One step ahead: Solar Captive Power Plants in India

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​published on 1st September 2022


Indian manufacturing companies are increasingly deciding to set-up their own captive power plants for their operations. The reasons for this are high electricity prices, unreliable energy supply and lack of energy infrastructure. Particularly clever companies are using solar-powered captive power plants. This article summarises the advantages of setting up a solar captive power plant and the most important aspects to consider during such project.
 
India runs the risk of running into an energy crisis. The energy challenges facing  India today   are largely from to rapid industrialization, economic expansion, increasing population and rising demands. To cope up with these challenges, India needs to keep up with modern technology and innovations. As we talk about the Indian scenario, it is not just India, but Captive power plants (CPPs) in many emerging and developing countries play a significant role in the electricity sector. This is mainly due to unreliable electricity supplies from state-owned utilities and challenges in accessing the national grid, especially in remote and rural areas. Integrating the captive capacity with the on-grid supply can improve resource utilization in the electricity market.
 
The Central and the State Governments are taking measures by restructuring the State Electricity Boards by forming independent regulatory bodies and focusing on industrial independence by enabling them to generate and manage their own power needs. The large consumers or heavy industries may have their own generating stations to generate the whole or part of the total power demand within their own premises. From 2021 to 2026, market size of captive power generation market is forecasted to grow. We have already started seeing a shift from government grid-based setups to captive power plants. Here comes the concept of captive power generation in picture.
 
In India, in the last few years, the installed capacity of the Captive Power Plants (CPPs) has grown at a faster rate compared to the utilities. For this purpose, the case study of the CPPs of Gujarat is undertaken. In 2002, Gujarat had 2.44 GW installed capacity of captive power plants, which represent almost 22% of the total installed capacity.[1] The factors which caused the CPPs in Gujarat to grow at a faster rate compared to the utilities are unreliable power supply by the utilities, poor quality of power, higher industrial tariffs, multiple benefits like cogeneration of steam and electricity and lower internal transaction costs for running the CPPs.

Concept of Captive Generating Power Plants: 

A CPP is a power plant that is being set up by a company for generating their own electricity. CPPS owned by a group or having multiple owners are called Group CPP. A group captive scheme is where someone develops a powerplant for collective usage of consumers. At present under the Indian Electricity Act, 2003 and the Electricity Rules, 2005, a power project is considered ‘captive’ if the consuming entity or entities consume at least 51% of the power generated and owns at least 26% of the equity. These plants operate off- grid or they can be connected to the electric grid to exchange excess generation. Captive Plants are set up by power-intensive industries where continuity and quality of energy supply are crucial. Different industries have different choices on the type of captive plant they choose to set up. 
 
Further CPP can be classified on various parameters. Heavy industries such as steel, aluminium and smelting industries which are energy intensive, generally set up coal-based power plants. Sugar industries typically setup bagasse-based plants in order to optimally utilize the waste product from their factories. Diesel generators are widely used by a variety of industries, including commercial facilities for supplying peak power and backup power. Several industries are also using cogeneration plants in which the waste heat from the boiler is effectively utilized in hearing applications. 
 

Concept of Solar Captive Power Plant

Renewable energies, especially wind and solar, are becoming the most sought-after technologies for setting up captive projects.
 
A solar CPP refers to solar energy solutions, that produce energy on-site, or near-site. In the past solar power plants were mostly installed to generate power and sell it only to the government at a fixed cost. However, companies are realizing now how to use solar power for their own advantage in their own operations and decide to establish their own solar CPPs.  
In general, Solar CPP can be Power Plants which are based on off-grid, on-grid and hybrid systems:
 
  1. Off-grid: Off-grid systems work independently off the grid but have batteries which can store the solar power generated by the system. The solar panels store enough sunlight during the day and use the excess power generated in the night. These systems are self-sustaining and can provide power for critical loads in areas where a power grid is not available. However, these systems require specialized equipment to function and may be costly to install. These are ideal for businesses which can sustain for a short period of time with no electricity. 
  2. On grid: On-grid solar power systems generate power using a solar power system and are directly connected to the utility power grid. These systems send excess power generated by the solar power system to the utility grid and consumers get compensated for the extra power fed back. These systems work in collaboration with the power grid. In the case when there is not enough sunlight to meet your business’ needs, the system runs on the power supplied by the grid. These systems are best suitable when the power consumption is high, and you wish to reduce your electricity bills. On-grid systems can be installed with or without net metering. Being connected to the main grid, these systems do not work during power outages.
  3. Hybrid: Hybrid solar systems are hybrid power systems that combine the photovoltaic system with another energy source. However, the term hybrid solar panels refers to solar and battery storage connected to the grid systems. Hybrid system has the added benefit of grid independence.
 
