Tamil Nadu Proposes Feed-in Tariff for Solar Projects

Tariff will apply to projects of minimum 1 MW capacity


The Tamil Nadu Electricity Regulatory Commission (TNERC) has proposed feed-in tariff for solar photovoltaic (PV) procurement in a newly released consultative paper. The paper is up for comments up to March 1, 2019.

The tariff will apply to procurement from all solar PV projects of capacity 1 MW and above. According to the TNERC, in most auctions held in various states, the solar tariff has hovered around the ₹3 (~$0.04192)/kWh mark. However, in Tamil Nadu, the tender floated by Tamil Nadu Generation and Distribution Corporation (TANGEDCO) has received no response from bidders so far.

The state commission opines that a generalized tariff mechanism would provide incentive to the investors to use the most efficient equipment to maximize returns and for selecting the suitable site.

Considering the prevalent trend in prices of solar modules and other costs involved including safeguard duty, the TNERC has proposed a capital cost of ₹33.5 million (~$0.4681 million)/MW, capacity utilization factor (CUF) of 19 percent and debt to equity ratio of 70:30.

The TNERC has proposed operation and maintenance expense of 1.4 percent of the capital cost of solar projects with an escalation of 5.72 percent from the second year. Insurance cost is estimated at 0.35 percent of the net asset value.

The commission has proposed term of loan of 10 years with one-year moratorium, and an interest rate of 10.55 percent. For interest on working capital, the estimated rate is 11.55 percent with one-month operation and maintenance cost and two months receivables as working capital components. The commission has also proposed to adopt normative return on equity (RoE) of 17.60 percent and useful project life of 25 years.

A discount factor of 9.53 percent equal to the post tax weighted average cost of the capital on the basis of normative debt: equity ratio (70:30) has been adopted for the purpose of levelized tariff computation.

TNERC has proposed to levy a 70 percent cross subsidy surcharge applicable to conventional power on solar. It has also proposed levying 50 percent of the charges applicable for conventional power for transmission, wheeling charges, scheduling, and system operation charges on solar. For solar projects under Renewable Energy Certificates (REC), 100 percent of the applicable charges will apply.

Recently, the Tamil Nadu Energy Development Agency (TEDA) issued the state’s Solar Energy Policy 2019, targeting 9 GW of installed solar PV capacity in Tamil Nadu by 2023. According to Mercom India’s Solar Project TrackerTamil Nadu has an installed capacity of approximately 2 GW solar PV. The state has 1.6 GW of solar PV projects under development.

“While this is an interesting proposal, success of such a program depends on setting the tariff rate ‘just right’. Setting tariff too low will not attract any developers. The state must recognize that the primary reason for lack of interest by developers is because Tamil Nadu is considered a high-risk state that does not pay on time. Solar curtailment has also been an issue in the past. Introducing a feed-in tariff system without addressing these issues may not work as expected,” said Raj Prabhu, CEO of Mercom Capital Group.

Image credit: ABB