MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

Transcription

1 MAHARASHTRA ELECTRICITY REGULATORY COMMISSION Proposal of Government of Maharashtra Consultant s detailed note on Power Purchase Rate etc. of Small Hydro Power Projects

2 Abbreviations BEST BOT CERC CPP CPSU CUF DPR GOMWRD HT IPP kwh MERC MIDC MNES MSEB MW NCE O&M PPA REL SHP TFR - Brihan Mumbai Electricity Supply and Transport Undertaking - Build Own Transfer - Central Electricity Regulatory Commission - Captive Power Plant - Central Power Sector Units - Capacity Utilization Factor - Detailed Project Report - Government of Maharashtra Water Resource Department - High Tension - Independent Power Producer - Kilo Watt Hour - Maharashtra Electricity Regulatory Commission - Maharashtra Industrial Development Corporation - Ministry of Non-conventional Energy - Maharashtra State Electricity board - Mega Watt - Non-Conventional Energy - Operation and Maintenance - Power Purchase Agreement - Reliance Energy Limited - Small Hydro Power - Technical Feasibility Report MERC 2

3 Table of Contents Preface 4 Tariff of SHP proposed by GOMWRD 5 Major issues that require public consultation 8 Summary of Draft SHP policy submitted by GOMWRD 16 MERC 3

4 Preface Proposed Power Purchase Rate of Small Hydro Power Projects 1.1 The Government of Maharashtra Water Resource Department (GOMWRD) submitted to the Commission a petition dated August 7, 2001 seeking advice on policy guidelines to promote private sector participation in small hydro projects (upto 3 MW) under the erstwhile Electricity Regulatory Commission Act, The Commission conducted hearings and issued comments on the proposed policy (vide letter dated February 22, 2002). GOMWRD thereafter issued their policy through Government Resolution dated November 30, 2002 for projects upto 25 MW. 1.2 The Electricity Act 2003 (36 of 2003) was enacted thereafter and notified on June 10, Section 86 of the Act defines the various functions of the Commission. One of the functions (section 86 (1) (e) of the Act states the following) Promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence; Electricity Act 2003 also empowers Regulatory Commissions to determine tariff for supply of electricity by a Generating Company to a Distribution Licensee (section 62 (1) (a)) and specify the terms and conditions for the determination of tariff. 1.3 In addition to the various provisions of the Electricity Act 2003 various Policies, Rules and Regulations, thereafter, came into force, which has influenced the legal and regulatory framework. 1.4 GOMWRD thereafter submitted an application dated September 30, 2004 (further updated on December 6, 2004) regarding hydropower policy for projects upto 25 MW applicable to both CPPs and IPPs. The draft policy has essentially two components: (a) Tariff which is within the jurisdiction of the Commission under Section 62 and 86 (1) (a) & (b) of Electricity Act 2003, and (b) Contents and issues stated in various paras' of the policy which is covered under the advisory jurisdiction of the Commission under Section 86 (2). 1.5 A brief summary of the proposed policy of GOMWRD is provided in Annexure I of this document. 1.6 A technical validation session was held at the Commission s office to discuss matters related to SHP tariff proposal on May 10, Representatives of GOMWRD, MSEB, Tata Power, REL, BEST, REDAM, DLHPPL, SHPL, Little & Co, Prayas, VHPL, MACCIA Committee, PwC and CRISIL attended the session. MERC 4

