by Jai Rathod
The Gujarat Electricity Regulatory Commission (GERC) has recently revised the power purchase rates for Biomass based power projects and Bagasse based co-generation projects through its order dated the 8th of August, 2013. This comes as a huge relief to new biomass project developers who were looking for an upward revision in PPA tariffs, more in line with market conditions. However, projects which have been already commissioned before 1st August 2013 will not be eligible to receive this higher tariff. The tariff order is applicable only for new projects commissioned between 1st August 2013 to 31st March 2016 after which a new tariff order shall be determined by GERC based on prevailing market conditions. However, based on suggestions of the other parties, it has been decided that the eligibility of existing projects to receive the new tariff shall be dealt with separately and is out of the scope of this order. In our opinion, at least the variable component of the new tariff should be available to all existing projects since the biomass procurement price, which is anyway market based, would be the same for all developers, whether new or old.
The current installed capacity of biomass power projects in the state stands at a low 31.2 MW while there is not even a single bagasse based power project. GERC has specified the minimum renewable power purchase obligation (RPO) by the obligated entities for 2012-13 at 7%. Out of this obligation, 0.5% RPO is to be met through energy generated from biomass, bagasse co-generation and other RE projects.
The control period of the GERC, Order No. 5 of 2010 dated 17 May 2010 was up to 31 July 2013. In view of the initiation of the regulatory process for determination of tariff for biomass based power projects and bagasse based co-generation projects for the next control period, the Commission vide its Order No 2 of 2013, dated 31 May 2013 has extended the control period of GERC Order no 5 of 2010 up to 31 July 2013. The new control period is from 1 August 2013 to 31 March 2016.
Considering the small capacities and diverse ownership of the biomass based power projects and bagasse based co-generation projects, the Commission decided to determine a generic tariff, rather than go for a project specific tariff on case-to-case basis. However, in case of biomass based power projects based on technologies other than Rankin cycle based technology, the Commission will determine a ‘Project specific tariff’ on case-to-case basis.
The benchmark capital cost for biomass power projects using water-cooled condenser has been taken as Rs. 4.68 Cr. / MW while the figure for projects with air-cooled condenser is Rs. 4.98 Cr. / MW. The capital cost for bagasse based co-generation projects has been considered as Rs. 4.57 Cr. / MW.
The tariff for biomass gasification power projects would be equal to the tariff for water-cooled condenser based biomass power projects due to limited availability of data and operational experience of biomass gasification based power projects.
The Commission also decided that GETCO/DISCOM shall erect the transmission line from the interconnection point to the nearest GETCO/DISCOM substation at its own cost.
The O&M cost has been considered at 5% of the capital cost of biomass based power projects and 3% of the capital cost of bagasse based co-generation projects. Annual escalation in O&M costs has been taken as 5.72%.
The Plant Load Factor (PLF) has been taken at 70% during the first year and 80% from the 2nd year onwards for biomass based power projects. The PLF for bagasse based co-gen projects has been taken at 60%.
Auxiliary power consumption for biomass based power projects has been taken as 10% of the gross energy generation while the equivalent figure for bagasse based co-gen projects has been taken as 8.50%.
The Commission also decided to retain the Station Heat Rate (SHR) as 3800 kCal/kWh and 3950 kCal/kWh for water-cooled condenser and air-cooled condenser based biomass projects respectively for tariff determination purpose. The equivalent figure for bagasse based co-gen projects stands at 3600 kCal/kWh.
For tariff determination purposes the Commission has fixed the normative Gross Calorific Value of biomass as 3400 kCal/kg while the number for bagasse is 2250 kCal/kg. The former figure has been arrived at on the basis of GCV of representative surplus agro residue and that of Prosopis Juliflora after allowing for appropriate reduction in GCV due to decay of biomass due to its storage, moisture content etc.
The Commission in the discussion paper has used the landed cost of coal for FY 2011-12 based on GERC truing-up tariff order of GSECL and Torrent Power for FY 2011-12. The Commission decided to determine the cost of biomass on equivalent heat value method by comparing it with landed cost of coal during FY 2012-13. The landed cost of coal during FY 2012-13 at GSECL and Torrent thermal power plant is worked out by using escalation factor of 5% as used in computation of variable component of tariff during the control period. Accordingly the Commission decided to consider the normative cost of coal and biomass as Rs. 2912 per MT and Rs. 2726 per MT respectively for tariff determination purpose during the control period starting from 1 August 2013. This does not make sense as it is not an apples to apples comparison. The price of coal across the country is cheaper than biomass by 10-50% and the entire supply chain involved in both is as separate as chalk and cheese. To use the same yardstick for both doesn’t seem to be a fair assessment. Of course, it must be pointed out that the Commission is handicapped in so far as availability of genuine, authentic data on biomass prices is concerned. There is a need, therefore, for the government to commission independent studies by third parties to determine the market price of biomass in different areas, the weighted average of which can be used as a benchmark in the tariff determination process. The normative cost of bagasse has been determined to be Rs. 1804 per MT.
The loan tenure remains constant at 10 years while the rate of interest on the loan has been taken as 12.86% p.a. The rate of interest on working capital has been assumed to be 11.86%.
The rate of depreciation has been fixed at 6% for the first 10 years and 3% from years 11 to 20. Accelerated Depreciation of 100% in the first year is also available at a lower PPA rate.
The Commission has determined the Return on Equity (RoE) at 14% considering a Debt-Equity ratio of 70-30.
