>Central Electricity Regulatory Commission: Regulatory Views (MOTILAL OSWAL)

Subtle action on regulatory front: Over the past 3-4 months, CERC has come out with regulations, Draft Orders, Discussion Papers, etc on i) medium term and long term open access in inter-state transmission, ii) mechanism to improve grid discipline by regulating UI market, iii) tariff regulations for promotion of renewable energy (RE) and iv) plans to evolve framework for renewable energy certificate. In the interim, CERC also introduced a cap on ST power trading prices to regulate the market, while retaining developer's interest (cap of Rs8/unit). CERC has also proposed to revise power trading margin from an absolute cap of Rs0.04/unit to slab based system, linked to power realizations.

Expect regulatory focus on rationalizing transmission pricing, promotion of Renewables, etc: CERC is in the process of formulating notifications / regulations towards i) Feed-in tariff structure for different renewable energy sources ii) operationalization of Renewable Energy Certificates (including nomination of trading platform, Registry agents, etc) iii) rationalizing transmission pricing which intends to move the system towards marginal pricing method; sensitive to direction, distance and quantum of power flow. Lack of clarity and predictability on transmission charges across the country is one of the key risks in estimating the profitability for a merchant power project.

Issues that need Central Government attention

• CERC is aware of the Memorandum of Understanding (MoUs) signed by various state governments with power project developers, where which provides either free power (for hydro power project) or specified quantum of capacity (25-37.5%) on CERC norms/ CBT tariffs and Variable cost. Given that fact that most states cannot consume the entire power, home states will emerge as a large trading group, going forward. These are currently outside the purview of CERC

• Private developers are trying to participate in Competitive Bidding process under Case- I Bidding; this process has been slow and in many cases State utilities have not been able to formulate clear Bid papers which has resulted in delayed decisions. This has also impacted financial closure for such projects.

Focus to create vibrant trading market: The commission re-iterated its view to create free and open power trading market based on demand and supply dynamics. To develop a vibrant power trading market, CERC has come out with various mechanisms and regulations pertaining to Unscheduled Interchange mechanism, Day ahead market, Power Exchanges, Open access in Inter state and Intra state, National Transmission Tariff Framework, etc. All State Regulators have also taken an unanimous view to promote open access to consumers (annual consumption 1MW+) and is a key priority area.

To read the full report: CERC