5 1.7 During the technical validation session, clarifications were sought on a number of issues including that on the interest rates, availability of MNES subsidy, applicability of CERC norms etc. Some of the queries were clarified by GOMWRD instantly and it was assured that the rest would be clarified subsequently. The Commission also sought the suggestions of all the participants, particularly of the developers, on ways of reducing the project cost and thus the feed in tariff of the projects. Subsequently, MERC sought some written clarifications from GOMWRD on the SHP tariff proposal. Tariff of SHP proposed by GOMWRD 1.8 GOMWRD has proposed a tariff applicable for each year of 30 years BOT period. The salient features of the proposal are given below. Assumptions 1.9 Project Capital cost has been considered as Rs 475 lacs per MW It has been assumed that all the projects will get MNES subsidy. The subsidy applicable for plain areas i.e. Rs 50 lacs per MW (as calculated) has been considered for calculating tariff. It has been assumed that the additional expenses required for developing projects in the hilly regions will be adequately met by the additional MNES subsidy applicable for the hilly regions The life of the project has been considered to be 35 years and the BOT period has been considered as 30 years The return on equity has been considered at 14% post tax Debt-equity ratio has been considered at 70: The interest payment shall continue for a period of 9 years after COD. Interest rate is considered to be 9% Assets have been depreciated upto 90%, over a period of 35 years, using straight-line method Capacity Utilization Factor (CUF) has been considered to be 30% Design Energy is considered to be the quantum of energy, which could be generated, in a 75% dependable year with 95% installed capacity of the generating station Auxiliary consumption is considered at 0.5% Transformation loss is considered at 0.5%. MERC 5

6 1.20 O&M expense has been considered to be 2.5% of capital cost with an escalation of 4% every year. Additional R&M expenses of Rs 50 lacs per MW and Rs 100 lacs per MW has been considered in the 11th and 21st years respectively and it has been assumed that internal resources shall fund such expenses Minimum Alternate Tax of 7.84% has been considered in the first fifteen years and thereafter-regular tax rate of 36.58% has been considered Working capital norms have been considered at 2 months of receivable, 1% of the Capital cost as spares, 6% increase in spares cost each year and O&M expenses for one month. Interest on working capital has been considered at 11% Water Royalty charges have been considered at 5 paise per unit with an escalation of 5% year on year Maintenance charges have been considered at 5 paise per unit escalating by 5% year on year Lease rent has been considered at Rs 1000/- per MW per year escalating at 5% year on year The proposed 1 st year tariff is Rs 3.10/kWh, after which an increase of Rs 0.15/kWh is proposed for each subsequent year for the next 10 years. After the loan repayment is over the proposed tariff is reduced to Rs 2.00/kWh, which is to be increased by Rs 0.10/kWh for each subsequent year. It may be noted that the proposed tariff is not designed to meet the cash flow of the project in each year but is designed to match the Net Present Value (NPV) of revenue from tariff and that of the expenses. Results 1.27 The tariff as proposed by GOMWRD is stated below: MERC 6

7 Figure 1 - Tariff proposed by GOMWRD Year Tariff (Rs/Unit) Year Tariff (Rs/Unit) Year Tariff (Rs/Unit) The following chart shows the tariff proposed by GOMWRD, cost of power generation calculated by GOMWRD and the cash flow projected by GOMWRD. Figure 2 - Tariff and cost as proposed by GOMWRD Cost / Tariff (Rs / Unit) Years "GOMWRD Proposed Tariff" "GoMWRD Cost Calculation" "GoMWRD Cash Flow Calculation" GOMWRD Cost Calculation includes Depreciation and Advance Against Depreciation whereas GOMWRD Cash Flow Calculation includes loan repayment in place of Depreciation and Advance Against Depreciation MERC 7

