Bridge India

Weekly Update: Restricting open access power purchase- a regressive move?

Gujarat has restricted industries in the state from procuring power from outside the state through open access as per news reports. This restricts the choice of private industries in Gujarat to either purchase electricity from the state discoms or via on-site captive power plants. This comes as an unexpected move since Gujarat has been on the forefront of power sector reforms in India.

  • Utilities bemoan that private power purchase agreements (PPAs) are rendering generation capacity of up to 2,500 MW idle
  • The conflict of interest between DISCOMS and independent power producers has severely limited the uptake of open access in India
  • BRIDGE TO INDIA believes that India’s open access mechanism must be made truely ‘open’ to all

Utilities bemoan that private power purchase agreements (PPAs) are rendering generation capacity of up to 2,500 MW idle. Utilities are paying up to INR 8,000 crores as fixed/capacity charges to power producers without being able to buy the amount of power it has contracted. They are also concerned about inadequate transmission capacity to import power forcing them to restrict open access purchase from outside the state. While the concerns of the state utilities might be warranted, such a restriction is against the statutory provision of the Electricity Act 2003 that grants open access rights to all consumers who have a demand greater than or equal to 1 MW. This ban may set precedent to other states that grant open access fairly easily (Tamil Nadu) and states like Maharashtra that have traditionally opposed open access.

The power sector reforms were initiated in 2003, but remain incomplete. An important part of the deregulation is open access that allows consumers to tie up with independent power producers by using the state grid by paying a small fee. Ironically, DISCOMS are responsible for granting the open access approvals. This conflict of interest has meant that the uptake of open access has been severely limited in India. Open access forms a very important driver for renewable energy – especially wind and solar. Restrictions on open access can severely limit India’s renewable energy goals. Almost all of India’s wind installations today run on captive/group-captive or on private power sale model. This model has worked well for wind and is also being replicated in the solar industry. Since policy announcements are non periodic, any significant capacity addition that happens outside policy allocations is likely to be via open access mechanism.

BRIDGE TO INDIA has often argued on several platforms that India’s open access mechanism must be made truly ‘open’ to all. This means regulations and costs that have long-term visibility. This is beneficial to the entire power sector in the form of improved investor interest and beneficial to the end consumers in the form of more reliability and greater choice. The Gujarat Government would do good to keep its track record of power sector reforms and revert this decision. Gujarat being a power surplus state should look at using open access to sell the excess generation capacity to other power starved regions, especially in the south.