BIHAR ELECTRICITY REGULATORY COMMISSION Vidyut Bhawan-II, Bailey Road, Patna Suo-motu Proceedings No. 11/2014

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1 BIHAR ELECTRICITY REGULATORY COMMISSION Vidyut Bhawan-II, Bailey Road, Patna Suo-motu Proceedings No. 11/2014 IN THE MATTER OF: Benchmarks for Tariff Determination for Biomass Based Power Plants and Bagasse Based Co-generation Plants to be commissioned in FY Quorum: 1. Sri U. N. Panjiar - Chairman 2. Sri S. C. Jha - Member 3. Sri I.A.Khan - Member Appearance : 1. Sri Rakesh, EEE (Inter-state) On behalf of Bihar State Power (Holding) Co. Ltd. 2. Mr. Nadeem Ahmad, EEE (Com.) On behalf of South Bihar Power Distribution Co. Ltd. 3. Sri Manish Shakya, AEE (Com.) On behalf of North Bihar Power Distribution Co. Ltd. 4. Sri Ram Lakhan Pandit, ESE On behalf of Bihar State Power Generation Co. Ltd. 5. Retd. Lt. Col. Monish Ahuja, On behalf Bermaco Energy Ltd. Director 1. Background: Order Dated : 22/09/2014 The Commission has fixed benchmarks for determination of tariff for sale of energy generated by Biomass and Bagasse based co-generation projects in Suo-motu proceedings no. 31/2012 for a control period of 5 years i.e for plants to be commissioned from FY (wef ) to FY Case No. 11/2014-SKP 1

2 17. The first year started from the date of the above order i.e from to The last year of control period is FY The generic levelised tariff for biomass based plants and bagasse based cogeneration plants, to be commissioned in FY , was also determined in the above order dated However provision was made for review of biomass fuel price at the end of the third year of the control period i.e at the end of FY in order to take care of any price volatility in the biomass fuel market. 2. Further, in suo-motu proceedings no 8/2013 dated , the Commission has determined tariff for the Biomass and Bagasse based cogeneration power plants to be commissioned in FY i.e for the second year of the control period. 3. The Commission is empowered to specify the terms and conditions for determination of tariff under section 61 of the Act. Section 62(1)(a) of the Act stipulates that the appropriate Commission shall determine the tariff for supply of electricity by a generating company to a distribution licensee. The Commission has to determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the state under section 86(1)(a) of the Act. 4. The Bihar Electricity Regulatory Commission initiated a suo-motu proceedings no.11/2014 dated to obtain views from general public and stakeholders for approving benchmark costs for determination of generic levellised tariff for the FY for Biomass based power plants, Biomass Gasifier based plants and Bagasse based Co-generation plants to be commissioned in FY A consultative paper was put on the website of the Commission and a public notice was issued on inviting objection /suggestions/comments from general public and all stakeholders. The notice was published in the dailies Hindustan Times, Bihar, Prabhat Khabar and Dainik Jagran and copies of the proposed draft was sent to Bihar State Power Holding Company Ltd., Bihar State Power Case No. 11/2014-SKP 2

3 Generation Company Ltd., South Bihar Power Distribution Co. Ltd., North Bihar Power Distribution Co. Ltd, BREDA, Bihar Industries Association, Bihar chamber of Commerce, Harinagar Sugar Mills, Riga Sugar Company Ltd, Bharat Sugar Mills, New Swadeshi Sugar Mills and HPCL BIO FUELS,M/s Kumar Tech Bio Product Ltd, M/s Cogeneration Association of India, M/s Bermaco Energy Ltd and Bihar Sugar Mills Association inviting objections/suggestions/comments so as to reach Secretary of the Commission by Hearings: The matter heard on Only one objection/ Comments/suggestions was received from M/s Bermaco Energy Ltd. Oral submission was also made by them in support of written comments/suggestions. BSPHCL prayed for 15 days time to submit their comments/suggestions. He also prayed that a copy of the written suggestions of M/s Bermaco Energy Ltd be made available to them for comments. The Commission allowed the prayer and order was reserved. It was also directed that BSPHCL may submit their written suggestions,if any within 15 days otherwise final orders will be passed on the basis of available documents. BSPHCL submitted their written comments vide letter no.1260 dt Comments/Suggestions/Objections of M/s Bermaco Energy Ltd (i) It has been submitted by M/s Bermaco Energy Ltd that in the Para- 5 of the consultative paper in Suo- motu proceedings no.11/2014 dated , the Commission has proposed to adopt revised norms of CERC notified vide CERC-Terms and conditions for Tariff determination for Renewable Energy Sources-(1 st Amendment) Regulations, 2014 dated revising the Capital cost, O&M expenses, Station Heat Rate, Calorific value and Aux. consumption etc in respect of Biomass based power projects thereby substituting the existing norms determined by the Commission in its order in Suo- Case No. 11/2014-SKP 3