8 1.29 The marginal power purchase cost of MSEB is approximately Rs 2.62 per unit. The tariff proposed by GOMWRD (Rs 3.10 per unit first year) is quite higher than the marginal cost of power. It is clear that the purchase from non-conventional energy (NCE) sources will increase the expenses of the utility. It would be useful to understand the impact of this additional cost on the cost of supply of the utility. In order to understand the incremental cost, the figures in the tariff order of FY have been primarily used. The projected potential of wind energy and bagasse till FY (as provided in the Commission s respective tariff orders) and the projected energy of small hydro (as provided by GOMWRD) and biomass (as provided in the Commission s tariff order on biomass based energy generation) for the next five years has been used to calculate the possible addition of energy from the non-conventional energy sources in the energy purchase basket of the utility. It is desirable to consider the impact of cost of supply due to purchase from non-conventional sources, on the basis of the projected consumption of the utility on the future date, when energy from such nonconventional energy will be actually available. However since no such analysis of energy consumption at a future date being available at present, the energy purchase and sale figure as approved in FY 04 retail tariff order of the Commission has been used. It is found that if the entire capacity is exploited, the cost of supply of the utility would increase by 2.12% and if only half of it is utilized, the cost of supply would increase by 1.11%. The detailed calculation is given in Annexure II. Major issues that require public consultation Background 1.30 The Commission has appointed M/s PricewaterhouseCoopers as consultants to advice on the petition of GOMWRD. The consultants have analysed the petition and have placed their observations to the Commission. The observations have been discussed between the Commission and the consultants. During the discussion, the following issues have been identified that require application of mind of all the stakeholders. Discussion points Matters related to Cost 1.31 Project capital cost is a significant item that will affect tariff. GOMWRD in its submission dated September 30, 2004 (in annexure XI) has provided the typical cost of setting up a SHP as Rs 475 lacs per MW. While determining this cost GOMWRD has classified costs into various heads and has estimated the expenses against each. For example in case of electromechanical equipments GOMWRD has considered figures provided in budgetary offers of the project reports of Yedgaon Hydro Electric Project (2 x 1.5 MW) and Vajara III Hydro Power project (1 x 1.5 MW). Regarding the cost of penstock GOMWRD has considered the expenses as stated in eight selected administratively approved project reports. MERC 8

9 The break-up under major heads of total project cost calculation is as follows: Figure 3 - Capital Cost of a Typical 1 MW SHP Sr No Particulars Cost in Lacs/ MW 1 Preliminaries 17 2 Electromechanical Equipments kV transmission line from project switchyard to substation and evacuation bay at MSEB Switch Yard 4 Civil Component 70 5 Capital Contribution of Intake & Penstock 50 6 Maintenance during construction 7 7 Interest During Construction 23 8 Contingencies 12 9 Legal and Financial Charges 3 10 Establishments and overheads Total estimated costs 477 (say 475) 35 In addition to the above, the Commission has been provided with eight Detailed Project Reports (DPR). The project cost per MW as provided in the DPRs ranges from Rs 305 lacs per MW to 711 lacs per MW. No further information has been provided based on which the Commission can estimate the capital cost or differentiate between the costs in hilly areas and plains. Any further validated information and rational suggestions on the subject from the stakeholders will be appreciated The life of the SHP projects have been considered to be 35 years in the tariff proposal of GOMWRD. It means that the depreciation of the assets would be spread over a period of 35 years. In the tariff proposal GOMWRD has stated that BOT period would be 30 years. The Commission has not received any justification on keeping the BOT period different from that of the life of the project. Is it not more reasonable to provide a period of 35 years as BOT period to cover the entire life (in terms of depreciation) of the project The Capacity Utilisation Factor (CUF) is another important factor that affects the cost per unit in a Small hydro Power project. GOMWRD has proposed a CUF of 30%. Analysis of the information provided shows that the expected CUF for the projects indicates variations between and within the categories. Considering the example of hilly and non-hilly areas it is found that the median CUF values in the hilly areas is 0.31 and is about 0.28 in the non-hilly areas, although the mean values as taken are almost the same at 0.31 (slightly higher in the non-hilly). Any comments or information on the matter by the stakeholders will be appreciated The assumptions for calculating projected annual expenses of SHPs proposed by GOMWRD are given in paras 1.9 to The following issues however need consideration: MERC 9

