The proposal by the Central Electricity Regulatory Commission (CERC) for new levelised tariff rules aims to provide long-term visibility and bring the criteria used to calculate tariffs in tune with
market realities. They would come into effect in April.
Levelised tariffs are prices that must be charged for a project to break even. They represent the average cost of the project over its lifetime including capital, interest and recurring expenses.
The new rules introduce a longer period during which a project is eligible for the tariffs. The previous regulations introduced in 2009 had a three-year control period, up to March 2012. CERC is now proposing a five-year period to 2017. These tariff rates would apply for 13 years after a wind-power project is commissioned.
But ITWMA wants the average capital cost used for calculating the tariffs to be increased. CERC has proposed a notional capital cost of INR 51.93 million ($1 million) per megawatt for 2012-13, up from INR 49.48 million/MW during 2011-12.
IWTMA argues that India’s low wind densities require high hub heights to access higher wind speeds, which increases costs. It wants the notional capital cost to be set at INR 62.31 million/MW. This would also take into account the increased costs of transport, land and the latest technology for scheduling mandated by a new electricity grid code introduced last year.
Scheduling involves forecasting electricity output several days in advance; informing authorities of the amount of power expected to be injected into the grid; and ensuring that limit is adhered to. Once scheduling begins, power producers will be penalised for deviations beyond 30% from the projected power input. Scheduling was supposed to begin in January but failed to do so. CERC has not explained why.
IWTMA also wants the mandatory reference capacity factors — proposed in the rules to weed out non-serious players — to be lowered, considering that vast parts of India have lower wind speeds.
CERC has also proposed that benefits from the United Nations’ Clean Development Mechanism (CDM) be shared between both generators and distributors of energy. Under the Kyoto Protocol, the CDM allows a country with an emission-reduction commitment to gain credits by implementing an emissions-reduction project in developing countries. But ITWMA argues that only generating companies should benefit from the CDM as they are the ones who take the risk in obtaining carbon credits.
CERC has proposed that any incentive or subsidy offered by the federal or state government, including accelerated depreciation — which allows businesses to write off investments in wind projects against tax — will be factored in while deciding the tariff. IWTMA wants these benefits to be over and above the tariff.
The proposals are out for consultation until the end of March.