The discount rate is taken at 10.04%.
| Benchmark parameters for tariff computation of biomass based power projectsParameters | Biomass based Power Projects with Water-Cooled Condensers | Biomass based Power Projects with Air-Cooled Condensers |
| Project Cost and O&M | ||
| Land + Plant & Machinery + Erection Cost (Rs. Lakh/MW) | 468 | 498 |
| Evacuation Infrastructure Cost (Rs. Lakh/MW) | Nil | Nil |
| Total Project Cost (Rs. Lakh/MW) | 468 | 498 |
| Normative O&M Cost for first year (Rs. Lakh/MW) | 5% of project cost | 5% of project cost |
| Escalation in O&M (per annum from 2nd year) | 5.72% | 5.72% |
| Performance Parameters | ||
| CUF | 70% for 1st year &80% from 2nd year
onwards |
70% for 1st year &80% from 2nd year
Onwards |
| Auxiliary Consumption | 10% | 10% |
| Project Life in Years | 20 | 20 |
| Station Heat Rate kCal/kWh | 3800 | 3950 |
| Gross Calorific Value of Fuel kCal/kg | Biomass – 3400 and Coal – 3632 | Biomass – 3400 and Coal – 3632 |
| Cost of Fuel | Rs. 2726 per MT for biomass and Rs. 2912 per MT for coal | Rs. 2726 per MT for biomass and Rs. 2912 per MT for coal |
| Fuel Cost Escalation | 5% | 5% |
| Financial Parameters | Biomass based Power Projects with Water-Cooled Condensers | Biomass based Power Projects with Air-Cooled Condensers |
| Debt-Equity ratio | 70:30 | 70:30 |
| Term of Loan in Years | 10 | 10 |
| Interest on Term Loan | 12.86% | 12.86% |
| Interest on Working Capital | 12.86% | 12.86% |
| Depreciation | 6% ( up to 10 years)3% (11 to 20 years) | 6% (up to 10 years)3% (11 to 20 years) |
| Minimum Alternate Tax | 20.008% | 20.008% |
| Corporate Income Tax | 32.45% | 32.45% |
| Return on Equity | 14% | 14% |
| Tariff | Tariff without AD benefit:Levelised fixed component of tariff – Rs. 1.77 /kWh for 20 years
And *variable component of tariff for FY 2013-14 – Rs.3.39/kWh, FY 2014-15 -Rs. 3.55/kWh, FY 2015-16 – Rs. 3.73/kWh Tariff with AD benefit: Levelised fixed component of tariff – Rs. 1.49 /kWh for 20 years And *variable component of tariff for FY 2013-14 – Rs.3.39/kWh, FY 2014-15 -Rs. 3.55/kWh, FY 2015-16 – Rs. 3.73/kWh |
Tariff without AD benefit:Levelised fixed component of tariff – Rs. 1.80 /kWh for 20 years
And *variable component of tariff for FY 2013-14 – Rs.3.52/kWh, FY 2014-15 – Rs. 3.69/kWh, FY 2015-16 – Rs. 3.88/kWh Tariff with AD benefit: Levelised fixed component of tariff – Rs. 1.58 /kWh for 20 years And *variable component of tariff for FY 2013-14 – Rs.3.52/kWh, FY 2014-15 – Rs. 3.69/kWh, FY 2015-16 – Rs. 3.88/kWh |
| Benchmark parameters for tariff computation of bagasse based co-generation projectsParameters | Bagasse based Co-generation Projects |
| Project Cost and O&M | |
| Land + Plant & Machinery + Erection Cost (Rs. Lakh/MW) | 457 |
| Evacuation Infrastructure Cost (Rs. Lakh/MW) | Nil |
| Total Project Cost (Rs. Lakh/MW) | 457 |
Normative O&M Cost for First Year
(Rs. Lakh/MW) 3% of project cost
| Normative O&M Cost for First Year (Rs. Lakh/MW) | 3% of project cost |
| Escalation in O&M (per annum from 2nd year) | 5.72% |
Performance Parameters
| CUF | 60% |
| Auxiliary Consumption | 8.5% |
| Project Life in Years | 20 |
| Station Heat Rate kCal/kWh | 3600 |
| Gross Calorific Value of Fuel kCal/kg | 2250 |
| Cost of Fuel | Rs. 1804 per MT for bagasse and Rs. 2912 per MT for coal |
| Fuel Cost Escalation | 5% |
Financial Parameters
| Debt-Equity Ratio | 70:30 |
| Term of Loan in Years | 10 |
| Interest on Term Loan | 12.86% |
| Interest on Working Capital | 12.86% |
| Depreciation | 6% ( up to 10 years)3% ( 11 to 20 years) |
| Minimum Alternate Tax | 20.008% |
| Corporate Income Tax | 32.45% |
| Return on Equity | 14% |
Tariff
Tariff without AD benefit:
Levelised fixed component of tariff – Rs. 1.86 /kWh for 20 years
And *variable component of tariff for
| FY 2013-14 – Rs.3.15/kWh, FY 2014-15 – Rs. 3.31/kWh,FY 2015-16 – Rs. 3.48/kWh
Tariff with AD benefit: Levelised fixed component of tariff – Rs. 1.54/kWh for 20 years And *variable component of tariff for FY 2013-14 – Rs.3.15/ kWh, FY 2014-15 – Rs. 3.31/kWh, FY 2015-16 – Rs. 3.48/kWh |
The fixing of a new tariff was much needed as most other states have already done so and Gujarat was at a major disadvantage as far as this aspect goes. While the order does not fully address the challenges facing the sector, it is a welcome step in the right direction.
Jai Rathod is a founding member of Natural Energy Solutions Pvt. Ltd., a leading Renewable Energy advisory based in Mumbai, India. He can be reached on jai@natgrp.net / www.natgrp.net
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