RE Tariff Setting Approach

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1 Satadru Chakraborty Sr Research Associate, WISE Training Programme on the Regulatory and Policy Framework for Market Development for Renewable Energy in India Presentation Outline Policy & Regulatory provisions for RE RE Tariff Setting Approach Grid Connectivity Open Access issues 2 1

2 POLICY AND REGULATORY PROVISIONS FOR RE 3 Policy provision in EA 2003 Section 3 of EA 2003 The central government from time to time prepare National Electricity Policy and Plan for development of power system based on optimal utilization of resources including renewable sources of energy Section 4 of EA 2003 The central government shall, after consultation with the state government prepare and notify a national policy permitting stand alone system (including those based on RE sources of energy ) for rural area. 4 2

3 Regulatory Provisions in EA 2003 Section 61 of EA 2003 The appropriate commission shall subject to provision of this act specify the terms and conditions for determination of tariff and in doing so, shall be guided by promotion of co-generation and generation of electricity from RE Section 86 (1)(e) of EA 2003 Promote cogeneration and generation of electricity from RE by providing suitable measures for connectivity with grid and sale of electricity to any person, and also specify for purchase of electricity from such sources as % of total consumption of electricity in the area of distribution licensee Measures for connectivity to grid Sale of electricity to any person Specifying the quota obligation for RE 5 Enabling provisions in National Tariff Policy RPS percentages to be fixed as per EA 2003 considering Resource availability Impact on retail tariff RPS percentage declared by the SERCs to be made applicable to the retail tariffs by 1st April 2006 Renewable power procurement at preferential tariffs in short term Competitive bidding within specific renewable technologies in the long term In long term, these technologies will need to compete with other sources in terms of full costs. CERC to lay down guidelines for pricing of non firm power in case where competitive bidding is not followed 6 3

4 Tariff related provision under NTP Clause 6.4 of NTP States: (1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the SERCs latest by April 1, It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission. 7 RE TARIFF SETTING APPROACH 8 4

5 Existing Regulatory framework for RE RE Generator Sale of Electricity Procurement by Local Utilities: RPO setup by regulatory commission mandates local distribution licensee to procure power from RE under binding feed-in tariff specified by SERC by executing long term PPA Captive Use: After adjusting losses & the charges towards wheeling and transmissions a proportionate set off is given in monthly electricity bills to the captive consumers Third Party sale: Investors can sell power to any OA consumer (with more then 1 MW connected load ) at mutually agreed RPS: The Obligated entities are required to purchase RE based electricity to meet mandatory RPS obligations specified by SERC tariff after paying applicable OA charges 9 RE tariff determination process (1/2) Regulatory Commission is a quasi-judicial authority It can not determine feed-in tariff on its own Generating Companies or developers will have to file petitions before the Commission for determination of tariff for different technologies. Regulatory Commission will follow process as specified under Conduct of Business Regulations of the respective Commission. Regulatory process is a consultative process in which all the stakeholders get opportunity of representation. Tariff will be determined on conclusion of due regulatory process. 10 5

6 RE tariff determination process (2/2) Generally the Regulatory Commission determine tariff and issue tariff orders on the basis of terms and condition specified in the Tariff Regulation. Such practice was being followed at State / Central level for specifying the tariff for conventional generating sources ( thermal & hydro). But was not followed in case of RE generation tariff RERC is the first Commission to notified a separate RE tariff notification for Renewables ( Jan 2009 ) CERC has also notified separate RE tariff regulation in Sept 2009 : applicability is limited to central RE generating project or composite generating scheme supplying electricity to more than one state sec 79 (1 )(b). 11 RE tariff setting approach adopted by SERCs (1/2) Strictly every project is unique in certain characteristics. However, it is difficult to set tariff for each RE project on account of: Site specific nature of Projects Large number of projects exists, with smaller unit size Ownership of the Project Entities is diverse. Tariff determination for each project will be: Cumbersome Put significant strain on regulatory institutions. Therefore, all SERCs have opted for determination of tariff on the basis of representative case though this would lead to some investors earning more than specified rate of return while others earning less. 12 6

7 RE tariff setting approach adopted by SERCs (2/2) Most of the SERCs opted the prudent Cost plus methodology for tariff determination rather than the Avoided cost and Marginal cost methodologies SERCs have chosen Single part tariff with one component for Wind, SHP, Solar whereas single part tariff with two component was adopted for Biomass and Co-generation Power Project Preferential tariff for RE is justified by giving slightly higher ROE than conventional power project and shorter loan repayment period and higher normative interest on loan Avoided externalities of conventional power projects are not factored in while computing the RE tariff. 13 Cost Plus Approach RE Generation Tariff Fixed Charges Energy Charges Interest on debt O&M Interest on WC Depreciation Return on Equity Fuel Cost ( in case of Biomass and bagasse based cogeneration project ) SERC need to fix up the normative technology-wise capital cost, CUF, O&M and other finacial parameter like debt : equity, RoE, rate of interest for debt, depreciation rate etc.. To arrive at Generic tariff 14 7

8 Possible Tariff structure design Cost of Generation (Rs/kWh) Year Wise Tariff (Rs/kWh) Levelized Tariff (Rs/kWh) Front Loaded Tariff (Rs/kWh) Back Loaded Tariff (Rs/kWh) Rs/kWh In all cases the levelised tariff will be Rs /kwh 15 State - wise feed-in tariff Tariff ( Rs / kwh ), Sr State Wind Small Biomass Baggase Solar PV* Solar* No Hydro Thermal 1 Andhra Pradesh Gujarat Karnataka Kerala Madhya Pradesh Maharashtra Rajasthan Tamil Nadu West Bengal Haryana * Generation-based incentive is shown wherever applicable. 16 8

