Before the
MAHARASHTRA ELECTRICITY REGULATORY COMMISSION
World Trade Centre, Centre No.1, 13th floor,
Cuffe Parade, Mumbai 400 005.
Tel. No. 022 22163964/65/69 – Fax 022 22163976
E-mail mercindia@mercindia.com
Website: www.Mercindia.com
CASE
Nos. 7, 15 and 16 of 2004, read with Case Nos. 17(3), 3, 4 and 5 of 2002.
In the matter of
Clarification of
various provisions of Order dated 24.11.2003,
regarding
procurement of Wind Energy sought by (i) Mahratta Chamber of Commerce,
Industries & Agriculture, Pune;
(ii) Indian Wind
Energy Association.
Dr Pramod Deo,
Member
Shri A.
Velayutham, Member
CLARIFICATORY
ORDER
Dated: 30th
September, 2004
The Mahratta
Chamber of Commerce, Industries & Agriculture (MCCIA), Pune in their
Application dated 6th May, 2004 and supplementary submission dated 14th
September, 2004 (Case No. 7 of 2004), and the Indian Wind Energy Association
(InWEA) in their Applications dated 26th June, 2004 (Case No. 15 of 2004) and
1st September, 2004 (Case No. 16 of 2004) have essentially sought
clarifications on certain aspects of the Commission's Order dated 24th
November, 2003 regarding procurement of Wind Energy, citing difficulties faced
with the Maharashtra State Electricity Board (MSEB) on this account. The matters on which clarifications are
sought and the gist of the written submissions and points made at the hearing
held on 22nd September, 2004 are set out below, along with the clarifications
and observations of the Commission.
2. At
the hearing held on 22nd September, 2004, Dr. Anil Kane, Dr. Ajay Mathur and
Shri Chintan Shah spoke on behalf of InWEA, whereas Shri S.P. Ranade and Shri
S.P. Shinde represented MCCIA. Shri
G.N. Kamath on behalf of Renewable Energy and Developers Association of
Maharashtra (REDAM) and Shri A.S. Karanth on behalf of REDAM and BF Utilities
(whose separate Applications for clarification have yet to be taken on board)
were also permitted to intervene. MSEB
were represented by Shri Palamwar and Shri G.P. Sunnapwar, both Technical
Directors, and other officials.
Issue No. 1 - Tariff applicable to Group III Projects,
and competitive bidding
3. According to InWEA, M/s. Suzlon Energy
had approached MSEB to enter into a Power Purchase Agreement as per the tariff
stipulated for Group III Projects in the Commission's Order. However, their application was rejected
stating that MSEB intended to fix the purchase price through a tender bidding
process. InWEA have, therefore, sought
that the Commission clarify the conditions for applicability of the bidding
process in the context of the tariff for Group III Projects having been clearly
laid down in its Order.
4. Referring to para
3.5 of the Order, InWEA have stated that the Commission had determined the
tariff for Group III Projects as follows:
"For wind power projects to be
commissioned after 1.4.2004 during the balance period of the 10th Plan ending
31st March, 2007, the tariff prescribed by the Commission is as follows:
For
Sale to MSEB and other Utilities / Licensees in the State
Rs
3.50 per unit for the first year from the date of commissioning of the project.
The purchase
rate shall be increased at 15 paise per unit every year for a period of
thirteen years from the date of commissioning of the project."
In
spite of this unambiguous determination, in order to justify deviation from the
approved tariff by resorting to competitive bidding, MSEB seem to be
misinterpreting para 3.6, which states as follows:
"Special
Condition
New wind power
capacity to be permitted for sale to Utilities shall not be more than 750 MW
during the balance period of 4 years of the 10th Plan Period ending 31st March,
2007. This ceiling is based on the
target for wind power for the State of Maharashtra indicated by Director
General, MEDA, and the urgent need for capacity addition through short
gestation power projects. The
Commission is of the view that Maharashtra should reach more than 1000 MW of
installed capacity during this Plan period so that economies of scale and cost
reduction would bring wind power on par with conventional power in terms of
cost. To achieve this objective
utilities may source their wind power requirements at the determined tariff,
based on competitive bidding with the bench mark of guaranteed CUF."
