Is Karnataka the next big destination for solar?

Karnataka Electricity Regulatory Commission (KERC) issued an order on August 18th 2014 exempting open access charges for solar projects within the state (refer). Karnataka is the first state in India to give a long-term visibility on the open access charges. This is a very good precedent. Uncertainty around grid charges is a key deterrent for a healthy development of open access solar transactions in India. The highlights of the order are:

  • Wheeling, banking and cross subsidy charges are exempted for open access and captive solar projects
  • This exemption is provided for 10 years from the commercial operation date (COD) for all projects commissioned before 31st March 2018
  • Captive solar plants availing REC benefits are liable to pay wheeling, banking and cross subsidy charges as per KERC order on 9th October 2013 (refer)

Most of the 41 MW utility scale solar plants currently commissioned in Karnataka are selling power to the state distribution companies through the state solar policy. The open access market for solar has not yet taken off in Karnataka. KERC’s tariff order for solar plants dated 10th October 2013 exempts wheeling, banking and cross-subsidy charges up to March 2018 while the current order provides better clarity and exempts the charges for a ten year period from commissioning of the plant. Currently, the open access charges being levied in the state for other renewable sources are as follows:

 

Percentage of energy injected into grid

INR/kWh

Source

Wheeling charges (for wind and mini-hydel)

5%

-

KERC order on “wheeling & banking for renewable energy generators” dated 9th October, 2013
Banking charges (for wind and mini-hydel)

2%

-

Cross subsidy charges
Industrial (11/33 kV)

-

0.31

BESCOM tariff order 2013-14
Commercial (11/33 kV)

-

1.74

Assuming these charges are levied on solar projects for its lifetime, the solar PPA tariffs would increase by INR 1.8/kWh for industrial consumers and INR 2.0/kWh for commercial consumers as opposed to exemption for first ten years of operation. The change is different for commercial and industrial consumers due to different cross subsidy charges for both consumer categories.

Long term foresight on open access charges reduces the risk in cash outflow due to uncertain charges which in turn helps investors predict their returns from the project with more certainty. Developers can secure financing for open access projects more easily leading to better capacity addition of solar power through open access. This can boost investor confidence and lead to healthy growth of solar industry in the state.

The clarity on open access charges makes Karnataka a very attractive destination for solar projects with three different avenues for solar capacity addition. Firstly, plants for third party sale of power and for captive consumption will likely to come up to cater to the large number of commercial and industrial entities in the state. These consumers are interested in buying solar power at a price that is lower than the grid tariff. Secondly, the state policy target was increased to 2,000 MW by 2021 out of which 150 MW is under construction and bidding was recently undertaken for an additional 500 MW. Third, the rooftop segment will get a significant boost with the introduction of net metering policy expected later this year. Such a multi-directional approach was also adopted by Gujarat which went on to become the leading state for solar capacity. This brings us to the question, is Karnataka the next big destination for solar?

Srikant Kumar – Analyst , Project development at BRIDGE TO INDIA

2 comments

  • This is very good news without a shred of doubt! I hope many other states follow suit. About time it happened…

    – Prashant.

  • Can you please clarify if apart from exemption from wheeeling, banking and CSS charges, are solar projects also expemted from wheeling/transmission losses that are incurred in open access trasaction??

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