HPERC Takes Cue from CERC, Proposes Changes to Renewable Project Conditions

HPERC has Drawn Inspiration from CERC’s Renewable Energy Tariff Regulations 2020

The Himachal Pradesh Electricity Regulatory Commission (HPERC) has proposed amendments to the (Promotion of Generation from Renewable Energy Sources and Terms and Conditions for Tariff Determination) (4th Amendment) Regulations, 2020, which came in effect in April 2020.

The HPERC duly considered the latest Renewable Energy Tariff Regulations brought into effect by the Central Electricity Regulatory Commission (CERC), before proposing changes. In May 2020, we had reported that the new regulation proposed by CERC will come into effect in July 2020.

Key Changes

• Now, the duration of control for the regulation will be from April 1, 2020 to September 30, 2023. The duration has been reduced by over a year. Initially it had been proposed that control period will end on March 31, 2025.
• Capital subsidies provided by state and or central governments will be adjusted in normative capital cost. This normative capital cost will be considered for computing debt-equity ratio to determine generic levelized tariff for renewables.
• A loan tenure of 15 years will be considered for tariff determination of renewable energy projects.
• While determining tariff, there will be no depreciation of project value equivalent to amount received in grant or subsidy under government program. HPERC has also reduced the depreciation rate from 5.28% p.a. to 4.67% p.a.
• The normative Return on Equity will now be 14%, reduced by 3% from 17%. It will be grossed up by the latest available notified Minimum Alternate Tax (MAT) rate for the first 20 years of the tariff period and by the latest available notified Corporate Tax rate for the remaining tariff period.
• Interest rate on working capital has been upped by another 50 basis points to 350 basis points above the average State Bank of India (SBI) Marginal Cost of Funds based Lending Rate (MCLR) (One Year Tenor) prevalent during the last available six months.
• Normative operation and maintenance (O&M) expenses will be escalated at the rate of 3.84% p.a. over the tariff period.
• If distribution company (DISCOM) delays payment by 45 days then it must pay late payment surcharge. Late payment surcharge has been increased by 0.25% to 1.50%.
• Normative capital cost of all small hydro projects ranging from 100 kw to 25 MW has been fixed at Rs.110 million/MW.
• Capacity utilization factor (CUF) of small hydro projects of up to 25 MW has been reduced from 55% to 47.85%.
• Annual O&M expenses of small hydro projects raging from 100 kw to below 5 MW capacity has been increased to Rs.4.178 million/MW and for projects of capacity up to 25 MW it has been increased to Rs.3.134 million/MW.

HPERC has taken proactive steps. Reduction of control period showcases that the commission is flexible when it comes to renewables. A single tariff cannot apply for a long duration and be in sync with market dynamics; it is bound to create issues related to power purchase agreements (PPAs) and the like. Taking out grant or subsidy amount from ambit of depreciation is a huge relief as previously it had been specified that depreciation will be allowed up to maximum of 90% of the normative capital cost. Many projects receive more than 10% of their project cost in form of subsidy or grants.

Reduction in time for making delay in payment by DISCOM from 60 to 45 days will be a big boost to power producer confidence. Increase in late payment surcharge will ensure that DISCOMs don’t stray out of line and value contracts entered.