Central Electricity Regulatory Commission (CERC), which was constituted in 1998 under the Ministry of Power’s Electricity Regulatory Commissions Act, is a key regulatory body of power sector in India. It was established for the promotion of efficient and environmentally benign policies, rationalization of electricity tariffs, transparent policies regarding subsidies and for matters connected to Electricity Tariff regulation.
CERC releases RE Tariff Regulations, 2020
The CERC has come up with tariff regulations for RE projects. These regulations will be in force from 1st July, 2020 and will be valid until March 31, 2023. The project-specific tariff will apply to wind, biogas, solar, floating solar and solar thermal power projects. It will also apply to renewable hybrid, and renewable projects with storage, municipal solid waste projects.
The highlights of RE Tariff Regulations, 2020 are as under:
- Useful Life
A life period of 25 years will apply to wind power projects, floating solar projects, biomass projects with Rankine cycle technology, solar projects and solar thermal projects. Similarly, the useful life period of biomass gasifier-based projects, municipal solid waste-based projects, and renewable hybrid energy projects will also be 25 years. 40 years is the useful life period of small hydro projects.
- Debt & Equity Ratio: 70:30
- Depreciation: 4.67% per year has been adopted for the first 15 years, and the remaining depreciation will be evenly spread during the remaining useful life of the project.
- Operation & Maintenance: Increment of 3.84% per year
- Late Payment Surcharge: 1.50% per month for delayed payment beyond 45 days
- CUF: Wind Projects: 22% for annual mean wind power density up to 220 W/m2, and it will be 24% in the range of 221-275 W/m2. 28% will be the CUF for annual mean wind power density in the range of 276- 330 W/m2, and it will be 33% for 331-440 W/m2. CUF will be 35% for average mean wind power density above 440 W/m2. Solar PV Projects: Min. will be 21%
- Auxiliary Consumption of Solar Projects
- Solar PV: 0.75%
- Solar Thermal: 1%
- Floating Solar: 0.75%
Mahindra Susten’s Views:
• These regulations are an annual exercise in determination of tariffs for RE technologies. This time around the Regulator has included Solar Storage and Hybrid Projects in its determination.
• The Tariff determination has not taken capital costs of Solar, Wind, Hybrid and Storage Projects which shall be project specific. However, the financial norms as laid out by CERC will have to be followed in such determination.
• Based on competitive Bidding of RE Projects, it is safe to assume that most of the Projects will be within the cap of CERC norms, however, absence of Feed-in Tariffs (FIT) based projects dilutes the rationale for undertaking such exercise.
• The special emphasis is on return on equity which has been kept at 14% grossed up by MAT and/or Corporate tax rate which is impressive.
• The impact of these RE Tariff regulations is adoption of same in the States and all the power
procurement of RE shall be guided by these normative parameters.
CERC Announces New Forbearance & Floor Price for Renewable Energy Certificates (REC) Framework, 2020
- CERC vide its order dated 17.06.2020 fixed following REC Floor and Forbearance Price:
- The forbearance price and floor price fixed above shall be effective from 01.07.2020 and shall remain in force till 30.06.2021 or until further orders of the Commissioner.
- The Commission directed the staff to review the REC mechanism in light of the prevailing market developments, including inter alia review the need for floor and forbearance price for REC mechanism and vintage or technology multiplier.
- The forbearance price and floor price decided in this order for Non-solar RECs shall be applicable to Non-solar RECs issued on or after 01.04.2017.
- For Non-solar RECs issued prior to 01.04.2017, the trading shall take place in accordance with Commission’s letter dated 28.05.2018 and shall be subject to the final decision of the Hon’ble Supreme Court in Civil Appeal No. 4801/2018 which entails trading at Rs. 1500/MWh. The payout to the seller will be at Rs. 1000/MWh and balance Rs. 500 /MWh to be submitted to CERC account by exchange.
Mahindra Susten’s Views:
- The reduction in floor prices is a drastic one. Floor prices for both Solar and non-solar RECS have been reduced from Rs 1,000 to Rs 0 (-100%).
- Overall, existing RECs projects will take a loss of approximately Rs 1,600 crore per annum due to reduction in the value of existing REC inventory as per one report (this includes previous reductions in 2017 and No Vintage multipliers were issued). With such a significant loss, it is likely that several projects will become NPAs.
- RECs prices have come down to such an extent that most captive and open access-based consumers are likely to find buying RECs a cheaper way of meeting RPO than buying green power. This may also apply in the case of several DISCOM’s, particularly in states that are power surplus. These low prices may therefore result in an increase in demand for RECs but may have not have a significant impact due to pegging/Capping of RPO on Captive Plants to their Date of Commissioning.
- However, it must be kept in mind that REC price reduction is always beneficial to the Obligated entities which are non-compliant as they will have an option to purchase RECs and fulfill their RPO compliance at lower prices whereas Obligated Entities who have been regularly meeting their RPO compliance will have incurred significantly higher cost. Therefore, a regularly reducing floor price actually incentivizes postponing purchase of RECs, rather than meeting RPO.
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