4 motu proceedings no. 31/2012 dated for remaining part of the control period up to FY for promoting Biomass based power projects in the state of Bihar. (ii) At annexure-b, "Capital Cost indexation for Biomass Power Projects (FY )", it has been mentioned that the revised capital cost of Rs. 540 Lakh/MW for Biomas based Power plants with water cooled condenser based on Rankine cycle Technology (other than ric e straw and juliflora based plants) fixed by CERC has been considered for determination of proposed Tariff. (iii) In para-10 (a), Commission has stated that "The tariff for Biomass projects with air cooled condenser and rice straw/juliflora as fuel shall be determined by the Commission under project specific determination of tariff on case to case basis if such a petition is filed by any developer". (iv) It is further submitted that the decision of the Commission to determine the tariff for Biomass projects with air cooled condenser and rice straw as fuel under project specific determination of tariff on case to case basis is unjustified and it will further delay setting up of such project in the state of Bihar, especially for Bermaco group and its existing investments in Bihar State. M/s Bermaco has filed petitions earlier also for determining tariff for Biomass projects with air cooled condenser & rice straw as fuel in the Commission as Project Specific case. This is already on the record of Commission. But in spite of our submissions before the Commission, during several hearings for allowing higher tariff for our specific projects, this was not considered and only generic tariff was allowed. (v) It is submitted that after determination of Capital cost, O&M expenses, Station Heat Rate, Calorific Value and Aux. consumption etc in respect of Biomass based power projects with air cooled condenser and rice straw as fuel by CERC, it no longer stands as Case No. 11/2014-SKP 4

5 project specific case and it should be decided along with other Biomass and Co-Generation Projects. (vi) It also stated that distribution utilities are not fulfilling the RPO obligation and responsibility as per EA-2003 lies with the Commission to act to ensure development of RE projects in the state for meeting RPO obligation. (vii) The petitioner has submitted that Commission should determine the tariff for biomass power project with air cooled condenser and rice straw as fuel along with other biomass and co-generation projects to promote growth of such power generation in the state. (viii) It has been further submitted to consider the options of either ACC and/or WCC in fixing of the tariff and the decision of setting up the appropriate technology may be given to the project promoter on the basis of the technical requirements of the site and environment related issues. The CERC has also considered the same in its notification. (ix) The petitioner has further prayed to incorporate fixation of tariff for rice straw based biomass projects in the Suo-Moto proceedings which are under way as Bermaco group has made significant investments in the state of Bihar for rice straw based biomass IPP and is awaiting the tariff fixation by the BERC. 7. Comments/Suggestions/Objections of BSPHCL BSPHCL has submitted parawise comments on para 7 of the Suo-motu proceedings related with common norms proposed by the Commission for Biomass and bagasse based co-generation plants to be commissioned during the period as mentioned below:- Interest rate It has been submitted that the project developer obtain loan for 70% of the project cost at the SBI base rate, whereas, Commission has proposed for , the interest rate on the loan component as SBI Base Rate+300 basis point. The consideration of the additional interest rate i.e. 300 basis point over Case No. 11/2014-SKP 5

6 and above the SBI base rate coupled with high rate of return proposed by the Commission on equity to be employed by the developer will an additional income to the developer and at the same time it may have considerable impact on the tariff to be paid by the Distribution licensee and ultimately by the end consumers. Based on the assessment of the current and prospective macroeconomic situation, RBI for the period has fixed repo rate under the Liquidity Adjustment Facility (LAF) as 8% w.e.f Consequently, the reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, gets calibrated to 7.00 %. Similarly, the Marginal Standing facility (MSF) rate determined with a spread of 100 basis points above the repo rate, and also Bank Rate, stand adjusted to 9.00%. The Statutory Liquidity Ratio (SLR) has also been reduced by RBI from 23% w.e.f to 22% as per the Monetary Policy Statement for 3 rd Quarter of This implied that the bank will have liverage to pump more money in the market, in turn the banks have freedom to lend money at reduce rate to the developers. As per the Monetary Policy Statement for of RBI, the Bank rate of RBI stands adjusted to 9.00% w.e.f and SBI base rate is 10%. The interest rate considered by the Commission 300 basis point over SBI Base Rate is very high and not in line with the Monetary Policy Statement of RBI for It is also relevant to mention that the norms decide by the CERC is the ceiling norms and State Commissions are free to determine better norms by striking balance between the cost of generation & cost of supply in accordance with section 61 (c) & 61 (d) of EA The project developers in the State are being given various incentive/special concessions under provisions of Clause 5 & 6 of the State NRE Policy Under provision of Clause 5.6 of the policy, the renewable energy developers are also entitled for Loans as per guidelines and incentives of schemes of the Government of India and or Government of Bihar, India Renewable Energy Development Agency (IREDA) and Ministry of New and Case No. 11/2014-SKP 6

