Key Things You Must Consider Before Signing an Open-Access Proposal
The shift towards renewable energy is no longer just a trend; it’s a growing necessity for businesses aiming to reduce their carbon footprint, promote sustainability practices, and manage energy costs. India's solar open-access capacity grew by 153% in 1H 2024,1 and this increased accessibility, along with the growing cost-effectiveness of solar energy, makes it an increasingly attractive option for C&I businesses.
Understanding Open-Access Solar Power
Open-access solar power allows businesses to purchase electricity directly from solar power producers rather than relying solely on local distribution companies (DISCOMs). This offers the potential for reduced electricity costs and a greener, more sustainable power supply. However, while open-access power offers competitive pricing and simplified access to renewable energy, it also comes with a range of considerations that businesses must address before committing to a long-term power purchase agreement (PPA).
Key Considerations Before Signing the Agreement
1. Location and Economics
The location of your business plays a significant role in the economics of open-access solar power. Factors like grid tariffs, open-access charges, and availability of renewable resources vary from state to state and impact both the feasibility and the cost of the project.
2. Regulatory Risks and Open Access Charges
Understanding the regulatory landscape and the open-access charges in your region is crucial. Open-access charges can include transmission charges, wheeling charges, cross-subsidy surcharges, and other levies. These charges can vary significantly by state and impact the overall cost-effectiveness of open-access solar.
Additionally, businesses should consider the possibility of regulatory changes. Open-access regulations, such as the Green Energy Open Access Regulations, can evolve, and changes in these regulations could impact charges or eligibility criteria.
3. Developer Selection and Project Reliability
Choosing a reliable developer is another critical consideration. As Mercom India’s report highlights, the success of open-access solar projects depends not just on the energy tariffs but also on the reliability of the power supply. To ensure the long-term success of your project, it is essential to evaluate the developer’s experience in executing quality projects and their financial stability.
A reputable developer will offer transparency in pricing, timely delivery, and robust monitoring systems. Furthermore, they should have a solid track record in handling the complexities of solar projects, including land procurement, grid connection, and regulatory compliance.
4. Negotiating the PPA
The negotiation phase of the PPA is crucial to achieving the best possible deal. Supply-demand dynamics in the renewable energy market have shifted, giving corporate buyers significant leverage. According to industry reports, businesses can secure upto 50% savings on grid electricity tariffs by opting for open-access solar in a favorable location. The cost of solar power in open-access agreements is often significantly lower than the prices charged by local DISCOMs, offering businesses the chance to lower their operational costs. However, it’s not just about securing the lowest possible price. The PPA should balance cost-saving with risk mitigation.
5. Alignment to your Long-term savings and sustainability goals
A vital factor for choosing a solution and a partner is understanding the overall savings it is offering you. In cases, adoption of Battery Energy Storage Systems (BESS) may prove to be a more relevant solution as it takes you closer to your sustainability goals, while the savings offered by it may be lower than what a standalone solar project may offer. The duration between signing of the transaction documents and the availability of power is also a crucial factor in choosing a partner as sooner a facility gets the power, higher the savings it will enjoy.
Conclusion
Signing an open-access proposal can be a game-changing decision for businesses seeking sustainable, cost-effective energy solutions. By taking the time to understand the intricacies of open-access solar, businesses can ensure they make an informed decision that aligns with both their financial and sustainability goals.
Sources:
MERCOM
MERCOM
MERCOM
Amplus Solar
Solar Quarter
CleanMax
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