GERC Updates Regulations for Small Wind Projects

The Gujarat Electricity Regulatory Commission (GERC) has announced an important update to its regulations for small wind power projects, specifically targeting those with capacities below 10 MW. This new framework applies to projects commissioned between June 6, 2022, and March 31, 2027.

In line with the Ministry of Power's revised competitive bidding guidelines, which set a 10 MW threshold for wind power projects to participate in bidding, the GERC has established a levelised tariff of INR 2.84 per kWh for these smaller wind projects. This tariff is designed to ensure a fair and consistent price for wind energy throughout the life of the project.

The GERC's updated regulations outline detailed financial and operational parameters for these small-scale wind projects. The Commission has determined the useful life of these wind power projects to be 25 years from the commissioning date. The normative benchmark capital cost is set at INR 7.00 crore per MW.

The draft noted, "The Commission observed that as per the present market trend, for harnessing wind potential at higher heights, wind developers/generators prefer MW-class wind turbines with higher hub heights. The Commission also came across recent quotations for supply, erection, and commissioning of a 4 MW wind power project, wherein the quoted price works out to INR 6.75 crore per MW. Therefore, the Commission deems the benchmark capital cost of INR 7.00 crore per MW for wind power projects to be adequate and reasonable considering the market trend."

For operational and maintenance (O&M) costs, the Commission has proposed INR 7.50 lakh per MW for the first year, with an annual escalation of 3.84 percent for tariff determination purposes. The Capacity Utilization Factor (CUF), which measures the efficiency of wind turbines, is set at 35 percent.

The financial parameters include a normative interest rate of 10.15 percent for term loans, with a repayment period of 15 years. The normative interest rate on working capital is fixed at 10.65 percent for the control period of this tariff order. Depreciation is set at 4.67 percent annually for the first 15 years, reducing to 2 percent per year from the 16th to the 25th year. The return on equity (RoE) is fixed at 15.5 percent.

Tax considerations include a Minimum Alternate Tax (MAT) of 17.47 percent per annum for the first ten years and a Corporate Tax rate of 34.94 percent for the subsequent 16 years. A discount rate of 9.77 percent is used to calculate the levelized tariff, reflecting the interest rate on term loans and the RoE.

Developers are allowed to claim 60 percent depreciation in the first year of commissioning and may also qualify for additional financial assistance, incentives, or benefits from the Central or State Government. Should such benefits be utilized, the GERC will re-calculate the tariff to incorporate these financial advantages.

To ensure timely project completion, developers must provide a bank guarantee of INR 10 lakh per MW to the Gujarat Energy Transmission Corporation (GETCO). This guarantee is tied to the project's timely execution. Developers must commission at least 10 percent of the allotted capacity within one month of the evacuation line becoming operational or according to the stipulated timeframe, whichever is earlier. Failure to meet this requirement will result in the developer being liable for long-term transmission charges for the uncommissioned portion until it is completed.

The remaining 90 percent of the capacity must be commissioned within one year of charging the evacuation line, or according to the stipulated timeframe, whichever is earlier. Non-compliance will lead to the cancellation of connectivity and open access by the State Transmission Utility (STU) for the uncommissioned capacity. Developers will forfeit any claim to the cancelled capacity and must pay relinquishment charges as determined by the Commission. The STU will reallocate the cancelled capacity for Renewable Energy (RE) integration, making it available to other potential consumers.

It may be noted  that GERC has also recently introduced the Multi-Year Tariff Regulations, 2024, effective from April 1, 2025, to March 31, 2030, to provide long-term stability and predictability for Gujarat's renewable energy sector.