-term challenges to the market. The new players would need to innovate and diversify their business offering to cope with these constraints.