CASE No. 328 of Coram. Anand B. Kulkarni, Chairperson I.M. Bohari, Member Mukesh Khullar, Member

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1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel /65/69 Fax Website: / www. merc.gov.in CASE No. 328 of 2018 Case of Maharashtra State Electricity Distribution Company Ltd Seeking Approval for Procurement of 50 MW Biomass Power on Long Term Basis for 20 years through Competitive Bidding for meeting the Renewable Purchase Obligations Coram Anand B. Kulkarni, Chairperson I.M. Bohari, Member Mukesh Khullar, Member Maharashtra State Electricity Distribution Company Ltd... Petitioner Appearance: For the Petitioner : Mrs. Kavita Gharat : Shri. Harshal Patil ORDER Date: 5 December, Maharashtra State Electricity Distribution Co. Ltd (MSEDCL) Plot No G-9, 5th Floor, Prakashgad, Station Road, Bandra (East), Mumbai ,has filed a Petition on 5 November, 2018 for seeking approval for Procurement of 50 MW power with Biomass as fuel on Long Term Basis for a period of 20 years through Competitive Bidding.The said power is proposed to be procured to meet the Renewable Purchase Obligations under Regulation 5 of MERC (Terms and Conditions for Determination of Renewable Energy Tariff) Regulations, 2015 and Regulation 19 of MERC (RPO, its Compliance and Order in Case No 328 of 2018 Page 1

2 Implementation of REC Framework) Regulations, 2016 and Regulation 94 of MERC (Conduct of Business) Regulations, MSEDCL s main prayers are as follows: a) To accord approval for Competitive Bidding process followed by e-reverse auction on TCIL portal for procurement of 50 MW biomass-based power and the same to be made eligible for meeting the Non-solar RPO requirement of MSEDCL. b) To accord approval to bid document i.e. RfS and PPA and to permit the Petitioner to procure biomass-based power at the rate discovered through tariff based Competitive bidding followed by e-reverse auction on TCIL portal. c) To consider procurement of power from Biomass project for meeting the respective Non-solar RPO requirement of MSEDCL. 3. MSEDCL has stated as follows: 3.1 Background: The National Tariff Policy 2016, under clause 6.4 provides that States shall endeavor to procure power from renewable energy sources through competitive bidding to keep the tariff low, except from the waste to energy plants. Procurement of power by Distribution Licensee from renewable energy sources from projects above the notified capacity, shall be done through competitive bidding process, from the date to be notified by the Central Government Clause of the National Electricity Policy (NEP), 2005 notified on 12 February, 2005, provides for Competitive Bidding in Renewable Energy Progressively the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be through Competitive Bidding process Regulation 2 (1) (J) of the MERC (Renewable Purchase Obligations, Its Compliance and Implementation of REC Framework) Regulations, 2016 makes it clear that: An Obligated Entity means the distribution licensees, users owning captive power plants, and open access consumers in the State of Maharashtra, who have to mandatorily comply with renewable purchase obligation under these Regulations subject to fulfilment of conditions outlined under Regulation 5. Order in Case No 328 of 2018 Page 2

3 3.1.4 Accordingly, the Ministry of Power (MoP), has issued Guidelines under Section 63 of the Electricity Act,2003 (EA) for Tariff based Competitive Bidding for long-term procurement of 5 MW and above grid-connected Solar PV and Wind Power projects vide its Notification dated and respectively Considering the above initiative specified in the NTP / NEP to promote Renewable Power and the guidelines / Policy issued by MoP to undertake the procurement of the renewable power under the competitive bidding route, MSEDCL hereby proposed to procure the Biomass Power under Competitive bid route. The bidding documents so framed by MSEDCL are based on the above specified guidelines of Wind and Solar (since the guidelines for Hybrid Power is yet to be issued) and hereby requested the Commission to accord the approval of the bidding documents and allow MSEDCL to carry out the bid process. 3.2 RPO targets and fulfilments The Commission has notified the Maharashtra Electricity Regulatory Commission (Renewable Purchase Obligation, its compliance and implementation of REC framework) Regulations, 2016 (hereinafter to be referred as RPO Regulations 2016) on30th March, 2016 for the control period from FY to FY As per Regulation 7.1 of the RPO Regulations 2016, the revised RPO targets have been set as provided in the table below: Year Quantum of purchase (in%) from RE sources (in terms of energy equivalent in kwh) Solar Non-Solar (other RE) Total % 10.50% 12.50% % 11.00% 13.75% % 11.50% 15.00% MSEDCL has contracted Renewable Energy with all RE generators for fulfillment of Solar and Non-Solar RPO target. The details of the same are provided in the table below: Order in Case No 328 of 2018 Page 3