7 Renewable Energy Govt. of India (MNRE) will be offered /available for proposal of power generation through New and Renewable Energy Sources. The loans offered by IREDA & PFC are cheaper in comparison to the nationalized & scheduled Bank lending rate in India provided the developer fulfill the qualifying criteria for loan borrowing from IREDA & PFC. It has been prayed that for computation of Interest on loan component in respect of Bagasse based Co-generation projects & Biomass based generation project, the interest rate should be considered as Bank rate of RBI (i.e. 9% w.e.f )+200 basis point only for project to be commissioned in Depreciation: Capital cost of the Bagasse & Biomass based Generation Plant should be apportion on Machinery, Land and civil works at 85% & 15% respectively. Depreciation should be calculated with the reference value of 85% of the cost of Plant and Machinery and accumulated depreciation may be limited to 90% of the cost of Plant and Machinery. Commission should consider this matter before finalizing the tariff as non consideration of the facts stated above will have huge financial implication on DISCOMs and non consideration of the fact by the Commission may also attract provision of Clause 61 (d) of the EA Interest on working capital: It has been submitted that interest on working capital should be equivalent to RBI Bank Rate (9%)+200 basis point only. Capital Cost (Bagasse based Co-generation Projects: The Cost Indexation mechanism does not reflect the true cost especially in respect of the capital cost of the Bagasse based Co-generation Plant because of the dual use of the steam in power generation as well as in sugar & ethanol production by the sugar mills. This issue has not been addressed by the Commission while proposing the Capital Cost Rs Lakshs/MW for for Bagasse based Cogeneration project based on indexation mechanism and the evacuation system being provided by the BSPHCL free of Case No. 11/2014-SKP 7

8 cost in accordance with the provision of Clause of the "State NRE Policy 2011". It has been further submitted that Commission should retain the Capital cost of the Bagasse based Generation plant as Rs crores/mw only and apportion the capital cost on Machinery, Land and civil works in the ration 85% & 15% respectively. 85% of the capital cost should be reckoned as cost of Plant and Machinery. Depreciation should be calculated with the reference value of 85% of the cost of Plant and Machinery and accumulated depreciation shall be limited to 90% of the cost of Plant and Machinery. It is also requested that Commission should reduce the fixed cost at least by 10% or actual, whichever is higher keeping in view the dual use of the steam in power generation as well as in sugar & ethanol production by the sugar mills. Commission should review tariff for supply of power by the existing Bagasse & Biomass based generation plant to DISCOMs at the tariff decided prior to under provisions of sub section 61 (h) & 94 (1) (f) and 94 (2) through a separate Suo-motu proceeding. Capital Cost of Biomass Based Generation Plant: It has been submitted by BSPHCL that Cost plus tariff determination is not the best method as it discourages the competition and efficiency. Commission is aware that in a free market where there is competition among various players, the price is determined by the market mechanism. In the earlier generic tariff determination of renewable energy based generation plants, the Commission had not apportioned the Capital cost on Machinery, Land and civil works at 85% and 15%. Further, 85% of the Capital cost was also not reckoned as cost of Plant and Machinery and depreciation was also not computed to this reference value by Commission. Therefore, the capital cost considered by the Commission is on higher side. It will be prudent for the Commission to consider capital cost as a consolidate package cost obtained through competitive bidding process. In this regard, it is also mentioned that BSPHCL Board vide resolution no in Case No. 11/2014-SKP 8

9 the 23 rd Meeting held on has decided to procure non solar power from Bagasse & Biomass based generation plant to be commissioned after to fulfill the non solar RPO by DISCOMs at the tariff determined through competitive bidding process or at tariff determined by BERC, whichever is less. In this regard bidding process is to be initiated soon by BSP(H)CL. It has been prayed that the Commission should retain the Capital cost of the Biomass Plant as Rs crores only and apportion the capital cost on Machinery, Land and civil works at 85% & 15% respectively. 85% of the capital cost shall be reckoned as cost of Plant and Machinery. Depreciation should be calculated with the reference value of 85% of the cost of Plant and Machinery and accumulated depreciation shall be limited to 90% of the cost of Plant and Machinery. Finally, the BSPHCL has prayed to consider the following:- a. Interest rate on loan in case of Bagasse and Biomass based Generation Plants should be equal to RBI Bank Rate (9%)+200 basis point i.e. 11%. b. Return on equity shall be 16% (pre tax) for the useful life of the Plant. c. Interest on Working Capital should be equal to Bank Rate (9%)+200 basis point. d. Commission should retain the Capital cost of the Bagasse based Generation Plant as Rs crores/mw only and apportion the capital cost on Machinery, Land and civil works at 85% & 15% respectively. e. In case of Bagasse based generation plant, depreciation should be calculated with the reference value of 85% of the cost of Plant and Machinery and accumulated depreciation shall be limited to 90% of the cost of Plant and Machinery. f. In case of the Bagasse based Co-generation Plant or Biomass Plant is proposed to be installed in the existing land, the cost of land should not form part of the capital cost as no expenditure is incurred by the project developer on land. Case No. 11/2014-SKP 9