It is a common misunderstanding, that solar CPP have to be installed on a rooftop, e.g. as a rooftop solar CPP. This concept is difficult to implement in India, since a lot of industries do not have enough space to install such rooftop solar CPP. In general Solar CPPs can be ground mounted (off-grid), open access (grid network) or are rooftop (off-grid, net-metered). For every type and mounting method, there are different factors which need to be taken into consideration. 


Checklist of important aspects for Solar CPPs:

 

Checklist Solar Captive Power Plant India
Land Acquisition: 
  • Acquiring land in India may be challenging. The land acquisition laws differ from state to state.
  • Industries also prefer setting up rooftop solar panels for which the capacity of rooftops needs to be checked, especially the weight of the solar panels. This weight varies with technology and type of structure.
  • Considering the space limitations and unavailability of land, industries resort to rooftop as well as open access plants. 
​License:
  • Under the new regulations of the Indian Electricity Act, 2003, no separate license is required to set-up captive power plants. However, other registrations and licenses may have to be obtained, depending on the state specific regulations. 
Finance:
  • Setting-up captive plants requires financial assistance and is one of the most important factors.
  • Regular funding options such as increase of capital, shareholder loan and/or local loan are available. 
Incentives:
  • State specific incentives may be provided by the state governments. An incentive budget plans should be developed and negotiated in order to utilize the maximum amount of incentives. 
​Taxes:
  • Direct and indirect tax benefits like sales tax safeguard or anti-dumping duty inclusions, excise duty exemptions, and custom duty exceptions are given.
  • Project developers are exempted from Income Tax on all the project earnings from the project in the first ten years of its inception, operation, and accelerated depreciation for solar energy producers to claim 40% of the costs in the first year itself.
​Renewable Energy Certificates:
  • Renewable Energy Certificates are tradable certificates that are meant to give benefits to the ones who generate green power by providing financial incentives for every unit that they generate. Central Electricity Regulatory Commission issues the REC which is mandatory for solar rooftop panel installation. It intends to provide advantages to the industries to attain carbon neutrality.
​Regulatory Factors:
  • The current captive power plant policy at state and central level treats the CPPs as homogeneous entities. However, there is a need to understand the dynamics of various segments of the CPPs and frame the policies accordingly. The various segments cater to different needs of the industries. Treating these segments uniformly will lead to problems because of the varied characteristics (size, preferred fuel type, usage etc.) of these segments. 
Other factors:
  • Other factors like the geographical location and connectivity, recruiting qualified professionals, managing core business in addition to maintaining captive plants, regulatory authorities, operational factors, EPC (Engineering Procurement and Construction) etc. hold substantial value while developing a solar CPP.

 

Conclusion: 

Despite installing its own solar CPP comes along with a lot of advantages, a lot of industries are still fearing taking this step. One of the main risks that the industry perceives is the regulatory risks, which might create the stranded asset problem for them. India is in the need of undergoing electricity reforms. Many states have already come up with various captive power policies. However, those policies are not yet sufficient to regulate all aspects of CPPs sufficiently. We need to frame a balanced policy, which increases the overall benefit of the society as a whole. Further, these regulations should encourage industries to look for newer architectures, which are in line with the overall objectives of the reforms such as lowering the cost of generation, more efficient generation etc. In addition, these regulations should also state the long-term industrial tariffs upfront as early as possible so that the various industries do not install CPPs, which might become uneconomical in the end. Finally, there is a need for a well-integrated power policy which addresses the various issues like CPP policy, IPP policy, T&D policy, policy for private investments in power etc so that captive power investors along with the other stakeholders gain as a whole. This will ensure an overall development of the sector, which will in turn result to development of the Indian economy.
 
Nevertheless, the  biggest industrial houses of India  have already shifted to solar CPP in the past years. Other companies have installed solar power roof top panels while others are investing in Special Purpose Vehicles for solar power captive consumption. It is clear that from the above , that this is crucial in order to reduce carbon emissions and save electricity costs in the long run. 

 

Pro & Contra Solar Captive Power Plant 
Pro Solar CPP
  • Saving of electricity cost
  • Self-sufficient electricity
  • Various incentives available
  • Way of reaching carbon neutrality 
Contra Solar CPP
  • Initial financing needs to be ensured
  • Availability of land/ rooftop needs to be ensured
  • Additional operational working capacity needs to be ensured
  • Regulatory risk in case of electricity reforms

 

1https://fsi-live.s3.us-west-1.amazonaws.com/s3fs-public/wp22_cpp_5mar04.pdf

 

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