InWEA
have interpreted this to mean that the Commission has determined a fixed tariff
for upto 750 MW within the remaining period of the current 5 Year Plan, and that
competitive bidding could be considered thereafter. MSEB cannot deviate from the tariff fixed by the Commission uptil
that time, and any such deviation would create regulatory uncertainty and
affect the development of wind energy.
5. MSEB
officials submitted that they have interpreted the tariff determined by the
Commission as being in the nature of a ceiling tariff in view of para 3.6, and
referred to the reference in the Order to competitive bidding with the
benchmark of guaranteed CUF. They have submitted
that the matter had been discussed at meetings with the Energy Minister, MEDA
and the developers. Studies that had
been conducted also showed that MSEB could get a lower tariff, and competitive
bidding had been mandated in para 3.6.
MSEB also raised the matter of the burden of evacuation
arrangement. Subsequent to the Order,
these arrangements are now to be made by MEDA through the Green Cess Fund as per the new Govt. of Maharashtra (GoM)
policy. Thus, only when such evacuation
arrangements are made would the question of a EPA arise, but the amounts from
the Fund are yet to become available.
6. The
Commission notes that its Order dated 24th November, 2003 is very clear and
unambiguous about the tariff determined for Group III Projects, as would be
seen from para 3.5 cited above and elsewhere in the Order. At para 3.7, the Commission is also
committed to review the tariff rate and tariff structure after 31st March, 2007
or on addition of 750 MW of additional wind capacity after 1st April, 2003,
whichever is earlier, but would not revisit old projects at that time. Nowhere in the Order is it mentioned that
the tariff fixed is in the nature of a
ceiling tariff. The Order sets out at
length and in detail the computations and considerations taken into account
while fixing the tariff, and its rationale.
The Commission also notes its mandate under Section 86(1)(e) for
promotion of generation from renewable sources, under which it had recently
passed an Order laying down a 'Renewable Purchase Obligation' for all
distribution licensees and not just MSEB.
Thus, MSEB would have to enter into a EPA at the tariff rates fixed
under its Order dated 24th November, 2003 with any wind energy project holder
who may wish to do so. However, in case
any project holder is willing to enter into or offers a EPA at lower rate, MSEB
are free to accept it, but an application to enter into a EPA at the determined
tariff cannot be refused. As is evident
from a plain reading of para 3.6 of the Order (cited earlier), the Commission
is confident that its dispensation would result in the ceiling of 750 MW
additional capacity being achieved within the current 5 Year Plan period
itself, and gives an indication of the road map that it might follow thereafter
while revisiting the tariff structure by referring to a process of competitive
bidding.
7. The
Order also clearly lays down the modalities and the onus for making evacuation
arrangements, and the Commission is not concerned with subsequent GoM policy
with regard to the Green Cess fund, etc.
In fact, the Commission has also given certain clarifications regarding
the prospective application and the stipulations set out in the Order with
regard to funding and sharing of the evacuation facilities from 18th September,
2003 in its Order dated 12th March, 2004 in Case No. 59 of 2003. The Commission also recalls that, in that
case, MSEB had challenged the determination of the tariff, but their plea had
been rejected as being outside the ambit of review and a matter to be agitated
in appeal before the appropriate forum.
Issue No. 2 - Unit adjustment as per ToD time slots
8. InWEA
have submitted that, at para 2.3.2 of its Order, the Commission had directed
MSEB to adjust the energy credits for self-use/ third party sale on ToD slot
basis. However, the credits would be
given in the energy bill for a particular ToD slot only to the extent that
energy is being consumed in that particular slot, or else they would lapse. Thus, the units which are produced should be
consumed in the same ToD slots. InWEA
have argued that pro-rata payment should be made/ adjusted against the ToD slot
in which the units are consumed. Their
main objection is to the lapsing of the units.
9. MSEB
have pointed out that the Commission's Order states that real time ToD meters
need to be installed. As far as banking
of energy is concerned, credit is to be given on the basis of ToD time slots,
and the Commission has also stipulated how offsetting is to be done considering
the peak and off-peak rates. If energy
is banked during off-peak and consumed during peak hours, this would not be
correct. The Order also provides that
if the surplus at the end of the year exceeds 10%, then the balance is to be
purchased at the weighted average cost.
10. The
Commission notes that, essentially, InWEA are seeking a substantive
modification in the Order, which is outside the ambit of clarification or even
review. InWEA are well aware of the
provisions in this regard as well as those relating to banking, and these
stand.
