CSERC Determination of Generic Tariff for Renewable Energy for FY 2015-16

The Chhattisgarh Electricity Regulatory Commission came up with its final order on the CSERC (Terms and Conditions for Determination of Renewable Energy (RE) Tariff) Regulations, 2015, (“the RE Tariff Regulations”) on 1st May, 2016. The RE Tariff Regulations specify the Terms and Conditions and the Procedure for determination of Generic Tariff by the Commission. Central Commission has specified capital cost as Rs.619.16 Lakh/MW for wind energy projects for the year 2015-16.The graph below gives a comparison of the RE tariff determined in year 2013-14, 2014-15 to 2015-16 for wind generators.

In the Draft Generic Tariff Order, the normative Capital Cost for the Solar PV power projects for was not declared by CERC and accordingly, the Commission proposed to consider the same Capital Cost of Rs. 605.85 lakh/MW for the Solar PV Projects and Rs. 1200 lakh/MW for Solar Thermal Projects to be commissioned in the period from 1 April, 2015 to 31 March, 2016.

The graph below gives comparison of Generic Tariffs for Solar Projects in the period from 2015– 2016 to the previous years. The tariff has been determined depending on the type of solar project as follows:

The Order can be accessed here.

Tamil Nadu Electricity Regulatory Commission Amendment to RPO Regulation, 2010

The Tamil Nadu Electricity Regulatory Commission recently came up with new amendment in the Renewable Purchase Obligation, 2010. The amendment was made in the regulation 3 after sub regulation (1) regarding the RPO percentages as mentioned below

The Commission orders that the Renewable Purchase Obligation specified for 2011-2012 in the sub regulation (1) shall be applicable for the years 2012-13, 2013-14 and 2014-15 to all the distribution licensees.


The Order can be accessed here.

MNRE Issues Notice on RPO compliance

The Ministry of New and Renewable Energy in collaboration with Government of India has made a great initiative by spreading the message about RPO and the need for its compliance through Times of India.  The Government highlights that all the obligated entities must comply with their RPO by March 15-16 since this trading session will be the last trading session of the compliance year, whose result calls for stricter enforcement by states. The Times of India’s article can be viewwd below

Key provision for Renewable Energy industry in the Union Budget 2016

The Union Budget 2016 was a mixed bag for the RE industry. The key provisions that will impact the industry are:


  • Reduction in accelerated depreciation (AD) on RE investment – the rate of AD will be reduced from 80% to 40% from April 1, 2017. AD has been historically an important driver of investment in the RE sector. However, off-late IPPs (who generally do not use AD benefits) have become the key driver of investment in the sector. Nevertheless, this change will reduce demand for RE investment. FY 2016-17 is likely to see a spurt in investment under AD as investors rush to complete projects before the lower rate becomes effective.
  • Increase in coal cess – Coal cess has been doubled from Rs 200/ ton to Rs 400/ ton. The proceeds from this cess fund the National Clean Energy Fund (NCEF). NCEF is used for a variety of reasons like Ganga Rejuvenation, proposed payments to states for deviation resulting from wind and solar, and is often not used at all (absorbed by the government to meet fiscal deficit targets).
  • Allocation of funds to MNRE has increased from  Rs 262 crore in FY 15-16 to over 5,000 crore in FY 16-17. These will potentially kick-start large projects.                                                                                                                                                                                                                                           * 1Article titled “Govt uses green energy fund for fiscal balancing”, dated April 21, 2015, Mint newspaper . 

    The article can be accessed here.




REC Trade Result February 2016

RECs demand has shown significant improvement over last month trading session. Non Solar REC’s and Solar REC’s traded this month were 70% higher and 57% higher respectively, compared to trading session of January 2016. The total transaction value of REC’s hit a sum total of Rs 119.5 crore, compared to Rs. 71.78 crore last month.

Analysis of Trading:

Non Solar – Clearing ratio in exchange stood at 3.89% and 4.75% in IEX and PXIL respectively for Non Solar REC’s. A total of 586,501 were traded as compared to 344,519 RECs traded in January, but much lower than the volume cleared in December trading session.

Solar – Clearing ratio stood good at 2.14% and 3.58% in IEX and PXIL respectively, with total clearing volume of 90,236, as compared to 57,420 last month. The increase is significant, with much better performance expected next month.


Trading volumes are expected to increase significantly during March trading session, as most obligated entities will want to fulfill their obligation for the FY. This trading session results are encouraging, considering last month performances, riding on higher demand on both exchanges. However, compared to the trading session of February 2015, where Non-Solar and Solar clearing volume stood at 747,487 & 44,869 respectively, the performance of Non-Solar RECs was below par whereas Solar RECs demand more than doubled.


The trade result for the month of January can be accessed here.