4 Sr. No. Source Total target for RPO as per all RE Policy (excluding Open Access) Capacity Status as on (MW) Contracted Commissioned 1 Wind Bagasse based Co-generation Biomass Small Hydro MSW 16 4 Total-Non-solar In view of the above, RPO Compliance for FY and FY by MSEDCL is as below: a. FY Particulars Solar RPO Non-Solar RPO Total MUs % MUs % MUs % Target % % % Achievement (Including REC % % % Purchase) Shortfall 690 MUs 0 MUs 690 MUs b. FY Non-Solar Particulars Solar RPO (including minimicro Hydro) RPO Total MU % MU % MU % Target Achievement(Including REC Purchase) Shortfall in MU 1476 MUs 0 MUs 1476 MUs Order in Case No 328 of 2018 Page 4

5 3.2.5 Further for FY , the Commission has set RPO for MSEDCL in its MERC RPO Regulation, 2016 which is presented as below: Gross Energy Consumption (GEC) i.e. MSEDCL input in MUs Non-Solar RPO target and requirement Capacity % MUs MW (CUF 22%) Solar RPO target and requirement Capacity % MUs MW (CUF 19%) MSEDCL would further like to submit that it has been buying RECs instead of actual power to fulfill part of its RPO. Therefore, to fulfill the RPO compliance through sale and purchase of actual power and to meet the prescribed target MSEDCL proposes to carry out a competitive bidding for selection of 50 MW Biomass Power on long term basis under Regulation No. 5 of MERC (Terms and Conditions for Determination of Renewable Energy Tariff) Regulations, Biomass based Projects GoM policy targets and status: The Govt. of Maharashtra has notified the RE Policy,2008 and 2015 where in the following target capacities have been provided for setting up grid-connected renewable power projects by FY 2021: No. RE Source Target in MW 1. Wind Bagasse based Co-Gen Small Hydro Biomass Industrial Waste Solar Total Accordingly, MSEDCL has executed EPA for total capacity of 236 MW for Biomass based Power Projects till date Therefore, to fulfill part (50 MW) of the remaining capacity of 64 MW MSEDCL is willing to procure Biomass power through competitive bidding process. Order in Case No 328 of 2018 Page 5

6 MSEDCL is seeking approval regarding proviso under Regulation 5 of RE Tariff Regulations, 2015 to allow the Long/Short term purchase of RE through Competitive Bidding process by MSEDCL towards fulfillment of Non-Solar RPO target. 3.4 Approval of the Bidding Documents MSEDCL has planned to float a tender for procurement of power generated from Biomass power projects in Maharashtra on Competitive Bidding and reverse auction. In this tender MSEDCL has made the following stipulations in respect of Tariff payable. a. Bidders can bid from the existing capacity for which PPA at present is not tied-up with any other Distribution licensee / procurer or from new capacity to be commissioned within 18 months from the date of execution of the PPA. b. Term of the PPA would be 20 years from the effective signing of the PPA or from the date of CoD for the new plants, as the case may be. c. Under this scheme, the project holder is required to set up/own a Biomass project based on Rankine Cycle technology applications using water-cooled condensers and using biomass fuel source which shall be used for the Bidding process. d. Single Bidder is allowed to participate whereby Affiliate or consortium is not allowed. e. Tariff shall remain constant for the PPA term and there shall be no escalation during the contractual period. f. Tariff shall be as that arrived after reverse Bidding process. g. Ceiling Tariff of Rs per unit shall be the upper limit. h. Tariff shall be bifurcated into fixed charges and variable charges in 50:50 ratio During the preparation of Bidding document and PPA, MSEDCL has followed the guidelines issued by GoI/MNRE for Long term procurement of RE power through Competitive Bidding with e- reverse auction. Since there is no Standard Bidding Documents available for Biomass based power projects, MSEDCL has Order in Case No 328 of 2018 Page 6