Issue No. 3 - Interpretation of tariff schedule for
Group I and II Projects
11. InWEA
have stated that the Tariff Schedule at Table 4 (Page 102) of the Order
specifies the financial year-wise purchase rates. However, MSEB have released payments on the basis of their
interpretation of GoM policy referred to at para 3.5, which states that the
purchase rate should be increased at 5% every year from the date of the
commissioning. According to InWEA, for
Group I and II purchases, this is to be understood as the financial year in
which a particular project is commissioned.
Shri Kamath of REDAM intervened to point out that MSEB's interpretation
was correct with respect to Group III Projects, but not for Groups I and II. MSEB have submitted, however, that the Order
clearly states that the tariff rates are linked to the year of operation and
not to the financial year.
12. At para 1.4 and
elsewhere in its Order, the Commission has noted that, in terms of legal
jurisdiction as well as policy application, three distinct types of wind energy
projects exist. Thus the Commission
categorized the projects taking the benchmark of commissioning date and various
financial parameters into three groups for the purpose of tariff determination,
considering the premises under which projects were already commissioned and the
financial benefits availed by such projects.
There were very few projects which fell in Group I, i.e. commissioned
before 27th December, 1999. Group II
comprised projects commissioned from then till 31st March, 2003 (i.e. the date
up to which the Sales Tax benefits were available to wind energy projects from
GoM), and Group III Projects comprised those commissioned from 1st April, 2003
onwards.
13. It may be recalled
that developers had claimed that the Group II Projects had been set up based on
the guidelines of Ministry of Non Conventional Energy Sources (MNES), Govt. of
India, as adopted by GoM. The
Commission notes that the MNES guidelines clearly link tariff to the financial
year. The base year as per the GoM
policy is the same as the MNES guidelines, and thus refers to the financial
year. Further, at para 1.5.2.1 of its
Order, the Commission had stated that:
"The
Purchase rate shall be as notified by the GoM vide its Order No. NCP
1097/CR-75/NRG-7 dated 12th March, 1998, i.e. Rs 2.25 per unit in the base year
1994-95. The purchase rate shall be
increased at 5% per year (simple rate).
The validity of EPA shall be only 8 years from the date of
commissioning."
The Commission
notes that Table 4 (page 102) of the Order (referred to by InWEA) also gives
year-wise details of tariff for Group II Projects to avoid any ambiguity, and
further states that for Group III Projects, the starting rate will be
applicable from the year of commissioning of the project. Para 3.7 deals with the tariff after 31st
March, 2007 or on addition of 750 MW of additional wind capacity after 1st
April, 2003, whichever is earlier. The
following sentence under Clause 3.7 refers to Group III Projects only:
"The tariff rates for wind
projects, which have already been commissioned or will be commissioned before
the next review, are linked to the year of operation of the wind project and
not to the fiscal year."
Thus, the
Commission clarifies that the tariff determined for Group I and II Projects as
per its Order dated 24th November, 2003 is linked to the fiscal year, whereas
the Tariff for Group III Projects is linked to the year of commissioning of the
project.
Issue No. 4 - Reactive Power
14. InWEA have sought
clarification with regard to the provisions of para 1.6.6 and 2.4.4 regarding
charges for reactive energy consumption from the grid, and referred to their
written submission. Shri Kamath of
REDAM submitted that for consumption of reactive energy upto 10% of the active
energy delivered to the grid by the developer, there was no ambiguity. However, the Order states that the reactive
energy consumption in excess of 10% shall be payable "at the prevailing rate". Presumably, the prevailing rate is the rate
per kVARH as above, but MSEB's interpretation is different. MSEB's representative also submitted that
the matter of what the Commission meant by "the prevailing rate"
required clarification.
15. Referring to their
Application, MCCIA have submitted that MSEB are wrongly applying the prevailing
rate for 'per KWH' per unit instead of the 'prevailing rate' of the reactive
power unit, i.e. 'per RkVAH' unit, for
the reactive energy in excess of 10% of active energy. However, the tariff rate for RkVAH units
approved by the Commission in para 1.6.6 relates to reactive energy
consumption. Hence, the term
'prevailing rate' referred to in that para has to be taken to mean the rate of
unit of the reactive energy, i.e. RkVAH, and not the prevailing rate of the
active power unit, i.e. kWH. As far as
the "prevailing rate" is concerned, there is only one, namely 25
paise per unit. MCCIA have also
submitted that the cap on 10% reactive power of the active power means a system
power factor of 0.99, which is not
practical and is difficult to maintain since it depends on grid voltage,
frequency, and wind speed, all of which are outside the developers
control. Power capacitors can control
this but not to that extent. Moreover,
the NOC cites power factor of 0.99%.
