SCO NO. 220-221, SECTOR 34-A,
Petition No.32 of 2010 (Suo Motu)
Date
of Order: 30.09.2010
In the matter of: Determination of generic levellised
generation tariff for Renewable Energy Power Projects (other than Solar)
Present: Shri Jai Singh Gill, Chairman
Shri Satpal Singh Pall, Member
Shri Virinder Singh, Member
ORDER
1. The Punjab State Electricity Regulatory
Commission (Commission) in its order dated 13.12.2007 determined tariffs for different
types of New and Renewable Sources of Energy (NRSE) projects/technologies.
Later, in September 2009, the Central Electricity Regulatory Commission (CERC)
notified its Central Electricity Regulatory Commission (Terms & Conditions
for Tariff Determination from Renewable Energy Sources) Regulations, 2009 (RE
Regulations) which were subsequently amended in February 2010. Thereafter, CERC
on the basis of suo motu petitions issued two orders on 3.12.2009 and 26.4.2010
for determination of generic levellised tariff for renewable energy (RE)
technologies/power projects to be commissioned in FY 2009-10 (effective from
the date of notification of RE Regulations) and FY 2010-11 respectively.
2. In view of the aforementioned
developments, the Commission considered it appropriate to revisit the tariffs fixed
in its order of 13.12.2007. Accordingly, a staff paper was put on the website
of the Commission and a public notice was issued on 27.5.2010 inviting
comments/suggestions. The staff paper proposed to adopt the CERC RE Regulations
mutatis mutandis alongwith the State specific levellised generic tariffs for RE
Projects as per CERC order dated 26.4.2010 applicable to projects to be
commissioned in FY 2010-11.
3. The Commission notes that CERC carried
out an exhaustive exercise and after following the due process issued the RE
Regulations and subsequent orders for determination of State specific tariffs
for different types of RE projects/technologies. In the circumstances, it was
felt that undertaking the entire exercise afresh is not necessary. However,
several comments and suggestions have been received pertaining mainly to capital
and fuel cost for RE projects which merit consideration. Initially, responses were
received to the public notice from A2Z Maintenance & Engineering Services
Ltd. (A2Z), Malwa Power Pvt. Ltd. (MPL), Dee Development Engineers Ltd. (DDL),
Universal Biomass Energy Pvt. Ltd. (UBL) and Green Planet Energy Pvt. Ltd. (GPL)
who are either existing RE generators or prospective developers. Later, the
Commission sought inputs and clarifications from other agencies such as the Punjab
Energy Development Agency (PEDA), Indian Renewable Energy Development Agency
(IREDA), Markfed, Milkfed, Sugarfed, Cane Commissioner and some sugar mills
operating in the State. Besides observations on specific issues of costs, UBL
and GPL have also submitted that the Commission cannot adopt CERC
Regulations/Tariff but needs to undertake an independent study for
determination of RE tariffs applicable in the State. All these issues and
suggestions are discussed in the succeeding paragraphs.
A. Capital
Cost
Suggestion of the Objectors:
(i)
A2Z which is implementing three 15 MW
co-generation projects on BOOT basis in
the Morinda, Nakodar and Fazilka Cooperative Sugar Mills in association with
Punjab State Federation of Cooperative Sugar Mills has submitted that the
minimum project cost in the case of non-fossil fuel based co-generation projects
comes to Rs.5.13 crore per MW as against Rs.3.8 crore per MW taken by CERC
whereas the same in respect of biomass projects should be reckoned as Rs.5.0
crore per MW as against Rs.4.02 crore per MW determined by CERC. In subsequent
filings, however, A2Z has stated that the average cost for non-fossil fuel based
co-generation/biomass projects be taken as Rs.5.0 crore per MW.
(ii) UBL has
pointed out that the total project cost of their 14.5 MW biomass based project
worked out to Rs.74.91 crore (Rs.5.16 crore per MW) inclusive of the cost of
the evacuation line which has not been taken into consideration by CERC.