10 g. Commission should deduct 10% or actual, whichever is higher from capacity charges towards steam extracted and used in sugar manufacture. h. Commission should retain the Capital cost of the Biomass Plant as Rs crores only and apportion the capital cost on Machinery, Land and civil works at 85% & 15 respectively. i. In case of Biomass based generation plant, depreciation shouldl be calculated with the reference value of 85% of the cost of Plant and Machinery and accumulated depreciation shall be limited to 90% of the cost of Plant and Machinery. j. O&M expenses including insurance for the Bagasse based generation plant shall be 3% with a provision of annual escalation of 5% from second year on 100% capital cost. k. O&M expenses including insurance for the Biomass based generation plant shall be 4.5% with annual escalation of 5% from second year on Plant and machinery by reckoning 85% as Capital cost of Plant and Machinery shall be allowed as O&M expenses with an annual escalation of 5%. l. Station Heat Rate of Biomass plant should be considered 3800 Kcal/Kg. m. Bagasse based Cogeneration Plant to be commissioned in , the fuel cost shall be fixed on the basis of 50% cost of the Sugar Cane price per MT (i.e. Rs. 2550/MT) fixed by the State Government plus transportation cost (i.e. Rs. 100) i.e. Rs per MT. n. Biomass based generation plants to be commissioned in , the cost of biomass fuel Rs. 2476/MT approved by the Commission for should be retained with a provision of annual escalation of 5% per annum. Commission s View : 8. Benchmarks for tariff determination for biomass and bagasse based cogeneration plants to be commissioned in FY (from ) to Case No. 11/2014-SKP 10

11 FY have already been fixed by the Commission in its order dated in suo-motu proceedings no. 31/2012. The Commission has considered the existing norms fixed by the Commission in its order dated for determination of tariff for generation from Biomass based plants and Bagassee based co-generation plants. However, the revised norms in the 1 st amendment in CERC ( Terms and conditions for Tariff determination for Renewable Energy Sources) Regulations, 2014 dated have been considered for Biomass based power Plants. In spite of vast potential of biomass power, no biomass power projects have so far come up in the state. In order to promote biomass based power plants, it has been decided by the Commission to adopt revised norms substituting the existing norms determined by the Commission in its order in Suo-motu proceedings no.31/2012 dated for remaining part of the control period up to Fy The Capital cost, O&M expenses, Station Heat Rate, Calorific value and Aux. consumption etc in respect of Biomass based power projects have been revised as provided in the revised regulation notified by the CERC. 9. The CERC has fixed separate normative capital cost for Biomass projects based on Rankine cycle with water cooled condenser and air cooled condensers. Similarly, for Rice straw based biomass projects with water cooled and air cooled condensers, capital cost have been benchmarked separately. Commission has decided to determine the generic tariff for for these projects also based on the revised norms of CERC. 10. The Commission has also decided to determine the Tariff for Biomass Gasifier Power plants for FY considering the capital cost and other norms of CERC RE Regulation 2012 besides the norms followed by the Commission for Biomass and Bagasse based power plants. 11. Hon ble APTEL in its order passed on in appeal no.33 of 2013 and further in appeal nos.35 &36 of 2013, order dated has Case No. 11/2014-SKP 11

12 directed that the fuel cost for the existing plants has to be at the same level as determined for the new plants for the same period. The Commission has considered the existing norms of 5 % fuel price escalation per annum for determination of Variable cost for FY The variable cost of existing plants and the new plants to be commissioned will be the same. The Commission has also decided that fuel price of the bagasse and biomass fuel shall be revised annually as per normative escalation rate or as determined by the commission. 12. For determination of tariff, the existing norms determined by the Commission in its order dated in Suo- no.31/2012 and motu proceedings amended norms determined by the CERC in its notification dated for biomass based power projects have been considered. (a) Common Norms for Biomass, Biomass Gasifier and Bagasse based Power plants Sl. No. Particulars BERC Existing Norms 1. Useful life 20 years 2. Control period 5 years (Biomass price review at the end of 3rd year) 3. Tariff period 13 years (Biomass and Bagasse Based) 20 yrs for Biomass Gasifier plants 4. Debt-Equity 70:30 5. Interest Rate SBI base rate during first six months of the previous year plus 300 basis points Avg. Base Rate of SBI during First six months in Fy is 9.70%. As such interest rate shall be 9.70%+300basis points equivalent to interest rate of 12.70%. 6. Depreciation 7% for first ten years and 2% for next ten years. 7. Return on equity 20% first 10 years, 24% from 11 th years(both pre-tax) 8. Interest on working capital SBI base rate during first six months of the previous year plus 350 basis points Avg. Base Rate of SBI during First six months in Fy is 9.70%. As such interest rate shall be 9.70%+350basis points equivalent to interest rate of 13.20%. 9. Loan tenure 10 years 10. Discount Factor 10.67% as specified in CERC order Case No. 11/2014-SKP 12

