1. Central Electricity Regulatory Commission lowers return on equity for renewable energy projects

Central Electricity Regulatory Commission lowers return on equity for renewable energy projects

The Central Electricity Regulatory Commission (CERC) has set the return on equity (RoE) for renewable energy projects at 14%.

By: | New Delhi | Published: April 22, 2017 2:19 AM
The value base of the equity will be determined on 30% of the capital cost. (Reuters)

The Central Electricity Regulatory Commission (CERC) has set the return on equity (RoE) for renewable energy projects at 14%. The post-tax rate, which will be valid for the period of FY18 to FY20, is two percentage points below the RoE set in the 2012 tariff regulations. The value base of the equity will be determined on 30% of the capital cost. The rate was calculated taking into account a market premium of 700 basis points over the prevailing six-month average government security rates. These tariffs would be applicable to projects in which tariffs were not determined by competitive bidding. Though various solar and wind projects have started taking the competitive bidding route, the process is not feasible for many smaller projects, mainly those belonging to the bio-mass and the small hydropower categories, owing to their lower generation volumes.

As on February, installed capacity of non-solar and non-wind renewable power was more than 14 GW. Overall renewable energy capacity stood at 52.8 GW. Solar and wind tariffs have recently touched new lows after taking the competitive bidding route. In the first ever tariff based reverse auction conducted in February, wind tariffs fell to Rs 3.46/unit. According to ICRA, feed-in tariffs for wind vary around Rs 4.16/unit to Rs 5.76/unit for wind power projects in states with high wind power generation potential.

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Final levelised tariff of Rs 3.15 per unit was discovered earlier this month for a 250 MW solar project in Andhra Pradesh. Companies such as Inox Renewables, ReNew Power Ventures, Hero Future Energies and NTPC had argued that lowering of RoE in renewable projects might discourage investments in the sector. Industry sources told FE that RoE for older wind and solar projects, with PPAs signed at higher tariffs, hover around 15% and 13% respectively.

The lowering of the renewable RoE has triggered speculations in the power industry that it might become the precursor to a potential fall of regulated returns for conventional utilities as well. The tariff structure for such projects are due in March 2019. Conventional power projects are currently mired in a lower electricity demand scenario, running at plant load factors which make it hard to service debts. Arun Kumar, an industry veteran who is now the CEO of Mittal Group, said in the CII renewable energy summit on Friday that the average RoE in the power sector stands at around 10%.

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