7 prepared the Bidding document in line with the GoI/MNRE guidelines for Solar and Wind with necessary modification as required in existing PPAs The Commission in its order dated 6 December, 2017 in Case No. 157 of 2017; in the matter of seeking approval of Long/Medium/Short term procurement of Renewable Energy through Competitive Bidding has ruled that MSEDCL shall come before the Commission through specific Petition prior to the bidding process only if MSEDCL requires any deviation with respect to the bidding documents Accordingly, MSEDCL has approached the Commission to consider and accord approval for Procurement of Power through competitive bidding process followed by e-reverse e-auction for Grid connected 50 MW Biomass power on long term basis MSEDCL while preparation of Bidding Documents has considered MNRE/MoP guidelines dated 3 August, Accordingly, MSEDCL has prepared bidding documents, namely Draft Request for Selection (RfS) in line with the MoP guidelines dated 3 August, 2017 for Solar Power projects and Draft Power Purchase Agreement (PPA) whereby the clauses in line with MoP s guidelines are incorporated in existing long term Power Purchase Agreement of biomass based power projects and PPA is prepared. MSEDCL most humbly requests the Commission to kindly approve the draft RFS and draft PPA. The documents are prepared with an objective to get a higher participation from the bidders. The tendering process will be carried out on TCIL portal On completion of the bidding process followed by e-reverse auction, MSEDCL shall again approach to the Commission for adoption of Tariff discovered through the Competitive bidding process under Section 63 of the Electricity Act, 2003 Provisions for Review: 3.5 Regulatory Provisions The Petitioner humbly submits that the Commission has the powers to issue orders under following relevant Regulations. a) Regulation 5 of RE Tariff Regulations 2015provides for adoption of Tariff by the Commission if tariff is determined through competitive bidding. 5. Competitive Bidding for procurement of power generated by gridconnected RE Projects Order in Case No 328 of 2018 Page 7

8 The Commission shall adopt the tariff for a RE Power Project where such tariff has been determined through a transparent process of competitive bidding in accordance with guidelines under Section 63 of the Act as and when issued by the Central Government. b) Regulation 19 of the RPO Regulations 2016 provides for Power to Remove Difficulties in implementation of the RPO Regulations Power to Remove Difficulties If any difficulty arises in giving effect to the provisions of these Regulations, the State Commission may, by general or specific order, make such provisions not inconsistent with the provisions of the Act as may appear to be necessary for removing the difficulty. c) Regulation 94 of the Conduct of Business Regulations 2004 empowers the Commission to deal with the matters where no Regulations have been framed. 94. Nothing in these Regulations shall bar the Commission to deal with any matter or exercise any power under the Act for which no regulations have been framed, and the Commission may deal with such matters, powers and functions in a manner it thinks fit. The Petitioner most respectfully submits that the Commission has sufficient powers to deal with the matter and issue orders on matter as deemed appropriate. 4. The proceedings of the hearing held on 26 November, 2018 are summarized as follows: 4.1 MSEDCL made additional submission to include Consortiums in the bidding process, which was not included in the original Petition, so as to attract more bidders. Accordingly, it has revised its prayer for Approval of Bidding document: Single Bidder as well as Affiliate or consortium is allowed to participate Commission s Analysis and Ruling 5. MSEDCL is seeking approval for procurement of 50 MW Biomass-based power through Competitive Bidding process followed by e-reverse auction on TCIL portal for and the same to be made eligible for meeting the Non-solar RPO requirement of MSEDCL. 6. Further, MSEDCL has submitted that Guidelines for procurement of power from Biomass Projects guidelines are yet to be issued. MSEDCL has prepared the bidding documents i.e. RfS and PPA on the basis of MoP s Guidelines under Section 63 of (EA) for Tariff based Competitive Bidding for long-term procurement of grid-connected Solar PV and Order in Case No 328 of 2018 Page 8

