The Central Electricity Regulatory Commission (CERC) has formulated the draft regulations to determine the tariff for renewable energy projects in 2024. These regulations are applicable to situations where the Commission needs to determine the tariff for a grid-connected generating station or a unit thereof commissioned during the control period and relying on renewable energy sources.

The Central Electricity Regulatory Commission (Terms and Conditions for Tariff Determination from Renewable Energy Sources) Regulations, 2024, will be effective starting from April 1, 2024, to March 31, 2027.

Tariffs determined during this period for renewable energy projects commissioned will remain valid for the tariff period.

Eligibility Criteria

The regulations will apply only if the eligibility criteria are met.

• Wind Power Project: A project using new wind turbine generators situated at approved on-shore or off-shore sites by the state nodal agency or government.
• Small Hydro Project: A project utilizing new plant and machinery located at sites approved by the state nodal agency or appropriate government.
• Biomass Power Project with Rankine Cycle Technology: A project using new plant and machinery, based on Rankine Cycle technology, and not utilizing any fossil fuel.
• Non-fossil fuel-based cogeneration project: A project using a new plant and machinery based on the topping cycle mode of cogeneration.

Topping cycle cogeneration mode refers to any facility that employs non-fossil fuel input for power generation and simultaneously utilizes the thermal energy produced for useful heat applications in other industrial activities.

To qualify under the topping cycle mode, the combined output of useful power and half of the useful thermal output must exceed 45% of the facility’s energy consumption during the crushing season.

Useful power output is defined as the gross electrical output from the generator. Useful thermal output refers to the useful heat (steam) provided to the process by the cogeneration facility.

Energy consumption is the useful energy input supplied by the fuel, typically bagasse or similar biomass.

Generic Tariff

The Commission will annually determine the generic tariff for specific types of renewable energy projects, including small hydro projects, biomass power projects using rankine cycle technology, non-fossil fuel-based cogeneration projects, biomass gasifier-based power projects, biogas-based power projects, and municipal solid waste-based power projects and refuse-derived fuel-based power projects.

The generic tariff for the year of commissioning will apply to projects of the same type and remain valid for the tariff period.

Project-specific Tariff

The Commission will determine project-specific tariffs on a case-by-case basis for various renewable energy projects, including solar power, floating solar, solar thermal power, wind power (on-shore and off-shore), biomass gasifier-based power, biogas-based power, municipal solid waste-based power, refuse-derived fuel-based power, renewable hybrid energy, renewable energy with storage, and other projects based on new renewable energy sources or technologies approved by the central government.

The financial and operational norms specified in the regulations, except for capital cost, will serve as ceiling norms when determining project-specific tariffs.

Tariff Structure

The tariff for renewable energy sources will comprise return on equity, interest on loan, and depreciation components.

Interest on working capital covers the interest incurred on the working capital of the renewable energy project.

The operation and Maintenance expenses component includes expenses related to the operation and maintenance of the renewable energy project.

For renewable energy projects involving a fuel cost component (e.g., biomass power projects with Rankine cycle technology, biomass gasifier-based power projects, biogas-based power projects, and non-fossil fuel-based cogeneration projects), a single-part tariff with two components—fixed cost and fuel cost—will be determined.

Over-generation

If, during a specific year, a renewable energy project produces more energy than the specified capacity utilization factor or plant load factor outlined in these regulations, the surplus energy may be sold to any entity. However, it is important to note the following:

• The primary right to purchase this excess energy belongs to the designated beneficiary.
• If the designated beneficiary opts to acquire the surplus energy, the tariff for this excess energy will be equivalent to the applicable tariff for that particular year.

Capital Cost Inclusions and Debt-Equity Ratio

• Capital Cost Inclusions:

Norms for capital cost will encompass land cost, pre-development expenses, all capital work (including plant & machinery, civil work, erection, and commissioning), financing cost, interest during construction, and evacuation infrastructure up to an interconnection point.

• Debt Equity Ratio:

In determining both generic and project-specific tariffs, the debt-equity ratio stands at 70:30.

• Utilization of Internal Resources:

The project developer must provide the company board’s resolution or competent authority approval, confirming the infusion of funds from internal resources. This should support the utilization made or proposed to meet the capital expenditure of the renewable energy project.

Loan Tenure and Interest

Loan Tenure: Generic and project-specific tariff calculations consider a loan tenure of 15 years.

Interest on Loan:

• Gross normative loans will be the basis for interest calculations. For project-specific tariffs, the normative loan outstanding on April 1 of each year is determined by deducting cumulative repayments up to March 31 of the previous year from the gross normative loan.
• The normative interest rate, set at 200 basis points above the average State Bank of India Marginal Cost of Funds-based Lending Rate (one-year tenor) for the last available six months, is considered for tariff computation.
• Regardless of any moratorium period, loan repayment starts from the project’s first year of commercial operation and equals the annual allowed depreciation.

Depreciation

For depreciation, the capital cost admitted by the Commission is the value base. The project’s salvage value is 10%, and depreciation is allowed up to a maximum of 90% of the capital cost.

Return on Equity

The normative return on equity is 14% for most renewable energy projects, with small hydro projects having a 14.5% rate. This normative return is adjusted for the latest notified minimum alternate tax rate for the first 20 years and the corporate tax rate for the remaining tariff period.

CUF and PLF

The number of hours in a year for calculating CUF and PLF is considered to be 8,766.

Operation and Maintenance Expenses

Operation and maintenance expenses are determined for the tariff period based on normative expenses specified in these regulations for the first year of the control period.

Normative O&M expenses allowed during the first year of the control period (2024-25) under these regulations will be escalated at the rate of 5.89% per annum for the tariff period.

Payment Terms and Rebates

For bills settled within five days through a letter of credit, NEFT, or RTGS, a 1.5% rebate is granted.

Payments made within one month but after five days will receive a 1% rebate.

If a bill is not paid within 45 days from the presentation date, a late payment surcharge, as per the Ministry of Power – Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, will be imposed.

Government Subsidies

The Commission considers central or state government incentives, grants, or subsidies, including accelerated depreciation, when determining tariffs. Principles for assessing accelerated depreciation benefits are as follows:

• Assessment based on normative capital cost, accelerated depreciation rate, and corporate income tax rate.
• Capitalization during the second half of the fiscal year.
• Per unit benefit derived on a levelized basis at a discount factor equivalent to the weighted average cost of capital.
• Any unconsidered grant, subsidy, or incentive availed by the project will be deducted by the beneficiary in subsequent bills after receiving it.
• Generation-based incentives over and above the tariff, provided by the Central or State Government or their agencies, are not considered in tariff determination and cannot be deducted by the beneficiary in subsequent bills.

Project developers can recover state and central government-imposed statutory charges (e.g., water cess, electricity duty) from beneficiaries, limited to the maximum normative auxiliary consumption.

Tariff agreements for electricity from a renewable energy-based generating station can deviate from specified norms. The levelized tariff, calculated based on these regulations, serves as the ceiling.

CERC recently allowed a renewable energy developer to claim compensation to offset the financial and commercial impact of change in law events on account of an increase in the rates of goods and service tax.

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