Before the MAHARASHTRA ELECTRICITY …mercindia.org.in/pdf/Order 58 42/Order_87 of 2015-10102016.pdf · Sunil Hitech Engineers Ltd. (SHEL) and its subsidiary and affiliates, including

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai – 400 005

Tel. 22163964/ 65/ 69 Fax 22163976

Email: [email protected]

Website: www.mercindia.org.in/www.merc.gov.in

CASE NO. 87 of 2015

In the matter of

Petition of Kolhapur Green Energy Pvt. Ltd. for determination of Tariff for supply of

electricity from its 1.8 MW Municipal Solid Waste-based Power Project at Kolhapur to

Distribution Licensees in Maharashtra

Coram

Shri Azeez M. Khan, Member

Shri Deepak Lad, Member

ORDER

Date: 10 October, 2016

M/s Kolhapur Green Energy Pvt. Ltd. (KGEPL), 6th Floor, MET Educational Complex, C- Wing

A.K. Vaidya Marg, Bandra Reclamation, Bandra (West), Mumbai– 400 050 has filed a Petition

on 24 June, 2015 under Section 62(1) of the Electricity Act (EA), 2003 and Regulations 8.1 and

8.2 of the MERC (Terms and Conditions for Determination of Renewable Energy (RE) Tariff)

Regulations (‘RE Tariff Regulations)’, 2015 for determination of Tariff for supply of electricity

from its 1.8 MW capacity Municipal Solid Waste (MSW)-based Power Project at Kolhapur to

Distribution Licensees in Maharashtra.

The Commission, in exercise of its powers under Sections 61, 66, and 86 read with Section 181

of EA, 2003, and all other powers enabling it in this behalf, and after taking into consideration

the submissions made by KGEPL, suggestions and objections from the public and stake-holders

and other relevant material, has determined the tariff for the Project of KGEPL at Kolhapur as

set out in this Order.

mailto:[email protected]

http://www.mercindia.org.in/

MERC Order for determination of Tariff for 1.8 MW MSW project of KGEPL

MERC Order- Case No. 87 of 2015 Page 2 of 44

Table of Contents

1. BACKGROUD AND BRIEF HISTORY ............................................................................................. 7

1.1. Background ............................................................................................................................ 7

1.2. Admission of the Petition and Public Process ........................................................................ 7

1.3. Organisation of the Order ....................................................................................................... 9

2. CONCESSION AGREEMENT BETWEEN KMC AND THE CONCESSIONAIRE .................. 11

2.1. Salient features of the Concession Agreement ..................................................................... 11

2.2. Salient features of the MSW plant ....................................................................................... 12

3. PREMISE FOR DETERMINATION OF PROJECT-SPECIFIC TARIFF .................................. 13

3.1. Regulatory Framework for Tariff Determination ................................................................. 13

3.2. Premise for Development of Tariff Structure ....................................................................... 14

4. PARAMETERES OF TARIFF DETEREMINATION .................................................................... 16

4.1. Background .......................................................................................................................... 16

4.2. Technology of the proposed MSW project .......................................................................... 16

4.3. Seasonal effect on MSW and Output of Power .................................................................... 20

4.4. Installed Plant Capacity ........................................................................................................ 21

4.5. Capacity Utilisation Factor ................................................................................................... 21

4.6. Auxiliary Consumption Factor ............................................................................................. 22

4.7. Capital Cost .......................................................................................................................... 23

4.8. Subsidy ................................................................................................................................. 25

4.9. Debt-equity Ratio ................................................................................................................. 25

4.10. Depreciation ......................................................................................................................... 26

4.11. Accelerated Depreciation ..................................................................................................... 26

4.12. Operation and Maintenance Expenses ................................................................................. 27

4.13. Interest on Term Loan .......................................................................................................... 32

4.14. Interest on Working Capital ................................................................................................. 32

4.15. Return on Equity .................................................................................................................. 33

4.16. Tipping Fee and Other Income ............................................................................................. 33



4.17. Discount Rate ....................................................................................................................... 34

4.18. Tariff Rate and Other Conditions ......................................................................................... 37

5. SUMMARY OF COMMISSION’S DIRECTIVES AND RULINGS .............................................. 39

6. APPLICABILITY OF THIS ORDER ............................................................................................... 41

Appendix – 1: List of persons who attended the Technical Validation Session held on 10 September,