9 Wind Power Projects. MSEDCL is seeking approval for the bid documents it has prepared, for procurement of 50MW power from Biomass based projects in Maharashtra. 7. The Commission appreciates the proactive efforts of MSEDCL for procuring power from Biomass based projects. 8. The regulatory provisions require MSEDCL to approach the Commission for deviations if any from the Standard Bidding Document, SBD. The Commission notes that there is no SBD for procurement of power from Biomass through competitive bidding and therefore, MSEDCL has referred to the SBDs of procurement through competitive bidding from solar and wind projects. Under such circumstances, such variations from the reference documents shall not be considered as deviation rather they are altogether a new set of documents which shall act as a reference for future procurement from similar technology. However, any variation from the existing Regulation/Order of the Commission shall be considered as Deviation. 9. Commission feels that though the approval for RfS and PPA is not mandated, preliminary analysis of these documents has been carried out as under. Further, the Commission assumes that the RfS and PPA documents are prepared in the best interest of the developer and the consumer after carrying out proper due diligence. 10. While analyzing the Bidding documents (RfS and PPA) which MSEDCL has prepared for procurement of 50 MW Biomass based power projects, the Commission observes that the documents deviated from the existing provisions in the Commissions Regulations/Orders. The same are summarized below: S. No. Description As per MSEDCL Draft RfS/PPA Document As per Commission's Regulations/Orders 1 PPA Period 20 Years 13 Years 2 Project Tariff 3 4 Fixed Cost : Variable Cost Use of Fossil Fuel INR 5/unit (Ceiling) For FY 18-19: INR 7.44/unit Fixed Cost: INR 2.15/unit Variable Cost: INR 5.29/unit Relevant Regulation/Order RE Tariff Regulations, 2015 MERC RE Tariff Order :50 No such provision - The use of fossil fuels shall be limited to the extent of 15% of total fuel consumption on monthly basis. The use of fossil fuels shall be limited to the extent of 15% of the total fuel consumption on an annual basis, or to such other extent as may be stipulated by MNRE from time to time. RE Tariff Regulations, 2015 Order in Case No 328 of 2018 Page 9

10 11. The Commission observes that major deviations are on 4 parameters which are dealt as following: PPA Tenure:- As per MERC RE Tariff Regulations, 2015 the Biomass based power projects have Period of 13 years in the PPA. MSEDCL, in the RfS and PPA document has proposed the Tariff Period as 20 Years, equivalent to project s life of a new Biomass Project. The Commission notes that by considering the PPA period of 20 years, affordable and assured power supply will be available from such projects to MSEDCL for much longer period. Further, apart from benefit to the end consumers, reasonable return to the prospective bidders for 20 years will be guaranteed. Hence the Commission in exercise of its power under Regulation 82 Power to remove difficulties of RE Tariff Regulations 2015, accords its approval for proposed change of PPA tenure to 20 years (i.e. useful life of the project) instead of 13 years Ceiling Tariff of INR 5/unit:- The Commission observes that as per RE Tariff Order notified under Case No. 204 of 2018 dated 18 August, 2018, the Tariff for Biomass based power projects for FY is INR 7.44/unit, Fixed Charges being INR 2.15/unit and Variable Charges as INR 5.29/unit. MSEDCL has proposed a Ceiling Tariff of INR 5/unit for reverse bidding. The Commission has considered the PPA period as 20 years as cited in para 11.1 of the Order on the ground of reduced prevailing Bank interest rates and that the levelised tariff for serving the debt for 20 years and recovery of the fixed cost in 20 years would be relatively lower as compared to levelised tariff determined for 13 years of PPA tenure. Since the proposal of MSEDCL is in the interest of the consumer and is also maintaining the balance by way of reasonable return to the bidders/developers, the Commission has no objection to MSEDCL s proposal of Ceiling Tariff of INR 5/unit which the Commission presumes must have been arrived at after proper due diligence by MSEDCL Fixed Cost: Variable Cost as 50:50 :- MSEDCL has proposed Ratio of Fixed Cost to Variable Cost as 50:50. It has submitted that for Merit Order Despatch purpose, the tariff shall be bifurcated into Fixed charge and Variable charge in 50:50 ratio. The Commission recognizes that Biomass based power projects are subjected to Merit Order Despatch principles, and hence the variable cost of the project is required. However, from the various RE Tariff Orders, the Commission observes that the ratio of Fixed cost to Variable cost is ~30:70. This be the case, in consideration of Merit Order Despatch principles and promoting Biomass projects to be scheduled (being RE), the Commission has no objection in MSEDCL considering the ratio of Fixed Cost to Variable Cost as 50:50 after carrying out proper due diligence. Order in Case No 328 of 2018 Page 10