Further, it is urged that the CERC in order dated 3.12.2009 has arrived at a
capital cost of Rs.4.50 crore per MW (FY 2009-10) which should be applicable in
their case as their project was commissioned on 31.10.2009.
(iii) GPL while
not immediately reacting to the staff paper subsequently submitted that the
estimated cost of their 6 MW biomass project, presently under construction, is
expected to be Rs.6 crore per MW.
(iv) PEDA has
suggested a capital cost of Rs.6.125 crore per MW based on the DPR cost of Viaton
Energy Pvt. Ltd. which proposes to develop two biomass units of 10 MW each.
(v) IREDA has
intimated the capital cost updated for 2008-09 which on an average comes to
Rs.4.36 crore per MW for co-generation projects and Rs.5 crore per MW for
biomass projects.
View of the Commission:
The Commission notes that as per
inputs received, the cost per MW in respect of biomass projects ranges between
Rs.4.68 crore to Rs.6.13 crore per MW whereas in the case of non-fossil fuel
based co-generation projects the variation is between Rs.4.30 crore to Rs.5.86
crore per MW. As against this, CERC has determined capital cost as Rs.4.0254
crore and Rs.3.9807 crore per MW in the case of biomass and non-fossil fuel
based co-generation projects respectively. It is also seen that CERC has, while
determining capital cost in either case, primarily relied on data of actual
project cost obtained from IREDA as well as inputs furnished by developers
submitting applications for availing CDM benefits. On the other hand, there is
no independent corroboration of the capital cost figures furnished by the
objectors. It is relevant to note that IREDA is a Government of India (GoI) institution
which helps in setting up of RE projects by making finance available and thus
has access to project details and data that are relevant for a more accurate estimation
of capital cost. As CERC has taken all such inputs into account in arriving at
the capital cost of Rs.4.0254 crore and Rs.3.9807 crore per MW for biomass and
non-fossil fuel based co-generation projects respectively, the Commission has
no hesitation in accepting the same.
B.
Fuel Cost and Gross Calorific Value
Suggestion of the Objectors:
(i) A2Z has
submitted that owing to the limited crushing season in the State, additional biomass
fuel will need to be sourced from the market. It has been suggested that the
cost of such biomass could be taken as Rs.2600/- per MT and its calorific value
as 3200 kCal/kg. As regards bagasse, its price was initially indicated as
Rs.1159/- per MT and subsequently reported as Rs.2650/- per MT.
(ii) According to MPL, the biomass fuel price
for the period April 2009 to December
2009 was Rs.2165/- per MT which increased to Rs.2469/- per MT in April
- June 2010.
(iii) DDL has suggested that the average
biomass fuel price for the period April
2009 to March 2010 was Rs.2530/- per MT
and in subsequent filings it is reported
to be Rs.2595/- per MT between April and June 2010.
(iv) UBL has indicated
that the main biomass fuel used by them is cotton stalk and rice husk while
other materials include paddy straw and cow dung. It has been further submitted
that the procurement of biomass is undertaken in a short time span and involves
interest & storage cost besides transportation and labour charges. In view
of all these elements of cost, it is urged that the cost of biomass fuel may be
considered as Rs.3200/- per MT. In subsequent filings, however, UBL has
intimated that the biomass fuel price from November 2009 to July 2010 was
Rs.2570/- per MT.
View of the Commission:
The Commission notes that the CERC
did not find it expedient to rely on the price of fuel reported by any project
developer owing to a wide variation in the prices quoted and for the purposes
of determining fuel cost has adopted the ‘equivalent heat value’ approach based
on the landed cost and calorific value of coal as approved by the respective
State Electricity Regulatory Commissions while determining generation tariff of
their State utilities. As most of the approved fuel prices available at that
time pertain to 2008-09, the same were escalated by using the fuel indexation
mechanism as stipulated in the CERC RE Regulations to arrive at the fuel cost for
the year 2009-10. Based on this, biomass and bagasse price in 2010-11 has been
determined as Rs.2159/- and Rs.1443/- per MT after once again applying the fuel
price indexation mechanism upon the costs arrived at for the year 2009-10.