13 (b) Biomass Based Plants: Sl. Particulars BERC No. 1. O&M Cost 24 Lakh/MW for FY with 5.72% escalation rate per annum. Rs 26.82lakh/MW for FY as per existing BERC norms. However, the revised rate as per amendment in CERC regulation dated has been considered and it amounts to Rs lakhs /MW for FY considering Rs 40 lakhs/mw for and escalation 5.72%. 2. Capital cost Revised capital cost as per amended CERC Regulation dated and capital indexation formula amounts to (i)rs lakhs/mw for Biomass based projects(other than Rice straw and julifora)with water cooled condenser (ii)rs lakhs/mw for Biomass based projects(other than Rice straw and julifora)with Air cooled condenser (iii)rs lakhs/mw for Biomass based projects(rice straw and juliflora based) with water cooled condenser (iv)rs lakhs/mw for Biomass based projects( Rice straw and julifora)with Air cooled condenser for FY (detailed in the Annexure B) 3. PLF i) 60% during stabilization(6 months) (ii) 70% during remaining first year (iii) 80% from 2 nd year. 4. Auxiliary energy It is 10% as per existing provision. consumption As per amended CERC Regulation11% during 1 st year and 10% from 2 nd year onwards has been considered for Biomass Power Projects with water cooled condenser and13% during 1 st year and 12% from 2 nd year onwards has been considered for projects with Air cooled condenser. 5. Station Heat Rate 6. Use of fossil fuel It is 4000Kcal/KWh as per existing provision Kcal/KWh as per new amendment in CERC Regulation dated has been considered. 15% as per existing provision. It is substituted as per amended CERC Regulation dated and use of fossil fuels is not allowed. 7. Working capital (i) Fuel stock of four month equivalent to normative PLF. (ii) O&M expenses for one month (iii) Receivable equivalent to two months of fixed and variable charges. (iv)maintenance 15% of O&M expenses. 8. Fuel price Rs. 2476/MT for F.Y12-13 with 5% price escalation per year Rs2730/MT for Fy Gross Calorific Value As per existing norms 3300kcal/kg. 3100Kcal/kg as per amended CERC Regulation dated is considered. Case No. 11/2014-SKP 13

14 (c) Bagasse Co-generation Plants Sl. Particulars BERC No. 1. O&M Cost Normative O&M expense for F.Y Rs. 16 Lac/MW with 5.72% escalation per annum Rs17.89 lakh/mw for Capital cost 420 Lac/MW for Fy with escalation based on indexation formula. Rs Lakh/MW for Fy (annex.A) 3. PLF 53% 4. Auxiliary energy 8.5% consumption 5. Station Heat Rate 3650Kcal/KWh 6. Gross Calorific 2275 Kcal/kg Value 7. Fuel price Rs. 1583/MT for with 5 % escalation per annum Rs1745/MT for FY Working capital (i) Fuel stock of one month equivalent to normative PLF. (ii) O&M expenses for one month (iii) 15% of O&M for Spares (iv)receivable equivalent to two months of fixed and variable charges. (d) Biomass Gasifier Based Plants Sl. Particulars BERC No. 1. O&M Cost 40Lakh/MW for with 5.72% escalation rate per annum. Rs Lakh/MW for FY Capital cost 550Lakh/MW for Escalation based on indexation formula. After taking into account the capital subsidy of Rs150 lakh/mw, Net Capital cost is Rs Lakh/MW for FY (annex.C). 3. PLF 85% 4. Auxiliary energy consumption 10% 5. Fuel related Specific Fuel Consumption-1.25kg/kwh assumptions 6 Fuel Price Rs. 2476/MT for F.Y12-13 with 5% price escalation per year Rs2730/MT for Fy Case No. 11/2014-SKP 14

15 13. Accelerated Depreciation: For availing the benefit of accelerated depreciation applicable income tax % (30% + 10 % surcharge +3% education cess) has been considered for the purpose of determining net depreciation benefit. 5.28% as per straight line method (Book depreciation as per companies Act, 1956) has been compared with depreciation as per Income Tax Rate i.e. 80% of the written down value method. Additional 20% depreciation in the initial year is proposed to be extended to new assets acquired by power generation companies vide amendment in section 32, sub-section (1) clause (ii-a) of the Income Tax Act. Depreciation for the first year has been calculated at the rate of 50% of accelerated depreciation 80% and 50% of additional depreciation 20% (as project is capitalized during the second half of the financial year as per proviso (ii) to Regulation (22). Income tax benefits of accelerated depreciation and additional depreciation, has been worked out as per normal tax rate on the net depreciation benefit. Per unit levellised accelerated depreciation benefit has been computed taking discount factor into account. 14. (a) Fixed cost for Bagasse Cogeneration Plants to be commissioned in FY :- The generic levellised fixed cost determined on the basis of capital cost and parameters specified in para 12(a) comes to Rs. 2.47/KWh for bagasse based cogeneration plants to be commissioned in FY The levellised benefit of accelerated depreciation, if available, is Rs. 0.20/KWh and the levellised fixed cost after adjustment for accelerated depreciation arrives to Rs. 2.27/KWh. The detailed computations of generic tariff are shown in Annexure: I & III for Bagasse based cogeneration projects to be commissioned in FY (b) Variable cost of the Bagasse Cogeneration Plants to be commissioned in FY :- The variable cost of the Bagasse cogeneration plants to be commissioned in FY is determined below taking fuel cost of Rs. 1745/MT for FY Case No. 11/2014-SKP 15

