Highlights of CERC’s proposed renewable energy tariff setting regulations (2024-2027)

The Central Energy Regulatory Commission (CERC) has issued draft rules for setting of tariffs for renewable energy sources for the period 2024-27. The rules are aimed at providing a structured approach to setting tariffs, ensuring fairness and promoting growth in the renewable energy sector. The salient points and proposed changes are as follows.

First, the regulation emphasizes the promotion of projects based on municipal solid waste (MSW) and refuse-derived fuel (RDF). The useful life of these projects will be shortened to 20 years, and some clauses on the heat index of the station and gross calorific value will be omitted. This change aims to support growth in these sectors by simplifying the regulatory framework and reducing operational complexity.

The regulations also deal with the capacity utilization factor (CUF) for hybrid renewable energy projects. The CUF will be fixed on a project-specific basis, taking into account the share of rated capacity of each renewable energy source. This approach ensures that the tariff setting process reflects the actual capacity and efficiency of each project. However, the requirement of minimum 33% CUF, as adopted from the bidding documents, may not be practical for hybrid projects in the current resource conditions in India. This requirement may need to be modified to suit the actual performance of hybrid projects, such as those combining solar and wind power.

For storage projects, regulations set different efficiency standards. Solid-state battery storage projects are expected to achieve 80% efficiency, while peak storage projects have a benchmark of 75%. These performance metrics are key to determining the overall feasibility and tariff structure of storage-based renewable energy projects.

The draft regulations also underline the need for clear definitions and methodologies regarding surplus energy or overproduction. Renewable energy projects that generate more energy than specified may sell this surplus, but the first right of refusal is with the beneficiary concerned. There is a need for further clarification on whether this surplus energy refers to excess project capacity or improved resource conditions, as this has implications for how tariffs are calculated and applied.

In addition, the regulations propose that the cost of fuel preparation for MSW/RDF projects be included in the total capital cost of the project. This approach eliminates the need for separate accounting for fuel costs, simplifying financial modeling and rate-setting processes. It also recommends monitoring and recording the gross calorific value (GCV), station heat rate (SHR), and plant load factor (PLF) on a monthly basis for these projects. This data collection will help establish standard benchmarks in the future.

Finally, the regulations suggest developing a methodology to capture prevailing market trends for benchmarks of capital costs, interest on loans, and working capital. This methodology would help set more accurate and fair tariffs by reflecting current market conditions and reducing biases resulting from limited data sets. This approach aims to provide a comprehensive picture of market trends, giving greater weight to recent transactions and competitive bidding processes.

The proposed draft rules for renewable energy tariff setting by CERC aim to promote growth in the sector, ensure fair tariff structures and simplify regulatory requirements. These changes are expected to encourage investment in renewable energy projects, especially those based on MSW, RDF and hybrid technologies, thereby supporting India’s transition towards a sustainable energy future.

For more details, please see the document here.

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