10 (a) (b) GOMWRD, in the cost calculation, has considered recovery of a surplus amount of the order of Rs 130 lacs in 30 years in the tariff proposal (annexure J row 13, page 75 of Additional Information and Clarification on Draft SHP Tariff Proposal ). The purpose of recovering this surplus amount is not clear. The Commission cannot allow recovery of any unexplained costs in tariff. It may also be noted that according to the provisions of the SHP policy, although the plant will get depreciated only upto 90% of the capital cost, the developer is required to hand over the plant at the end of the BOT period to GOMWRD, free of cost. This would mean under recovery for the developers. Therefore GOMWRD should pay an amount to the developers, at the time of handover of the plant, which may be equal to the less of: (i) (ii) Depreciated cost of the plant or, The amount paid by new operator of the plant, if GOMWRD chooses to lease out the plant again after the end of the first BOT period. (c) The average project cost assumed in the tariff proposal of GOMWRD is Rs 475 lacs per MW. This includes Rs 35 lacs per MW required for creation of infrastructure required for evacuation of power. In the order on Procurement Of Wind Energy & Wheeling For Third Party- Sale And/ Or Self-Use MERC stated that MSEB would bear the cost of transmission lines and associated facilities beyond the point of metering. Further it was also stated that the developers would provide an interest free advance to MSEB (or successor entities like Maharashtra State Transmission Company Limited) equivalent to an amount of 50 percent of the cost of works to be carried out by the latter on the evacuation facility. Considering the above ruling of MERC in case of wind tariff (and also for other Non-Conventional Energy), it may be appropriate to consider that the evacuation expenses shall be borne by the transmission or distribution licensee instead of the developer. In that case the total project cost is considered as Rs 440 lacs per MW instead of Rs 475 lacs per MW. (d) (e) GOMWRD has assumed interest payout for a period of eleven years (nine years after the commercial operation of the project). No evidence in support of this loan repayment period has been provided to the Commission. MERC in its order on wind power tariff has considered loan repayment period of ten years. In the absence of supporting document or evidence in the submission of GOMWRD the tenure as considered for determination of Wind Energy tariff may be followed for SHP tariff as well. In the proposed cash flow calculations submitted by GOMWRD different amount of principal repayment has been considered in different years. Since MERC 10

11 no rationale is provided to support the assumption, equal principal payment every year has been considered in this preliminary analysis. (f) (g) The tariff proposal considers a royalty of Rs 0.05 per unit, escalating at 5% per annum. Royalty is a state subject and may vary from year to year. Therefore, instead of considering a value of Water Royalty in the calculation of cost at this stage itself, it may be preferable to keep it out of the tariff determination process. At the same time it may be clarified that Water Royalty, as declared by the Government of Maharashtra, will be treated as pass through. This will be fair to both consumers and developers. It will ensure that the consumers will pay the actual amount of Water Royalty notified by the Government. Also it would ensure that developers are protected from the risk of lower pass through of Water Royalty if the actual declared Royalty is higher than what might be considered in the tariff. The Commission has not received any supporting evidence of the possibility of additional investment of Rs 50 lacs per MW in the eleventh year. It would be useful to receive any further information or justification regarding reasons of requirement of this additional investment in the eleventh year itself in a well maintained plant. Meanwhile for the purpose of calculations in this paper the proposed expenses have not been considered for the eleventh year The preliminary analysis in this paper has considered the issues mentioned in para 1.34 to calculate the annual cost per unit of power generated by a SHP plant. The details are provided in Annexure IV. The tariff as proposed by GOMWRD and the annual cost per unit of power generated by a SHP plant are graphically represented as follows: MERC 11

12 Figure 4 - GOMWRD proposed tariff vs annual cost per unit of power generated Cost / Tariff (Rs / Unit) Years "GoMWRD Propos ed Tariff" "Comission Cost Calculation " Tariff Design 1.36 The Commission would like to promote non-conventional energy sources, and would like to be consistent across different types of project. The Commission therefore prefers to set the tariff in the manner it has followed in approving tariff of other nonconventional like Procurement Of Wind Energy & Wheeling For Third Party-Sale And/ Or Self-Use. The tariff would not be set to cover the entire BOT period, and would be determined according to the following methodology. (a) (b) (c) (d) The period of debt repayment is considered as ten years with two years of moratorium period. Commission has approved higher rate of return for development of projects on non-conventional energy. In case of wind power the return on equity has been approved as 16%, in case of Bagasse the return has been approved as 20% and in case of Biomass the return has been approved as 16%. Similarly in case of Small Hydro Power as well higher return on equity i.e. 16% may be adopted. Tariff shall be determined in a manner such that the equity Internal Rate of Return will be equal to 16%. Depreciated value of the project, as at the end of 20 th year of operation, i.e. Rs lacs per MW have been considered as salvage value while calculating the Internal Rate of Return. MERC 12

