Demand Centric Pathways to 450 GW + by 2030: Role of DISCOMS in Supporting C&I Customers to Enhance their RE Demand
Commercial and Industrial (C&I) consumers in India account for close to 50% of the country’s electricity consumption. The sector is also the primary source of revenue for the electricity utilities / distribution companies (Discoms) in India because of the tariff structure, where C&I consumers cross-subsidise agricultural and residential consumers.
Due to a host of supply challenges, particularly challenges with reliability and quality of supply, C&I consumers had tended to rely on backup sources of electricity generation, particularly diesel generator sets. With the Electricity Act, 2003 (EAct) the coming into effect, some C&I consumers utilised the enabling provision of Open Access (OA) to source electricity from Independent Power Producers (IPPs) or Captive Generators (CGs). These options were earlier almost entirely thermal power contracts; but given the increasing cost competitiveness of Renewable Energy (RE) technologies, C&I consumers have been exploring RE options too. Over the past few years, some C&I consumers have been setting up on-site (primarily rooftop solar PV) and off-site RE (often, through third parties). Since C&I customers pay higher tariffs to help cross-subsidize the residential and agricultural consumers, the shift to RE results in a double hit to Discom revenues:
- The reduction in total revenues due to the reduced C&I consumption and;
- The reduction in the cross-subsidy component of the C&I tariff, resulting in less revenue to cover the subsidy needed to cover residential and agricultural consumers.
Over the last few months, Discoms have resorted to short term measures like increasing cross-subsidy surcharge and other surcharges, as well as increasing Open Access fees, in order to prevent the exodus of the C&I consumers. While the aim of such measures is to ensure Discoms continue to retain their best paying customers, these measures have stopped C&I customers from procuring and utilizing more RE. With competitive RE prices in the market today, and corporates looking to reduce their carbon footprints, these measures by Discoms go against India’s clean energy pathway.
For Discoms though, the issue is primarily revenue. And by increasing the surcharges and fees, Discoms expect to disincentivize C&I consumers from moving to more competitively priced RE. In Gujarat, for example, government owned Discoms have reported an increase in High Tension (HT) sales for the year 2018-19 on account of additional charges being imposed for open access. Regrettably, this is seen as a zero-sum game, when in reality, this is not the case.
India’s clean energy transition will depend heavily on its C&I customers. This dependence on C&I consumers was starkly laid bare by the recent lockdowns announced to tackle the COVID-19 crisis. Overall electricity demand has crashed by 21-22% in March 2020; with almost all the decrease being attributed to closure of C&I activity.
WRI India has been a long-term observer and participant in the evolving landscape of C&I through its flagship initiative called the Green Power Market Development Group (GPMDG). In 6 years of its operation, the initiative facilitated more than 750 MW of RE across India – primarily focused in the states of Karnataka, Tamil Nadu, Telangana, Maharashtra, Gujarat and National Capital Region (NCR). In addition to facilitating RE transactions, we have regularly studied and analysed the policy and regulatory landscape for RE in several states.
With advancements in energy efficiency technologies, energy storage technologies and declining RE costs, India should be looking to promote more clean energy in the power system. This will help India achieve not just national priorities like energy security and improve air quality, but also global mandates on climate change. What is needed today is a forward-looking perspective, one that takes into account the inclination of C&I consumers to procure RE and converts this into an opportunity for Discoms such that they get more involved in serving the needs of its larger, higher-paying consumers. Discoms can take advantage of their existing infrastructure, their knowledge of technological and market developments, and their ability to aggregate customers to optimize economies of scale.
WRI has been working at the state level with the both the utilities and the C&I customers to understand the challenges and concerns to enhance the RE procurement. At this workshop we would like to share the experiences from the state levels; identify few opportunities that lie within the existing rules and regulations to address the issues and identify opportunities for changes that could encourage these mechanisms.
- Ghanshyam Prasad, Joint Secretary, Ministry of Power, Government of India (Keynote Speaker)
- Shashi Goyal, ReNew Power
- Jitendra Nalwaya, BYPL
- Dr Vasundhara Sen, Symbiosis Centre For Management and Human Resource Development
- Deepak Krishnan, Associate Director, Energy Program, WRI India (Moderator)