Analysis of changes in CSS and its impact on Open Access market

Cross-subsidy regime used as a tool to influence the open access market

In this financial year (FY 2015-16), Andhra Pradesh, Telangana and MP suddenly raised cross-subsidy surcharge (CSS) applicable on industrial units significantly. In the case of AP and Telangana last years’ cross-subsidy was nil, but this year its Rs 2.23 and Rs 1.42 respectively. In the case of MP, the cross subsidy increased from Rs 0.48 to Rs 2.16 (an increase of 350%).

An analysis of several states suggests that cross-subsidy is often increased suddenly and substantially. In each of the above cases, the immediate impact will be that third-party transitions will come to a halt, as they will no longer be viable. For example, in MP the revised CSS is 46% (vs 12% last year) of the applicable tariff. In AP and Telangana, its 40% and 25% respectively.

These three states accounted for approximately 20% of the volume on power exchanges as per the market monitoring report from CERC for February (the most recent available). This volume is likely to dip to insignificance thanks to the steep rise in CSS.

Another good example is the case of Haryana. In FY 2013-14, the applicable CSS was Rs 0.53. Next year it was raised to Rs 2.02 (a four-fold increase). As a result, the traded volume between February 2014 and February 2015 has fallen by half (160 MUs and 86 MUs respectively). One must keep in mind that the above volume includes purchase from Discom’s, if any, on which CSS is not applicable. Thus, the actual fall in volume from open access consumer is must larger.

Changes on the horizon

It is clear from the above examples that cross-subsidy is varied by states to influence the open access market.

However, some fundamental changes are on the horizon. The first one pertains to applicability of CSS on renewable energy. One of the amendments proposed to the Electricity Act, 2003 seeks to remove CSS applicability from renewable energy transactions. This will have a significant impact as it will make RE transactions very attractive. One hopes that states will adopt this in its true spirit.

The second change pertains to the way CSS is calculated by the States. The existing National Tariff Policy (NTP) suggests that CSS be calculated as the difference between the top 5% of the incremental power procured by the Discom (this is often proxy for the most expensive power procured) and the applicable tariff. However, this is a very opaque measure – for example, between 2013-14 and 2015-15, the cost of top 5% of the power in MP fell from Rs 5.47 to Rs 4.59 (a fall of 20%), despite increase in overall costs and tariffs.

The amendments to NTP will require the calculations to be done by taking the overall costs (including the cost of regulatory assets, ie losses incurred by the Discom).



Further, the proposed NTP seeks to limit the CSS to 15% of the applicable tariff in the category. It is noteworthy that till now, NTP has been more recommendatory in nature. For example, it requires that CSS should be brought down progressively to bring it to 20% of the opening level by 2010-11. However, the significant changes done recently clearly indicate that this objective of the policy has not been achieved.

Team REConnect Energy


TNERC Hikes Power Tariff In the State

Cost of buying electricity from DISCOMs has become costlier for the Commercial & Industrial consumers in the state of Tamil Nadu. Considering the directives of the Hon’ble APTEL, the National Tariff Policy and in Exercise of the powers vested in it under the Section 62 and Section 64 of the Electricity Act, 2003 (Act) and the Tariff Regulations 2005, TNERC has decided to take up the matter of Determination of ARR and Tariff for 2014-15 by initiating suo-motu proceedings and based on that a public notice was issued by Tamil Nadu Electricity Regulatory Commission (TNERC) on 23/9/2014 eliciting comments &suggestion stakeholders to the proposed suo-motu revision of electricity tariff and transmission tariff.

The commission after considering all the comments & suggestions have revised the electricity tariff by 15% for all the category of consumers for FY 2014-15 effective from 12/12/2014.

 The new tariff applicable to industrial and commercial consumers for HT connections can be seen in the table below:

Group captive arrangement will still remain most viable option for the industrial & commercial consumers looking at the hike in the tariff and R&C measures still in place.

Similarly for LT consumers for all categories there has been tariff hike of 15% as can be seen in the order.

The order can be accessed here.

Contributed by karthik krishnan

TNERC Proposes Tariff for Wind, Biomass & Bagasse Based Power

The Tamil Nadu Electricity Regulatory Commission (TNERC) on 26th Sep 2014 has notified separate Consultative papers for determination of tariff’s for Wind, Biomass and Bagasse based power projects. Earlier TNERC extended the validity of tariff for the said three energy sources.

1. Wind power Projects – TNERC through the consultative paper has proposed the tariff for the wind projects at Rs. 3.59 per Unit. The control period is 2 years with tariff period of 25 years.

The commission has also proposed the wheeling, transmission and scheduling and system operation charges to be 40%, as applicable to the conventional power. The cross subsidy charges for the third party open access consumers as proposed to be 50%.

The Consultative paper for the wind projects can be accessed here.

2. Biomass Power Projects – The fixed cost component of Tariff proposed for is given in the table below:

The Variable cost component proposed for FY 2014-15 is Rs.3.61 per unit and for the FY 2015-16 is Rs. 3.79 per unit, the control period is 2 years with the tariff period of 20 years.

