Petition No. 243/SM/2012. Case: In Re: Central Electricity Regulatory Commission Vs. Central Electricity Regulatory Commission

Case NumberPetition No. 243/SM/2012
JudgesDr. Pramod Deo, Chairperson, Shri S. Jayaraman, Member, Shri V.S. Verma, Member and Shri M. Deena Dayalan, Member
IssueIncome Tax Act, 1961 - Section 32
Judgement DateOctober 25, 2012
CourtCentral Electricity Regulatory Commission

Order:

(New Delhi)

  1. The Commission has notified the Central Electricity Regulatory Commission (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2012, on 06.02.2012 (hereinafter referred to as "the RE Tariff Regulations"), provide for terms and conditions and the procedure for determination of tariff of the following categories of Renewable Energy (RE) generating stations:

    (a) Wind Power Project;

    (b) Small Hydro Projects;

    (c) Biomass Power Projects with Rankine Cycle technology;

    (d) Non-fossil fuel-based co-generation Plants;

    (e) Solar Photo voltaic (PV);

    (f) Solar Thermal Power Projects;

    (g) Biomass Gasifier based Power Projects; and

    (h) Biogas based Power Project.

    The Regulations enjoin upon the Commission to determine the generic tariff on the basis of the suo-motu petition, for the RE technologies for which norms have been provided in the RE Tariff Regulations. Generic Tariff is different from the project specific tariff for which a project developer has to file petition before the Commission as per the format provided in the RE Tariff Regulations. Pertinently, project specific tariff has been envisaged for the new RE technologies and the technologies which are still at the nascent stage of development, and the Commission shall determine the project specific tariff for such technologies on a case to case basis.

  2. Clause (1) of Regulation 8 of the RE Tariff Regulations provides that "the Commission shall determine the generic tariff on the basis of suo-motu petition at least six months in advance at the beginning of each year of the Control period for renewable energy technologies for which norms have been specified under the Regulations".

  3. The Commission, in due discharge of the mandate under Regulation 8(1) of RE Tariff Regulations, proposes to determine the generic tariff for renewable energy technologies for the year 2013-14, as per the proposal enclosed as Annexure- I.

  4. Comments /suggestions of the stakeholders on the above proposal are invited by 23rd November, 2012.

    New Delhi
    Dated the 25th October, 2012

    ANNEXURE: I
    The proposed generic levellised generation tariff for various renewable energy technologies, for FY 2013-14

  5. The proposed generic levellised generation tariff for various renewable energy technologies, for FY 2013-14 are discussed below:

    USEFUL LIFE

  6. Clause (aa) of sub-Regulation (1) of Regulation 2 of the RE Tariff Regulations defines 'useful life' in relation to a unit of a generating station (including evacuation system) to mean the following duration from the date of commercial operation (COD) of such generation facility:

    CONTROL PERIOD

  7. Regulation 5 of the RE Tariff Regulations provides that the control period for determination of tariff for renewable energy projects (RE projects) shall be of five years. The first year of the control period is from FY 2012-13. The Proviso to the said regulation stipulates that the tariff determined for the RE projects commissioned during the control period shall continue to be applicable for the entire duration of the tariff period as specified in Regulation 6 of the RE Tariff Regulations.

    TARIFF PERIOD

  8. In terms of Regulation 6 of the RE Tariff Regulations, the tariff period in respect of the RE projects is as under:

    In terms of clauses (e) and (f) of the said regulation, the tariff period specified above shall be reckoned from the date of commercial operation of the RE projects and the tariff determined under the regulations shall be applicable for the duration of the tariff period.

    TARIFF STRUCTURE

  9. Clause (1) of Regulation 9 of the RE Regulations stipulates that the tariff for RE projects shall be single part tariff consisting of the following fixed cost components:

    (a) Return on equity;

    (b) Interest on loan capital;

    (c) Depreciation;

    (d) Interest on working capital;

    (e) Operation and maintenance expenses;

    For renewable energy technologies having fuel cost component, like biomass power projects and non-fossil fuel based cogeneration, single part tariff with two components, fixed cost component and fuel cost component, is to be determined.

    TARIFF DESIGN

  10. In terms of Regulation 10 of the RE Tariff Regulations, the tariff design for renewable energy generating stations is as under:

    (1) The generic tariff shall be determined on levellised basis for the Tariff Period.

    Provided that for renewable energy technologies having single part tariff with two components, tariff shall be determined on levellised basis considering the year of commissioning of the project for fixed cost component while the fuel cost component shall be specified on year of operation basis.

    (2) For the purpose of levellised tariff computation, the discount factor equivalent to Post Tax weighted average cost of capital shall be considered.

    (3) Levellisation shall be carried out for the 'useful life' of the Renewable Energy project while Tariff shall be specified for the period equivalent to 'Tariff Period.

