Monday, May 25, 2009


Regulatory boost for Renewable power

Sector View:

New: Bullish
Old: Bullish

Investment Conclusion
CERC has published draft regulation on tariff determination from renewable energy sources (wind, small hydro projects, biomass power and non-fossil fuel-based cogeneration projects) which provides for post-tax RoE of around 16% and any variation in the interest charge against the normative rate to be retained by developer. All renewable energy power plants (except for biomass power plants and non-fossil fuel-based cogeneration plants) will be treated as 'MUST RUN' power plants and will not be subjected to 'merit order despatch' principles, thus ensuring stable cash flow. We believe the regulations provide sufficient incentive for increased investment in renewable power projects and increased focus on the Renewable Purchase Obligation to ensure adequate demand.

■ Regulations provide for regulated post-tax RoE of 16%.
■ Interest rate differential from normative, to be retained by developer; this could boost RoE.
■ CDM benefit in initial years may boost post-tax RoE to 22%.
■ Wind and small hydro plants classified as 'MUST RUN'; hence, not subject to 'merit order despatch' principles.
■ Increased investment, particularly in wind power, may benefit equipment suppliers, in our view.

To see full report: POWER & UTILITIES