The commission has proposed to continue the existing wheeling, transmission & scheduling and system operation charges of 50%, as applicable to the conventional power. The cross subsidy charges for the third party open access consumers as proposed to be 50%. While for the generators who are availing Renewable Energy Certificate (REC), normal transmission charges, wheeling charges and line losses has been proposed. The existing CSS of 50% is proposed to continue for this control period.

The Consultative paper for Biomass projects can be accessed here.

3. Bagasse Power Projects – The proposed fixed cost component is highlighted in the table below:

The Variable cost component proposed for the FY 2014-15 is Rs.2.93/- per unit and for FY 2015-16 is Rs. 3.07/- per unit, the control period has been proposed 2 years with the tariff period of 20 years.

The commission has proposed to continue the existing wheeling, transmission & scheduling and system operation charges of 60%, as applicable to the conventional power. The cross subsidy charges for the third party open access consumers as proposed to be 50%. While for the generators who are availing Renewable Energy Certificate (REC), normal transmission charges, wheeling charges and line losses has been proposed. The existing CSS of 50% is proposed to continue for this control period.

The consultative paper for Bagasse based projects can be accessed here.

The TNERC has invited comments and suggestions for all the three consultative papers latest by 27th Oct 2014.

Our previous blog post on TN Solar tariff can be read here.

Contributed by Dheeraj Babariya.

TNERC Sets Aside the TN Solar Policy 2012

Tamil Nadu Electricity Regulatory Commission (TNERC) has dismissed a petition filed by Tamil Nadu Generation and Distribution Corporation (TANGEDCO) for the procurement of Solar Power through competitive bidding process. The commission notified the order on 15th Sep 2014.

The summary of the Petition and the commission’s order is stated in points below:

  • TENGEDCO through a petition requested before the commission to approve the purchase of Solar Power of 708 MW from 52 generators.
  • TENGEDCO also requested before commission to adopt the purchase rate Rs.5.97 (10 MW), Rs.6.15 (5 MW), Rs.6.20 (15 MW) and Rs.6.48 (678 MW) per unit arrived though competitive bidding process and to allow TANGEDCO to procure solar power from those bidders by entering into power purchase agreement for a period of 20 years.
  • TENGEDCO gave the reasons that the bidding has been done as per the Tamil Nadu Solar Policy 2012 which aims to procure 1000 MW of solar power for SPO (Solar Purchase Obligation) consumers.
  • The Commission in its findings stated that as the commission’s order on imposing SPO was struck down by APTEL (Appellate Tribunal for Electricity), so only RPO should be applicable as mandated in APTEL’s order.
  • The commission also stated that as per Tariff policy by Government of India such costly power should be procured at preferential tariff as determined by the state commission.
  • By giving the above stated reasons the commission dismissed the petition of the TENGEDCO saying that the said bidding process of TANGEDCO for procurement of solar power has no legal sanctity for consideration.

The TNERC order can be accessed here.

Our previous blog post on TNERC Solar tariff can be read here.

Contributed by Dheeraj Babariya

TNERC announces new Solar Tariff

Tamil Nadu Electricity Regulatory Commission in its latest order dated 12th September has determined tariff for solar power projects. The new tariff will be applicable to the solar projects commissioned in next one year. The order has come in force from its date of issue i.e. from 12th September itself.

The details of the tariff determined are given below:

Open Access charges – The commission as promotional measure has decided to adopt 30% of respective charges, in each of the transmission, wheeling, scheduling and system operation charges to solar power. While for the plants availing REC’s, 100% relevant charges will be applicable. Apart from this the Reactive Energy charges and 30% of parallel operation charges will be applicable.

Cross Subsidy Surcharge – 50 % of the cross subsidy surcharge will be applicable for solar power, same is applicable for other renewable power.

The Tariff determined by TNERC is lower compared to the tariff determined by CERC, as the commission has offered a waiver in the CSS and wheeling charges in order to compensate the difference with the added operational incentives.

Tamil Nadu released its Solar Policy in 2012 with a target of 3GW of solar power by 2015, while the state had an installed capacity of 109.26 MW on 31st July 2014. The new tariffs along with waiver in Open Access charges, will result in more investments in the coming year. In addition to this, if SPO is implemented in the state, it will be a major shot in the arm for Solar power in TN, without which the target seems like a distant reality.

The relevant order can be accessed here.

Our Previous blog post on TN SPO case with APTEL can be read here.

Contributed by Dheeraj Babariya.

TN Govt. Approaches Supreme Court against APTEL Order

Tamil Nadu Government has filed a petition in Supreme Court against the order of the Appellate Tribunal for Electricity (APTEL) dated 21st January 2014. The order says that state government cannot specify solar power obligation (SPO) for special category of consumers (applicable for all obligated entities except TANGEDCO), when there already exists Renewable Purchase Obligation (RPO) for the consumers in the state.