9 Small Hydro Tariffs No State Tariff (Rs/kWh) PLF (%) Capital Cost (Crores/ MW) ROE (%) Depreciation Rate (%) O&M (as% of capital cost) O&M Esc (%) 1 Andhra Pradesh Year Wise Tariff: % 6.70% 1.5 4% 2 Karnataka % 7.00% 1.5 5% 3 Kerala % % 4% 4 Maharashtra % 3.00% 2.5 4% 5 Uttar Pradesh Year Wise Tariff: % 7% - 10 yrs 2% - 10 yrs 2.5 4% 6 Uttarakhand For projects less than one MW -according to regulation and for less than 25MWcase to case basis % % 7 Haryana Rs 3.67/kWh + 1.5% annual esc [upto 2 MW projects] % 17 Wind tariffs No State Tariff (Rs/kWh) PLF (%) Capital Cost (lakhsmw) ROE (%) Depreciation Rate (%) 1 Gujarat dated Rs 3.55 per KWh for 20 years pretax 4.50% 2 Karnataka dated Rs 3.40 per KWh without any escalation of 10 years of commercial operation % 3 Kerala dated (Regulation) Rs 3.14/KWh for 20 Years Madhya Pradesh dated year wise rates (Rs/KWh) from 1st to 5th year 3.97,3.80,3.63,3.46,3.30 and Rs 3.30 per KWh for next 15 years pre tax 4.50% 5 Maharashtra dated Rs 3.50 /KWh (first year of commissioning) (escalation of 15 paise per year for 13 years) % 6 Rajasthan dated to 3.89 depending on the district and voltage level % 7 Tamil Nadu dated Rs 2.90 per KWh (No escalation) % pre tax 4.50% 8 Haryana dated 15 May 2007 Rs 4.08/kWh with 1.5% annual escalation from % 18 9

10 Extent of internalization of externality Particulars Conventional Coal fired power plants Average CoG (Rs / kwh) Externality cost (public helth) (Rs / kwh) Social cost (Rs / kwh) State wise Feed in tariff (Rs / kwh) Extent of Internalization of externalities (%) * Renewables Wind Power % - 68% SHP % - 61% Biomass % - 74% Bagasse cogeneration % - 62% * Valuated impact of fossil fuel generation on general public; as per the study conducted by University of Bath in Sept GRID CONNECTIVITY ISSUES 20 10

11 Grid connectivity issues of RE As per Section 73 of EA Act, CEA has mandated to notify grid connectivity regulations and grid standard The present grid code does not address the specific aspects of grid connectivity for RE. RE power is intermittent in nature, special interconnection standards are required Generally, most RE generation technologies require interconnection with the grid at medium or high voltage level However, solar PV plant require interconnection with the grid at the low tension level Neither EA Act 2003 nor CEA has specified the voltage level for interconnection of RE projects Connecting small scale RE power generating systems at higher voltage level may add significant cost and ruined its economic feasibility CEA in co-ordination with CERC is in the process of developing the interconnection standard for RE in India 21 Present practice of sharing the evacuation expenditure 22 11

12 CERC tariff notification interconnection provisions Inter-connection Point shall mean interface point of renewable energy generating facility with the transmission system or distribution system, as the case may be; For wind energy projects, inter-connection point shall be line isolater on outgoing feeder on HV side of the pooling sub-station; For small hydro, biomass and bagasse cogeneration projects, interconnection point shall be line isolator on outgoing feeder on HV side of generator transformer Responsibility for development of evacuation infrastructure up to inter-connection point has been entrusted to project developer while appropriate licensee has been made responsible for development of evacuation infrastructure beyond inter-connection point 23 OPEN ACCESS ISSUE 24 12

13 Applicability of OA regulation to RE Prior to EA 2003 Post EA 2003 RE Investor were allowed to sale power to 1. Distribution utilities 2. Third party Or 3. Captive use 1 st transaction was settled on the basis of tariff declared by MNRE Transaction no 2 & 3 were settled by paying 2% and 5% charges in kind to utilities towards wheeling charges and T&D loss ( in addition to the mutually agreed tariff) No specific OA regulation was in existence RE Investor were allowed to sale power to 1. Distribution utilities 2. Third party Or 3. Captive use 1 st transaction was settled on the basis of tariff declared by SERC Transaction no 2 & 3 are now referred as Open Access transaction and would attract the transmission charges, transmission losses, wheeling charges, wheeling losses and different type of surcharge as specified by the SERC Determined by SERC and depends upon the use of InSTS / distibution network and voltage levels of injection and drawal points OA charges in Maharashtra (FY ) Particular Transmission charge Transmission loss Long term Rs/ kw/ Month 4.85% Short term Rs/ kw/ Month 4.85% 13

14 Open access charges in Maharashtra ( ) OA charges for fossil fuel based energy transaction Particular Unit Case 1 Case 2 Case 3 MSEDCL Rs/kWh REL Rs/kWh TPC Rs/kWh OA charges for wind power transaction Particular Unit Case 1 Case 2 Case 3 MSEDCL Rs/kWh REL Rs/kWh TPC Rs/kWh Assumptions: OA at generator end 25 MW, short term; case /132kV, case / 33 kv, case / 11 kv; PLF: Fossil fuel 80% and wind 20% Thank You THANK YOU 28 14