13 (e) The first year tariff and the escalation approved by the Commission in case of various non-conventional energy sources are as follows: (i) Wind Power - Rs 3.50 per unit with escalation of 15 paise per unit every year, (ii) Bagasse - Rs 3.05 per unit with 2% compounded escalation every year, and (iii) Biomass - Rs 3.04 per unit with an increase of 3 or 4 paise per unit every year. A lower power cost at the start of the tariff period is desirable which can be increased at a constant rate over the years, which the utility will be in a better position to pay as its financial position improves Based on this methodology, and the assumptions mentioned above, the tariff would be set for twenty years, and is proposed to be as follows (details provided in Annexure III): Figure 5 Proposed SHP tariff Year Tariff (Rs/Unit) Year Tariff (Rs/Unit) The levellised tariff in this case would be Rs 2.98 per unit (for a period of twenty years) The Commission is determining this tariff so as to stimulate investment in this sector and may like to keep this tariff in force for projects that are Commissioned within a period of five years from the date of applicability of the SHP policy or Commissioning of 200 MW of SHP projects whichever is earlier. It may be noted that GOMWRD in its submission dated June 1, 2005 (in para 1.3, page 2) has stated that it has kept a target of exploiting 200 MW of SHP potential in next five years Comments are invited on any other approach, and the implementation aspects of the suggested approach. MERC 13

14 Applicability of CDM benefits 1.41 The CDM benefits applicable to a SHP should also be explored while calculating the cost or tariff for power generated. It is generally understood that a unit can claim CDM eligibility if the CDM related benefit helps in making the project viable. So the question arises whether a full cost reflective tariff will debar a project from gaining CDM eligibility. How should this issue be addressed and the ratio in which the benefits should be shared between various stakeholders needs to be debated. Power Generation at Peak 1.42 Power generation at peak hours is more valuable. The hydro generating stations, in particular, support the grid during peak hours. So naturally a question arises whether it is possible to convert at least some of the SHP generators into peak power generators, and if yes, how? GOMWRD, however, rules out this possibility. The reason being, water once released in irrigation canals continues to flow throughout the day. For example in Bhandardara, the water once released in the irrigation canals continuously flows for sixteen days. The Bhandardara II (34 MW) project could be converted into a peaking station only by constructing a dam (Nilwande) in the down stream. This, however, is a specific case and building a dam only for the purpose of converting a power generating station into a peaking station will be very costly. The stakeholders may provide their opinion on the subject. Wheeling and Transmission Charges 1.43 In clause on Procurement Of Wind Energy & Wheeling For Third Party-Sale And/ Or Self-Use the Commission has given the following ruling on wheeling and transmission charges. Quote: The Commission notes that the MSEB has to maintain the transmission lines and other infrastructure to facilitate the flow of wind energy to consumers and it needs to be compensated for the same. This compensation could be in Rupee terms per unit or in kind. The Commission notes that the compensation in kind to parties involved, i.e. as a percentage of energy wheeled, is already being used and no other suitable methodology has been proposed. Therefore, the Commission has decided to adopt the existing system of wheeling charge at 2% of the energy wheeled. The Commission has decided that a detailed study, including a load flow analysis, should be conducted to determine the T&D loss at local level. Based on the results of the study, T&D loss charges to be levied on energy supplied by wind power projects would be determined by the Commission. Till then, uniform transmission losses at the rate of 5% shall be applicable. Unquote MERC 14

