According to solar news, solar project developers believe that group captive projects, when compared to projects under third party sale, are more viable due to reduced transmission charges and off-takers’ equity interest in the project.
The open access solar is an attractive source of power for large consumers (with a connected load of more than 1 MW). It allows them to procure solar energy at competitive prices from offsite solar projects using the existing transmission and distribution infrastructure.
The developers have now started to look at group captive power projects as a business model to expand operations in the open access market. Unlike an individual captive or third-party sale power project, group captive is an arrangement through which a developer sets up a power project for the collective use of multiple industrial or commercial consumers who have 26% equity in the project and must consume 51% of the power produced.
What is Group captive Power Scheme
A group captive scheme is where someone develops a power plant for collective usage of many commercial consumers. The developer should have at least 26% of the equity and has to consume at least 51% of the power produced. The term “captive power scheme” was introduced in the Electricity Rule, 1995.
Advantages of Group Captive
- The primary advantage of a group captive model is that cross-subsidy, and additional surcharges are not levied on the power procured. For industrial consumers, captive solar projects make sense as most projects or manufacturing units have poor quality or small roofs, which may only allow them to meet 10-15% of their energy consumption whereas renewable purchase obligations (RPO) for these companies are much higher and many have also signed up for RE100 initiative. Further, given the lower cross-subsidy charges, group captive would be ideal for such consumers. Besides, the consumers having to fund a certain percentage of the project gives the developer a sense of comfort as well.
- Cheaper price: This is the most important factor and the reason why it all works. Industrial tariffs tend to be higher than residential and it effects the profit maximization condition. This way, industries will get cheaper rate. Business Standard estimates the market rate to be around Rs 3/ unit while production cost to be around Rs 3.50/unit.
- State utility: The consumers in the group captive scheme no longer need to worry about bureaucratic utilities.
How will the Group Captive Power Scheme work?
Imagine Company A along with company B and company C decide to bring down their electricity costs. Collectively they make a power plant with 26% equity and decide to use about 51% of energy produced. Then they decide to sell the remaining 49% power to Company X, Y and Z. This makes the whole group part of the group captive power scheme.
Group Captive Power Scheme in Solar
Suppose the developer decides to make a Solar Power Plant for using the group captive scheme. Now, he not only gets the group captive scheme benefits but also gets to sell the REC (Renewable Energy Certificates) in open market or the IEX (Indian Energy Exchange).
Amendments for Open Access Solar Power
States which has issued the amendments to open access regulations: Uttar Pradesh, Andhra Pradesh, Maharashtra
It appears like group captive projects are set to become a more viable model of open access for developers in India. However, the government needs to know open access projects under third-party sale are not going to take off without adequate policy support. It needs to urge the states to enable consumers and developers by giving them more regulatory flexibility and reducing the number of charges levied on them.