New green energy tariff regulations provide a 14% return on equity

For the period of April 1, 2024, to March 31, 2027, the Central Electricity Regulatory Commission (CERC) has released updated rules on the tariff calculation of renewable energy sources. According to rules, the return on equity for renewable energy projects other than small hydro projects will be 14%, and for small hydro projects, it will be 14.5%. These restrictions will be applicable to all grid-connected producing stations that use renewable energy.

The proposed rules provide guidance for State Electricity Regulatory Commissions for state sector projects or projects that have not yet moved into the competitive bidding stage. They do not apply to projects that the Solar Energy Corporation of India is bidding out. Nonetheless, a lot of public sector projects have also switched to the competitive bidding method in recent years.

Every year, the Commission will establish a “generic tariff” for renewable energy projects, such as small hydropower, biomass power, non-fossil fuel based cogeneration, biomass gasifier based power, biogas based power, refuse derived fuel based power, and municipal solid waste based power projects.

Additionally, CERC will establish a “project specific tariff” for any project based on newly authorized renewable energy sources, including solar PV, wind power, floating solar or solar thermal power, and renewable hybrid energy. Return on equity, loan interest, depreciation, interest on working capital, and operating and maintenance costs will all be included into the tariffs.

If a project produces more energy than the plant load factor, it may sell that extra energy to any party as long as the relevant beneficiary is given priority.

The proposed rules provide guidance for State Electricity Regulatory Commissions for state sector projects or projects that have not yet moved into the competitive bidding stage. They do not apply to projects that the Solar Energy Corporation of India is bidding out. Nonetheless, a lot of public sector projects have also switched to the competitive bidding method in recent years. According to Vikram V, vice president and sector head of corporate ratings at Icra, “the regulations are more of a regulatory exercise for the state commissions and are unlikely to impact power companies as the majority has now shifted to the competitive bidding mode.”