MERC Rejects Petition for Selecting Solar Project Contractor Through EPC Route

The Maharashtra Electricity Regulatory Commission (MERC) has rejected Maharashtra State Power Generation Company Limited’s (MSPGCL) petition seeking approval for divergence in Ministry of New & Renewable Energy  (MNRE) guidelines for tariff-based competitive bidding to develop 552 MW of solar projects through engineering procurement and construction (EPC) contracting route based on competitive bidding.

MSPGCL had sought approvals for the following:

  1. i) To develop solar projects by selecting contractors through EPC-based competitive bidding instead of selecting developers through a tariff-based competitive bidding process
  2. ii) Conduct competitive bidding to select EPC contractors for 552 MW of solar PV projects

iii) Approach the Commission for the adoption of tariff for these projects after the conclusion of the EPC bid process

Background



Early this year, MSPGCL had obtained approval from MNRE to develop of 450 MW Solar.  The tender for this was announced in February 2019. MSPGCL later on added 50 MW to this at Sakri, in Dhule district. Due to difficulties in developing this solar park, it canceled its plan to build the solar park. MSPGCL now plans to build solar projects through an EPC contract basis instead of the solar park. Along with this, it wants to develop a 52 MW solar project at its existing thermal power plants. So, MSPGCL has proposed to develop a total of 552 MW (500 +52 MW) of solar projects through the EPC route.

Under category 1, MSPGCL plans to develop 102 MW for which it already has the required land. Under category 2, it plans to develop 450 MW of solar projects after obtaining the approval for the cancellation of the solar parks.

Currently, MSPGCL is seeking the approval of the Commission for 552 MW of solar projects to be developed through the EPC route. In the absence of any guideline for developing solar projects through the EPC route, MSPGCL is seeking approval to select contractors under EPC-based competitive bidding instead of selecting the developers under the tariff-based competitive bidding process.

In a similar case, MSPGCL had approached the Commission for approval of tariff for 50 MW of solar PV projects at Kaudgaon, which it is developing through the EPC route for sale of solar power to Maharashtra State Electricity Distribution Corporation Limited (MSEDCL). MSPGCL had compared tariff derived by it with the generic tariff determined by the Commission. However, MSPGCL had sought adoption of a tariff of ₹3 ($0.042)/kWh along with some deviations. The Commission, in its order dated February 5, 2019, had rejected the relief sought by MSPGCL.

MSPGCL later filed a review of the case addressing the deficiencies highlighted by the Commission. The Commission heard the review and approved the adoption of tariff discovered for MSPGCL’s 50 MW solar PV project at Kaudgaon through the EPC route. While approving, the Commission had categorically specified that the approval is being granted under exceptional circumstances considering the peculiarity of the case. Further, the Commission had warned the MSPGCL that for all future projects, it should ensure the tariff discovery is through competitive bidding as per guidelines notified by the Government of India.

The Commission’s ruling 

In the current case, the Commission observes that MSPGCL has not asked for any specific change to the existing competitive bidding guidelines but has proposed altogether a different mechanism of using EPC-based bidding process where the capital cost for the project will be determined, and then the tariff would be worked out based on the standards specified in the regulations. If the final tariff is within the range of ceiling tariff given by MSEDCL, then MSPGCL will approach the Commission for the adoption of the tariff.

Whereas, per the Minister of Power’s guidelines, the tariff is usually discovered directly through the tariff-based competitive bidding process.  The Commission fails to understand why, despite very clear direction given, MSPGCL has chosen to approach the Commission seeking approval for selecting the contractor through the EPC route instead of the tariff-based competitive bidding route.

The Commission has rejected the proposal of MSPGCL, which is like the determination of tariff under the MoU route. The Commission has said that through various orders, the Commission is promoting tariff discovery through the competitive bidding process, and without any pressing reasons, it cannot allow the request of MSPGCL to determine tariff based on a cost-plus basis.

The Commission has been directing all distribution companies in the state to adopt a competitive bidding process for discovery power tariffs, and all the distribution companies are complying with it. MSPGCL can participate in such a competitive bidding process for the procurement of solar power initiated by any of the distribution companies and offer a competitive rate. If it is selected as a successful bidder, then it can conduct an EPC-based bidding process for setting up a solar project for which no approval of the Commission would be necessary.

Recently, Mercom reported that the MERC issued the draft version of its tariff determination regulation order for renewable projects. According to the regulations, the project-specific tariff for the generation of electricity from these renewable sources should follow the ceiling norms.

Previously, it was reported that the commission approved the deviation to the competitive bidding guidelines for the procurement of power from solar projects sought by the Maharashtra State Power Generation Company Limited.  The generation company had petitioned the commission to approve the deviation in competitive bidding for a capacity less than 5 MW for the purchase of 184 MW of solar power under ‘Mukhyamantri Saur Krishi Vaahini Yojana.’

Image credit: Invenergy