CERC Sets New Levelized Generic Tariffs For Renewable Energy Projects For 2024-2025
Introduction
The Central Electricity Regulatory Commission (CERC) has issued a crucial order for the determination of levelized generic tariffs for various renewable energy projects for the first year of the control period, spanning from July 1, 2024, to March 31, 2025.[1] This order, which took effect on August 2, 2024, provides a comprehensive framework for setting tariffs for a range of renewable energy technologies. The CERC’s order is designed to offer clarity and stability in tariff determination, promoting the growth of renewable energy in India by ensuring financial predictability for project developers.
Explanation
Regulatory Framework and Scope
The CERC’s order is based on newly notified regulations that specify the terms and conditions for tariff determination from renewable energy sources. These regulations cover a broad spectrum of renewable energy projects, including small hydro projects, biomass power projects utilizing Rankine cycle technology, non-fossil fuel-based cogeneration projects, biomass gasifier-based power projects, biogas-based power projects, and refuse-derived fuel-based municipal solid waste power projects. For solar PV power projects, floating solar projects, solar thermal power projects, wind power projects (both onshore and offshore), and other renewable energy projects, developers have the option to seek project-specific tariffs.
Stakeholder Feedback and Commission’s Response
To ensure transparency and stakeholder engagement, the CERC issued a public notice on July 15, 2024, inviting comments, suggestions, and objections on the proposed tariff determination. The feedback period concluded on July 31, 2024, with input received from one stakeholder, the NSL Group of Companies. The NSL Group suggested aligning the price of bagasse fuel with the coal price set by the Coal Ministry in the National Coal Index. However, the CERC clarified that reviewing the basis for fuel cost determination was beyond the current scope and reaffirmed the set bagasse prices for the first year of the control period.
Tariff Structure and Useful Life of Projects
The order specifies the levelized generic tariffs for various renewable energy technologies, taking into account the useful life of each project. For instance, small hydro projects have a useful life of 40 years, while refuse-derived fuel-based municipal solid waste projects have a useful life of 20 years. The tariffs determined for projects commissioned during the control period, which runs from July 1, 2024, to March 31, 2027, will remain valid for the entire useful life of the projects.
The tariff structure is comprehensive, including components such as return on equity, interest on loan capital, depreciation, interest on working capital, and operation and maintenance expenses. For technologies that involve fuel costs, such as biomass power projects with Rankine cycle technology and biogas-based power projects, the tariff includes both a fixed cost component and a fuel cost component. The levelized tariff is calculated by considering the discount factor for the time value of money over the useful life of the project.
Normative Capital Costs and Debt-Equity Ratio
The CERC has outlined the normative capital costs for various renewable energy projects, which vary by region and technology. For example, the capital cost for small hydro projects ranges from ₹890 lakh/MW to ₹1,200 lakh/MW, while for biomass power projects based on Rankine cycle technology, the capital cost ranges from ₹638 lakh/MW to ₹744 lakh/MW, depending on the type of cooling condenser used. The debt-equity ratio for these projects is set at 70:30, with the debt and equity components of the normative capital cost calculated accordingly.
Conclusion
The CERC’s order on levelized generic tariffs for renewable energy projects for 2024-2025 represents a significant step towards promoting the development of renewable energy in India. By providing a clear and structured approach to tariff setting, the CERC aims to ensure financial predictability for project developers, thereby encouraging investment in renewable energy technologies. This order not only supports the growth of renewable energy but also aligns with India’s broader goals of transitioning to a sustainable and clean energy future.
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