NLC India May Lose ₹1.36/kWh for 500 MW of Solar Projects Due to Delays in Commissioning

Neyveli Lignite Corporation (NLC) India might have to bear a loss of ₹1.36 (~$0.020)/kWh for the 500 MW of grid-connected solar photovoltaic (PV) projects, which are being developed in the state of Tamil Nadu due to delays in commissioning.

NLC will have to incur the loss as the Tamil Nadu Electricity Regulatory Commission (TNERC) has declined to interfere and review the control period of 500 MW of solar projects being developed by NLC in the state. NLC now has 45 days to appeal this order to the Appellate Tribunal for Electricity (APTEL).

When contacted, an NLC India official told Mercom, “We will do an internal review of this order and the situation and then see what possible recourse can be sought.”

NLC India had entered an agreement with Tamil Nadu Generation and Distribution Corporation (TANGEDCO) to develop 500 MW of grid-connected solar PV projects and supply power for a period of 25 years.

In December 2016, NLC India had tendered 500 MW (AC) of grid-connected solar PV in the state of Tamil Nadu. The power from these projects is to be procured by TANGEDCO.

The tendering process was complete and the engineering procurement construction (EPC) contractors were finalized in the first week of February 2017. Accordingly, a letter of award (LOA) was issued to the contractors in the month of February 2017 in order to commission the projects by March 2018.

In March 2017, the TNERC set ₹4.50 (~$0.068)/kWh as the new benchmark tariff for solar PV projects without AD and ₹4.41 (~$0.067)/kWh with AD for the control period 2017-2018 ending March 31, 2018.

TANGEDCO and NLC India had agreed on a tariff of ₹4.41 (~$0.067)/kWh with accelerated depreciation (AD) for these projects. But the agreement was reached under one condition – the projects had to be commissioned by March 31, 2018.

However, NLC was not able to meet the March 31, 2018 deadline. NLC attributed a delay in project commissioning to various reasons, such as the implementation of the Goods and Services Tax (GST), code reclassification of modules at ports, and uncertainty regarding the tax structure. NLC also demanded that the preferential tariff of ₹4.41 (~$0.067)/kWh with AD must apply for these projects.

In March 2018, TNERC fixed ₹3.11 (~$0.0478)/kWh without AD as the levelized tariff for solar. The AD component of the tariff was fixed to be ₹0.06 (~$0.00092)/kWh. The levelized tariff with AD was taken to be ₹3.05 (~$0.0468)/kWh. If the sought relief is not provided, NLC will consequently have to incur a loss of ₹1.36 (~$0.020)/kWh.

This is not the first time NLC India has been in a tough spot for the 500 MW solar projects. Initially, NLC India entered Energy Purchase Agreements (EPA) with TANGEDCO for the same projects at a levelized tariff of ₹4.56 (~$0.069)/kWh, which was the generic tariff with AD determined by TNERC for solar power projects applicable for the control period of 2016-2017. However, it later became necessary to change the project site from Neyveli to other locations in Tamil Nadu due to various environmental concerns.

TANGEDCO’s approval was then obtained for the change in location and it agreed to a tariff of ₹4.41 (~$0.067)/kWh with AD.

NLC now expects these projects to be commissioned by September 2018 and has petitioned the TNERC to extend the tariff control period up to September 30, 2018.

However, there is a bone of contention between NLC and TNERC. TNERC was of the view that the GST was implemented from July 1, 2017. Therefore, the impact of GST Act 7, which came into force with effect from July 1, 2017 cannot be cited as a reason for a delay in execution of the projects, and the project components could have been purchased and installed long before the implementation of the GST Act.

In its order, TNERC stated, “It is clear that the control period cannot be extended in project-specific cases and the inherent power cannot be invoked in such cases. Needless to say, that any extension of the control period will have to be done necessarily by invoking inherent power and there is no such provision in the Electricity Act 2003 or in the regulation to invoke such power in project specific cases”.

NLC is now at the mercy of the APTEL’s decision.

Image credit: By Subramoniam92 [CC BY-SA 3.0] via Wikimedia Commons