Earlier this month, Karnataka Electricity Regulatory Commission (KERC), the state power regulator, issued an order notifying various open access charges for renewable projects. The regulator has withdrawn all open access incentives for solar projects. But some incentives would continue to be available for other renewable projects. Controversially, the order seeks to levy some open access charges with retrospective effect on solar projects commissioned in FY2017-18.
- Karnataka has added an unprecedented 1,255 MW of open access solar capacity in Q1 2018, 93% higher than capacity addition across all of India in 2017;
- Open access is facing increasing resistance from DISCOMs and regulators;
- We are hopeful that the courts will revoke retrospective charges but policy challenges in open access market are not going to disappear any time soon;
The KERC order comes after expiry of the state’s attractive solar policy offering ten-year exemption from transmission, wheeling, banking and cross subsidy surcharge (CSS) to solar projects commissioned by March 2018. Lapsing of the policy led to an unprecedented rush in project activity in the March quarter with 1,255 MW of new projects getting completed in the state. Karnataka is now by far the biggest open access solar state with total installed capacity of 1,592 MW, 56% of total open access solar capacity in the country. Notable players to have added capacity in the state include CleanMax (224 MW), Amplus (218 MW), ReNew (200 MW), Avaada (145 MW), Shapoorji Pallonji (145 MW), Embassy Group (100 MW) and Prestige Group (90 MW).
Reinstatement of all open access charges including CSS means that new solar projects shall face additional cost of INR 2.85/ kWh. That would kill the open access solar market overnight other than for captive projects. KERC may have a reasonable justification for reinstatement of charges – “renewable energy sources can now compete with conventional sources of energy,” whereas the DISCOMs are hurting financially because of these exemptions.
But there is absolutely no justification for the retrospective levy of 25% of transmission and/or wheeling charges, applicable line losses and banking charges. KERC estimates net impact of these charges to be INR 0.51/ kWh but developers claim the actual impact can be up to three times higher depending upon connectivity voltage. Irrespective, the industry is furious as retrospective charges threaten to undermine financial viability of 1.5 GW of projects commissioned in the last year. Some developers have already approached Karnataka High Court and obtained a stay on the new KERC order. We are hopeful that the courts will revoke retrospective charges.
The Karnataka move is a sign of growing friction between private developers on one side and DISCOMs, regulators and state nodal agencies on the other side. It adds to policy chaos in the open access market and once again shows that this market is not for the faint-hearted.