15 The Commission proposes to apply the same methodology in the case of SHPs as well. Banking and Credit of Energy on the basis of TOD tariff slots 1.44 In clause on Procurement Of Wind Energy & Wheeling For Third Party-Sale And/ Or Self-Use the Commission has given the following ruling on Banking and Credit of Energy on the basis of TOD tariff slots Quote: The Commission is of the strong view that credit for wind energy should be provided strictly on the basis of TOD tariff slots. For example, wind energy generation in time slot A should be offset against the consumption in time slot A. Any generation not used during the month should be carried forward to the next month in the same time slot. Any unutilised wind generation at the end of the year shall be purchased by the utility subject to banking provisions. The MSEB, in its role as a State Transmission Utility, should immediately take steps to develop necessary processes and software to track wind energy credits and for maintaining accounting database. The Commission also notes that inability to consume the entire energy delivered into the grid due to factors beyond control of the developers/ purchasers cannot be ruled out. Also, the need to change third party purchaser may arise during the project life, and energy fed into the grid WIND PROJECT TARIFF ORDER Section 3 Commission s Decision on Tariff Analysis Of Other Techno -Commercial Factors during the period of changeover of third party may have to be absorbed by the MSEB. Therefore, the Commission has decided that surplus energy at the end of the financial year, limited to 10% of the net energy delivered into the grid during that year, may be purchased by the utility at the lowest slab of HT TOD tariff applicable on the 31st March of the financial year during which the energy was fed into the grid. The Commission is also of the opinion that, under force majeure conditions, if the surplus energy delivered to the grid exceeds 10%, such surplus energy in excess of the 10% limit specified earlier shall be purchased by the utility at a rate equivalent to the weighted average fuel cost for the year as determined by the Commission. Unquote: The Commission proposes to apply the same methodology in the case of SHPs as well. MERC 15

16 Annexure 1 Summary of Draft SHP policy submitted by GOMWRD Objective 1.1 The objective of the policy is (a) (b) (c) to harness the green power with the help of private sector. to create suitable environment for attracting private sector investment & to lay down the framework for the implementation of the policy. Scope 1.2 Hydro Power projects till 25MW are treated as Small Hydro Power projects. The draft policy covers Captive Power Plants (CPP) and Independent Power Producers (IPP) generating upto 25 MW of power. The CPPs under this policy are expected to consume at least 51% of the design energy for their own use. Operative Period 1.3 The SHP allotted under this policy shall be on Build, Operate & Transfer Basis (BOT). The BOT period shall be 30 years. At the end of the BOT period the absolute ownership of the SHP along with land, switchyard & allied equipment shall automatically stand transferred to GOMWRD free of cost. The procedure for selection of Developers 1.4 The GOMWRD shall offer projects from the list for development through public notification to both CPPs and IPPs. The interested CPPs and IPPs should necessarily have consumptive units located in Maharashtra. The other criteria for prequalification shall be technical & financial capabilities, past experience and other relevant attributes of the developer. 1.5 Main bidding documents shall be issued only to the pre-qualified developers. The minimum threshold premium, decided by GOMWRD based on expenditure already undertaken exclusively for facilitating power generation, shall be mentioned in the bidding document. The bidders shall quote a premium over and above the threshold premium, which will be the primary consideration for allotment of the project. 1.6 The GOMWRD shall intimate developer regarding his selection requesting him to deposit the upfront premium offered by him. On payment of upfront premium GOMWRD shall issue Letter of Permission (LOP) to the developer. MERC 16

