Green Energy Tariff: Purchasing Electricity With Green Attributes From DISCOMs

Power consumers of India are becoming increasingly conscious about the source of electricity consumed by them. A growing number of consumers, especially in the C&I segment, are opting to switch to renewable energy (RE). And to enable this transition, there are various methods of RE procurement existing in the Indian market. One of these methods is the purchase of electricity through green energy tariff. Green tariff is a price structure offered by an electricity distribution company (DISCOM) which enables a consumer to purchase electricity bundled with RE attributes.

Traditionally, DISCOMs inhibit their high-paying C&I consumers from procuring power through captive, open access and other alternate routes. But, with green energy tariff, it is a “win-win” scenario for both DISCOMs and the C&I consumers. Reportedly, there are many C&I consumers that are willing to pay a premium for green tariff. These are companies that have stringent sustainability targets with ‘100% RE’ being one of them.

In 2008, Andhra Pradesh became the first state to introduce green tariff in India. At the time, the state had set the green power tariff at a premium rate of INR 6.7/kWh. Later, in 2010, Karnataka offered its high-tension (HT) consumers the option to procure “green power” by paying an additional INR 1/kWh on their normal retail tariff. Other states that followed suit were Maharashtra, Gujarat and Uttar Pradesh.

It is interesting to note that Andhra Pradesh has created an entirely separate consumer category, known as ‘green power consumer’. Currently, the green power consumers of Andhra Pradesh need to pay nil fixed charge and INR 12.25/kWh of energy charges.

Figure 1: Prevailing DISCOM green energy tariffs in India

Note:
(1) Retails tariffs are for industrial consumers connected at 33 kV voltage
(2) Retail tariff includes energy charges only (therefore, fixed charges have not been considered in the tariffs shown above). Hence, the actual retail tariff will be higher
(3) In Gujarat, green tariff premium is only relevant in the Deendayal Port Trust (DPT) licensee area
Source: Tariff regulations of various State Electricity Regulatory Commission (SERCs), JMK Research

In all the five states, the green tariff is priced higher than the conventional retail tariff, with the premium over the retail tariff ranging from INR 0.5-5.55/kWh. In a price-sensitive market such as India, most power users are highly unlikely to be in favour of paying green tariff premium.

On June 6, 2022, the union ministry of power (MoP) introduced the ‘Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022’. As per the new rules (hereby referred to as GOAR 2022), any consumer with contract demand of 100 kW or more can purchase “green” energy from their electricity distribution company (DISCOM) upon payment of pre-determined tariff for the green energy.[1]

The prevailing structure of high green tariff premiums offered by the five states acts as a strong deterrent for many consumers. For determining the green tariff rate, states must, in line with the GOAR 2022 rules, take into account only the following three factors:

  • average pooled power purchase cost of the RE
  • cross-subsidy charges (if any)
  • service charges (covering the prudent cost of the distribution licensee for providing the green energy)

The green tariff route is expected to become popular in states that are relatively less endowed with RE resources.  It is necessary that, initially, these states align their RE open access framework with the GOAR 2022. Also, state electricity regulatory commissions, in consultation with other industry stakeholders (consumers, DISCOMs and RE generators), need to design structured green tariffs which are competitive vis-a-vis other alternate routes for end consumers. This, in essence, warrants farsightedness and certainty of relevant policy and regulatory framework.

[1] In case of captive consumers, there is no limitation in terms of contract demand