Maharashtra Electricity Regulatory Commission (MERC) has approved Maharashtra State Electricity Distribution Company’s (MSEDCL) petition to procure 5,000 MW of solar and 1,600 MW of thermal power.

The Commission directed MSEDCL to seek approval from the government for deviations in the competitive bidding guidelines related to solar power procurement.

Background

MSEDCL filed a petition seeking approval for a competitive bidding process to procure 5,000 MW of solar and 1,600 MW of thermal power.

It also sought approval for deviations in the standard bidding documents for long-term procurement of thermal power and tariff-based competitive bidding guidelines for solar power in Maharashtra.

For FY 2022-23, MSEDCL’s peak demand was projected at 26,558 MW, with the actual peak recorded at 25,144 MW on April 14, 2022. The Central Electricity Authority (CEA) expects the peak demand to increase to 39,884 MW by FY 2031-32. Due to the shortfall in power supplied by thermal stations, MSEDCL has made substantial purchases from power exchanges and through bilateral contracts.

Renewable energy sources contribute to MSEDCL’s power supply, but their availability is unpredictable due to atmospheric conditions and seasonal variations. During evening and night hours, when solar power is unavailable, MSEDCL relies heavily on thermal power plants. This dependency, combined with the unpredictability of renewable energy, has necessitated additional power procurement from power exchanges at high rates during peak hours.

MSEDCL has prepared a ‘Resource Adequacy and Capacity Addition Plan’. According to the latest resource adequacy study report by the CEA, the peak demand and energy projections for the upcoming years are as follows: For FY 2023-24, the energy projection is 160,629 MUs with a peak demand projection of 23,676 MW. By FY 2033-34, these figures are expected to rise to 239,511 MUs and 41,956 MW, respectively.

The capacity projected by the CEA for FY 2033-34, considering ‘Loss of Load Probability’ and ‘Expected Energy Not Served,’ includes 27,562 MW of coal, 1,076 MW of gas, 1,186 MW of nuclear, 3,439 MW of bagasse and biomass, 3,949 MW of hydro, 15,905 MW of wind, 30,285 MW of solar, and 1,457 MW of storage (4 hours) plus pumped storage projects . The total capacity is projected to be 87,528 MW.

The present contracted and consented capacity of MSEDCL includes 20,814 MW of coal, 1,077 MW of gas, 1,191 MW of nuclear, 2,828 MW of bagasse and biomass, 3,391 MW of hydro, 21,319 MW of wind, 28,880 MW of solar, 1,468 MW of hybrid (wind and solar), 250 MW of flexible demand response energy (FDRE), and 3,451 MW of storage (4 hours) plus PSP. The total capacity is 36,423 MW.

MSEDCL must add 6,748 MW of coal-based thermal power and 8,966 MW of solar power to its energy procurement basket by FY 2033-34. Out of this requirement, 1,600 MW of thermal and 5,000 MW of solar power are procured through the competitive bidding route.

MSEDCL has designed the bid to procure 1,600 MW of thermal power and 5,000 MW of solar power from a single entity. This approach ensures that a substantial amount of MSEDCL’s power requirement is tied up under a single tendering process, providing the additional benefit of economies of scale. This strategy is expected to lead to lower tariffs, with the higher per-unit cost of thermal power being offset by the cheaper tariff for solar power. The e-reverse auction process will help discover competitive rates and reduce MSEDCL’s average power purchase cost while ensuring stable, round-the-clock power to its consumers.

Commission’s Analysis

The Commission addressed the justification of MSEDCL’s proposed power procurement amidst considerations of resource adequacy and future demand projections. They highlighted the recent notification of MERC (Framework for Resource Adequacy) Regulations 2024 and the timelines for submitting and approving Resource Adequacy Plans. Despite these forthcoming regulations, MSEDCL initiated a bidding process in March 2024 based on a Resource Adequacy Study by CEA.

MSEDCL relied on peak demand projections from CEA’s Resource Adequacy Study and the 20th EPS report. Actual peak demand in FY 2023-24 was lower than projections but higher than the CEA study. The Commission noted higher year-on-year growth projections in the 20th EPS than CEA’s study, questioning their feasibility, especially considering the increasing adoption of rooftop solar and green energy.

MSEDCL reported a contracted thermal capacity of 21,258 MW but highlighted lower availability from Maharashtra State Power Generation Company’s (MSPGCL) coal-based plants due to operational issues. The Commission acknowledged these challenges and accepted MSEDCL’s argument based on previous findings of lower availability in MSPGCL’s units.

MSEDCL justified solar power procurement to meet daytime peak demand, complementing conventional thermal units effectively.

MSEDCL proposed a procurement plan for 6,600 MW (combined thermal and solar), significantly less than the additional requirement projected by CEA’s Resource Adequacy Study. The Commission allowed MSEDCL to proceed with this procurement, emphasizing that it aligns with avoiding stranded capacity and fulfilling base load requirements.

The Commission acknowledged that MSEDCL had circulated several documents for power procurement, including a Request for Qualification (RfQ), Request for Proposal (RfP), Draft Power Sale Agreement (PSA) for thermal power, and Request for Selection (RfS), Draft Power Purchase Agreement (PPA) for solar power.

During hearings, MSEDCL clarified that no deviations from competitive bidding guidelines were sought for solar power procurement but acknowledged deviations related to composite thermal and solar power procurement. However, the petition indicated otherwise, with deviations noted in RfS and PPA. Additionally, MSEDCL proposed a minimum offer capacity of 2500 MW, deviating from the minimum 50 MW stipulated in the July 28, 2023, Guidelines.

The Commission directed MSEDCL to seek approval from the government for deviations related to solar power procurement.

In December, MERC rejected a plea for a 50% renewable energy obligation procurement mandate from projects within Maharashtra.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable industry.