Karnataka’s attractive open access policy for solar projects is set to expire at the end of this month. That is leading to a rush in project development activity in the state, which already leads other states with a total installed open access based solar capacity of 334 MW. As much as 1,000 MW of new capacity is expected to be commissioned over February and March.
- Many large developers have entered the Karnataka open access market to capitalize on the short window of cost exemptions;
- Fierce resistance from DISCOMs, transmission companies and even regulators makes open access an unpredictable and challenging market;
- We expect the market to muddle along at about 500 MW per annum driven by sporadic opportunities across select states;
In 2014, Karnataka offered complete exemption from transmission, wheeling, banking and cross subsidy surcharge (CSS) to solar projects commissioned before March 2018. Unlike other states offering similar incentives, it was the first state to offer long-term certainty by offering an exemption window of 10 years. But real progress started only from 2017 onwards when falling costs made open access solar financially viable.
Many large developers have been drawn to open access market in Karnataka. They include large IPPs such as ReNew (commissioned 120 MW), Avaada, Shapoorji Pallonji, Aditya Birla, Hero Future and AMP as well as real estate developers such as Embassy Group, Soham Infrastructure and Sagitaur. Specialist rooftop companies including Amplus and CleanMax are also targeting capacity addition close to 150 MW each before the deadline.
Other states providing similar incentives have also attracted market interest. Telangana and Andhra Pradesh, both offering a 5-year cost exemption window for some charges, have installed solar capacity of 284 MW and 187 MW respectively under open access model.
But these are rare bright spots in the open access market, which continues to face policy and regulatory volatility. There is strong resistance from DISCOMs and other state agencies, who are reluctant to see their premium customers go away. Haryana and Gujarat are the best examples, where open access solar remains non-existent despite several incentives available on paper. Madhya Pradesh, with the second highest open access solar capacity in the country (318 MW), withdrew CSS and additional surcharge waiver from December 2017 onwards. The move, introduced mid-year, resulted in increase in cost of open access solar by around INR 2.20/ kWh making it unviable overnight. Gujarat and Maharashtra have also introduced some charges after waiving them off for a limited period. Even Karnataka is proposing re-introduction of wheeling, banking and transmission charges/ losses.
Meanwhile, the Ministry of Power also appears to be tightening screws on the open access market. In addition to recommending more stringent scheduling restrictions and hiking CSS,additional surcharge and standby charges, it is gradually tightening definition of group captive structure, a common ruse used to avoid payment of CSS.
Overall policy and regulatory regime for open access solar continues to be erratic and unpredictable. Falling costs should mean strong growth prospects but we expect the market to muddle along at about 500 MW per annum in the next few years.
