APTEL Directs Karnataka Commission to Issue New Tariff Order for Bagasse-Based Projects

The Appellate Tribunal for Electricity (APTEL), in a recent order, ruled that the Karnataka Electricity Regulatory Commission (KERC) should have considered the capital cost of ₹49.25 million (~$664,114)/MW as determined by the Central Electricity Regulatory Commission (CERC) while determining the tariff for bagasse-based cogeneration projects.

The Tribunal directed the state Commission to consider the matter afresh and pass a new order within three months from the date of the judgment.

The South Indian Sugar Mills Association had filed an application with APTEL against the order dated May 14, 2018, passed by KERC, whereby the Commission had determined the tariff for mini-hydel projects, bagasse-based cogeneration projects, and Rankine cycle-based biomass projects with water-cooled condensers as well as air-cooled condensers, which were likely to be commissioned after March 31, 2018. The Commission had revised the tariff for the existing projects due to the revision of fuel costs.

Background


The South Indian Sugar Mills Association of Karnataka is a consumer association, and the members of the Association have sugar mills with bagasse-based cogeneration power projects in Karnataka.

On January 1, 2015, the state Commission issued an order determining the tariff for mini-hydel projects, bagasse-based cogeneration projects, and Rankine cycle-based biomass power projects with a water-cooled condenser. The tariff applied to the power projects commissioned during the period between January 1, 2015, and March 31, 2018, for which the power purchase agreements had not been entered into before the date of issue of the said order.

The order had also specified that the variable cost determined for bagasse-based cogeneration and Rankine cycle-based biomass projects with water-cooled condensers would be reviewed after March 31, 2018.

Subsequently, on January 22, 2015, the Commission redetermined the tariff for existing Rankine cycle-based biomass power plants with water-cooled condensers and bagasse-based cogeneration power projects, keeping in view the revised fuel costs for the financial year (FY) 2014-15 to FY 2017-18. Further, in the said order, it was stated that the fuel cost for the existing biomass-based power plants with water-cooled condensers and bagasse-based cogeneration projects after March 31, 2018, will be as determined by the Commission after taking into account the prevailing fuel prices.

Later on May 14, 2018, the Commission determined the tariff for mini hydel projects, bagasse-based cogeneration projects, and Rankine cycle-based biomass projects with water-cooled condensers as well as air-cooled condensers, which were likely to be commissioned after March 31, 2018. It revised the tariff for existing plants due to the proposed revision in fuel costs.

The appellant, in its submission, said that the state Commission had ignored the decisions of the Tribunal as well as the provisions of the renewable energy regulations notified by the CERC while determining the tariff through the impugned order dated March 31, 2018.

The Association, in its submission, said that the State Commission had erred in rejecting the price of bagasse determined by the cane commissioner based on the administered price of sugarcane, holding that the same is arbitrary, without giving any justifiable reasons to support the said finding.

The Association further added that the State Commission had erred in comparing the purchase of power from cogeneration projects with solar and wind power projects. The energy generated from bagasse-based cogeneration projects was also renewable energy.

The State Commission had proposed the capital cost of ₹47.5 million (~$640,516)/MW, including the power evacuation infrastructure cost, and adopted a capital cost of ₹47 million (~$633,774)/MW.

The Association argued that the state Commission had not considered the Central Commission’s numbers while determining the capital cost for the cogenerators. In its notification dated April 17, 2017, the Central Commission had considered the capital cost for bagasse-based cogeneration projects at ₹49.25 million (~$664,114)/MW for high-pressure boilers for FY 2017-18.

The Tamil Nadu Electricity Commission in its tariff order for bagasse-based cogeneration projects issued in October 2020 has considered the capital cost as ₹49.5 million (~$672,694)/MW.

The fuel price has to be determined based on the equivalent heat value method, with coal as available to the generator or based on the market price of bagasse. The Commission has instead followed some other methodology to drastically reduce the tariff resulting in an adverse financial impact to the association members and other bagasse-based cogenerators.

Tribunal’s analysis

The Tribunal noted that CERC had adopted an ‘equivalent heat value approach’ to determine the price of bagasse. The Central Commission had determined the price of bagasse based on heat energy stored in bagasse and comparing it with the price of coal. Given this fact, the ‘equivalent heat value approach’ adopted by the CERC to determine the price of bagasse was scientific, logical, and on a firm footing.

The Tribunal observed that the state Commission had not followed the principles and methodologies of CERC and, on the other hand, misinterpreted the bagasse pricing mechanism of CERC Renewable Energy Regulations, 2017.

APTEL further noted that the state Commission had proposed the capital cost of ₹47.5 million (~$640,516)/MW, including the power evacuation infrastructure cost, and adopted a capital cost of ₹47 million (~$633,774)/MW.

“We are convinced by the analysis and the decision of the Central Commission and believe that the state Commission should have considered the same capital cost for bagasse-based cogeneration plants, i.e., ₹49.25 million (~$664,114)/MW,” the Tribunal added.

Considering all the facts, APTEL set aside the state Commission’s earlier order and directed the Commission to consider the matter afresh and pass consequential order keeping in view the opinion expressed in the judgment within three months from the date of pronouncement of this judgment.

The Karnataka Renewable Energy Development Limited (KREDL) recently issued the ‘Draft Karnataka Renewable Energy Policy 2021-2026’ to develop 20 GW of renewable energy projects with and without energy storage. In its policy, KREDL focused on nine key markets – green energy corridor, renewable energy parks, projects including solar, wind, solar-wind hybrid, energy storage, biomass, waste-to-energy, mini and small hydro, new initiatives, and pilot projects, or research and development.

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Image credit: Threecharlie, CC BY-SA 3.0