Open access by industrial and other bulk consumers of electricity has picked up in the current year, helped by renewable energy policies of several states such as Karnataka, Uttar Pradesh and Haryana which have removed extra costs (surcharges) imposed on such transactions from solar and wind units. In the April-February period this year, open access transactions touched an all-time high of 65 billion units (bu) and the year may have ended with such deals of over 70 bu, up a third over FY18 (see chart).
Open access is the non-discriminatory use of transmission and distribution infrastructure of the licensees by consumers with demand greater than or equal to 1 MW for procuring electricity from the source of their choice. Put simply, it allows a consumer to circumvent the discom and buy power directly from the power plant of his choice via bilateral deals or spot market purchases on the exchanges.
While open access has been legal under Electricity Act 2003, spot purchases commenced only in 2008 after the Central Electricity Regulatory Commission came out the necessary guidelines. Open access hasn’t thriven as envisaged by policymakers owing to various imposts on such purchases by discoms, inflating the cost of electricity tied up via this route.
“The jump in open access volumes comes from completed projects initiated under state renewable energy policies of earlier years, which had generous terms for open access,” PwC partner Kameswara Rao said.
In order to achieve the target of having 175 GW of renewable energy capacity by 2022, many states such as Karnataka, UP and Haryana have issued attractive renewable energy policies, providing heavy discounts on open access transactions from renewable energy capacities.
According to Icra vice-president Girishkumar Kadam, about 1,200 MW of solar capacity has come up in Karnataka in FY18 itself, thanks to the favourable policy. But Kadam pointed out, only about 2,500 MW of solar capacity is available for open access, limiting the scope of rise in such power transactions in the future.
Similar sentiment was echoed by Rao, who said “these policies have certain sunset clauses, and with discoms naturally reluctant to lose high-paying consumers, the future growth of open access could be weak”. In a discussion paper on open access released by the power ministry earlier, it suggested the states to follow a uniform formula to fix the additional surcharge for such transactions. However, the states did not really pay any heed to such proposals.
The process to procure power through open access remains fraught with numerous roadblocks posed by state-owned power distribution companies (discoms) who don’t want to lose their high-paying commercial and industrial consumers. Apart from the cumbersome approval process, state electricity regulators levy substantial open access charges—ranging between Rs 1 – Rs 2.5/unit—which makes it unviable for large consumers to buy electricity from spot markets through open access.
Apart from that, a number of major states such as Gujarat, Rajasthan, Andhra Pradesh, Maharashtra and Tamil Nadu are levying an additional surcharge, which increases the power tariffs through open access by another Rs 0.5 – Rs 1.5/unit.
In fact, the Electricity Act, 2003 says that surcharge and cross subsidies would have to be progressively reduced to encourage buyers (with more than 1 MW consumption) to purchase power from the electricity market instead of the discoms through open access. Commercial and industrial consumers anyway pay hefty power tariffs as high as Rs 8-12/unit, because of ‘cross-subsidisation’, which is a mechanism where the price of electricity for the aforementioned segments are kept higher in order to compensate for lower agricultural power tariffs. The average cost of power supply at the national level was Rs 5.58/unit in FY18.