Concessions Cutback

KERC increases wheeling charges for renewable projects

With the deadline for the 175 GW renewable energy target coming closer, the central and state governments are making concerted efforts to accelerate renewable capacity addition, and attract investors and developers. The renewable energy market has become increasingly competitive as seen in the recent solar and wind power auctions. Further, the Central Electricity Regulatory Commission (CERC) has extended the existing interstate transmission system charge waiver for solar and wind projects to March 31, 2022 from the previous dates of December 31, 2019 and March 31, 2019, respectively. However, in the midst of these developments, the Karnataka Electricity Regulatory Commission (KERC) issued an order on May 14, 2018, to increase the wheeling and banking charges for renewable power projects.

While the CERC order has provided long-term visibility to developers and enabled states to procure solar and wind power at competitive tariffs from resource-rich states, the KERC order has set a precedent for government bodies in resource-rich states to not lose the higher revenue option in lieu of the subsidy-based one. The KERC order is similar to the Madhya Pradesh Electricity Regulatory Commission (MPERC) order, released in December 2017, which imposed wheeling charges, cross-subsidy surcharge and an additional surcharge on wheeling charges on renewable energy projects, as decided by MPERC, from time to time.

The KERC order will be effective from April 1, 2018 till March 31, 2020. According to the KERC, the steep decline in solar and wind tariffs shows that these resources are now at par with conventional power, and hence do not need incentives.

With this order, the applicable charges have been increased for solar, wind and other renewable energy projects developed under the non Renewable Energy Certificate (REC) route to 25 per cent of the transmission or wheeling charges fixed by the CERC, which will be payable in cash. These projects are also liable to pay 2 per cent banking charges and bear the cost of losses through deductions from the energy injected into the grid. This order follows KERC’s March 2018 order, which reduced the banking period of renewable energy projects from one year to six months.

The various exemptions and conditions of the new order are:

  • All renewable energy projects that have completed 10 years of commercial operation on or before March 31, 2018 are liable to pay transmission or wheeling charges in cash, and the applicable line losses and banking charges in kind.
  • All renewable energy projects commissioned on or after April 1, 2018 are liable to pay 25 per cent of the transmission charges and/or wheeling charges in cash, and the applicable line losses and banking charges in kind.
  • Solar projects commissioned on or after April 1, 2018 are liable to pay the applicable transmission or wheeling charges, cross-subsidy surcharge and banking charges. Meanwhile, solar projects commissioned on or before March 31, 2017 have been exempted from these charges and all the existing concessional charges will apply to these projects.
  • Wind projects commissioned between October 10, 2013 and September 3, 2017 are liable to pay 25 per cent of the transmission and wheeling charges in cash, while line loss charges in kind have been exempted for these projects.
  • Mini hydropower projects commissioned between January 1, 2015 and March 31, 2018 are liable to pay 25 per cent of the transmission or wheeling charges in cash, and 50 per cent of the applicable line losses in kind.
  • Biomass and cogeneration power projects are to pay only 5 per cent of the net energy injected as transmission or wheeling charges.

While developers might see this regulation as a hit on their profit margin, these charges will help in the development of a more robust grid in the long run, ultimately preventing generation curtailment and resulting in assured returns for developers. The KERC order is proof that the renewable energy segment in India is gradually transitioning from a government-driven, incentive-based industry to a mature, self-reliant market. n

Note: As we go to press, the Karnataka High Court has issued an interim stay on this order of KERC in response to petitions filed by renewable energy developers.

 

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