Maharashtra Regulator Denies Tariff of ₹3.27kWh for a 100 MW Wind Project

The Maharashtra Electricity Regulatory Commission (MERC), in a recent order, rejected Tata Power-Distribution’s petition to adopt a tariff of ₹3.27 (~$0.043)/kWh for a 100 MW wind project.

The Commission said that the distribution arm of Tata Power had not complied with the provisions of competitive bidding guidelines notified by the central government under Section 63 of the Electricity Act, 2003. The tariff discovered is not reflective of market conditions.

The Commission noted that wind power should be procured at a tariff of ₹2.25 (~$0.029)/kWh or ₹2.52 (~$0.033)/kWh, as applicable. It also added that the wind power procured should be considered for meeting the non-solar renewable purchase obligation (RPO) requirement of Tata Power-Distribution.

The company had filed a petition seeking approval of additional power purchases to fulfill the non-solar RPO target for 2021-22.


Background

Tata Power-Distribution had floated a short-term tender on February 23, 2021, to procure up to 100 MW of wind power from April 2021 to March 2022 to fulfill the non-solar RPO target for FY 2021-22.

Only Tata Power Company- Wind participated and offered 99.60 MW (approximately 174.80 MU) at a tariff of ₹ 3.27 (~$0.043)/kWh from April 2021 to March 2022.

The company had also floated the tender to meet the consumer demand on a short-term basis through a tariff-based competitive bidding process.

Tata Power-Distribution, in its submission, said that most of the tariffs discovered through competitive bidding at rates less than ₹3 (~$0.039)/kWh pertained to long-term contracts. In contrast, the present contract was for the short-term procurement of renewable power.

The company argued that there was a shortfall of around 354.36 MU in fulfillment of non-solar RPO targets for FY 2021-22 on a standalone basis. Because of this, the procurement of wind energy through the short-term contract with Tata Power Company-Wind for the fulfillment of RPO was justified as the long-term contract with the wind generators had expired.

Commission’s analysis

The Commission observed that in its order dated March 30, 2020, it had approved the power purchase cost, including the purchase of renewable energy for RPO compliance. For renewable energy procurement, the Commission had considered the purchase from the existing long-term solar and non-solar renewable sources for FY 2020-21 and FY 2021-22 at the preferential tariff applicable to such sources.

However, the Appellate Tribunal for Electricity had stayed trading renewable energy certificates (RECs) to fulfill the RPO. Therefore, Tata Power-Distribution opted for the procurement option of non-solar renewable power from April 2021 to March 2022 to fulfill its non-solar RPO target for FY 2021-22 through a tariff-based competitive bidding process.

The Commission noted that the company had used the ceiling rate of ₹3.56 (~$0.047)/kWh, which is for non-renewable sources, to compare its non-solar renewable energy procurement at the rate of ₹3.27 (~$0.043)/kWh. As these two rates are not comparable, the Commission could not consider Tata Power-Distribution’s justification that the discovered tariff was lower than the ceiling rate of ₹3.56 (~$0.047)/kWh.

The regulator said that as the tariff discovered for short-term power procurement of non-solar sources was not covered by a ceiling tariff, it needed to scrutinize the short-term non-solar renewable power procurement and then approve it.

The Commission stated that Tata Power-Distribution’s wind power procurement on a short-term basis at the tariff of ₹3.27 (~$0.043)/kWh could not be allowed because it had not followed competitive bidding guidelines. Also, the tariff of ₹3.27 (~$0.043)/kWh was higher than the market discovered tariff of ₹2.25/kWh or ₹2.52/kWh for similarly placed wind generators in Maharashtra.

“Such high-cost power purchase could not be allowed to be passed to the end consumers, especially when an alternative source at cheaper tariff could have been available. Hence, irrespective of Tata Power-Distribution’s agreement with its generator for a short-term supply of wind energy, the Commission will allow the power purchase cost at a tariff of ₹2.25/kWh or ₹2.52/kWh,” the order said.

The Commission said that although it had not adopted the tariff of ₹3.27/kWh, Tata Power Company-Wind was ready to supply energy at a tariff of ₹2.25 (~$0.029)/kWh or ₹2.52 (~$0.033)/kWh, and hence it could sign the amended agreement. Otherwise, Tata Power Company-Wind Division would be allowed to terminate the energy purchase agreement (EPA), and Tata Power-Distribution may initiate a fresh bidding process.

In June last year, MERC had approved the extension of an amended EPA between Tata Power – Distribution and its wind energy business Tata Power Company-Wind. Tata Power’s distribution business had filed a petition with the MERC seeking its approval for the extension of its EPA with Tata Power Company-Wind with amended terms and conditions.

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