The Punjab State Electricity Regulatory Commission (PSERC) has rejected Punjab State Power Corporation’s (PSPCL) plea to procure power from 2,200 MW of interstate transmission system (ISTS)-connected solar projects since its landed cost would be above the tariff ceiling.

The Commission said the weighted landed cost of the proposed solar power at the state periphery would be about ₹3.03 (~$0.0329)/kWh. Even after accounting for the possible impact of a reduction in goods and services tax on solar equipment from 12% to 5%, the landed cost would remain around ₹2.95 (~$0.0320)/kWh.

The Commission noted that this cost exceeds the solar tariff ceiling of ₹2.72 (~$0.0295)/kWh previously set by it. It estimated that approving the proposal would result in an additional financial burden of over ₹31.6 billion (~$343.81 million) on consumers over the 25-year duration of the agreements. This estimate includes about ₹9.6 billion (~$104.45 million) payable as trading margin or commission.

Background

PSPCL sought the Commission’s approval to procure 2,200 MW of solar power through the Solar Energy Corporation of India (SECI) for 25 years. The proposed procurement was based on four power sale agreements executed between PSPCL and SECI.

The projects were awarded to several solar power developers with tariffs discovered ranging between ₹2.48 (~$0.0269)/kWh and ₹2.60 (~$0.0282)/kWh, with a trading margin of ₹0.07 (~$0.0007)/kWh payable to SECI.

PSPCL submitted that it evaluated renewable power offers from several implementing agencies before selecting the proposed capacity through SECI. The utility said the evaluation considered the projects’ connectivity status, commissioning timelines, eligibility for a waiver of ISTS charges, and the expected landed tariff in Punjab.

It said it expects a deficit in meeting renewable purchase obligation (RPO) targets from the financial year 2026 to 2027 onwards under the PSERC RPO Regulations, 2022. According to PSPCL, the proposed procurement would help it meet these obligations.

PSPCL pointed to rising electricity demand in the state. Punjab recorded a peak demand of 16,711 MW in June 2025, and the utility said demand has been increasing steadily. Long-term solar procurement would help ensure a reliable supply while reducing dependence on short-term purchases from electricity markets, which can be volatile in price and availability.

The utility also argued that the scope for large-scale solar development within Punjab is limited because of higher land costs and comparatively lower solar irradiation. As a result, PSPCL said interstate procurement offers a more viable option for securing solar power.

SECI supported the petition and said certain customs duty and taxation changes affecting solar equipment had been treated as change-in-law events, and corresponding notices had been issued to the developers.

Several solar power developers that were made respondents in the proceedings supported PSPCL’s request and stated that they were committed to commissioning their projects within the timelines specified in their agreements, subject to timely statutory clearances and readiness of transmission infrastructure.

PSPCL also stated that the projects were expected to qualify for a 50% waiver of ISTS charges if they achieved commercial operation by June 30, 2027. Based on this assumption, the utility estimated the landed cost of power to range between ₹2.95 (~$0.0320)/kWh and ₹3.07 (~$0.0333)/kWh, after accounting for transmission losses and trading margin.

Commission’s Analysis

While evaluating the petition, the Commission examined whether the new power procurement arrangements satisfy the criteria of necessity, reasonableness of cost, and promotion of efficient and economical working.

The Commission observed that renewable procurement is necessary given the increasing targets for renewable purchase obligations. However, it stated that the proposed arrangement must still meet the requirements of cost reasonableness and economic efficiency.

Based on the assumptions presented in the petition, the Commission noted that the landed cost of the proposed solar power would range between ₹2.95 (~$0.0320)/kWh and ₹3.07 (~$0.0333)/kWh at the state periphery, resulting in a weighted average landed cost of about ₹3.03 (~$0.0329)/kWh.

The Commission pointed out that it had previously rejected another solar procurement proposal by PSPCL because the landed tariff exceeded the ceiling tariff allowed by the Commission. The current proposal remained above that benchmark even after considering the possible tariff reduction due to lower GST.

The regulator also noted uncertainty about the projects’ commissioning timelines. Some developers had indicated that timely commissioning would depend on statutory approvals and the readiness of transmission infrastructure.

The regulator noted that connectivity dates for certain projects had been revised closer to the scheduled commissioning date. It therefore stated that it was not possible to confirm whether the projects would qualify for the expected waiver of ISTS charges.

The Commission also observed that the proposal involved payment of a trading margin of ₹0.07 (~$0.0007)/kWh to SECI. Over the life of the agreements, this would amount to approximately ₹9.6 billion (~$104.45 million). The Commission stated that PSPCL has previously conducted renewable energy procurement directly and is capable of doing so again without involving an intermediary.

It referred to the potential to increase solar capacity in the state through canal-based projects, rooftop installations, and solar systems connected to agricultural feeders. It noted that development of in-state solar capacity, along with battery energy storage systems, could support renewable integration and resource adequacy.

In addition, the Commission noted that PSPCL already had a total contracted capacity of about 14,860 MW as of March 2025, which exceeds the long-term contracted capacity requirement derived from projected peak demand under the resource adequacy plan.

After considering these factors, the Commission concluded that the proposed procurement does not meet the regulatory tests of reasonableness of cost and promotion of efficient and economical working.

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