11 11.4. Use of Fossil Fuel:- The Commission under Regulation 45 of the RE Tariff Regulations, 2015 has limited the use of Fossil Fuel for Biomass based projects as 15% of the total fuel consumption on annual basis. The same is reproduced below: The use of fossil fuels shall be limited to the extent of 15% of the total fuel consumption on an annual basis, or to such other extent as may be stipulated by MNRE from time to time. MSEDCL, as per Clause 3.6.F of the RfS document, reproduced below, has maintained the fossil fuel use as 15% but on monthly basis: 3.6.F Use of Fossil Fuel: The use of fossil fuels shall be limited to the extent of 15% of total fuel consumption on monthly basis. The basic premise of providing fossil fuel usage to Biomass Project developers was to ensure that if during any particular month/season, the biomass fuel is not available; the plant could be run with a mix of fossil fuel. Further, this usage is calculated on annual basis to average out low biomass fuel supply in any particular season. Hence the proposal of MSEDCL to calculate the fossil fuel usage on monthly basis does not serve the purpose and the Commission does not accord its approval for the same. The fossil fuel consumption calculations shall be based on the Regulation only i.e. The use of fossil fuels shall be limited to the extent of 15% of the total fuel consumption on an annual basis, or to such other extent as may be stipulated by MNRE from time to time. 12. The Commission observes that different fees/charges against RFS Document, Bidding Fees, Auction Fees, Earnest Money Deposit, Performance Based Guarantee, etc have been proposed by MSEDCL in the bidding document. The Commission assumes that all such charges proposed by MSEDCL are based on applicable fees/charges and are being proposed after proper due diligence. 13. The Commission also notes discrepancy in timeline for commissioning of project as provided in RfS and PPA document. As per the RfS document, the Schedule Delivery Date shall be within 18 months from date of execution of PPA. However, this timeline of 18 months does not match as per Clause of PPA. The Commission also notes various typographical errors and repetition of Clauses in the Bidding Documents. The Commission directs MSEDCL to rectify all such errors before finalizing the Bidding process and uploading the documents on its website. Order in Case No 328 of 2018 Page 11

12 1 Case No. 328 of 2018 is partly allowed ORDER 2 The Commission accords approval for Competitive Bidding process followed by e-reverse auction on TCIL portal for procurement of 50 MW biomass-based power. 3 The Commission approves procurement of such power for meeting the Non-solar RPO requirement of MSEDCL. 4 The Commission has no objection to the RfS and PPA documents prepared by MSEDCL in absence of Standard bidding document. However the issues discussed in paras 11.1, 11.2, 11.3 and 11.4 are ruled accordingly in terms of deviations from existing regulations. 5 The Commission directs MSEDCL to rectify all errors/repetitions in the Bidding document before finalizing the Bidding process. Sd/- Sd/- Sd/- (Mukesh Khullar) (I. M. Bohari) (Anand B. Kulkarni) Member Member Chairperson Order in Case No 328 of 2018 Page 12