17 1.7 After receipt of the LOP the developers shall prepare & submit Technical Feasibility Report (TFR) to GOMWRD within three month from the date of LOP along with the processing fees. GOMWRD will assess the LOP. If it is found satisfactory, GOMWRD will issue a Letter of Allotment (LOA). The developer shall thereafter enter into Hydro Power Development Agreement (HPDA) with GOMWRD and will also arrange for all clearances at state and central level. 1.8 After the developer acquires necessary clearances & financial closure within stipulated period, the developer shall submit the documentary proofs to GOMWRD. GOMWRD shall thereafter issue letter to the developer to deposit Performance Security within one month. On completing these formalities within stipulated period GOMWRD shall authorize the developer to start the development work. The project shall be made operational within 24 months from the date of authorisation for development. Grid Interface & Evacuation Arrangements: 1.9 Interface, including transformer, panels, kiosk, protection, meters installed in project switch yard & HT lines from the point of generation to the STU s nearest sub station will be undertaken by the developer as per the specifications & requirement of the STU at his own cost. Transmission Utilities 1.10 The developer will have right to access existing transmission facilities in the state, provided adequate transmission facility is available. When transmission lines of MSEB/STU are used, a uniform wheeling charge of 2% of energy fed to the grid, irrespective of the distance is proposed. Similarly uniform transmission losses at the rate of 5% are proposed. However, these rates of wheeling charges & transmission losses shall be as decided by MERC from time to time. The developer shall be responsible for payment of surcharge if any in addition to transmission & wheeling charges as decided by MERC for the energy sold to Third Party Consumer/ Distribution Licensee/ Power Trading Company. Banking 1.11 Subject to the approval of MERC, the developer can avail the facility of banking the energy delivered to the grid any time of the day and night for the span of one water year. The energy banked into the grid by the developer shall be credited on TOD basis If the annual energy generated cannot be consumed by the approved consumers of the developer, then the balance energy at the end of the banking year may be purchased by MSEB/STU at its discretion at 90% of average realisation rate of MSEB/STU prevailing in the preceding financial year. Alternatively developer will be permitted to carry over this credit to the next year with 10% reduction as carry over charges. MERC 17

18 Developers to Pay to GOMID 1.13 Water royalty: Developer shall pay the water royalty at the rate of Rs.0.05 per unit of energy generated Charges for maintenance of intake structure, penstock etc. at the rate of Rs 0.05 for every unit generated Land lease charges for the GOMID land at the rate of Rs / MW of installed capacity/ Year The above rates of royalty charges, maintenance charges and lease charges are for the first year and the same shall be increased in every subsequent year by linking the same to the Whole Sale Price Index. Transfer of Allotment 1.17 If the developer wants to transfer ownership of generating unit completely to another developer, he will be permitted to do so on prior approval of GOMWRD. Such transfer would be subject to conditions like the original developer should have operated the project for a period of minimum three years, the financial institutions should have consented to the transfer, new developer deposits the transfer fees with GOMWRD as Rs. 1 Lacs/MW of installation. Sale of Power 1.18 IPPs shall be free to sell the generated energy to any licensee/third party user at mutually agreed rates. CPPs shall be permitted to sale the energy maximum up to 49% of the energy produced. Exclusive Jurisdiction of MERC 1.19 The MERC has the exclusive jurisdiction on provisions of this policy, especially regarding electricity sale rates, power purchase agreements and provisions regarding wheeling, banking, distribution and transmission losses etc. Similarly MERC has exclusive jurisdiction on the provision in IEA 2003 as regards to promotional activities for non-conventional energy sources, facilities for transmission of energy, free sale of power to any interested consumer and sharing of purchase of power amongst the MSEB/Utilities/Licensees. MERC 18

19 Obligations of GOMWRD 1.20 GOMWRD shall provide all possible assistance including approval of the TFR within two months, handover of the site for development within 15 days from the permission accorded to commence the work, developer shall be allowed to use the approach road, provide residential quarters on rental basis if available and provide land if available to the developer for construction of residential quarters/office of maintenance staff on reasonable terms. General Provisions 1.21 IPPs & CPPs willing to change their option in due course of time, may apply to GOMWRD for the same with necessary processing fee. The developers to whom CPP allotted by GOMWRD under previous policy & willing to opt for the provisions of this policy may apply for the same along with the necessary processing fee. GOMWRD shall accord such permission if requisite requirements are complied by the developer. Promotional Incentives Offered by GOM 1.22 GOM has offered following incentives: (a) (b) (c) If the developer commissions the project before 24 months from the date of authorisation, he will be exempted from royalty charges & maintenance charges to an extent of units generated before scheduled date of commissioning. CPPs/IPPs shall be exempted from Electricity Duty. Technical Consultancy will be offered by GOMWRD at nominal charges. Maharashtra Energy Development Agency, (MEDA), Pune shall assist the developers in getting incentives for SHPs from MNES, GOI. MERC 19

