Regulatory hurdles pose headwinds for open access based RE projects: ICRA

Independent power producers in renewable power sector selling power in open access route are faced with increasing regulatory constraints in the form of upward revision of open access charges, denial of open access approvals and tightening of energy banking norms, according to investment information firm ICRA.

Besides, with improving tariff competitiveness of renewables particularly in solar and wind power segments, renewable power policies in several states have been amended over the last three to four years.

States have either completely withdrawn or reduced the concessions and incentives on open access charges in respect of procuring power from solar and wind power projects under the open access route.

Girishkumar Kadam, Senior Vice President and Co-Group Head for Corporate ratings at ICRA, said the overall open access charges for third party based independent power producers vary widely across the key states ranging between Rs 2 to 5 per unit.

"They have shown an increasing trend over the period, given the limited progress in tariff rationalisation for grid tariffs set by the Central Electricity Regulatory Commission for state-owned distribution utilities."

In most cases, said Kadam, state-owned discoms show a passive resistance due to apprehensions of losing cross-subsidising and high tariff paying commercial and industrial customers.

"This poses regulatory headwinds for capacity addition in open access segment for the renewables over the medium term."

However, demand for such power purchase agreements with commercial and industrial customers is favourable, supported by tariff attractiveness, given the extent of discount offered in such agreements against applicable grid tariffs as well as growing voluntary sustainability initiatives of corporate customers.

ICRA said tariff competitiveness for group captive projects is relatively superior due to non-applicability of cross-subsidy surcharge and additional surcharge (except in Maharashtra) as against third party sale under open access.

However, policy clarity on proposed amendments in eligibility criterion with regard to ownership and equity structure for group captive projects is still awaited and thus remains a monitorable.

Notwithstanding regulatory headwinds in open access segment, said ICRA, the outlook on renewable energy sector remains stable.

( With inputs from ANI )