The Commission observes that the
equivalent heat value approach does not truly reflect the actual cost of fuel
that a developer might have paid and cannot for that reason be an accurate
indicator of the costs being incurred by a developer. Since cost of fuel is a
critical parameter in determining tariff, the Commission had also sought
additional data from other stake holders and agencies such as Markfed, Milkfed,
Sugarfed, IREDA, Cane Commissioner and some sugar mills located in the State.
An appraisal of this data indicates that all RE generators presently operating
in the State use a variety of fuels, the weighted average cost of which varied
between Rs.2469/- per MT in the case of MPL to Rs.2845/- per MT as indicated by
DDL. Apex cooperative institutions operating processing plants have indicated
the price of paddy husk to be between Rs.2773/- to Rs.3070/- per
Only A2Z had initially indicated the
price of bagasse as Rs.1159/- per MT with a calorific value of 2250 kCal/kg.
The same objector in subsequent filings has mentioned the bagasse cost as
Rs.2650/- per MT while retaining the calorific value as brought out earlier. As
against this, Sugarfed has provided data for the years 2007-08, 2008-09 and
2009-10 of bagasse cost of different sugar mills operating in the State. Taking
the cumulative annual average rate of bagasse as reported by Sugarfed, the cost
of bagasse comes to Rs.1448/- per MT while the CERC has adopted the price of
Rs.1443/- per MT. It is noted that A2Z who has provided the data has neither
commissioned any non-fossil fuel based power plant so far nor provided the
basis of the price estimates. The variation between the figure first reported
and subsequently submitted is also unexplained. On the other hand, the average
cost of bagasse for 3 years based on the Sugarfed data is close to that arrived
at by CERC. In the circumstances, the Commission is inclined to adopt the cost
of Rs.1443/- per MT as determined by CERC.
A related issue concerns the Gross
Calorific Value (GCV) of biomass fuel that is to be taken into reckoning.
Inputs from developers and stake holders report GCV as varying from 3000
kCal/kg to 3411 kCal/kg. It is seen that CERC while giving its findings in this
respect has relied on data provided by the Indian Institute of Science
C.
Fuel Cost Escalation
Suggestion of the Objectors:
UBL has submitted that there has been
an unprecedented increase in fuel costs over the last two years and taking that
and other related factors into account, annual increase in fuel cost could be
pegged at 10%. GPL has by and large endorsed the submission.
View of the Commission:
The Commission observes that CERC RE
Regulations provide that escalation in fuel cost could either be determined by
applying the fuel price indexation mechanism as specified in Regulation 45 and
54 for biomass and non-fossil fuel based co-generation projects respectively or
a normative escalation factor of 5% per annum could be adopted as per the
choice of a developer. It is seen that of the two objectors, only UBL has a RE
plant which is in operation. Data supplied by UBL on fuel cost in the years 2009-10
and 2010-11 indicates the same to be Rs.2570/- per MT in both years. In the
circumstances, the Commission is unable to ascertain the basis on which a fuel
escalation of 10% is being suggested. It is noted, on the other hand, that CERC
has adopted a fuel cost escalation factor of 5% which appears to be reasonable
and the Commission accepts the same. RE developers will, at the same time, have
choice to opt for fuel price escalation based on CERC’s fuel price indexation
mechanism.
D.
Control Period
Suggestion of the Objectors:
UBL has suggested that in the light
of a quick changing economic scenario, the control period should be fixed as
2-3 years as against 13 years prescribed by CERC. It is mentioned in this
respect that the control period determined by Gujarat Electricity Regulatory
Commission is also 3 years. GPL has endorsed this suggestion.
View of the Commission:
The Commission observes that the
issue raised by the objector has already been addressed in the CERC RE
Regulations wherein a control period of 3 years has been prescribed. The
objectors are apparently confusing the tariff period of 13 years as specified
in Regulation 6 for the control period which is separately defined in
Regulation 5.