20 Annexure II Non Conventional Energy Source MW Availability (Appox) CUF Auxilliary Consumption MU Tariff (Rs/ Unit) Wind % 20% 0% Hydel % 30% 1% Bagasse % 90% 9% Biomass % 80% 10% Total 5285 Reference No. MSEB Sales (Mus)* (1) MSEB Power Purchase (MUs)* (2) Power Purchase Potential from NCE 5285 (3) Power Purchase from NCE when 50% potential is realized (3)/ (4) Power Purchase Rate from NCE (Wieghted Rs/Unit) 3.16 (5) ARR* (In Crs) (6) T&D Loss* 26.87% (7) Wieghted Marginal Power Purchase Cost** 2.62 (8) Case I - 100% of the potential of NCE gets exploited Option I - Assuming MSEB purchases the additional units from Conventional sources MU Tariff (Rs / Unit) Rs in Crores Power Purchase (Mus) by MSEB* (2) (9) Additional Power Purchase Cost - if from Conventional Energy (3) (10) In such case total ARR would be (6)+(10) (11) Similarly total Units that could have been sold by Discom considering 26.87% T&D loss (1)+(1-(7))*(3) (12) Corresponding Per Unit CoS (Rs/ Unit) (11)*10/(12) 2.89 (13) Option II - Assuming MSEB purchases the additional units from nonconventional energy MU Tariff (Rs / Unit) Rs in Crores Power Purchase (Mus) by MSEB* (2) (14) Additional Power Purchase Cost- if from Non Conventional Energy (3) (15) In such case total ARR would be (5)+(15) (16) Similarly total Units that could have been sold by Discom considering 26.87% T&D loss (1)+(1-(7))*(3) (17) Corresponding Per Unit CoS (Rs/ Unit) (16)*10/(17) 2.95 (18) Increase in Cost of Supply due to power purchase from NCE ((18)-(13))/(13) 2.12% (19) Case II - Only 50% of the NCE potential is utilized Op tion I - Assuming MSEB purchases the additional units fro m Conventional sources MU Tariff (Rs / Unit) Rs in Crores Power Purchase (Mus) (2) (20) Additional Power Purchase cost - if from Conventional Energy (4) (21) In such case total ARR would be (5)+(21) (22) Similarly total Units that could have been sold by Discom considering 26.87% T&D loss (1)+(1-(7))*(4) (23) Corresponding Per Unit CoS (Rs/ Unit) (22)*10/(23) 2.86 (24) (25) Option II - Assuming MSEB purchases the additional units from nonconventional energy MU Tariff (Rs / Unit) Rs in Crores Power Purchase (Mus) (2) (26) Additional Power Purchase Cost - if from Non Conventional Energy (4) (27) In such case total ARR would be (5)+(27) (28) Similarly total Units that could have been sold by Discom considering 26.87% T&D loss (1)+(1-(7))*(4) (29) Corresponding Per Unit CoS (Rs/ Unit) (28)*10/(29) 2.89 (30) Increase in Cost of Supply due to purchase of power from NCE ((30)- (24))/(24) 1.11% (31) * Taken from the Tariff Order ** Based upon actual power purchase cost of MSEB Average Power Purchase cost approved in FY 04 Tariff Order MERC 20

21 Annexure III Project Capital Cost : Rs 440 lacs per MW Subsidy : Rs 50 lacs per MW Project life : 35 years Depeciation : 90% in 35 years Debt-Equity Ratio : 70:30 Interest payment : 9% per annum Period of interest payment: 10 years after CoD O&M : 2.5% of capital cost with 4% pa escalation MAT : 7.84% Water Royalty: Not considered for calculations Lease rent : Rs 1000 per MW per year with escalation of 5% yoy Additional expense on 11 th year: Not considered MERC 21

22 Annexure IV MERC 12