The Andhra Pradesh Electricity Regulatory Commission (APERC) has set a levelized tariff of ₹2.64 (~$0.032)/kWh for the 11^th to 20^th year of operation for wind power projects in the state.

The Commission added that the distribution companies (DISCOMs) would have the first right of refusal of power purchase if the projects continue to operate after 20 years from the commercial operation date. The tariff beyond the 20th year should be mutually agreed upon by both parties and approved by the Commission.

Mayura Steels and 26 other wind generators had filed petitions with the state Commission to approve the generic tariff of ₹3.43 (~$0.041)/kWh or higher for the sale of wind power to the state DISCOMs during the 11-20 years of a project’s life.

Background

In an earlier order in 2009, the Commission had arrived at a levelized tariff of ₹3.43 (~$0.041)/kWh for 20 years. Later, the Commission decided to set the tariff for the first ten years at ₹3.50 (~$0.042)/kWh with a direction that the tariff from the 11-20 year period would be revisited after the expiry of the first ten years.

Pursuant to the Commission’s order, the wind power generators executed power purchase agreements (PPAs) with the state DISCOMs for setting up wind power projects having different capacities in the state.

Subsequently, the wind power generators filed petitions seeking approval of the generic tariff of ₹3.4 (~$0.041)/kWh or higher for the sale of wind power from the 11^th year onwards.

APSPDCL, in its reply, noted that the tariff of ₹3.5 (~$0.042)/kWh was set for the first ten years, and the tariff for the next ten years was to be decided by the Commission.

Therefore, the tariff was loaded more in the first ten years, and the wind power generators’ request for approval of the then generic preferential tariff of ₹3.4(~$0.041)kWh without any further reduction was not tenable.

The state DISCOM added that the wind power generators had agreed to a tariff of ₹3.5 (~$0.042)/kWh for ten years and a review of tariff payable beyond the 10th year of operation by the Commission.

Hence, they could not unilaterally claim the tariff of ₹3.43 (~$0.041)/kWh for the period from the 11th year onwards.

Commission’s analysis

The Commission noted that at the time of determining the levelized tariff of ₹3.5 (~$0.042)/kWh for the first ten years, the technology had not matured. However, since then, the technology had matured by leaps and bounds, leading to a significant tariff reduction to as low as ₹2.4 (~$0.029)/kWh.

Further, at the time of determining the above tariff, there were no regulations on wind tariffs. Therefore, the Commission, in the absence of regulations and to encourage wind power which was at that time still in a nascent stage, determined a levelized tariff of ₹3.5 (~$0.042)/kWh for the first ten years of operation.

The Commission considered the following key elements to determine the tariff:

Capital Cost   

While fixing the tariff for the initial ten years period for these projects, the Commission had examined the prevailing capital cost at that time and arrived at a figure of ₹47 million/MW. It decided to continue with the said capital cost of ₹47 million (~$568,315)/MW for tariff determination during the 11-20 years of operation.

Debt Equity Ratio

The debt-equity ratio for determining tariff from the 11th to the 20th year was taken as 70:30.

Return on Equity  

The Commission decided to use a return on equity of 15.5% while determining the generic tariff, the same as what was adopted for determining generic tariff for the first ten years.

Interest cost on Debt  

Since the Commission was inclined to determine a common generic tariff for all the projects which had completed ten years of operation, the normative interest rate of 9.23% was adopted for all the projects in these petitions.

Depreciation

Further, APERC allowed depreciation at 4.67% per annum for tariff determination from the 11th year onwards.

O&M Expenditure

The Commission allowed the operation and maintenance cost in line with the Central Electricity Regulatory Commission’s regulations with an escalation of 3.84% per annum from the 11th year onwards for tariff determination.

Discount Rate

Also, the Commission adopted a discount rate of 9.17%.

Useful Life

The useful life of wind power projects was taken as 25 years.

Capacity Utilisation Factor

The state regulator adopted a capacity utilization factor (CUF) of 23.50% for tariff determination from the 11th year onwards, subject to the condition that the energy injected over and above the specified CUF in any financial year will be treated as inadvertent power and will not be paid for.

Considering all the above parameters, the Commission arrived at a tariff of ₹2.64 (~$0.032)/kWh from the 11th year to the 20th year from the date of commercial operation of the wind power projects.

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