Thus, a power factor of 0.99% be specified for wind power generators,
removing the 10% cap on reactive power withdrawal.
16. The Commission notes
that the term 'prevailing rate' applicable to reactive energy consumption in
excess of 10% of the active energy delivered to the grid also has to be read in
the context of the charges determined by the Commission at paras 1.6.6 and
2.4.4, i.e. 25 paise, with revision allowed from time to time subject to a
ceiling on the annual percentage increase.
17. In general, however, and although the
charges have been laid down in the Order, the Commission believes that steps
should be taken to obviate the need for such charges over time. For the healthy functioning of the system,
care is to be taken that the reactive power requirement is estimated and
compensation provided locally by the developers correspondingly. The voltage profile is already under stress
and this needs to be addressed. Thus,
reactive power should not be transmitted down the line. A penalty could remain, but ideally the need
for such penalty should not arise.
Issue No. 5 - Nature of Wind Project - Additional
charges on captive generation
18. MCCIA have sought
clarification with regard to whether the wind energy project is treated as an
Independent Power Producer (IPP) which is not synchronized with the grid rather
than a Captive Power Plant (CPP). If
the former, then additional demand charges are not applicable to the self-user
or third party purchaser. However, MSEB
are treating the wind projects in this respect as CPP and levying consequent
charges at Rs 20 per KVA. MCCIA have
also pointed out that there is a difference between being synchronized with the
grid, in which case such additional demand charges on the standby component are
attracted as per MSEB's tariff Order, and merely being connected to the grid.
19. MSEB have submitted
that, irrespective of the type of CPP, if the project holder is MSEB's
consumer, then MSEB have to stand by and provide power if wind energy is not
supplied at any time, upto the contract demand. Thus, MSEB have to keep their generation available, and the
Commission had introduced Rs 20 per KVA additional demand charges, tantamount
to a standby charge, with this logic.
20. The Commission notes
that the MSEB tariff Order dated 10th March, 2004 is clear with regard to the
applicability of additional demand charges, and states that:
"HT
industrial consumers having captive generation facilities synchronized with the
grid will pay additional demand charges of Rs 20 per kVA per month only for the
standby contract demand component."
This has been
elaborated upon in the approved MSEB Tariff Schedule booklet as follows:
"1. High Tension industries and other general
High Tension consumers having captive generation facility synchronized with the
grid, will pay additional demand charges of Rs 20/ KVA/ Month only on the
extent of standby demand component and not on the entire Contract Demand.
2.
Standby charges will be levied on such consumers on the
standby component, only if the consumer's demand exceeds the Contract Demand.
3.
This additional demand charge will not be applicable, if
there is no standby demand and captive unit is synchronized with the grid only
for the export of power."
Thus, those project holder entities using
their wind energy wholly or partly for self-use and who are also consumers of
MSEB for the above purpose would be required
to pay additional demand charges accordingly.
Issue No. 6 - Adjustment of Units and applicability of
MSEB policies
21. In their written
submission and presentation made at the time of hearing, MCCIA have referred to
the deviation by MSEB from the Commission's guidelines regarding unit to unit
adjustment on ToD basis with reference to the policy of GoM in force as on 27th
December, 1999 in respect of self-use and sale to third party for Group II
Projects, and sought clarification on the matter. Instead of applying this procedure for adjustment of units, MSEB
are following their own policy laid down in Circular No. 640 dated 3rd April,
2000 for wheeling and transmission losses also. Thus, the procedure which is applicable for adjustment of units
only has been applied by MSEB across the board.
22. Shri
Karanth of BF Utilities also submitted that adjustments in respect of Group I Projects
are to be made in accordance with the relevant GoM policy. However, MSEB are applying their own policy,
which is often not in keeping with the GoM policy. Shri Karanth also sought clarification as to whether the relevant
GoM policy would apply for the life time of the project, or for the period of
5+2 years, after March, 2003.