16 considering an escalation of 5% per annum on the fuel price of Rs.1583/MT fixed in FY Financial Year Fuel Cost Rs/KWh The variable cost for the existing Cogeneration Plants, for FY , shall be the same as applicable for the new plants to be commissioned in FY (c ) Effective Tariff for the Bagasse Based Plants to be commissioned in FY :- The effective tariff for the Bagasse cogeneration plants to be commissioned in FY , on the basis of variable cost determined above shall be Rs5.35 per kwh, if the benefit of accelerated depreciation is available to the developer. 15. (a) Fixed cost for Biomass Based Plants to be commissioned in FY : The generic levelised fixed cost for Biomass based power plants based on Rankine cycle technology(other than rice straw and Juliflora based projects) with water cooled condenser is determined for FY on the basis of the capital cost norms notified by CERC in notification dated for biomass projects based on Rankine cycle technology with water cooled condenser. The capital cost is Rs lakhs/mw for FY and the fixed cost has been calculated considering the above capital cost and it arrives to Rs. 2.90/KWh for Biomass based plants (based on other than straw and juliflora)with water cooled condenser to be commissioned in FY The levellised benefit of accelerated depreciation, if available, is Rs. 0.17/KWh and the levellised fixed cost after adjustment for accelerated depreciation comes to Rs. 2.73/KWh. The detailed computations of generic tariff are shown in Annexure: II & IV for Biomass based plants, to be commissioned in FY The Commission has observed that use of air cooled condenser instead of water cooled condenser is needed to minimize consumptive water requirement in the power plants located in water scarce areas. This will reduce pressure on water Case No. 11/2014-SKP 16

17 resources and depletion of water layer in the surrounding areas. CERC has fixed a higher capital cost of Rs580/MW for biomass power plants (other than rice straw and juliflora) with air cooled condenser. The biomass plants with air cooled condenser are costlier and also have higher auxiliary consumption. This further increases the tariff payable by the distribution licensee. In the State of Bihar, plenty of water is available all around and therefore, use of air cooled condenser will be restricted to only those places where water availability is poor. Although, generic tariff for biomass power plants with air cooled condenser have been determined, it will be permitted on case to case basis by the Commission considering the water availability constraints at the proposed location. Before taking up a project with air cooled condenser, the project developer will submit the proposal to the Commission with certificate from Water Resources Department of the State Government about the non-availability of water on the location. Tariffs for Biomass projects with air cooled Condenser and plant based on rice straw/juliflora with water cooled condenser and air cooled condenser have also been determined separately at annexures vii,viii,ix,x,xi and xii. (b) Variable cost of the Biomass Based Plants to be commissioned in FY : The variable cost of the Biomass Based Plants to be commissioned in FY is determined as below taking fuel cost of Rs. 2730/MT for FY considering an escalation of 5% per annum on the fuel price of Rs.2476/MT fixed in FY Financial Year Fuel Cost Rs/KWh (c)effective Tariff for the Biomass Based Plants to be commissioned in FY : The effective tariff for the Biomass Based Plants with water cooled condenser to be commissioned in FY , on the basis of variable costs, Case No. 11/2014-SKP 17

18 determined above shall be available. Rs.6.81/KWh, if accelerated depreciation 16. (a) Fixed cost for Biomass Gasifier Power Plants to be commissioned in FY :-The generic levelised fixed cost for Biomass Gasifier Power plants is determined on the basis of Capital cost norms in the CERC RE Regulation,2012. Depreciation and loan tenure have been taken similar to the norms of the Commission for Biomass based projects. The proposed levellised fixed cost comes to Rs. 2.44/KWh for Biomass gasifier based power plants to be commissioned in FY The levellised benefit of accelerated depreciation, if available, is Rs. 0.12/KWh and the levellised fixed cost after adjustment for accelerated depreciation shall be Rs. 2.32/KWh. The detailed computations of generic tariff are shown in Annexure: V & VI for Biomass Gasifier based power plants to be commissioned in FY (b) Variable cost of the Biomass Gasifier Based Plants to be commissioned in FY : The variable cost of the Biomass gasifier based plants to be commissioned in FY is proposed to be determined as below taking fuel cost of Rs. 2730/MT for FY considering an escalation of 5% per annum on the fuel price of Rs.2476/MT fixed in FY Financial Year Fuel Cost Rs/KWh (c) Effective Tariff for the Biomass Gasifier Based Plants to be commissioned in FY : The effective tariff for the Biomass gasifier based plants to be commissioned in FY , on the basis of variable costs, determined above shall be Rs.6.11/KWh, if accelerated depreciation available- 17. Other terms and conditions will remain the same as stipulated in order dated in suo-motu proceedings no. 31/2012. Case No. 11/2014-SKP 18