E. Reservation
of Area for Biomass Power Plants
Suggestion of the Objectors:
UBL has informed that the Government
of Rajasthan has formulated a policy for promoting biomass based generation by reserving
area for each plant with a view to avoiding unhealthy competition amongst
different developers in the procurement of fuel. UBL has urged that a similar
provision needs to be made in the case of
View of the Commission:
The Commission notes that the 2006
NRSE Policy of the State Govt. already provides that only one biomass based
project would be approved in a Tehsil of the State so as to provide each
developer with a sufficient biomass command area. While this prescription may
be adequate for the time being, the Commission observes that it also needs to
take the location of non-fossil fuel based co-generation plants into account as
these may also source biomass fuel in the off season. Moreover, given the
biomass availability of the State, it might in the long run be more appropriate
to reserve area based on the installed generation capacity of each project so
that the optimal quantum of RE capacity can come up in the State. The
Commission trusts that the State Govt. will give due consideration to this
issue.
F. Other
Issues:
A2Z and UBL have opposed the proposed
reduction to the extent of 13 paise
and 5 paise in the case of cooperative sugar mills and biomass based RE
projects respectively. The Commission observes that reduction in tariff to the
extent of subsidies given by the Central or State Governments has been
specifically provided in Regulation 22 of the CERC RE Regulations. These
Regulations, it is noted, aim to determine tariff on the basis of costs that
are likely to be incurred by prospective developers and also include a
reasonable rate of return. The Commission observes that it is only fair to take
into account the subsidies if any granted and not normative costs alone.
Accordingly, the Commission finds no merit in this objection. In this respect,
it may also be clarified that the proposed reduction in tariff for different
categories of RE generators only takes the capital subsidy offered by the GOI
into account; and State Govt., the Commission is informed, does not provide
incentives and subsidy that may have a significant impact on the cost of
generation.
4. An important factor impinging on tariff
determination in the case of non-fossil fuel based co-generation units is the normative
PLF of such projects. The Commission notes that CERC RE Regulations assume that
such units will work for 150 days in the crushing season and another 60 days in
the off season. With operation of 210 days in a year, their PLF would work out
to 53%. In the case of Punjab, data of crushing seasons made available by the Cane
Commissioner indicates that it would be realistic only to assume that
co-generation units would run for 110 days in the crushing season and another
45 days in the off season resulting thereby in further reduction of normative
PLF of these plants. The Commission observes, however, that the methodology of determining
PLF on this basis may not be realistic as it does not take into account the
possibility that these plants could operate for the remaining portion of the
year on other biomass fuel available in the State. In fact, one of the objectors
has specifically referred to the need for separately determining fuel cost of
biomass in the case of co-generation units so that cost of tariff during the
crushing season and thereafter can be compositely determined. Given the
availability of biomass in the State, the Commission sees no reason why
co-generation units should not be able to achieve the normative PLF as
applicable to biomass based units. Taking this into account, the Commission
proposes also to adopt a PLF of 80% in the case of non-fossil fuel based
co-generation plants with a view to optimizing the generation from these units besides
providing additional benefits for the developer. This implies that such units
will work for a total of 292 days in a year of which 155 days would be bagasse
based generation while the plants will operate in the remaining period utilizing
biomass as fuel. Accordingly, tariff for non-fossil fuel based co-generation
projects has been arrived at on the basis of weighted average of various
parameters for bagasse and biomass.
5. Two of the objectors had urged that the
Commission can not adopt CERC Regulations and is mandated, in accordance with
the provisions of the Electricity Act 2003, to undertake an independent study
for the determination of RE tariff. The Commission is unable to agree with the
contention that either the Electricity Act or the Rules and Regulations framed
thereunder in any way restrain the Commission from adopting CERC Regulations,
principles or standards. Quite to the contrary, several of the Commission’s own
Regulations specifically provide for principles and methodologies of the CERC
to be applied in the exercise of determining tariffs. Moreover, para 6.4(3) of
the Tariff Policy specifically enjoins the CERC to lay down guidelines for the
pricing of power from non-conventional sources when such procurement is not
through competitive bidding. For these reasons, the Commission finds no merit
in this contention of the objector. At the same time, the Commission observes
that CERC Regulations are the result of an extensive study of the issue in
question and it would be both unnecessary and time consuming for the Commission
to separately launch upon an independent study. The Commission, therefore,
proposes to adopt CERC RE Regulations as amended from time to time and RE
tariffs determined by CERC with the modifications as brought out in paras 3B and 4 above.
