Efficiency in Focus as MERC Declines Adani Plea On RE Pricing for Mumbai

The Maharashtra Electricity Regulation Commission, in its order dated January 8 has disposed of the plea by Adani Electricity Mumbai Limited (AEML) on tariff for the renewable energy it planned to purchase to meet the city’s RPO obligations and broader energy needs.

The plea by AEML, which pitched for sourcing 700 MW of RE power from a Hybrid renewable arrangement, at a price of Rs 3.35 per unit was notable for the structuring and assumptions behind the proposal. From a CUF (capacity utilisation factor)of 50 percent to the setup in Rajasthan for the proposed 1300 MW of power (650Solar + 650 Wind), it was finally disposed of by the MERC after a detailed explanation of its reasons.

The commission in its order has recommended that  AEML Ltd has an option to:

1. “renegotiate with selected bidder i.e. M/s Rosepetal Solar Energy Private Ltd for a lower tariff of Rs. 3.24 per unit. Bidder can offer a lower rate with the same configuration or by re-configuring Wind and Solar mix or by working out any other method. If, M/s Rosepetal Solar Energy Private Ltd agrees to reduce the tariff to Rs. 3.24 per unit or lower, then Adani Electricity Mumbai Ltd may execute the Power Purchase Agreement (PPA) and inform the same to the Commission by submitting a copy of the executed PPA.

2. While undertaking such renegotiation, AEML may include a condition to harness clipped energy and pass on the benefit to the consumer, whenever it becomes economically feasible in the future.

3. In the alternate, Adani Electricity Mumbai Ltd. may initiate fresh bidding process either for Hybrid RE with lower CUF or for procurement of Solar and Wind energy separately to match its load curve

Rosepetal Solar Energy Private Limited incidentally is a wholly-owned subsidiary of AEML, which emerged as the lowest bidder for the project after AEML opened it for bidding.

The interesting take away in the order above is the approach taken by the MERC to counter AEML’s assertions on the reasons behind the unique project requirements and the price.

Thus, for instance, on the need to built new transmission capacity for RE in Mumbai’s case, the commission is very clear in its view that the generator exists to meet consumer demand, and extra sourcing of RE can always be achieved by getting other sources to back down, for instance.

The Hybrid project also had an assumption of 50 percent CUF, a number that surprisingly escaped direct challenge not for the optimistic assumptions, but for the sheer power clipping, it would entail of power produced if this figure was to hold true.  It also added that in any case, the distributor has the option of sourcing solar and wind power separately, at what it predicted should be lower rates, considering the prevailing pricing at auctions across the country.

Even the alternate scenario that had been used by AEML to justify the lower capacity at high CUF, that it would take 1750 MW of capacity at 20 percent CUF otherwise has been disputed by the MERC members, who have pointed to much higher CUF’s in recent wind and solar projects, and the MNRE’s own notification laying benchmarks in this regards.

Calling the current transmission capacity as a temporary constraint, the commission made it clear that it was not in favor of locking in a price for 25 years for a temporary constraint.

In fact, the commission has used AEML’s own process of bidding, completed in two months to advocate a rebid or alternate methods, making it clear that it considers enough time on hand to meet its obligations, and benefit from the ISTS charges exemptions, which last fr projects completed till December 2022.

While the detailed order is available at the MERC site, the key question that will be considered here is whether the regulator is playing it too safe by shrinking from a slightly higher price despite what seems to be a very innovative option from AEML. Or alternately, perhaps it is skeptical of the claims, and actually wants to take out the possibility of future appeals to amend its approvals? We should have the answer to these questions in the next few months, but it is clear that whatever emerges here, it will be an interesting solution indeed. Of course, if its own firm Rosepetal Energy ‘agrees’ to the lower price of Rs 3.24 proposed by the MERC, then all bets are off on the next step. watch this space for the Rosepetal response.