CERC Proposes Generic Tariff for Renewable Energy Projects for FY 2025-26

The Central Electricity Regulatory Commission (CERC) has proposed a generic tariff for renewable energy projects for the fiscal year 2025-26. This proposal falls under Regulation 8 of the RE Tariff Regulations, 2024, which were notified on June 12, 2024. It outlines how tariffs will be determined for various renewable technologies during the second year of the Control Period, which runs from July 1, 2024, to March 31, 2027.

The technologies covered under the generic tariff include Small Hydro Projects, Biomass Power Projects with Rankine Cycle technology, Non-fossil fuel-based co-generation Projects, Biomass Gasifier based Power Projects, Biogas Power Projects, and Municipal Solid Waste Projects using Refuse Derived Fuel. However, for solar PV, floating solar, solar thermal, and wind power projects, tariffs will be determined on a project-specific basis under Regulation 7.

Each project type has a defined “useful life” from its commercial operation date. For example, Small Hydro Projects have a 40-year life, while most biomass and co-generation projects are set at 25 years. RDF-based projects have a 20-year lifespan. The proposed tariff applies to projects commissioned between July 1, 2025, and March 31, 2026, and will remain in effect until CERC issues the next tariff order for the rest of the control period.

The tariff components include Return on Equity (ROE), Interest on Loan Capital, Depreciation, Interest on Working Capital, and Operation and Maintenance (O&M) expenses. For projects like biomass and biogas that use fuel, the tariff will have a fixed and a variable component. Tariffs are calculated on a levellised basis over the project’s tariff period using a discount factor equal to the post-tax weighted average cost of capital.

The loan interest rate is considered at 10.99%, based on the average SBI MCLR plus 200 basis points. ROE is fixed at 14% for most technologies and 15% for Small Hydro Projects, grossed up by applicable tax rates. The normative debt-equity ratio is set at 70:30. The capital cost norms vary by technology and region. For example, Small Hydro Projects range from ₹890 lakhs/MW to ₹1200 lakhs/MW, and Biomass Rankine Cycle Projects range from ₹638 lakhs/MW to ₹744 lakhs/MW.

O&M costs also differ, with an annual escalation of 5.25%. Small Hydro Projects have O&M expenses between ₹30.23 lakhs/MW to ₹51.83 lakhs/MW, and Biomass projects are at ₹57.57 lakhs/MW. Depreciation is charged at 4.67% annually for the first 15 years. The interest on working capital is set at 12.24%. Fuel costs are escalated by 3.45% per year, and working capital includes one month of O&M, 45 days of receivables, and 15% of maintenance spares.

Incentives, grants, or subsidies from the government, including accelerated depreciation benefits, are considered while determining tariffs. However, government capital subsidies are not included in the capital cost but will be deducted from bills. For example, Small Hydro Projects under 5 MW in Himachal Pradesh, Uttarakhand, and some other regions have a levellised tariff of ₹6.58/kWh, while similar projects in Odisha have a tariff of ₹4.95/kWh.