6. On the basis of CERC RE Regulations
alongwith modifications referred to above, tariff for biomass units and
non-fossil fuel based co-generation projects has been reworked. The staff paper
on revised RE tariffs also proposed fixation of such tariffs for small hydro
projects. No objection or suggestion has been received in respect of these
tariffs and the same are confirmed. The Commission observes that as per the
Wind Power Density Map in the Indian Wind Atlas published by Centre for Wind
Energy Technology in August 2010, there is no installable potential for wind
energy in the State. However, in the event of such a project being established,
tariff for Wind Zone-1 as determined by CERC would be applicable. Accordingly,
tariff for different types of RE projects will be as hereunder:
|
Biomass
Power Projects |
||||
|
Levellised Fixed Tariff |
Variable Tariff (FY 2010-11) |
Applicable Tariff Rate (FY 2010-11) |
Benefit of Accelerated Depreciation (if availed) |
Net Applicable Tariff (upon adjusting for
Accelerated Depreciation benefit, if availed) |
|
(Rs/kWh) |
(Rs/kWh) |
(Rs/kWh) |
(Rs/kWh) |
(Rs/kWh) |
|
1.92 |
3.13 |
5.05 |
(0.19) |
4.86 |
|
Non-Fossil
Fuel based Co-Generation Projects |
||||
|
1.73 |
2.84 |
4.57 |
(0.18) |
4.39 |
|
Small
Hydro Power Projects |
||||
|
Particular |
Levellised Total Tariff (FY 2010-11) |
Benefit of Accelerated Depreciation (if availed) |
Net Levellised Tariff (upon adjusting for
Accelerated Depreciation benefit, if availed) |
|
|
|
(Rs/kWh) |
(Rs/kWh) |
(Rs/kWh) |
|
|
Below 5
MW |
4.26 |
(0.57) |
3.69 |
|
|
5 to 25 MW |
3.65 |
(0.51) |
3.14 |
|
|
Wind
Energy Power Projects |
||||
|
Wind Zone-1 |
5.07 |
(0.78) |
4.29 |
|
Note:
These tariffs are subject to further
reduction on account of subsidy for a period of ten (10) years, if availed
by the developer(s).
7. As brought
out in para 3F above, Regulation 22 of the RE Regulations stipulates that any
incentive or subsidy offered by the Central or State Governments if availed by
a RE developer is also to be taken into consideration while determining tariffs.
Although, CERC has quantified the per unit reduction on account of accelerated
depreciation benefit, reduction in tariff on account of other incentives and
subsidies has not been specified. The Commission notes that MNRE has in its
communication No.3/19/2006-CPG dated 28.4.2010 conveyed the sanction of GoI for
incentives/subsidies in respect of Grid Interactive Biomass Power and Bagasse
Co-generation projects commissioned during 2010-11 and the remaining period of
the 11th Five Year Plan. In the case of small hydro power projects
(upto 25 MW capacity), incentives/subsidies have been indicated in MNRE
No.14(1)/2008-SHP dated 11.12.2009. However, such assistance/subsidy cannot be
generically determined and will have to be worked out separately on the basis
of project capacity. Accordingly, the Commission directs that Punjab State
Power Corporation Ltd. will, before signing the Power Purchase Agreement with
the developer, work out the subsidy as per formulae indicated in MNRE
communications referred to above and reduce the tariff to that extent for a
period of ten years.
Sd/- Sd/-
Sd/-
(Virinder
Singh) (Satpal Singh
Pall) (Jai Singh Gill)
Member Member Chairman
Dated: 30.09.2010