19 18. This tariff will be applicable for power generated from bagasse based cogeneration plants and biomass based plants to be commissioned in FY (from --). However, till such time new tariff is determined, tariff determined by this order shall continue. Sd/- (I.A.Khan) Member Sd/- (S. C. Jha) Member Sd/- (U. N. Panjiar) Chairman Case No. 11/2014-SKP 19

20 Annexure-A Capital Cost Indexation for Bagasse Based Cogeneration Projects (FY ) :- The following cost indexation mechanism is applicable as per CERC Regulations in case of Biomass power projects based on Rankine Cycle Technology and non fossil fuel based co-generation projects for adjustment in capital cost for the control period with the changes in wholesale price index for steel and electrical machinery- CC (n)= P&M (n) * (1+F1+F2+F3) P&M (n)= P&M (o) * (1+d (n)) d (n) = [a* {SI (n-1)/si (o)-1}+b* {(EI (n-1)/ei (o)-1}]/(a+b) Where CC (n) = Capital cost for nth year P&M (n)= Plant and machinery cost for nth year P&M (o)= Plant and machinery cost for the base year d (n) = Capital cost escalation factor for year (n) of control period. SI (n-1) = Average WPI Steel Index prevalent for calendar year (n-1) period. of the control SI (o)= Average WPI Steel Index for calendar year (o) at the beginning of the control period. EI (n-1)= Average WPI Electrical machinery Index prevalent for calendar year (n-1) of the control period. EI (o)= Average WPI Electrical Machinery Index prevalent for calendar year (o) at the beginning of the control CC (n)= P&M (n) * [1+F1+F2+F3] Case No. 11/2014-SKP 20

21 d (n) = [a {SI (n-1)/si (o)-1}+b {(EI (n-1)/ei (o)-1}]/(a+b) P&M (n) = P&M (o) *(1+d (n) ) Where a = 0.7 b = 0.3 F1= 0.1 F2= 0.09 F3 = 0.14 WPI Month/Year Electrical Machinery Steel January February March April May June July August September October November December Average CC (o) = Capital cost for the Base year = Rs Lakh/MW P&M (o)= Plant and machinery cost for the Base year = Capital cost d (n) = Capital cost escalation factor for nth year i.e. FY = 4.931% P&M (n)= Plant and machinery cost for the nth year i.e. FY = Lakh/MW CC n = Capital cost for the nth year i.e. FY = Lakh/MW 1+F1+F2+F3 =Rs Lakh/MW Case No. 11/2014-SKP 21

22 Annexure-B Capital Cost Indexation for Biomass Power Plants (FY ) CC (n)= P&M (n) * [1+F1+F2+F3] d (n) = [a {SI (n-1)/si (o)-1}+b {(EI (n-1)/ei (o)-1}]/(a+b) P&M (n) = P&M (n) *(1+d (n) ) Where a = 0.7 b = 0.3 F1= 0.1 F2= 0.09 F3 = 0.14 WPI Month/Year Electrical Machinery Steel January February March April May June July August September October November December Average Average WPI for electrical machinery Year Year Average WPI for Steel Year Year CC (o) = Capital cost for the Base year( ) = Rs. 540 Lakh/MW Case No. 11/2014-SKP 22

23 P&M (o)= Plant and machinery cost for the Base year = = Rs Lakh/MW Capital cost 1+F1+F2+F3 d (n) = Capital cost escalation factor for nth year i.e. FY = 0.775% P&M (n)= Plant and machinery cost = Lakh/MW for the nth year i.e. FY CC n = Capital cost for the nth year i.e. FY = Lakh/MW As per CERC amended regulation,2014 (a) (b) (c) Capital cost for Biomass plant based on (other than rice straw and juliflora) with air cooled condenser is Rs580Lakh/MW for FY and with escalation it is determined to Rs Lakhs/MW for Capital cost for Biomass plant based on rice straw and juliflora with water cooled condenser is Rs590Lakh/MW for FY and with escalation it is determined to Rs Lakhs/MW for Capital cost for Biomass plant based on rice straw and juliflora with air cooled condenser is Rs 630Lakh/MW for FY and with escalation it is determined to Rs Lakhs/MW for Case No. 11/2014-SKP 23

