In a recent order, the Maharashtra Electricity Regulatory Commission (MERC) allowed the Maharashtra State Electricity Distribution Company Limited (MSEDCL) to enter into a power purchase agreement (PPA) under the memorandum of understanding (MoU) route with bagasse-based cogeneration projects at a tariff of ₹4.75 (~$0.065)/kWh for 20 years.

The Commission said that the power procured from such projects would be eligible for meeting the non-solar renewable purchase obligation (RPO) targets of MSEDCL.

MSEDCL had sought approval to purchase power from bagasse-based cogeneration projects up to 1,350 MW through the MoU route. It had also asked for a tariff of ₹4.75 (~$,0.065)/kWh to purchase power from these new projects for 25 years and consider the energy purchased from these projects to fulfill non-solar RPO targets.

Context

MSEDCL signed a long-term energy purchase agreement (EPA) for a capacity of 2,000 MW with bagasse-based cogeneration projects until the financial year 2016-17 at a preferential tariff determined by the Commission.

To meet the non-solar target from FY 2018-19 onwards, the DISCOM signed a long-term energy purchase agreement (EPA) through a competitive bidding process with bagasse-based cogeneration projects after getting the Commission’s approval.

The tariff derived after the projects’ competitive bidding process was in the range of ₹4.75 (~$0.065)/kWh and ₹4.97 (~$0.067)-₹4.99 (~$0.068)/kWh for the EPA period of 20 years and 13 years, respectively.

On December 31, 2020, the Maharashtra government announced the new renewable energy policy. According to the new policy, a target of 1,350 MW was envisaged from bagasse-based cogeneration projects through the MoU route at a tariff determined by the Commission.

At the end of the FY 2019-20, MSEDCL had a cumulative RPO shortfall of 6,109 MU under the non-solar category. Purchase of power from new bagasse-based cogeneration projects would have helped meet the shortfall.

Commission’s Analysis

On the issue of power procurement through the MoU route, the Commission said that the Electricity Act, 2003 allows two routes for procurement of power by the distribution licensees. One is under the MoU route, where the Commission determines the tariff, and the other where the tariff is discovered through competitive bidding.

The Commission asked the DISCOM about opting out of the competitive bidding process. MSEDCL replied that it had proposed the MoU-based procurement for new-bagasse-based power projects for complying with the state government’s renewable energy policy 2020.

The Commission noted that the new solar policy had mandated MSEDCL to procure power from bagasse-based power through the MoU route until the policy target of 1,350 MW was achieved. The option of competitive bidding, which was successfully adopted in the past, had been restricted until the policy target of 1,350 MW was achieved.

On the issue of the tariff at which the power procurement should be allowed, the Commission said that MSEDCL proposed a tariff of ₹4.75 (~$0.065)/kWh for the MoU-based power procurement.

In this regard, the Commission noted that a rate of ₹4.75 (~$0.065)/kWh was discovered by MSEDCL and hence adopted by the Commission in its orders dated July 22, 2019, and September 19, 2019, in two other cases for power procurement from new bagasse based-cogeneration plant for PPA tenure of 20 years.

Subsequently, no tariff discovered through competitive bidding for new bagasse-based power plants had been adopted by the Commission. Therefore, the tariff of ₹4.75 (~$0.065)/kWh adopted in its earlier orders became the reference rate for entering into PPA with new bagasse-based power projects.

The state regulator said that MSEDCL proposed to sign the MoU-based PPA at a rate of ₹4.75 (~$0.065)/kWh with new cogeneration projects with a tenure of 25 years, which was as per the life of bagasse-based projects specified in MERC tariff regulations 2019. However, a rate of ₹4.75 (~$0.065)/kWh was discovered for a PPA tenure of 20 years and not for 25 years. Hence, allowing 25 years of PPA tenure for tariffs discovered for 20 years was not appropriate.

Earlier, Mercom reported that MERC had issued an order directing MSEDCL to purchase power from a 50 MW of bagasse-based cogeneration project at rates discovered through competitive bidding after their EPA expiry.

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