Background – The Govt. of Tamil Nadu drafted its solar policy (announced in 2012), mandating certain consumer to buy solar power, which was finalized by the Tamil Nadu Electricity Regulatory Commission (TNERC) in its order dated 7th March 2013. The order stated that – “As prescribed in the Solar Policy, 6% SPO starting with 3% SPO till December 2013 and 6% from January 2014 is applicable”.

The Tamil Nadu Spinning Mills Association appealed to APTEL for the removal of the Solar Purchase Obligation as RPO does mandate purchase of solar power.

The APTEL in its judgment said that the state commission cannot impose any other obligation such as SPO, as RPO already exists in the state. So the State Govt. has moved to the Supreme Court challenging this , as it clearly intends to impose SPO under its Solar Policy.

It is also worth noting that TNERC has mandated RE purchase to a total of 9% under its RPO regulation, which is one of the highest in India, with 0.05% Solar RPO and 8.95% Non-Solar RPO. The commission in its draft RPO Regulation 2014, has increased the solar RPO to 2% and total to 11%, to bolster Solar Power in the state in case SPO is not implemented.

Our Previous Blog Post on the same matter can be read here.

The recent media Article can be read here.

Preceding APTEL Order is available here.

Contributed by Dheeraj Babariya.

TNERC Extends validity of RE Tariffs

Tamil Nadu Electricity Regulatory Commission (TNERC), through its orders on 25th July and 27th July 2014, has extended the validity of Preferential Tariffs for Wind, Baggase and Biomass based power plants.

The commission in its order has conveyed that the commission is initiating the process for determination of new tariff orders so in meanwhile the validity of tariff dated 31st July 2012 is extended till the issue of next order, the validity of which was ending on 31st July 2014.

The order on wind energy can be read here

The order on the Biomass can be accessed here

The order for the Baggase based plants can be read here

Contributed by Dheeraj Babariya.

TN lifts ban on inter state open access

According to an article in Times of India (refer), Tamil Nadu has allowed consumers and generators in the state to procure and sell power from/to outside states.

The directive comes in continuation to commitment given by Hon’ble CM of TN -  that there would be no scheduled power cuts in the state and also grated “must-run” status to all windmills.

A statement from Raj Bhawan reads -

“In exercise of the powers conferred by sub-section (1) of Section 11 of the Electricity Act, 2003 (Central Act 36 of 2003), the Governor of Tamil Nadu hereby rescinds the Energy Department Notification No. II(2)/EGY/104(c)/2009, published at page 1 of Part II—Section 2 of the Tamil Nadu Government Gazette, Extraordinary, dated the February 17, 2009,”

Following this directive it can be expected that power business in Tamil Nadu becomes more competitive with time.

Wind producers in TN favouring power forecasting & scheduling

As per an article in The Hindu, Tamil Nadu a leader in wind power generation (installed capacity of around 7200 MW) in the country has, off late, been disappointing its wind power producers. TN’s state distribution company (TANGEDCO) has been shying away from purchasing power generated from these generators owing to poor evacuation facility and a “Banking” clause which empowers generators to claim the power previously injected into the grid.

Wind power producers have been making huge losses as TANGEDCO continues to discard the power that is being generated from these wind machines. But a positive side as a consequence of this, seems to be tilting in favour of forecasting & scheduling. Hon’ble CERC had recently barred all commercial settlements envisaged under the RRF mechanism.

Wind power producers (in same article) are betting on forecasting & scheduling to serve as a saviour for them. They say that an estimated declaration of power to be injected, beforehand, is expected to address most issues of TANGEDCO.

More on RRF mechanism can be learned by visiting the following links -

Link 1

Link 2

Link 3

Tamil Nadu drafts RPO targets for FY15 & FY16

Tamil Nadu Electricity Regulatory Commission (TNERC) recently issued a draft order on RPO targets for FY15 & FY16. The following are the targets proposed by the commission: 

Column 1 Column 2 Column 3
Year Minimum quantum of total renewable purchase obligation in %age ( in terms of energy in kWh) Minimum quantum of solar renewable purchase obligation in %age out of total renewable purchase obligation mentioned in Column 2 (in terms of energy in kWh)
2014-15 11.00% 2.00%
2015-16 11.00% 2.00%

This implies that obligated entities (Distribution Licensees only)  in Tamil Nadu will now have to consume a minimum of 9% of non-solar power/RECs and 2% of solar power/RECs to comply with RPO targets in FY15 and FY16. The order is yet to be finalised and comments on the same have been invited no later than 24.02.2014.  

Solar RPO target is a highlight as it has been taken up from currently 0.05 % to 2 %. This shows TN’s strong commitment towards fostering solar generation in the state. Given the fact that a recent judgement by ApTel had set aside state’s ambitious solar policy (for a relevant blogpost – click here), this particular step from TNERC is laudable.

Present draft order can be accessed here.

Previous final RPO order can read by clicking here.

Go to top