    LEVELLISED TARIFF

  11. Levellised Tariff is calculated by carrying out levellisation for 'useful life' of each technology considering the discount factor for time value of money.

    Discount Factor

    The discount factor considered for this purpose is equal to the Post Tax weighted average cost of the capital on the basis of normative debt: equity ratio (70:30) specified in the Regulations. Considering the normative debt equity ratio and weighted average of the post tax rates for interest and equity component, the discount factor is calculated.

    Interest Rate considered for the loan component (i.e. 70%) of Capital Cost is 13.00% (as explained later). For equity component (i.e. 30%) rate of Return on Equity (ROE) considered at Post Tax ROE of 16% considered. The discount factor derived by this method for all technologies is 10.95% ((13.0% x 0.70 x (1 - 32.445%)) + (16.0% x 0.30)).

    CAPITAL COST

  12. Regulation 12 of the RE Tariff Regulations stipulates that the norms for the capital cost as specified in the technology specific chapter shall be inclusive of all capital works like plant and machinery, civil works, erection and commissioning, financing and interest during construction, and evacuation infrastructure up to inter-connection point. The Commission has specified the normative capital cost, applicable for the first year of control period i.e. FY 20012-13, for various RE technologies viz Wind Energy, Small Hydro Power, Biomass Power, Non-Fossil Fuel based Cogeneration, Solar PV, Solar Thermal, Biomass Gasifier and Biogas based power projects.

  13. In order to determine the normative capital cost for the remaining years of the control period, the regulations stipulate the indexation mechanism, Wind Energy, Small Hydro Power, Biomass Power, Non-Fossil Fuel based Cogeneration, Biomass Gasifier and Biogas based power projects. However, the Capital Cost norms for Solar PV and Solar Thermal Power Projects shall be reviewed on annual basis. The indexation mechanism shall take into account adjustments in capital cost with the changes in Wholesale Price Index of Steel and Wholesale Price Index of Electrical Machinery as per formulation stipulated under the RE Tariff Regulations, which is reproduced below.

    CC(n) = P&M(n)* (1+F1+F2+F3)

    P&M(n) = P&M(0) * (1+d(n))

    d(n) = [a*{(SI(n-1)/SI(0))- 1} + b*{(EI(n-1)/EI(0)) - 1}]/(a+b)

    Where,

    CC (n) = Capital Cost for nth year

    P&M (n) = Plant and Machinery Cost for nth year

    P&M (0) = Plant and Machinery Cost for the base year

    Note: P&M (0) is to be computed by dividing the base capital cost (for the first year of the control period) by (1+F1+F2+F3). Factors F1, F2, F3 for each RE technology has been specified separately, as summarized in following table.

    d (n) = Capital Cost escalation factor for year (n) of Control Period

    SI (n-1) = Average WPI Steel Index prevalent for calendar year (n-1) of the Control Period

    SI (0) = Average WPI Steel Index prevalent for calendar year (0) at the beginning of the Control Period

    EI (n-1) = Average WPI Electrical Machinery Index prevalent for calendar year (n-1) of the Control Period

    EI(0) = Average WPI Electrical Machinery Index prevalent for calendar year (0) at the beginning of the Control Period

    a = Constant to be determined by Commission from time to time, (for weightage to Steel Index)

    b = Constant to be determined by Commission from time to time, (for weightage to Electrical Machinery Index)

    F1 = Factor for Land and Civil Works

    F2 = Factor for Erection and Commissioning

    F3 = Factor for IDC and Financing Cost

    The default values of the factors for various RE technologies as stipulated under the said RE Regulations, is summarized in the table below,

    The Commission has relied on the following sources for relevant information on various indices:

    • Source for WPI (electrical & machinery and iron and steel), WPI (all commodities), WPI (Price of HSD): Office of Economic Advisor, Ministry of Commerce & Industry (www.eaindustry.nic.in)

    • Source for IRC (Average Annual Inflation rate for indexed energy charge component in case of captive coal mine source): CERC (www.cercind.gov.in)

    Technology specific capital cost of RE projects is discussed hereinunder:

    Technology specific capital cost of RE projects is discussed herein under:

    (A) Capital Cost of Wind Energy for FY 2013-14

  14. Regulation 24 provides that the capital cost for wind energy project shall include wind turbine generator including its auxiliaries, land cost, site development charges and other civil works, transportation charges, evacuation cost up to inter-connection point, financing charges and IDC.

    The Commission under Regulation 24 (2) has specified the normative capital cost for wind energy projects as ` 575 Lakh/MW for FY 2012-13 which shall be linked to the indexation mechanism specified under Regulation 25 of the RE Tariff Regulations. In accordance with the above referred Regulation, the normative capital cost of the Wind energy Projects shall be ` 595.99 Lakh/MW for FY 2013-14. The detailed...

To continue reading

Request your trial