REConnect Energy : Awards & Accolades

We are very happy to announce that REConnect was awarded “REC Trader of the Year 2016” & “Forecasting Company of the Year 2016” in the Indian Wind Energy Forum. This is the third year in a row that we have won these awards. We would like to thank our clients for the faith that they bestow on us and the dedicated efforts of the REConnect team for this recognition.

The “REC Trader of the Year 2016” award is a recognition of our continuing REC market leadership (we are the largest REC trader in the country), faith of our clients in us and the flawless service the REConnect team provides every day.  The “Forecasting Company of the Year 2016” award is recognition of our knowledge-centric approach to forecasting and scheduling, and our market leadership in this domain.

We currently provide forecasting and scheduling services to over 12GW of wind and solar projects. We have successfully catered the GETCO state level wind forecasting project for a total capacity of 4086MW.

We also take immense pleasure in announcing that our work was also recognized by SMART CEO as Top 50 venture in The Ssmart CEO-Startup50 India 2016 program and also in BERLIN where REConnect Energy was awarded as the best Indian start up.

Analysis – Draft Amendment to Electricity Rules 2005

The Ministry of Power (MoP) has proposed changes to the Electricity Rules 2005. The proposed changes focus on rules relating to “Captive Power Plants”. More specifically, the changes proposed will impact the structures commonly known as “Group Captive” projects. Group captive projects are an important way in which renewable energy (RE) capacity is set up (its important to note that the Group Captive structure is also used by conventional power plants).
What is the change proposed?
At present, a power project is considered ‘captive’ if consuming entity or entities consume at least 51% of the power generated and owns at least 26% of the equity. Various capital structures have evolved to qualify as captive under the rules. For example, a major portion of the capital could be preference shares, with only a small portion being equity capital. Thus, owning 26% of the ‘equity capital’ actually translates to a very small amount relative to the overall investment in the project. Further, equity shares of different face values are issues with the lower value shares being subscribed by the consumers while the higher value shares being owned by the investor.
The proposed change requires 26% or more ownership of the “paid up equity share capital”. Thus, equity structures with different face value of shares will no longer be tenable as ownership will have to be 26% or more of the total value of equity capital.
However, it appears that the structures where a large majority of the capital is brought in as preference shares are likely to still qualify under the draft rules. This is because the draft refers to “equity capital” alone, not preference capital or total paid up capital.
What will be the impact of the change?
Group captive structures are a very important tool used by companies investing in RE capacity. This is because once a project is classified as captive, cross subsidy cannot be made applicable to power generated from it. This important protection to captive projects stems from the Electricity Act and an order of the Supreme Court.

 

In the current environment where states vary in cross subsidy significantly every year (often with the intent to make open access unviable), such a protection is critical. Without such a protection projects that are build with a life of 20-25 years face huge uncertainties as PPA’s that are viable at present may suddenly become unviable if the state imposes high cross-subsidies.
The proposed change will make group captive structures more difficult as it will require the consumer to put up significantly more equity. This will likely result in less such structures coming up and consequently less investment in RE capacity overall.
Why is the change proposed?
As mentioned in the document of MoP, the rule “is being misused by issuing shares of small face value which actually do not represent the monetary share of the capital of the plant”  (emphasis added)
However, we believe that this needs to be looked at in the larger context of the regulatory environment that an RE plant operates in. Many states misuse their power to set cross-subsidy surcharge (CSS) rates and change them drastically every year (please refer to the CSS article below) often making open access unviable. Further, related provision to cross-subsidy like limiting such rates to 20% of the applicable tariff category or progressive reduction over time are not adhered to. The National Tariff Policy also suggested a change in the way CSS is calculated. However, states have not adopted the suggested methodology.
In this context, making it far more difficult to make group captive structures will result in increasing the risks faced by RE projects. The direct consequence of such a change will be reduction in new investment in the RE capacity.

How soon can the changes be effective?
Electricity Rules are made by notification by the Central Government (s. 176). This is unlike the Electricity Act or its amendment, which requires the approval of the parliament. As a result, the MoP can modify the rules by notification very quickly after it receives comments and has the opportunity to consider them. Comments are due on the draft rules by November 1, 2016.

 

 

 

 

RERC Draft Solar Tariff Policy for FY 2016-17

Rajasthan Electricity Regulatory Commission (RERC) recently  proposed a levelized tariff under a draft regulation (RERC Terms & Conditions for Determination of Tariff for Renewable Energy Sources Regulations, 2016) issued for Solar power generators of the state.

The graph below depicts the change in the tariff from the past year:

 

RERC has invited the comments and suggestions by 13th September 2016 on the same. The tariff proposed for FY 16-17 is much lower than the tariff of previous year in case of both Solar PV and Rooftop Solar PV, It can be said that the reason behind the reduction in the tariff of Solar PV is because of decreasing prices of Solar PV cells.

The regulation can be accessed here.

 

Cross-subsidy surcharge continues to rise

A recent article in Business Standard highlighted the disproportionate rise of cross-subsidy surcharge (CSS) in many states. We have been tracking this issue as well and had highlighted the problem in our blog & NL Volume 62.

