CERC Finalizes Tariff for Kayamkulam Floating Solar Project, Balancing Costs and Regulatory Norms - 2025-04-04

CERC Sets Final Tariff for 92 MW Kayamkulam Floating Solar Plant, Resolving Dispute Between KSEBL and NTPC

New Delhi, March 30, 2025 – The Central Electricity Regulatory Commission (CERC) has issued a final order resolving a tariff dispute concerning the 92 MW Floating Solar Photovoltaic Plant at Rajiv Gandhi Combined Cycle Power Project (RGCCP), Kayamkulam , Kerala. The order, dated March 30, 2025, sets the levelized tariff at ₹2.68 per kWh, addressing petitions filed by both the Kerala State Electricity Board Limited ( KSEBL ) and NTPC Ltd.

Case Background: KSEBL and NTPC Clash Over Solar Tariff

The dispute arose from two petitions: Petition No. 357/MP/2023 filed by KSEBL seeking review of the provisional tariff and Petition No. 66/GT/2024 filed by NTPC for final tariff determination. KSEBL , the procurer of power, and NTPC , the generating company, had initially agreed on a Power Purchase Agreement (PPA) with a tariff of ₹3.16 per kWh, subject to regulatory approval. However, discrepancies emerged regarding the final tariff calculation, leading both parties to approach the CERC.

Key Arguments and Contentions

KSEBL ’s Stance:

Tariff Review: KSEBL requested a review of the provisional tariff, arguing for a lower final tariff than initially proposed.

Road Construction Cost: A major point of contention was the inclusion of ₹50.77 crore for a motorable road, which KSEBL argued was unnecessary as the plant was commissioned without it and alternative access via boats was available. KSEBL contested this cost, stating it shouldn't be part of the final tariff.

Operational Costs: KSEBL questioned NTPC 's claims for higher Operation & Maintenance (O&M) costs and module degradation factors.

Equity Infusion: KSEBL argued that NTPC had not demonstrated equity infusion into the project, impacting Return on Equity (RoE) calculations.

NTPC ’s Stance:

Final Tariff Approval: NTPC sought CERC approval for a revised levelized tariff of ₹3.22/kWh, based on actual costs and operational parameters.

Delay Justification: NTPC attributed project delays to force majeure events such as the COVID-19 pandemic, labor union issues, and supply chain disruptions, seeking to justify carrying costs incurred due to these delays.

Road Necessity: While acknowledging the road wasn't yet built, NTPC argued it was essential for long-term security and O&M access, especially given incidents of theft and damage at the floating plant. They sought liberty to execute these works and recover the cost through tariff.

Module Degradation: NTPC requested consideration of a 0.7% annual module degradation factor in tariff calculation, citing industry standards and the project's unique saline water environment.

Higher O&M Costs: NTPC justified a higher O&M cost of ₹5 lakh/MW/year, highlighting the unique challenges and higher expenses associated with maintaining floating solar plants compared to land-based projects.

CERC's Analysis and Decision: Balancing Regulatory Norms and Project Specifics

The CERC, after considering arguments from both sides and provisions of the CERC (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulation 2020 , delivered its verdict, addressing each key aspect:

Capital Cost: CERC approved a capital cost of ₹457.19 Crore for the 92 MW project, based on audited balance sheets, but disallowed the ₹50.77 Crore road construction cost as it was not yet executed and deemed non-essential for current operations.

Debt-Equity Ratio: The Commission adopted a 70:30 debt-equity ratio, aligning with regulatory norms and actual project financing details presented by NTPC .

Return on Equity (RoE) and Interest on Loan: CERC applied normative RoE and interest rates as per regulations, factoring in applicable tax rates and prevailing SBI MCLR.

Depreciation: Standard depreciation rates of 4.67% for the first 15 years and the remainder over the project's useful life were approved.

Capacity Utilisation Factor (CUF): A CUF of 26.73% for the entire 92 MW project was approved, based on contractor guarantees, PPA terms, and recent generation data.

Operation & Maintenance (O&M) Expenses: While NTPC claimed ₹5 lakh/MW/year, CERC approved an O&M cost starting at ₹3.63 lakh/MW/year from the 4th year onwards, with a 3.84% annual escalation, considering market trends and previously approved rates for similar projects.

Auxiliary Consumption: Normative auxiliary consumption of 0.75% was allowed, aligning with regulatory limits for floating solar projects.

Module Degradation and System Availability : CERC rejected NTPC ’s requests for incorporating a module degradation factor and system unavailability in tariff calculations, as these are not explicitly provided for in the RE Tariff Regulations 2020.

Final Tariff and Implications

Based on its analysis, the CERC determined a levelized tariff of ₹2.68/kWh for the 92 MW Kayamkulam Floating Solar PV project. This is lower than both NTPC 's claimed ₹3.22/kWh and the interim tariff of ₹2.94/kWh, but still higher than the mutually agreed PPA tariff of ₹3.16/kWh. However, the judgment clarified that the applicable tariff would be the lower of the CERC determined tariff or the mutually agreed tariff, effectively setting the tariff at ₹2.68/kWh .

The order provides clarity on tariff determination for floating solar projects under the existing regulatory framework, emphasizing adherence to CERC regulations while considering project-specific aspects. The decision also underscores the importance of justifying capital expenditure and operational cost claims with robust evidence and alignment with prevailing market trends. NTPC is now directed to bill KSEBL based on the finalized tariff of ₹2.68/kWh.