The Tamil Nadu Electricity Regulatory Commission (TNERC) has released draft regulations to determine tariffs for renewable energy and non-conventional energy projects during the control period from the financial year (FY) 2027-28 to FY 2031-32.

The draft Tamil Nadu Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff from Non-Conventional Energy Generation Sources) Regulations, 2026, invite comments and suggestions by June 16, 2026. The regulations would come into effect from the date of publication in the Tamil Nadu Government Gazette and remain in force until March 31, 2032, unless reviewed or extended.

The regulations apply to grid-connected renewable energy generating stations or units commissioned during the control period where the Commission determines tariffs under Section 62 of the Electricity Act, 2003. Existing renewable energy projects would continue under the applicable regulations or tariff orders. Captive generating plants would fall outside the regulations unless they seek tariff determination for the sale of surplus power to a distribution licensee.

The draft covers wind, solar, biomass, bagasse-based cogeneration, small hydro, waste-to-energy, renewable hybrid projects, renewable energy projects integrated with battery energy storage systems, standalone battery storage, and pumped hydro storage.

Proposed Tariffs

The Tamil Nadu Electricity Regulatory Commission (TNERC) has proposed that procurement of power from wind, solar, biomass, and hybrid renewable energy projects should ordinarily take place through competitive bidding.

However, the Commission has proposed that bagasse-based cogeneration projects linked to sugar mills continue under a cost-plus tariff mechanism because of their integrated nature and the lack of a competitive market structure.

Generic tariffs would apply to mature technologies, while project-specific tariffs would apply to technologies such as solar thermal, floating solar, offshore wind, wind repowering, renewable energy projects integrated with battery energy storage systems, standalone battery energy storage systems, pumped hydro storage, landfill gas projects, and other emerging technologies.

For FY 2027-28, the Commission has proposed a generic tariff of ₹3.19 (~$0.033)/kWh for utility-scale solar projects above 1 MW, ₹4.03 (~$0.042)/kWh for commercial and industrial rooftop solar, ₹3.74 (~$0.039)/kWh for floating solar, and ₹3.55 (~$0.037)/kWh for onshore wind.

Biomass-based projects have been assigned tariffs of ₹7.47 (~$0.078)/kWh for bagasse cogeneration projects below 20 MW, ₹10.09 (~$0.105)/kWh for biomass direct combustion projects, ₹9.51 (~$0.099)/kWh for biomass gasifier projects, and ₹11.10 (~$0.116)/kWh for biogas projects.

The proposed tariffs for small hydro projects are ₹8.17 (~$0.085)/kWh for projects below 5 MW and ₹6.94 (~$0.072)/kWh for projects from 5 MW to 25 MW.

TNERC has also proposed that all renewable energy projects covered under the regulations be treated as must-run projects and not be subject to merit-order dispatch principles.

Financial Norms

The draft regulations propose a normative debt-equity ratio of 70:30, a loan tenure of 15 years, and interest on loans based on the average one-year State Bank of India marginal cost of funds-based lending rate of the previous year plus 150 basis points. The Commission has proposed return on equity at 14%.

Depreciation has been capped at 90% of capital cost, with a 10% salvage value. The Commission has proposed a depreciation rate of 4.67% annually for the first 15 years. Operation and maintenance expenses will escalate by 5.25% annually. Interest on working capital has been proposed at the State Bank of India’s one-year marginal cost of funds-based lending rate plus 200 basis points.

For solar projects, the proposed capital costs are ₹40 million (~$417,624)/MW for utility-scale and rooftop solar projects and ₹44 million (~$459,386)/MW for floating solar projects. The normative capacity utilization factor has been set at 23% for ground-mounted solar, 20% for rooftop solar, and 24% for floating solar.

Onshore wind projects have been assigned a capital cost of ₹65 million (~$678,639)/MW, a normative capacity utilization factor of 32%, operation and maintenance expenditure of ₹700,000 (~$7,308)/MW, and auxiliary consumption of 1%.

Capital costs for biomass technologies range from ₹56.2 million (~$586,761)/MW for bagasse cogeneration, ₹74.4 million (~$776,780)/MW for biomass direct combustion, and ₹67.7 million (~$706,828)/MW for biomass gasifier projects to ₹135.4 million (~$1.41 million)/MW for biogas projects.

Small hydro projects have proposed capital costs of ₹85 million (~$887,450)/MW for projects below 5 MW and ₹80 million (~$835,247)/MW for projects from 5 MW to 25 MW. For waste-to-energy projects, capital costs have been proposed at ₹170 million (~$1.77 million)/MW for municipal solid waste incineration plants and ₹185 million (~$1.93 million)/MW for refuse-derived fuel projects.

BESS and Hybrid Projects

Renewable energy projects integrated with battery energy storage systems and availing tariffs under the hybrid framework must supply scheduled power during peak hours from 6 PM  to 10 PM, or during any other period specified by TNERC.

If battery degradation exceeds 20% of rated capacity, developers must restore, replace, or augment storage capacity. Hybrid renewable energy projects have been proposed to maintain a minimum annual capacity utilization factor of 40% at the interconnection point.

The Commission has proposed that renewable energy projects that generate electricity above the approved or normative capacity utilization factor be compensated at 75% of the applicable tariff, on mutually agreed terms. Distribution licensees will have the first right of refusal for such generation. Developers may sell power through bilateral arrangements or power exchanges after distribution licensees exercise this option.

Standalone battery energy storage system projects will ordinarily be considered at a capital cost of ₹25 million (~$261,015)/MWh. Pumped hydro projects will be determined by project-specific tariffs and may include capacity, energy, and ancillary service charges. The Commission has proposed a normative round-trip efficiency of 75% for pumped hydro projects.

The draft regulations also propose power purchase agreement tenures of 25 years for solar, wind, and battery energy storage system projects, 20 years for biomass and waste-to-energy projects, and 40 years for small hydro projects. Projects above 10 MW will be required to comply with forecasting, scheduling, and deviation settlement regulations.

Recently, TNERC approved a provisional additional tariff subsidy of ₹15.45 billion (~$161.3 million) for FY 2026-27 to compensate Tamil Nadu Power Distribution Corporation for revenue loss from the state government’s decision to increase free electricity for domestic consumers.

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