Madhya Pradesh Regulator Sets Tariff of ₹5.07/kWh for Biomass-based Power

The Commission has set an annual fuel cost escalation of 5%

September 22, 2022


The Madhya Pradesh Electricity Regulatory Commission (MPERC) has approved a tariff of ₹5.07 (0.063)/kWh for distribution companies (DISCOMs) to procure power generated from biomass-based projects in Madhya Pradesh.

The Commission has determined the tariff for 25 years with an annual fuel cost escalation of 5%.

The control period of this tariff order will commence from the date of issue of this order – September 13, 2022, till March 31, 2024, unless reviewed earlier or extended.

MPERC (Terms and Conditions of determination of tariff for sale of energy from RE sources) Regulations, 2017 specifies that for renewable energy technologies like biomass having fuel cost components, the variable cost components must be determined based on fuel cost.

The Commission noted that the Ministry of Power does not issue competitive bidding guidelines for power procurement from biomass-based projects. It determined the year-wise tariff with a fixed cost and variable cost components in past tariff orders.

The biomass-based power projects commissioned during the control period of the order will be allowed to recover fixed and variable costs based on actual energy generation per year-wise fixed and variable cost determined by the Commission.

The energy generated from Biomass based power projects will be procured centrally by the M.P. Power Management Co. Ltd. (MPPMCL). A Power Purchase Agreement (PPA) will be signed between the developer and MPPMCL. The agreement will be for the sale of electricity for 25 years.

The energy procured will be allocated by MPPMCL to three distribution licensees on the basis of actual energy input in the previous financial year. MPPMCL will have a back-to-back power supply agreement with DISCOMs. The developer can execute the agreement with MPPMCL before the commissioning of the plant. The developer must file a commissioning certificate with all relevant documents to the procurer separately.

The Central Electricity Regulatory Commission (CERC), in its Renewable Energy Tariff Regulations, 2020, considers the project life for biomass-based power projects as 25 years. In its recent tariff order, other State Electricity Regulatory Commissions (SERCs) also considered the useful life for biomass-based projects as 25 years.

The Commission set the benchmark capital cost of ₹59.2 million (~$742,566)/MW for biomass-based power projects with water-cooled condensers and ₹60.4 (~$757,618) million/MW for projects with air-cooled condensers. The capital cost includes the cost of plant and machinery, land cost, and evacuation infrastructure up to the interconnection point.

For determining tariff, MPERC regulations provide a normative Plant Load Factor (PLF) equal to 65% during the first year of operation and 80% from the second year.

CERC RE Tariff Regulations, 2020 provides a normative PLF of 80% for biomass power projects. Other SERCs followed the CERC approach while specifying PLF. Therefore, the Commission decided to consider the normative PLF of 80% for biomass-based power.

Present applicable reactive energy charges are ₹0.27 (0.0034)/kWh, which would be payable by the developer till the revision in the rates, to the DISCOMs in whose territorial area the biomass-based power project will be located.

The Commission proposed that the feedstock suitable for biomass projects may comprise rice husk, soybean, or any other crop residue available in the state. It set the biomass fuel cost at ₹3,365 (~$42)/metric ton for FY 2022-23 based on an annual 5% escalation.

CERC RE Tariff Regulations, 2020, specifies 14% Return on Equity (RoE) to be grossed per the applicable tax rate for renewable energy projects, including biomass-based power projects. Other SERCs in the recent past have also considered 14% RoE to determine the tariff.

The Commission observed that post-tax, 14% RoE grossing up by the applicable notified Minimum Alternate Tax (MAT) rate for the first 20 years of the tariff period and by the applicable notified corporate tax rate for the remaining tariff period was reasonable for both the generator and procurer.

MPERC RE Tariff Regulations, 2017 provides a mechanism for sharing of Clean Development Mechanism (CDM) benefit by the generator with the power procurer. 100% of the gross proceeds on account of CDM benefit will be retained by the project developer in the first year after the date of commercial operation of the generating station.

In the second year, the share of the beneficiaries will be 10% which will be progressively increased by 10% every year till it reaches 50%, where the proceeds will be shared in equal proportion by the power generating company and the beneficiaries.

The Commission considered the interest on working capital for tariff determination at 10.5%, i.e., 350 basis points above SBI’s Marginal Cost of Funds-based Lending Rate (MCLR) of 7%, similar to CERC RE tariff Regulations, 2020.

The Ministry of Power said in May last year that it was setting up a national mission on using biomass in coal-powered thermal power plants. The mission’s main objective was to reduce air pollution caused by burning farm stubble.

Last September, the Punjab State Electricity Regulatory Commission ruled that power generated from co-firing biomass would be considered renewable energy and eligible to meet non-solar renewable purchase obligations.