KSERC Approval for 300 MW Solar Buy Exposes Multiple Challenges Facing SECI, Developers

In an order dated November 15, 2021, the Kerala state electricity regulatory commission (KSERC) finally allowed the state discom, Kerala State Electricity Board (KSEB) to procure 300 MW of Solar power from SECI from its tranche IX solar tenders, at a cost of Rs 2.44/kWh including trading commission. While many will see the order as business as usual in the power business, the details of this order make for interesting reading.

Spread over 10 hearings between November 18 2020, when KSEB first filed its petition for 200 MW of solar purchases actually, to the final order, almost a year later for 300 MW, covers quite a story of the issues and challenges that the renewable energy sector faces.

Manufacturing Linked Solar Misses Out, Again

For starters, the offer from SECI initially was for 200 MW from the 1st tranche of the 6.2 GW manufacturing linked tenders, where the highest price could have gone upto Rs 2.92/unit for the state discom. The KSERC was amenable to the option after considering all arguments and passed directions accordingly in December 2020 for the final details. However, by March 2021, SECI had come in with a revised offer of 500 MW from its Tranch IX tender, where capacity was expected to be ready by December 2022. The new price? Rs 2.44/unit, where KSEB had indicated a willingness to take up 300 MW. So that was the end of the effort to sell power from the manufacturing linked tender.

BCD Impact

By the eighth hearing, in a clear indication of the thinking in SECI on the future with BCD, SECI further submitted that, in view of the proposed imposition of Basic Custom Duty (BCD) from 1st April 2022, the PPA is to be signed before 30th of September 2021. If the PSA and PPA are signed in time, it will save the additional liability of Rs 0.30/unit to Rs 0.40/unit, on account of imposition of BCD. The developer has agreed to waive the BCD, if PPA is signed before 30th September 2021. The signing of PPA is a condition precedent. Hence the SECI requested for an early signing of PSA to avail the BCD waiver. SECI clarified during the hearing that, the price offered is without BCD. Once the BCD is imposed it will be treated as change in law and the developer can claim it from SECI and SECI will naturally claim from KSEB Ltd. Once PPA is signed before 30th September 2021 and even if the purchase is delayed beyond 1st April 2022, it will the developer’s burden. This can be incorporated in PSA and PPA also.

RPO As a Key Driver

The KSERC also noted that over the years, KSEB Ltd has not been able to meet its Renewable Solar Power Purchase Obligation targets specified by the Commission. As per the latest order of the Ministry of Power, GoI, the Solar RPO to be met by the KSEB Ltd during the current year 2021-22 is 10.5% of its total consumption excluding the consumption to be met from its large hydel plants. The Commission further noted that, as per the Tariff Order dated 08.07.2019, the energy sale approved for the year 2021-22 is 24,991MU and the generation from large hydel plants is 6,279MU. In order to meet the Solar RPO alone, KSEB Ltd has to generate/procure about 1965MU of Solar Energy, and @CUF of 19%, KSEBL should have to generate/procure an additional quantum of about 1180MW of Solar Power during the current financial year alone. Something clearly beyond it.

Further, the cost of Solar power is much less than the ‘non-solar renewables’ such as wind and small hydro etc. Hence, the Central Government has allowed the distribution licensees to meet upto 15% of their Non-Solar RPO from the Solar Power. Duly considering this additional requirement, the total Solar Power requirement for the current year is 1360 MW.

Thus, in just this single order. while we have a slow process on the one hand, and an obsession with costs to contend with, solar developers will know that the potential remains huge at prices below Rs 2.90, if states get serious about meeting their RPO commitments.