NLDC Invites Comments for bi-monthly REC Trading Session

National Load Dispatch Centre has invited comments and suggestions, on the REC Procedure considering bi-monthly REC trading sessions, by 1st March 2016 to the Central Agency. The following modification has been proposed for the “Procedure for Redemption of REC’s”:

  • All valid RECs excluding the RECs applied for Self-retention shall be traded on the second and last Wednesday of every month.
  • The eligible entity shall exclude the RECs applied for self-retention in the particular month, if applicable, for dealing on Power Exchange.

It’s a much needed step by NLDC as it enhances the platform for a better market price discovery. This change would be beneficial for the generators and to the obligated entities, since if the RECs are not traded in the current month, they would not have to wait for an entire month to clear the REC’s.

Also it would promote the developers to meet their RPO as we have seen many regulatory actions coming up in the form of compliance orders and proceedings in several states like Orissa, Kerala, MP and Maharashtra recently.

We also feel that the bi-monthly REC trading could be intensified if quarterly or at least half yearly compliance of RPO is made compulsory instead of yearly. This would push the obligated entities more to gear up and fulfill their obligation and thus benefit the REC market.



RECs demand had been steadily rising in the past few months, but this month’s trading saw a signficant drop in trading volume as compared to last month. Non Solar REC’s and Solar REC’s traded this month were 61.6% lower and 6.79% lower respectively, compared to trading session of December 2015. The total transaction value of REC’s hit a sum total of Rs 71.77 crore, compared to Rs. 156 crore last month.

The reason in drop in trading volume are two fold – a) Previous month trading volumes were higher than normal driven by a specific order of RERC for compliance and b) the Republic Day holiday on Tuesday (also a banking holiday) presented a logistics hurdle for some obligated entities to trade.

Trading volumes are expected to increase significantly going forward, as most obligated entities are now gearing up to fulfill their obligation considering that only 2 trading sessions are remaining in the current FY. Last quarter of previous FY saw RECs trading volume of 20.85L. We should expect a significant increase over that this FY – this means we will see significant volumes in February and March.

Analysis of Trading:

Non Solar – Clearing ratio in exchange were at 2.16% and 3.12% in IEX and PXIL respectively for Non Solar REC’s. A total of 344,519 were traded as compared to 898,439 RECs were traded in DecemberClearing ratio at PXIL saw a jump, but IEX results showed huge dip in demand. Overall Non-Solar demand was below expectation

Solar – Clearing ratio stood good at 1.65% and 2.34% in IEX and PXIL respectively. However, the total clearing volume fell to 57,420, as compared to 61,602 last month. This was a marginal fall, but since we are approaching FY end, much better results were awaited.


Trading volumes are expected to increase significantly going forward, as most obligated entities are now gearing up to fulfill their obligation considering that only 2 trading sessions are remaining in the current FY . Further, this year we have seen regulatory action in the form of compliance orders and/ or proceedings in several states like Orissa, Kerala, UP, MP and Maharashtra, to name a few. This trading session result calls for stricter enforcement by states, since the next two months will be very crucial for the future of the REC Market.


The December’s trade result can be accessed here.

Analysis of Amendments in National Tariff Policy

The government recently amended the National Tariff Policy (NTP). Several reform measures have been announced in this change. NTP 2016 has increased focus on renewable energy, sourcing power through competitive bidding and the need for ‘reasonable rates’ (see box – Word Analysis of the NTP).

Executive Summary:

  • Co-generation from non-RE sources to attract RPO

  • Competitive bidding to be the norm for RE procurement (maximum 35% of installed capacity can be sourced from determined/preferential tariff)

  • Provisions for Renewable Generation Obligations (RGO) announced

  • Long term RPO to be announced by Ministry of Power

  • Vintage and technology multiplier allowed in REC

  • Inter-state transmission charges waived off for RE power

  • Solar RPO to be 8% by 2022 (excluding hydro power)

  • Calculation of Cross-subsidy methodology is suggested to be changed to make it less arbitrary

Detailed analysis:

Before delving into the nitty-gritties of the NTP, it is worthwhile to step back and understand the importance of this document. The NTP says that CERC and SERCs “shall be guided” by the tariff policy. Thus, the NTP is in no way binding. In fact, from previous NTP’s several provisions remain only on paper. For example the NTP 2011 required that tariffs be within +-20% of average cost of supply. States have certainly not followed that.

Renewable Purchase Obligations:

  1. The most significant change made is that the ambiguity on applicability of RPO on co-generation has been removed. The NTP 2016 says:

“Provided that cogeneration from sources other than renewable sources shall not be excluded from the applicability of RPOs.”

This change, once incorporated in the regulations of states, will have a significant impact on RPO applicability. Many CPPs are currently avoiding fulfilling renewable obligations due to the regulatory confusion resulting from orders from ApTel (Lloyds Metal) and Gujarat HC

  1. Solar RPO will increase to 8% by 2022. This is a substantial increase as current solar RPO is below 1% in most states.

