# Karnataka Regulator Moots ₹3.64/kWh Tariff for Utility-Scale Solar Projects

Commission invited stakeholders’ comments on the benchmark tariff proposal

February 10, 2023

The Karnataka Electricity Regulatory Commission (KERC) has proposed a benchmark cost-plus tariff of ₹3.64 (~$0.044)/kWh for utility-scale solar power projects for the financial year (FY) 2024.

The Commission has also proposed a tariff of ₹4.26 (~$0.052)/kWh for rooftop solar systems of capacity 1 kW to 10 kW (domestic consumers) and ₹3.79 (~$0.046)/kWh for rooftop solar systems of capacity 1 kW to 2,000 kW.

In a discussion paper, the Commission considered various parameters to arrive at the tariffs for the rooftop segment and utility-scale projects.

Stakeholders have time until March 6, 2023, to give their suggestions.

The Commission analyzed the procedures and mechanisms relating to power generation from solar power projects.

**Project life **

The Commission has proposed the life of the project as 25 years. It noted that there is no established life of solar power projects in the country. Generally, module manufacturers provide a warranty of 25 years. Since modules form the core of any solar power project, the project’s life can be linked to the life of the modules.

**PPA duration **

The Commission has proposed to reduce the term of the power purchase agreement to 15 years, providing an option for the parties to extend it for five more years as per the tariff approved by it.

**Capacity Utilization Factor **

In an earlier order, the Commission had determined the Capacity Utilization Factor (CUF) of 19%. It has decided to continue with the same CUF to determine the tariff.

**Debt-equity ratio **

The Commission has also proposed a debt-equity ratio of 70:30 for solar power projects, as it had used for the determination of tariffs in its earlier order.

**Capital cost **

Considering the latest market rates, the Commission has proposed to consider the capital cost given below:

- 1 kW to 10 kW (domestic consumer) at ₹47,000 (~$569)/kW
- 1 kW to 2,000 kW at ₹40,000 (~$484)/kW for solar rooftop systems (other than the rooftop customers covered above)
- ₹40 million (~$484,380)/MW for utility-scale and ground-mounted solar power projects

**O&M cost **

The operation and maintenance cost has been proposed at ₹708 (~$8.57)/kW for rooftop solar systems and ₹532,000 (~$6,442)/MW for utility-scale projects.

**Interest and tenure of debt**

The state regulator has proposed to adopt the latest Marginal Cost of Funds-Based Lending Rate (MCLR) of 8.60% for a tenor of three years, notified by the State Bank of India plus 200 points, which works out to 10.60% per annum. The interest on the capital loan is set at 10.60% per annum with a 13-year loan to determine the tariff.

**Interest on working capital**

KERC has proposed the latest MCLR rate for one year tenor at 8.40% as notified by the State Bank of India plus 250 basis points, which works out to 10.90% per annum.

**Depreciation**

The Commission has decided to provide depreciation on 90% of the capital cost at the rate of 5.748% for the first 13 years for ground-mounted projects and 5.38% for rooftop solar projects for the first 13 years. The remaining depreciation will be spread equally over the useful life of ground-mounted and rooftop solar projects.

**Return on equity **

The return on equity of 14% will continue.

**Discount rate**

Since the financing of the capital cost is based on 70% debt and 30% equity, KERC has proposed that it would be appropriate to reckon the weighted average cost of capital as the discount factor to arrive at the levelized tariff. Hence, the Commission has considered the discount rate of 11.62%.

The proposed revised tariffs for rooftop solar projects (1 kW to 2,000 kW and 1 kW to 10 kW) are given below:

For utility-scale solar power projects, the proposed tariff is given below:

**New Proposals**

**Rooftop solar with battery storage**

With a view to encouraging battery storage systems connected with rooftop solar systems, KERC plans to determine generic tariffs for consumers opting to install grid-connected rooftop solar systems. In such cases, the capacity of rooftop solar systems should be more than 1,000 kW and less than 2,000 kW, with the required capacity of a battery storage system.

**Virtual net metering **

The Commission has proposed virtual net metering with capital expenditure (CAPEX), third-party investment under the Renewable Energy Service Company (RESCO) model, and utility financial models for investments in rural areas.

In 2021, KERC had issued an order setting the generic tariff for solar power projects (including rooftop solar projects) for FY 2022 and FY 2023. It had set a tariff of ₹3.10 (~$0.042)/kWh for grid-connected MW scale solar power projects of capacity less than 5 MW and ₹3.19 (~$0.043)/kWh for grid-connected rooftop solar projects of 1 kW to 2,000 kW (excluding 1 kW to 10 kW).

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