23. The
Commission notes that it has referred in its Order primarily to the applicable
GoM policies, which may or may not differ from the policies set out by
MSEB. Whatever be the case, it is the
GoM policies which would take precedence and prevail over the MSEB
dispensation, unless stipulated otherwise.
As far as the period of applicability is concerned, there is no room for
ambiguity, the Commission having curtailed the period to 8 years in respect of
Group II Projects taking into account various factors, as compared to the
earlier dispensation.
Issue No. 7 - Computation of credits for energy
wheeled
24. MCCIA
have submitted that there is no uniformity in the methodology to arrive at
"Energy wheeled" across various MSEB field offices and differences of
interpretation by different field officials, result in continuous change in the
calculation of credits every year. Thus,
MCCIA have sought a clarification on what is meant by the term 'energy wheeled'
so that the matter is resolved.
25. MSEB
representatives conceded that there was lack of uniformity in applying the
principles and computation with regard to energy generated and carried upto the
destination. MSEB are aware of this
position and are taking steps to ensure uniformity and instruct field officials
accordingly, and their representatives set out MSEB's view.
26. The
Commission clarifies that the generation imported into the grid less the export
(i.e. the energy supplied by MSEB / Licensee to the generating facility) is to
be taken as the units offered for wheeling.
The energy wheeled would be this quantum less 2% and 5% for wheeling and
transmission loss. The units for credit
would be equivalent to the net quantum arrived at in this manner.
Issue No. 8 - Levy of various administrative and other
charges
27. MCCIA
have submitted that MSEB are levying various additional administrative and
other charges arbitrarily, including fixed annual meter testing charges,
occasional charges for testing of ToD meters, replacement of ToD meters, ToD
meter data downloading, CT and PT replacement charges, installation checking
charges and reconnection charges. These
charges are not warranted since wheeling charges have already been determined
by the Commission in order to cover both administrative and infrastructure
expenses. MSEB have responded that
wheeling charges relate to infrastructure and are quite distinct and separate
in nature from the kinds of other charges referred to by MCCIA.
28. At para 2.4.1 of its
Order, the Commission has stated that "wheeling charges are meant to
include charges for use of the utility's physical infrastructure for wheeling
and the administrative expenses involved."
Thus, the administrative expenses
referred to as a part and parcel of the wheeling charges relate to the
maintenance and servicing of MSEB's physical infrastructure, and not to other
kinds of expenses. While agreeing,
therefore, with MSEB that the kind of charges referred to by MCCIA are separate
from the charges for wheeling, the Commission observes that such charges must
have a nexus with the cost of providing the service and must be uniform and
transparent. However, to the extent
that the Supply Code Regulations, which are in the process of finalization,
address such charges, this matter would be resolved in due course.
Issue No. 9 - Payment Security
and Compensation for delay in respect of self use/ third party sale
29. MCCIA have submitted
that, in the case of sale to MSEB, the Commission has provided for payment
security, and also a time period, with a penalty for delayed payment. However, no such security or compensation for inordinate delay is provided for
giving effect to credit notes of the developer either for self use or third
party sale. MCCIA have sought
guidelines with regard to monthly joint meter reading, time limit for issuing
credit notes after such reading and processing credits in monthly energy bills
and payment of excess generation at the end of the year.
30. MSEB
responded that real time ToD meters should give readings at receiving
substations. However, generation data
is available at a central location with each developer. MSEB are considering an online system
through SEM meters as the present process of manual collection is time
consuming. The project holders should
transfer the ToD data at their end.
MCCIA clarified that the problem arises after the meter reading is
taken.
31. The
Commission expects MSEB put in place systems so as to ensure that the
transaction of credits is finalized preferably within 3 months, and in any
event not later than 4 months.
32. The
Commission disposes of the Applications of MCCIA and InWEA with the above
clarifications and observations. Some
of the issues raised, which relate to the conditions for third party sale in
respect of Group III Projects, etc., have already been addressed separately and
are, therefore, not dealt with in this Clarificatory Order.
| Sd/- | Sd/- | ||
| (Shri A. Velayutham) | (Dr. Pramod Deo) |
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| Member | Member |
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Sd/- |
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| (A.M. Khan) | |||
| Secretary, MERC | |||
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