2015 ........................................................................................................................................................ 42

Appendix – 1: List of persons who attended the Technical Validation Session held on 9 December,

2015 ........................................................................................................................................................ 42

Appendix – 2: List of persons who attended the Public Hearing held on 10 June, 2016 .................... 43

Annexure-1: Summary of Annual Fixed Charge and Determination of Levelised Tariff ................. 44



List of Tables

Table 1: Daily Minimum Waste Quantities .................................................................................. 11

Table 2: Comparison of MSW to Energy Conversion Technologies, as per KGEPL .................. 17

Table 3: Auxiliary Equipment Details, submitted by KGEPL ..................................................... 22

Table 4: Break-up of Capital Cost ................................................................................................ 23

Table 5: Capital Cost of MSW Projects ........................................................................................ 24

Table 6: O&M Expense of different types of Waste to Energy technologies .............................. 27

Table 7: Break-up of O&M Expense as submitted by KGEPL .................................................... 28

Table 8: O&M Expense Escalation applied by Commission........................................................ 30

Table 9: O&M Expense as approved by the Commission (Rs. Lakh) .......................................... 31

Table 10: Computation of Income from Tipping Fee ................................................................... 34

Table 11: Summary of Parameters ................................................................................................ 34



Abbreviations

APTEL Appellate Tribunal for Electricity

CEA Central Electricity Authority

CER Certified Emission Reduction

CERC Central Electricity Regulatory Commission

CDM Clean Development Mechanism

CoD Commercial date of Operation

CPCB Central Pollution Control Board

DBFOT Design Build Finance Operate and Transfer

EA Electricity Act

FD Forced Draft

ID Induced Draft

HV High Voltage

KGEPL Kolhapur Green Energy Pvt. Ltd

KMC Kolhapur Municipal Corporation

kVA Kilo Volt Ampere

kW Kilo Watt

kWh Kilo Watt Hour

MEDA Maharashtra Energy Development Agency

MERC Maharashtra Electricity Regulatory Commission

MNRE Ministry of New and Renewable Energy

MoEF Ministry of Environment & Forest

MSEDCL Maharashtra State Electricity Distribution Company Limited

MSETCL Maharashtra State Electricity Transmission Company Limited

MSPGCL Maharashtra State Power Generation Company Limited

MSW Municipal Solid Waste

MU Million Unit

O&M Operation and Maintenance



RDF Refuse-Derived Fuel

RSSPL Rochem Separation System Pvt. Ltd

SERC State Electricity Regulatory Commission

SHIIPL Sunil Hi Tech India Infra Pvt. Ltd

SLF Sanitary land filling

SPV Special Purpose Vehicle

TPD Tonnes per Day

WTE Waste to Energy



1. BACKGROUD AND BRIEF HISTORY

1.1. Background

1.1.1. Considering the growing need for waste management, the Kolhapur Municipal

Corporation (KMC), with the intention of developing a facility for treatment and disposal

of the waste, had issued Request for Proposal (RfP) in 2013. KMC proposed to deliver

180 TPD of MSW at the Project site to the Developer for setting up of a Municipal Solid

Waste to Energy (WTE) Project.

1.1.2. M/s Rochem Separation System Pvt. Ltd (RSSPL) was selected after the bidding process

and KMC issued it a letter of award dated 17 September, 2013.

1.1.3. A Special Purpose Vehicle (SPV), namely KGEPL, was formed to establish a processing

Plant with a capacity of 180 tonnes per day (TPD) for conversion of MSW into useful

products (Power, Refuse-derived Fuel (RDF) and Compost) at Kasba Bavda Village in

Kolhapur City on a Design, Build, Finance, Operate and Transfer (DBFOT) basis for 30

years. A Concession Agreement was signed between KGEPL and KMC on 7 February,

2014.

1.1.4. KGEPL is promoted by

RSSPL with a shareholding of 51%.

Sunil Hitech Engineers Ltd. (SHEL) and its subsidiary and affiliates, including Sunil

Hitech India Infra Pvt. Ltd., with a shareholding of 49%.

1.1.5. Installed Plant capacity of the proposed MSW Power Project is 1.8 MW.

1.1.6. This Order relates to KGEPL’s Petition for determination of Tariff for supply of

electricity from its 1.8 MW capacity MSW-based Power Project at Kolhapur to

Distribution Licensees in Maharashtra.