 

In the past, CSS has been calculated on the basis of the cost of the marginal 5% (in other words the most expensive 5%) of power procured by the state. This results in a bias towards the highest cost paid, resulting in high CSS. The National tariff policy (NTP) has suggested change in this methodology to a weighted average cost model, and also proposed that CSS be restricted to 20% of the tariff. However, recent increases show that states have largely ignored the provisions of the NTP.

 

A big reason for the rise in CSS is also the fact that states continue to shy away from raising tariffs for domestic, agricultural and such categories. According to the Business Standard article, States like Chhattisgarh, UP, Uttarakhand and Bihar have already come up with their tariff orders for the financial year 2016-17, but have not raised retail tariffs. Only Gujarat has allowed a retail tariff increase.

 

With increasing cost of power the burden to foot the bill therefore falls on industrial and commercial consumers. As per the MoP data the below graph depicts change in CSS over the span of 1 year in the major states which varies from 35% to 321%.

 

 

 

 

 

MPERC Determines Tariffs for Solar Power Projects

Madhya Pradesh Electricity Regulatory Commission recently released its tariff order for energy procured from solar power based projects for the control period from 31st March 2016 to 31st 2019. The tariff determined by the Commission in this will be applicable to the following Projects located in the State of Madhya Pradesh and selling electricity to the distribution licensees within Madhya Pradesh only:-

(a) Solar PV Power Plants

(b) Solar Thermal Power Plants

The Commission came out; vide its proposal for categorization of solar PV and thermal projects as well as for fixing the norms for technological specific parameters.

The Commission has fixed the normative capital costs inclusive of all components as well as taxes etc. for solar thermal and solar PV projects by keeping in line with the CERC benchmark capital cost of Rs. 12 Crore and 5.3crores per MW for 2016-17. The graphs below gives a comparison of the Capital cost and levelized tariff from the previous control period:

 

The MPERC Regulation can be accessed here.

The MPERC Previous tariff Order can be accessed here.

 

Joint Electricity Regulatory Commission (Renewable Power Purchase Obligation and its Compliance)

The Joint Electricity Regulatory Commission (Goa and UT’s) recently came up with its long term Renewable purchase obligation trajectory and compliance regulation, following the footsteps of states like Chhattisgarh, HP and AP. JERC has declared its RPO Trajectory up to 2022 with total RPO of 17% which lags behind in comparison with MoP RPO Trajectory and of other states.

Just like other states, the said obligations will be applicable on total consumption of electricity by an obligated entity, excluding consumption met from hydro electric sources of power. The graph below gives comparison of MoP RPO Trajectory with JERC RPO Trajectory:

 

The JERC Regulation can be accessed here.

 

 

 

Gujarat Electricity Regulatory Commission determines Additional Surcharge for Open Access Consumers 2016-17

Gujarat Electricity Regulatory Commission (GERC) in its order dated 1st October 2016 has computed the additional surcharge payable by the Open Access Consumers for the control period of 1st October 2016 to 31st March 2017.

The order has come as per the GERC Open Access Regulation which states, that additional surcharge shall be determined in every 6 months periods.

The GUVNL (Gujarat Urja Vikas Nigam Limited) furnished the data to the commission as per the guidelines defined and proposed an additional surcharge of Rs. 0.44/kWh. The additional surcharge has decreased by Rs. 0.22/kWh from the previous surcharge.

The Additional Surcharge will be applicable to the consumers of MGVCL, UGVCL, PGVCL and DGVCL, who avail power through open access from any source other than their respective DISCOMs and will be applicable for the open access transaction commencing from 1st October, 2016 to 31th March, 2017. The graph below depicts how the addition surcharge has varied over the past:

The regulation can be accessed here.

Andhra Pradesh Electricity Regulatory Commission (Renewable Power Purchase Obligation and its Compliance)

The Ministry of Power (MoP) had recently declared the national RPO trajectory.  The order had enlisted the yearly RPO trajectory for both non-solar and solar power purchase from 2016-17 till 2018-19. Following the steps of MoP RPO trajectory, Chhattisgarh, Himachal Pradesh and now Andhra Pradesh has notified its Renewable Power Purchase Obligation and its Compliance, regulations which will be effective from April 17, 2017.

The regulation will be applicable to:

  • The distribution licensee
  •  Or any person, consuming electricity procured from conventional sources through open access third party sale,
  • Every consumer owning a captive generating plant of installed capacity 1 MW and above and synchronized with the Grid.

 

The table below shows the Minimum Quantum of Purchase in percentage (%) from renewable sources (in terms of energy in kWh) of total consumption:

 

The said obligations will be applicable on total consumption of electricity by an obligated entity, excluding consumption met from hydro electric sources of power.

 

Analysis:

  • RPO to be applied on co-generation power
  • The distribution licensees shall compulsorily procure 100% power produced from all the Waste-to-Energy plants in the State, in the ratio of their procurement of power from all sources.
  • The Consumption from hydro sources to be excluded
  • RPO % is proposed to increase steeply – from 11.50% in 2016-17 to 17% in 2018-19 line with the MoP Trajectory.
  • The graph given below gives a comparison between the MoP recent RPO Trajectory and APERC’s RPO Trajectory

The regulation can be accessed here

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