As a result of a multitude of factors, such as national and international commitments to Renewable Energy (RE), falling RE prices, government regulation promoting RE, and the advent of sustainability targets, Commercial and Industrial (C&I) consumers all over the world have begun to actively explore the possibility of increasing the share of RE in their power mix. This presents two opportunities: one, an opportunity for C&I consumers to drive the demand for RE products, and two, a unique opportunity for utilities to market new RE products to C&I consumers. This is a topic that merits deeper analysis in the Indian context.

Key Findings

  1. This paper concludes that this is a suitable time for exploring green tariffs in India, in view of the inclination of C&I consumers to switch to large-scale RE procurement and the need to provide a well-defined role to utilities in the shift toward providing large-scale RE to corporate consumers. Thus far, the experiments of two Indian states (Andhra Pradesh and Karnataka) with green tariffs have been largely ad hoc in nature, and future efforts must necessarily be preceded by systematic planning and be implemented through long-term contracts.

  2. In both states‚ the green tariffs are simple premium pricing models based on the surplus RE available with the utilities subsequent to fulfilment of their RPOs; there is no long-term outlook or contracting structures, in contrast to the situation in the United States. Very low uptake of the green tariffs, as evidenced by only one subscribed consumer in each of these states, may have prevented the evolution of more sophisticated green tariffs in India.

  3. Globally, particularly in the United States, green tariffs have emerged as a popular option for companies to procure RE, and for the respective utilities to also gain from this. The successes in the United States are based on tailor-made options enabled by a consultative approach within the limits of the market ecosystem.

  4. A similar approach needs to be adopted by Indian electricity discoms. They are losing out on electricity sales to C&I consumers who prefer to access some, or all, of their electricity requirement through open access (OA) contracts (with both RE and non-RE generators) and on-site solutions such as rooftop solar. A potential solution by way of green tariffs (customized to the Indian context) could in theory enable discoms to retain and attract C&I consumers.

  5. This paper argues that in order to ensure the successful formulation and uptake of green tariffs in India, certain principles and best practices should be followed. These include consultative deliberations to ensure that green tariffs do not disadvantage other consumer groups, suitable regulations and policies to provide greater certainty and predictability for long-term green tariffs, regular interaction between the discom and the regulator to ensure the harmonizing of different policies aimed at promoting RE, and the development of specific products to meet the needs of different subcategories of C&I consumers.

Executive Summary

  1. Commercial and Industrial (C&I) consumers worldwide are proactively, voluntarily, and consciously attempting to increase their share of renewable energy (RE) consumption. This is a result of internal pressures (for example, from shareholders) as well as external factors such as government policies that mandate them to procure RE, increasing grid tariffs, and so on.

  2. This has resulted in companies worldwide entering into specific agreements with utilities for “green tariffs,” which are based on long-term contracting between utilities, corporate consumers, and RE producers.

  3. The uptake of green tariffs has seen a reasonable degree of success in countries such as the United States of America, even though these products may typically require the buyer to pay a premium for the guaranteed procurement of RE.

  4. Now is a strategic time to explore the possibility of using green tariffs for Indian corporate consumers, in view of their potential benefits for electricity distribution companies (discoms, as these utilities are termed in India).

  5. Green tariffs in India must be informed, on the one hand, by the principles adopted for the formulation of successful green tariffs worldwide, and on the other hand, by the nuances of the regulatory framework governing the electricity sector in India, such as cross-subsidization of agricultural and residential consumers by C&I consumers.