The economic case for renewable PPAs is now sufficiently compelling to undertake the challenge of evaluating renewable procurement options and negotiating contracts. The recommendations for the same are as follows:
Due diligence based on company locations - Location influences economics and the risk profile of any renewable power procurement. Grid power tariffs, state-level regulations, Open Access charges, and renewable resources are all location specific and are important inputs for the commercial evaluation of a project.
Understanding Open Access risks - For procuring power from a utility scale renewable project, a corporate buyer should evaluate whether access to the grid is possible at the location and if the Open Access charges are currently favorable. Corporate buyers should then aim to understand regulatory risks from changes in Open Access regulations and evaluate the impact of potential yearly changes to Open Access charges. Companies operating out of multiple locations across India should employ a state-specific strategy for renewable adoption.
Due diligence on the developer - To ensure reliability and availability of power as per contracted terms, corporate buyers should carefully choose the developer of their corporate renewable PPA considering the developer’s experience in executing quality projects, assessing their long-term interest in operating power plants and judging their financial strength to build and operate these plants. Evaluating equipment for use in the project can reassure the corporate buyer during the plant development stage.
PPA negotiation - Supply-demand dynamics make corporate PPAs a buyers’ market. This gives sufficient leverage to corporate buyers in negotiation. A competitive tender process and one-to-one negotiations can help reveal the cost of renewable power for a specific location. For a favorable location in India, it should be possible to realize a 20 - 30 percent cost discount as compared to grid power tariffs. From a corporate buyers’ perspective, the key to any PPA negotiation is to strike a balance between de-risking a project and discovering the lowest cost of power. In the past, PPA s negotiated only keeping in mind the lowest cost of power, became unfinanceable for the developer, and were never built. Similarly, a corporate buyer can use its leverage to negotiate terms (other than cost) expressly in its favor, but increased supplier risk can result in a higher tariff for the corporate buyer.