24 Annexure-C Capital Cost Indexation - Biomass Gasifier Power Projects (FY ) CC (n)= P&M (n) * [1+F1+F2+F3] d (n) = [a {SI (n-1)/si (o)-1}+b {(EI (n-1)/ei (o)-1}]/(a+b) P&M (n) = P&M (n) *(1+d (n) ) Where a = 0.7 b = 0.3 F1= 0.1 F2= 0.09 F3 = 0.14 Average WPI for electrical machinery Year Year Average WPI for Steel Year Year CC (o) = Capital cost for the Base year = Rs. 550Lakh/MW P&M (o)= Plant and machinery cost for the Base year = = Rs Lakh/MW Capital cost 1+F1+F2+F3 d (n) = Capital cost escalation factor for nth year i.e. FY = 4.931% P&M (n)= Plant and machinery cost = Lakh/MW for the nth year i.e. FY CC n = Capital cost for the nth year i.e. FY = Lakh/MW After considering the capital subsidy of Rs.150 Lakh/MW, Rs Lakh/MW will be the capital cost. Case No. 11/2014-SKP 24

25 Annexure-I Capital Cost Lakhs/MW Units Generation Unit Years Installed capacity MW > Gross generation MU Auxiliary Consumption MU Net Generation MU Variable cost Bagasse fuel cost Rs. lac Variable cost of generation Rs/KWh Fixed cost O&M Expense Rs. lac Depreciation Rs. lac Interest on Term Loan Rs. lac Interest on working capital Rs. lac Return on equity Rs. lac Total fixed cost Rs. lac Fixed cost of Generation Rs./KWh Discount factor Fixed cost of Generation x Discount factor Rs./KWh Levelised Tariff (fixed) Rs./KWh 2.47 Variable cost for Rs./KWh 3.06 Determination of Tariff for New Bagasse Cogeneration Projects Applicable tariff for Rs./KWh 5.53 (without Income Tax benefit) Case No. 11/2014-SKP 25

26 Calculation showing admissible gains of accelerated depreciation under Income Tax Act for Bagasse Cogeneration Projects Capital Cost : Lakhs Income Tax (MAT) % Book Depreciation: 5.28% Depreciation amount - 90% Income Tax (Normal rates) % Accelerated Depreciation: 80% Annex.III Additional Depreciation: 20% Years Unit Book depreciation % Book depreciation Accelerated depreciation Rs. Lac Opening % Allowed % during the year Closing % Accelerated depreciation Rs. lac Net depreciation benefit Income tax gain Discounting factor Discounted tax gain Levelised Income Tax gain Net Generation Levelised generation Levelised Income Tax benefit Rs. lac Rs. lac Rs. lac Rs. Lac 8.26 MU MU 4.14 Rs./Kwh 0.20 Case No. 11/2014-SKP 26

27 Determination of Tariff for New Biomass Power Projects(Water cooled condenser) Annexure-II Capital cost lakhs/mw Units Unit Years-> Generati on Installed MW capacity Gross MU generatio n Auxiliary MU Consumpt ion Net MU Generatio n Variable cost Biomass Rs. lac fuel cost Variable Rs/KWh cost of generatio n Fixed cost O&M Expense Rs. lac Depreciat Rs. lac ion Interest on Term Loan Interest on working capital Rs. lac Return on Rs. lac equity Total Rs. lac fixed cost Fixed Rs./KWh cost of Generatio n Discount factor Fixed cost of Generatio n x Discount factor Rs./KWh Levelised Rs./KWh 2.90 Tariff (fixed) Variable cost for Rs./KWh 4.08 Applicabl Rs./KWh 6.98 Without income tax benefit. e tariff Case for No. 11/2014-SKP 27

28 Calculation showing admissible gains of accelerated depreciation under Income Tax Act for Biomass Power Projects (other than straw and juliflora)with water cooled condenser Capital Cost : Lakhs Depreciation amount - 90% Income Tax (MAT) % Book Depreciation: 5.28% Income Tax (Normal rates) % Accelerated Depreciation: 80% Additional Depreciation: 20% Years Unit Book % depreciation Book Rs. Lac depreciation Accelerated depreciation Opening % Allowed % during the year Closing % Accelerated Rs. lac depreciation Net Rs. lac depreciation benefit Income tax Rs. lac gain Discounting factor Discounted Rs. lac tax gain Levelised Rs. lac Income Tax Gain Net MU Generation Levelised MU 6.12 Generation Levelised Income Tax benefit Rs./KWh 0.17 Annex.IV Case No. 11/2014-SKP 28

29 Determination of Tariff for Biomass Gasifier Projects Annex.V capital cost Lakh/MW Units Generation Unit Years > Installed capacity MW Gross generation MU Auxiliary Consumption MU Net Generation MU Variable cost Biomas fuel cost Rs. lac Variable cost of generation Rs/KWh Fixed cost O&M Expense Rs. lac Depreciation Rs. lac Interest on Term Loan Rs. lac Interest on working capital Rs. lac Return on equity Rs. lac Total fixed cost Rs. lac Fixed cost of Generation Rs./KWh Discount factor Fixed cost of Generation x Discount factor Rs./KWh Levelised Tariff (fixed) Rs./KWh 2.44 Variable cost for Rs./KWh 3.79 Applicable tariff for Rs./KWh 6.23 (without Income Tax benefit) Case No. 11/2014-SKP 29