The Odisha Energy Regulatory Commission (OERC) has approved the power purchase agreement (PPA) signed between Grid Corporation of Odisha (GRIDCO) and NHPC Limited for procuring 40 MW of solar power at ₹2.75 (~$0.037)/kWh.

Background

GRIDCO filed a petition with the Commission seeking approval for executing PPA with NHPC to procure power from a 40 MW solar project.

According to the Commission’s draft renewable purchase obligation (RPO) regulations, the RPO target is 13.25%. This includes 7.25% solar and 6% non-solar for the financial year (FY) 2021-22. The RPO target increases to 18%, including 9.75% solar and 8.25% non-solar by FY 2024-25.

To meet its RPO targets, GRIDCO has to procure 1,014 MW of solar power and 479.15 MW of non-solar energy totaling 1493.15 MW to date. Therefore, it will need additional solar energy to achieve its RPO targets.

The petitioner had provided its consent to NHPC to procure power from the proposed 40 MW solar project.

NHPC invited bids from engineering, procurement, and construction (EPC) contractors for the solar project. The project was expected to be developed at Landeihil village in the Ganjam district of Odisha.

Tata Power won the bid to implement the 40 MW project with a capital cost of ₹45.5 million (~$618,185)/MW. Subsequently, NHPC proposed a levelized tariff of ₹3.07 (~$0.042)/kWh for 25 years to GRIDCO to procure power from the solar project.

However, GRIDCO found that the project cost, interest on a loan, interest on working capital, quoted return on equity, and plant and machinery (P&M) prices were higher. After that, NHPC offered a revised levelized tariff of ₹2.75(~$0.037)/kWh.

GRIDCO requested further tariff reduction as solar energy at ₹2.69 (~$0.037) was available from the Solar Energy Corporation of India (SECI). However, NHPC denied the request and said ₹2.75 (~$0.037)/kWh was a competitive and reasonable tariff.

In its response, TP Northern Odisha Distribution Limited (TPNODL) stated that GRIDCO has to procure more renewable energy to achieve its RPO targets. However, there is a 7068 MU of surplus energy considering a demand of 28,222 MU for FY 2021-22. If GRIDCO procures solar energy, the surplus energy would go up and affect the tariffs. Therefore, the Commission should take a holistic view before considering any new capacity.

TPNODL also requested the Commission direct the petitioner to provide details of the current procurement status and expected energy purchase against the RPO target from all renewable energy sources for the upcoming five years.

Commission’s analysis

The Commission noted that the tariff had not been discovered through the competitive bidding process. However, the tariff found through mutual agreement was competitive and reasonable as per the existing market scenario.

The Commission also observed that GRIDCO has 1,479 MU of solar energy for FY 2021-22 RPO compliance, 5.30% of the total estimated power consumption. However, as per the new draft RPO Regulations of OERC, the solar RPO is 7.25%. For FY 2022-23, the solar RPO is 8%, and the 40 MW project is expected to be commissioned during FY 2022-23. Therefore, GRIDCO required another 150 MU to meet its RPO target for FY 2022-23.

Therefore, the Commission approved the draft PPA to be executed between GRIDCO and NHPC. However, NHPC must ensure that the project is commissioned before April 1, 2022, so the basic customs duty would not apply to the project.

The Commission also directed GRIDCO to furnish the estimated consumption of distribution companies for the next five years and the availability of power to GRIDCO from various sources, excluding hydropower.

GRIDCO has also received regulatory approval to procure power from a 500 MW solar project signing a PPA with Solar Energy Corporation of India. The Commission has directed the tariff to be capped at ₹2.61 (~$0.035)/kWh.

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