Consider USD-INR Exchange Rate Escalation for Round-The-Clock Renewable Bid NSEFI

The National Solar Energy Federation of India (NSEFI), an umbrella organization of all solar energy stakeholders of India, wrote to the Ministry of Power (MoP) to consider the U.S. dollar exchange rate escalation and its impact on bids for procurement of round-the-clock (RTC) power from renewable energy sources.

According to NSEFI, there is a significant mismatch between imported fuel escalation rates based on USD indices and the levelized tariff in rupees. This would lead to undue advantage or risk to the imported fuel-based projects as the actual payments are made without adjusting for the USD-INR exchange rate.

The federation requested the MoP to amend the guidelines and indicate that all the escalation indices used for calculating the levelized tariff would be converted to rupee based on the exchange rate for that year. Similarly, escalation rates for payments should also be adjusted with foreign exchange rate variation.

In July last year, the MoP issued guidelines for procuring RTC power from grid-connected renewable projects complemented with power from conventional sources of generation, including imported coal and gas-based generating station.

The guidelines allow renewables to bundle with other sources of power or storage, such as conventional sources of generation, including imported coal and gas-based generating station.

According to the guidelines, the quoted tariff includes four parts: Fixed component (fixed renewable power, fixed non-renewable power) and a variable component (non-renewable power escalated for fuel, and non-renewable power escalated for transportation) all in ₹/kWh.

Meanwhile, the evaluation of the bids will be based on weighted average levelized tariff. The levelized tariff of the escalated components would be arrived at using the CERC’s escalation indices for the type of fuel quoted by the bidder and the discount factor to be specified.

CERC determined the escalation rates for imported fuel-based projects based on the following indices:

  1. Imported coal: 25% weightage to each of Australian Coal, NEWC (global COAL Index), South African Coal (API4), Indonesian Coal (ICI3 of Argus), and Indonesian Coal (Platts Index)
  2. Imported gas: Japan/ Korea Marker (JKM)
  3. Transportation of imported coal and imported gas: Singapore 380 CST Bunker Fuel Price

The Commission had approved the calculation methodology on May 31, 2021. However, all these imported fuel-based indices are in USD denominations.

The Commission determined the escalation rates for the underlying fuel components on USD-based terms without adjusting them for USD-INR exchange rates. According to NSEFI, the variance in the escalation rates calculated in USD (0.89%) and calculated after converting USD to INR (4.95%) is quite significant.

According to the federation, the evaluation of a bid comprising a mix of renewable power and domestic fuel-based thermal power, along with international fuel-based thermal power (with underlying fuel-related exchange rate risk), would lead to inconsistency in evaluating underlying power supply components.

Meanwhile, all other indices are in rupee terms, and payments are made only in rupee terms. On the other hand, renewable power and domestic fuel-based power free of USD-INR exchange price risk, while imported coal-based power is not. NSEFI has stressed that the USD-INR exchange variation must be duly considered for tariff evaluation to ensure that the utility procures power at the most optimum tariff.

The federation has stressed that it would also enable discovering a competitive tariff for imported fuel-based thermal power supply since the bidder would not consider any margin towards mitigating the risk of unforeseen USD-INR exchange rate fluctuation in the bid tariff. It would also inevitably benefit the procuring distribution companies.

Back in 2013, the Commission converted USD to INR to calculate the escalation factor for domestic gas, and the federation insists on using the same methodology for imported coal.

Similarly, the federation has suggested that imported coal projects should quote their tariff in USD/kWh as per the ‘Design, Build, Finance, Own, and Operate (DBFOO) Guidelines’.

Levelized tariff would be calculated after the quoted rate in USD/kWh is converted to ₹/kWh by using USD to INR exchange rate. The Commission may publish the USD to INR exchange rate for both bid evaluation and payment.

In September 2020, the Union Minister of Power and New & Renewable Energy, RK Singh, had proposed to have renewable purchase obligations for RTC renewable energy, which will encourage storage.

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