    Another major change suggested in this clause is that solar RPO will not apply to power sourced from hydro power plants. The policy document states – “8% of total consumption of electricity, excluding hydro power, shall be from solar energy by March 2022”

    This is a significant deviation from the Electricity Act 2003 (EA2003) and current RPO regulations, which require that RPO be calculated on ‘total consumption’. This change will open up major issues in RPO implementation – for example, can this change be done when it is contrary to the requirement of the EA2003, and why should similar exemption not be extended to non-solar RPO.

  1. More clarity has been provided on Renewable Generation Obligation (RGO) provisions.

When RGO provisions were announced earlier, there were concerns of double-counting. However, the current provisions hint that RGO will not be incremental to RPO. The policy says:

  • “The renewable energy produced by each generator may be bundled with its thermal generation for the purpose of sale. In case an obligated entity procures this renewable power, then the SERCs will consider the obligated entity to have met the Renewable Purchase Obligation (RPO) to the extent of power bought from such renewable energy generating stations. 

Thus, RGO merely appears to bring thermal generators into the mix and make it convenient to meet RPO. It will not result in expanding the requirement for RE overall.

  1. Long term RPO to be declared by ministry of power in consultation with MNRE.

  1. Provision for allowing vintage multiplier (to take care of cost changes for RE projects) and technology multiplier (to encourage specific technologies) has been incorporated.

Procurement of power:

The preferential tariff regime for RE power appears to be on its way out. The policy says:

“States shall endeavor to procure power from renewable energy sources through competitive bidding to keep the tariff low.

Further, an overall maximum of 35% of installed capacity only can be procured by the state from SERC determined tariff. This limit includes all generation, not just RE.

Transmission of power:

Inter-State transmission charges and losses for renewable power (solar/wind) have been exempted.

This is a welcome change, as it will encourage inter-state transaction of power. However, it seems that this exemption will apply only to wind and solar projects, and not other renewables like small hydro or biomass. The draft policy had suggested that such an exemption apply to power from all renewable energy sources.

Cross-subsidy and open access:

  1. In calculating the cross-subsidy surcharge (CSS) a change in the methodology is proposed. At present, cross subsidy is calculated by using the cost of marginal power (top 5% power at the margin). Instead, now the weighted average cost of power including transmission and wheeling losses will be used.

Further, it is mandated that CSS cannot be more than 20% of the applicable tariff to the category of consumer seeking open access.

As we have shown in earlier articles, CSS determination is often arbitrary and with a purpose to discourage open access. One hopes that with the revised provisions the subjective aspects of CSS calculations will reduce. However, the policy still gives a wide leeway to SERC on this topic:

“Above formula may not work for all distribution licensees, particularly for those having power deficit, the State Regulatory Commissions, while keeping the overall objectives of the Electricity Act in view, may review and vary the same taking into consideration the different circumstances prevailing in the area of distribution licensee.”

Levy of “additional surcharge” has also been made more difficult as it needs “conclusive demonstration” of stranded capacity.

  1. Most provisions regarding open access remain the same as in the 2011 policy document.

However, a relief has been provided by limiting temporary tariff to 125% of normal tariff category.

Other changes:

Some other important changes are:

  1. Differential duties have been discouraged, particularly when states impose differential duties on captive generation.

  1. Licensees have been given the option to charge lower tariffs than those determined by the SERC if competitive conditions so demand.

  1. Provisions regarding micro-grids and protecting the investments made by micro-grid operators have been incorporated.

  1. Smart meters have been mandated for consumers consuming 500 units by 2017 and 200 units by 2019.

  1. Procurement of power from waste-to-energy plants has been made compulsory.


The changes proposed in the policy are encouraging and can have far-reaching impact, particularly on the RE sector. Provisions regarding RPO on co-gen, higher solar RPO, RGO and competitive bidding can radically change the demand for RE and the way new capacities are set up.

Rational and transparent cross-subsidy calculations can also help in encouraging open access to a large extent.

However, we remain cautious on these changes. The RE related changes will require that states be willing to implement these, and the wide leeway available to SERC on cross-subsidy means that only those states that are anyways in favour of encouraging open access will adopt them. It is unlikely to expand the open access market significantly.

An analysis of the frequency of words used in the NTP 2016 amendment vs the 2011 amendment throws a light on the changing priorities of the government:

The Policy can be accessed here.

Our previous blog on National Tariff Policy can be accessed here.

MERC Determination of Generic Tariff for Renewable Energy for the remaining Tariff Review Period of FY 2015-16

The Maharashtra Electricity Regulatory Commission came up with its Draft order on determination of generic tariff for Renewable Energy for the remaining Tariff Review Period of FY 2015-16, on 1st December, 2015. This Tariff Order will be applicable for New RE Projects to be commissioned during the remaining Tariff Review Period of FY 2015-16 (1 January to 31 March, 2016).

