Challenges to investment 

Before India introduced competition into the power sector, customers were compelled to purchase electricity exclusively from State Electricity Distribution Companies (DISCOMs). This structure prevented competitive pricing. The Indian government sought to promote competition, drive operational efficiency, and open the market to private producers with a power market reform. By allowing independent power producers (IPPs) to enter the market, India aimed to attract private investment, particularly in renewable and alternative energy sources. This shift aimed to diversify procurement options, especially for larger consumers, with the ability to source electricity directly from renewable energy developers. 

Approach 

Introduced in the Electricity Act of 2003, the concept of Open Access (OA) allowed large consumers with a minimum demand of 1 MW, mainly from Commerce and Industries (C&I), to procure power directly from renewable energy generators, bypassing the state-owned distribution companies (DISCOMs). The OA secured non-discriminatory access to the transmission and distribution infrastructure. Two models were implemented in parallel:

• A third-party model, in which an IPP owned and operated the generation plant. A cross-subsidy surcharge (CSS) was introduced to support lower electricity tariffs for agricultural and residential consumers.
• A captive model, in which a C&I customer owned at least 26% of the plant and used at least 51% of the electricity it generated.

Initially, Open Access faced challenges that hindered its full potential. In several states, DISCOMs offset revenue losses from C&I customers by increasing the cross-subsidy surcharges (CSS) and imposing unpredictable additional surcharges (AS), particularly affecting the third-party model. Bureaucratic delays in project approvals and inconsistencies in state-level regulations also created an uncertain climate for investors.

To eliminate investment barriers and streamline processes, the Indian government introduced the Green Energy Open Access (GEA) Rules in 2022. These rules lowered the eligibility limit for open access consumers from 1 MW to 100 kW, thereby expanding access to small and medium-sized enterprises. Additionally, the GEA Rules clarified the use of various charges, including Additional Surcharge (AS) and the Cross Subsidy Surcharge (CSS) which were capped for increase at maximum 50% over 12 years, thereby improving long-term cost certainty for C&I customers. Specific surcharge exemptions were introduced for Waste-to-Energy plants, encouraging investment in diverse forms of renewable energy. The reform also ensured that renewable energy consumed beyond a consumer's Renewable Purchase Obligation (RPO) would count towards the DISCOM's RPO targets, creating an additional incentive for both consumers and power distributors.

Lastly, the GEA Rules mandated the creation of a centralized nodal agency to manage applications and streamline approvals for OA consumers, therefore reducing delays. 

Key Enabling Conditions 

Several key factors have driven the success of Open Access. The liberalization of the electricity market, by enabling private players to participate in energy generation and supply, laid the groundwork for OA’s expansion. The government’s strong policy support for renewable energy, aimed at promoting sustainability, further reinforced OA as a mechanism to achieve corporate decarbonization goals while contributing to national clean energy targets. Increased awareness and demand from C&I customers who sought diversified and renewable energy options for both cost savings and environmental stewardship was also a critical driver of growth. Lastly, the geographic advantage of renewable energy resources, including wind in southern states and solar power in western and northern regions, enabled consumers to diversify their energy portfolios, further promoting the growth of OA.

Impact / Outcomes

From 2003 to 2017, India installed 2.3 GW of Open Access renewable energy (OA RE) capacity. This growth accelerated significantly between 2017 and 2022, with an additional 7.4 GW installed. Following the 2022 reforms, India achieved a record 3.2 GW of solar OA RE capacity in 2023. Overall, Open Access accounted for the largest share of estimated C&I renewable energy volume, more than double that of rooftop solar, the second-largest source.

Open Access was especially successful in states with high energy demand and substantial industrial activity, such as Tamil Nadu, Karnataka, and Maharashtra, which, together, represent approximately 70% of the country’s OA RE capacity.

Additional Sources

• JMK, Institute for Energy Economics and Financial Analysis, India’s Renewable Energy Open Access Market: Trends and Outlook, August 2022, https://jmkresearch.com/wp-content/uploads/2022/08/India-Renewable-Energy-Open-Access-Market.pdf
• https://economictimes.indiatimes.com/industry/renewables/open-access-solar-capacity-addition-at-record-3-2-gw-in-2023-report/articleshow/108348935.cms?from=mdr
• FICCI, Facilitating Growth of Corporate Renewable Market, May 2023, https://ficci.in/api/pdf1/EMP?fileID=23786&fileName=Report-Corporate_RE_Market.pdf