Renewable Energy Procurement Perceptions among Commercial and Industrial Consumers: Current Practices and Future Possibilities
This paper discusses about the challenges faced by commercial and industrial consumers (C&I) in adoption of renewable energy. Due to competitive prices of renewable energy, there are tendencies by the C&I players to shift from the grid and have their own sources of generation. To avoid this shift, the utilities are planning to offer new solutions and this paper also discusses about the possibilities of adoption of such solutions among the consumers.
RE procurement is a predominant path taken by organizations to achieve their sustainability targets. Across the world, the GT has been emerging as an alternative RE procurement model for C&I consumers, facilitated by DISCOMs. Through GTs, C&I consumers can opt to buy RE directly from DISCOMs by paying a premium to the utilities. However, GTs suffer from limited adoption in India, primarily due to relatively higher distribution tariffs being paid by C&I consumers. GTs have not been favorably received in states such as Andhra Pradesh and Karnataka. Thus, to design a better GT, it is important to understand how such tariffs are perceived by C&I consumers.
About This Paper
This paper aims to understand the challenges C&I consumers face in the current RE procurement routes. For instance, in a premium-based model, GTs have seen success/higher adoption rates in many Western economies; however, this model has seen a lukewarm response in India. To understand this dichotomy, this paper sets out the following research objectives:
- Develop a greater understanding of the preferred RE procurement routes among C&I consumers and identify key drivers and barriers for each option therein.
- Determine perceptions and acceptability of GTs.
- Estimate the willingness to pay (WTP) for GTs, among the select consumer segments.
To achieve these objectives, data were collected from 101 corporate and 185 SME C&I consumers across five states. These consumers comprised existing RE adopters and nonadopters. A qualitative, in-depth interview study was conducted to understand consumers' perceptions of current RE procurement models, their experiences with the RE transition, and their key RE adoption barriers and drivers. A double-bounded dichotomous choice contingent valuation experiment—a quantitative evaluation method—was used to understand consumers’ WTP for GTs.
Findings and Recommendations
We found a dominant preference for on-site solutions for both corporate and SME RE users. Open access (OA) off-site projects (where electricity generated is wheeled from the point of generation to the point of consumption, for a charge) are more popular in large corporations. This is due to the procedural complexities of OA transactions, the larger capital availability in corporations, and the need to meet larger energy demands. Thematic analysis of RE procurement suggests that five RE adoption drivers and seven adoption barriers are impacting the pace of the green energy transition for C&I consumers. We also found that awareness of GTs is strikingly low, with up to 82 percent of corporate consumers and up to 94 percent of SMEs unaware of GTs as a concept and desirous of proof of concept before committing. Perceptions are predominantly negative, with concerns around GT premium longevity, the certainty of 100 percent RE-based supply by DISCOMs, and RE additionality. GTs are more welcomed by SMEs because they are effective instruments to meet RE-based alternate electricity supplies without committing to heavy capital investments (for on-site solutions) or engaging in complex off-site OA transactions. On WTP, 62 percent of corporate consumers and 55 percent of SME consumers were not willing to pay any premium for GTs. This points to the poor acceptability of GTs in a premium-based setting and the need to restructure them with demonstrated proof of concept.
Based on the study findings, this paper presents five key recommendations for organizations, DISCOMs, and state energy departments (as applicable):
- State energy departments should restructure their GT model with a lower premium but with added adoption (fiscal) incentives. Consumer perceptions demand clarity on GT premium longevity, accompanied by the promise of additionality. Innovative debt financing should be developed for SMEs, which often lack access to easy and affordable financing for RE investments.
- Utilities/DISCOMs should enhance their roles and act as GT information disseminators and promoters, thereby keeping high-paying C&I consumers from migrating from their networks. We also suggest that they offer GTs in a demand aggregated model for SMEs. Under this model, demand from SME clusters can be aggregated by the incumbent distribution utility, which can be met through RE supply, upon payment of GTs.
- C&I consumers, especially large corporations, should play a key role in meeting 100 percent electricity demand through RE with virtual/financial power purchase agreements and virtual net metering (VNM). In Delhi, VNM is already implemented—irrespective of the contracted capacity of the consumer—and is available to all categories of the said DISCOM.