The RE Tariff Regulations specify the Terms and Conditions and the Procedure for determination of Generic Tariff by the Commission. The graph below gives a comparison of the RE tariff determined in year 2014-15 to the RE tariff determined in 2015-16 for wind and mini & micro hydro generating stations.

The Commission has invited Comments, suggestions and objections from the public and stake-holders, including RE Developers, Distribution Licensees, MEDA, electricity consumers, etc. are on this draft Suo Moto Order.

The Order can be accessed here.



UDAY Scheme’s Impact on Renewable Energy Sector

The UDAY scheme was launched by the government in November 2015, and so far as met with a good response from the states (16 states representing more than 90% of DISCOM losses has joined) and from industry observers. These cover most of the large consumption states, but also most of the large RE rich states (see map). Notable exception from the RE rich category are Tamil Nadu and Karnataka.  The problem that the UDAY scheme aims to solve is a huge one.

CLSA (an equity analysis firm), points out that the collective outstanding of DISCOMs to financial institutions is in excess of Rs 5.5 lakh crore. This equivalent to two-and-a-half times the defence budget; roughly six times the amount that will be spent this financial year on building roads; and enough to wipe out India’s fiscal deficit.

The UDAY scheme aims to revive DISCOMs by working on three pillars – achieve operational efficiency (this will primarily be achieved by reducing AT&C losses and smart metering), reducing the cost of power (by reducing the interest cost and coal costs) and financial discipline (tariff increases and constraints on banking). These approaches have several sub-steps like smart metering, billing efficiency, etc.

A major area of reform is financial. The scheme requires that 75% of the existing debt of the DISCOM be taken over by the state. States have some moratorium before the debt is included in their overall fiscal limits. However, this step has two major impacts:

  1. It transfers the problem of DISCOM finances into the hands of its creators – States (and their politicians) are largely responsible for the current situation. Political patronage has kept AT&C losses high due to un metered supply and theft, and tariff increases have lagged costs
  2. It ‘bails out’ the banks – in RBI’s own words – “…UDAY, will essentially be shifting the stress from financial institutions to the state governments, though the initiative would instil financial discipline at the sub-sovereign level, especially in ensuring recovery of user charges.”


Impact on RE Sector

We believe that over the longer term, improvement in DISCOM finances will have a significant positive impact on the RE sector. In many DISCOMs step-motherly treatment to RE continues due to its perception of being costly and infirm power. Easing financial situation will create more openness to RE power.

The immediate impacts are likely to be felt strongly also.

The first one is likely on the REC markets – the scheme document says – “DISCOMs opting for the scheme will comply with RPO outstanding since April 1, 2012 within a period to be decided in consultation with MoP”. The participating states have many large power consuming states, and many have large outstanding RPO obligations (eg. UP, MP). This condition is likely to push RECs trading significantly.

The second impact is likely to be on the mode of power procurement in the near future. Increasingly, fixed preferential tariffs for RE look out of place. The scheme document says – “To reduce power costs, States shall take steps for: prospective power purchase through transparent competitive bidding by DISCOMs.”

The third impact is likely to be the worsening of the payment cycle to RE generators in the immediate term. This is because bank funding will dry up immediately and be severely constrained for working capital requirements. The document says – “Henceforth, Banks/ FIs shall not advance short term debt to DISCOMs for financing losses” and “for working capital, Banks/FIs shall lend to DISCOMs only up to 25% of previous year’s annual revenue, or as per prudential norms”

Improved financial situation of the DISCOMs will help in the long run, but in immediate term, payment cycles to RE producers are likely to get worse.

The fourth impact is likely to be on the off take side. With potential for faster and steeper tariff rise, RE projects are likely to get competitive in more states. It would have been helpful if the scheme document had also required mandatory open access in participating states.



Like any previous DISCOM package, the key risk of failure is political. In the past, while DISCOMs have enjoyed the funding that such packages bring, state politicians have not allowed for tariff increases or long-term changes.

Even the current scheme has political overtones – a look at the map above suggests that mostly BJP ruled states have signed up. RBI has also recognized this, stating the issue is now in the hands of the “sub-sovereign level”.

However, compared to DISCOM packages of the past, this one appears to have more checks and balances through the state being the bond-issuer.



With DISCOMs being shut out of bank financing, the key question is – if they don’t sign up, what alternative do states have? No option sounds less bitter than the UDAY pill.

Therefore, overall, there is ample reason to hope the scheme will bring genuine and lasting changes at DISCOM level. This will be great news for the RE sector.

The Hindu article can be accessed  here.

The RBI report can be accessed  here.

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