A ₹0.07 (~$0.0008)/kWh trading margin and the discovered tariff have become a bone of contention between renewable energy implementing agencies (REIAs) and buying entities.

As intermediary procurers, REIAs charge a trading margin from state distribution companies (DISCOMs) and other buying entities. This trading margin is intended to cover the costs for releasing solar, wind, hybrid, energy storage, and firm dispatchable renewable energy tenders, conducting competitive bidding processes and entering into power purchase agreements and power sale agreements with purchasing entities.

The four REIAs – Solar Energy Corporation of India (SECI), NTPC, NHPC, and SJVN – have played a key role in India’s renewable energy journey so far. They are expected to contribute significantly to India meeting its non-fossil fuel-based energy installed capacity target of 500 GW by 2030.

The REIAs are mandated by the Ministry of New and Renewable Energy to issue 50 GW of tenders annually until the end of the financial year (FY) 2028. In the first year after setting renewable energy bidding targets, the REIAs exceeded their goal of bidding out 50 GW of solar, hybrid, wind, and round-the-clock projects in FY 2024.

Even though the trading margin is a settled issue, DISCOMs and other buying entities often raise disputes before state electricity regulators. The state utilities say paying the trading margin exacerbates their already strained finances. They also cite the burden of penalties under the Deviation Settlement Mechanism for under- or overdrawal of power.

In a few instances, the state regulators have ruled in favor of the buying entities and reduced the trading margin to ₹0.02 (~$0.00023)/kWh.

REIAs have been arguing that state regulators lack jurisdiction to determine trading margins for interstate transactions. The jurisdiction to deal with the applicable trading margin of the REIAs is exclusively vested in the Central Electricity Regulatory Commission under Section 79(1)(j) of the Electricity Act.

Buffer Against Payment Defaults

According to a senior official of one of the REIAs, it is illogical for buying entities to oppose the trading margin when they are being handheld through the entire process of procuring power for 25 years.

“It is a fee for the services we render. We also take the risk of ‘change in law’ events, payment defaults, late payments, breach of contracts, and inflation. How do we mitigate our risks without this trading margin, which is a revenue stream for us?”

“The ₹0.07 (~$0.0008)/kWh trading margin barely covers our costs, including establishment and litigation expenses. The pressure is building up on us. We must be charging more, actually,” the official said.

They added, “Any payment defaults and delayed payments can impact our credit rating and our ability to raise debt. We need to have the financial muscle to assure our lenders when we seek loans.”

REIA officials argue that the ₹0.07 (~$0.0008)/kWh trading margin constitutes less than 3% of the discovered tariff at a time when solar tariffs are about ₹2.50 (~$0.029)/kWh. “In the states’ own tenders, the discovered tariffs are higher at ₹2.70 (~$0.031)/kWh, and this doesn’t include any trading margin. If this is the reality, it doesn’t make sense for the DISCOMs to make a fuss about having to pay us the trading margin,” one of them said.

The REIAs say trading margins are the norm across trading activity in all sectors. They want the government and all the other stakeholders to discuss the issue to ensure the growth of the renewable energy sector.