MERC Signals Go Slow On AEML’s RE Procurement Plans for Mumbai

The Maharashtra Electricity Regulatory Commission (MERC) has issued a new order, allowing Adani Electricity Mumbai Ltd (AEML) to initiate the bidding process for the procurement of power upto 500 MW on round the clock (RTC) basis from grid connected renewable energy power projects, complemented with other non-renewable energy source.

The commission has partly accepted AEML‘s petition, which it had earlier filed to seek approval for the procurement of 1000 MW of power.

AEML had said in its petition that due to the termination of a power purchase agreement (PPA) with Vidarbha Industries Power Limited (VIPL), its share of short-term power procurement had increased, which was not sustainable in the longer run. Further, it had signed a long-term contract for 700 MW wind plus solar hybrid power, which is expected to be available from FY 2021-22 and will meet peak power & part of load curve, at about 50 -55% CUF.

The  major portion of its proposed power was expected by the company to get absorbed in the initial 2-3 year time. In order to ensure reliable power at competitive rates, fulfilment of renewable purchase obligation (RPO) targets and to ensure certainty of scheduling, AEML proposed to procure 1000 MW RTC power from grid-connected RE power projects, complemented with firm power from thermal power project having domestic coal linkage, under tariff-based competitive bidding.

The commission made its decision vis a vis AEML’s requests on the basis of the following counts:

• Whether the proposed power procurement process for 1000 MW was aligned with AEML’s demand-supply projections?
• Whether deviation sought by AEML in the current proceedings was to be allowed?

After considering these, the commission directed AEML to rationalise its power procurement plan with the aim of ensuring power supply security at the most optimum rates, so that the consumers are not subjected to any risks of supply failure or spike in the power purchase rates.

While scrutinizing AEML’s demand-supply projections, the commission noted that for the period of FY 2020-21 to FY 2024-25, the company has assumed a higher annual growth rate of 5% as against 2% annual growth rate considered by the commission in (Multi Year Tariff) MYT Order. AEML has not explained or suitably justified such higher rate of demand projection. Thus, AEML’s demand projections based on which it has arrived at the power requirement of 1000 MW is on the higher side, at least in the MYT control period, and hence needs to be revisited by them, said MERC.

The commission also opined that AEML is correctly proceeding in the direction of replacing its short-term power dependency with longer duration contracts for ensuring reliable availability of the power for meeting its consumer demand. However, before taking final decision on procurement of 1000 MW, AEML must have carried out detailed and proper due diligence and its operational and financial impact (esp that of surplus power in the initial years).

Additionally, AEML, while justifying contracting for surplus capacity had stated that the benefit of exemption in Inter-State transmission charges and losses is available only till 30 June 2023 and such exemption if availed would be more beneficial than paying fixed cost burden for thermal capacity during initial years of having surplus capacity. In this regard, the commission noted that such assumption of AEML was depending upon tariff rate which would be discovered through competitive bidding process.

Upon considering all the different factors, the commission concluded that AEML must bid for its requirement in a phased manner. To start with, AEML is allowed to bid for capacity upto 500 MW. Thereafter, on detailed study and realistic demand-supply projections, if AEML requires to contract additional capacity, then it can approach the commission with a detailed study justifying such requirement for initiating fresh process for additional power procurement.

Such an approach is essential in the present matter, especially when there is no precedence/reference tariff rate for the type of power procurement (RE supplemented with non-RE source) AEML has proposed in its petition. Post discovery of tariff and its financial benefits, AEML may take decision on initiating bidding process for contracting additional capacities through same type of power procurement or opt for different power source, said the commission.

Alternatively, MERC said, AEML can carry out a detailed analysis based on the observations of the commission and resubmit a petition justifying the requirement of 1000 MW vis-à-vis the financial sensitivity analysis. In this case, subject to approval of the commission, AEML can consider the tender of 1000 MW with a green shoe option (500 MW+500MW) based on the discovered tariff, as was opted in the long term power procurement contract of 700 MW.

Either way, the renewable power procured by AEML from this project will be counted towards its RPO targets for the respective periods, said the commission.