24 Jun 2021
Globally companies are getting into corporate Power Purchase Agreements (PPAs) with renewable energy producers. This trend of corporate PPAs was popularized by tech giants such as Google, Facebook, Microsoft, Amazon, Apple, AT&T who have altogether around 10 GW of PPA, but it is becoming more and more mainstream now. Corporate PPAs grew 18% to 23.7 GW in 2020 and have grown at a CAGR of almost 40% in the last 5 years. The pace did not slacken in 2020 despite the pandemic interrupting business operations and revenues.
India’s Commercial and Industrial (C&I) is no exception to green rebuilding wave sweeping the world. As per BNEF, in 2019 India was the second largest growth market in corporate PPAs with addition of 1.4 GW of capacity. C&I sector in India consumes 50% of power out of which only 3.5% is from renewables currently but its share is poised to increase rapidly with C&I renewable energy capacity expected to increase to 65 GW by 2025.
Investing in renewable energy makes abundant sense for companies:
Firstly, low carbon footprint is an essential component of ESG compliance which will soon be a mandatory non-financial disclosure once reporting framework etc is finalized. Companies which focus on ESG attract cheaper capital. Such companies also earn Government support and generate higher equity returns due to more efficient operations
Secondly, it saves costs which makes green energy a no-brainer, especially in these pandemic times. The average tariff for the C&I segment ranges from INR 6-11/kWh across India’s top 10 states, while the average Levelized Cost Of Energy (LCOE) of a rooftop solar system is Rs3-5/kWh so a cost saving of more than 50% can be achieved. Cost savings in electricity consumption will make medium, small and micro enterprises more competitive especially those MSMEs in sectors such as warehousing, food processing, leather, pharma, plastic, foundry, paper, textiles, auto, engineering, chemicals etc with high share of electricity cost as a percentage of total cost
Thirdly, predictability in electricity costs due to long term / 25-year PPAs
Lastly, avoiding the threat of Government regulatory action such as carbon tax. Some analysts, as per BNEF, are predicting a 600% increase in carbon prices by 2030 to fight global warming. That is a jump to USD 160/ton from USD 22/ton today.
The market offers various options to companies for sourcing green power such as onsite rooftop solar, open access PPA, group captive PPA, green term ahead market. In the long-term they can also look at round the clock PPAs. New technology developments are emerging which promise to increase efficiency of solar installations such as high-efficiency solar modules and battery energy storage systems. Such advancements will only bolster growth of renewables in C&I.
This decade must be the decade of massive clean energy expansion, says a report form IEA on net zero carbon emission by 2050. Net CO2 emissions must fall from around 33 Gt CO2in 2020 to around 23 Gt CO2 in 2030 and to net‐zero in 2050 to limit the average temperature increase to 1.50 C by the turn of the century. CO2emissions from electricity contributed around 40% to the net Co2 emissions in 2020 and the steepest decline in CO2 emissions by 2030 must come from electricity generation.
Green energy especially distributed green energy is a disruptive force which naturally comes with challenges – discom resistance, inconsistency in state policies, net-metering related uncertainties-but all these challenges will be resolved sooner than later. The 2020 draft electricity amendment bill will positively impact uptake of renewable energy by C&I as it talks about discom privatization, cross subsidy charge reduction and strict RPO compliance.
This is a make-or-break decade in the worlds fight against climate change and we owe it to us and our future generations to make it count.
This article was contributed by Mr Rahul Munjal, Co-Chairman, CII Renewable Energy Council and CMD, Hero Future Energies.