1.2. Admission of the Petition and Public Consultation Process

1.2.1. KGEPL filed a Petition on 29 June, 2015 under Sections 62(1) (a) and 86(1) (e) of the

EA, 2003 and Regulations 7.1 and 7.2 of the RE Tariff Regulations, 2010 for

determination of the Tariff for sale of electricity generated from its 1.8 MW MSW-based

Power Project.

1.2.2. Preliminary data gaps were forwarded to KGEPL on 4 September, 2015, to which

KGEPL submitted replies vide letters dated 8 September, 2015.



1.2.3. Two Technical Validation Sessions (TVS) were held on 10 September and 9 December,

2015 in the presence of Institutional Consumer Representatives (CRs) authorised under

Section 94(3) of the EA, 2003. KGEPL made a presentation on the salient features of the

Petition. The TVS minutes were forwarded to KGEPL on 23 September and 14

December, 2015. The list of persons who attended the TVS is at Appendix – 1.

1.2.4. The Commission notified the RE Tariff Regulations, 2015 on 10 November, 2015. These

Regulations are applicable to new RE Projects commissioned in Maharashtra for the

generation and sale of electricity to Distribution Licensees in the State. Regulations 8.1(a)

and 8.2 provide for determination of Project-specific tariff for MSW-based power Plants:

“8.1 A Project-specific tariff shall be determined by the Commission on a case-to

case basis for the following types of Projects:

(a) Waste to Energy Projects based on the technologies approved by MNRE such as

Municipal Solid Waste-based Projects;…

8.2 The determination of project-specific tariff for generation of electricity from such

RE sources shall be in accordance with such terms and conditions as may be

stipulated in the relevant Orders of the Commission:

Provided that the financial norms specified in Chapter 2, except with regard to

Capital Cost and O&M expenses, shall be the ceiling norms while determining such

project-specific tariff.”

1.2.5. Following the issue of the RE Tariff Regulations, 2015, on 28 December, 2015 the

Commission asked KGEPL to submit a revised Petition in accordance with the new

Regulations. On 10 February, 2016, KGEPL submitted the revised assumptions and

calculations accordingly. The Commission noted, that in its revised submission, KGEPL

had considered Interest Rate on Term Loan, Interest Rate on Working Capital (IoWC),

Discount Rate and Operation and Maintenance (O&M) escalation percentage based on

the requirement for Projects to be commissioned in FY 2015-16. It asked KGEPL to

submit the expected commissioning date and to revise the assumptions as per the RE

Tariff Regulations for Projects to be commissioned in FY 2016-17, in case its Project was

expected to be commissioned after 31 March, 2016.

1.2.6. KGEPL submitted a revised Petition on 17 March, 2016, with further changes on 3 May,

2016. KGEPL has made the following prayers:

1) “Accept this petition for determination of tariff for supply of electricity from

proposed MSW Power Project at Kolhapur to Distribution licensees in Maharashtra. It is

further requested that the Hon. Commission may specify the levelised tariff for proposed

MSW power plant for 20 year Tariff Period which is Useful Life of the plant. The Hon.



Commission may direct the distribution licensee to execute the PPA with KGEPL for the

specified Tariff Period.

2) Approve the final levelised tariff of Rs. 7.44/kWh for sale of electricity generated

from proposed MSW Power Project to distribution licensees in Maharashtra.

3) To grant an opportunity in person before Hon Commission during the hearing on

the above matter.

4) Condone any inadvertent omission/errors/short comings and permit KGEPL to

add/change/modify/alter this filing and make future submissions as may be required at a

future date.”

1.2.7. The Commission admitted the revised Petition on 13 May, 2016. In accordance with

Section 64 of the EA, 2003, it directed KGEPL to publish its Petition in an abridged form

by 16 May, 2016, and to reply expeditiously to all suggestions and objections received

from the public on its Petition.

1.2.8. KGEPL published the Public Notice in the daily newspapers Active Times and Times of

India (English), and Punya Nagari and Mumbai Lakshadeep (Marathi) on 17 May, 2016

inviting public suggestions/objections and intimating the date of Public Hearing. Copies

of the Petition and its Executive Summary were made available at KGEPL’s offices and

on its website. The Public Notice and Executive Summary of the Petition were also made

available on the websites of the Commission (www.mercindia.org.in, www.merc.gov.in)

in downloadable format.

1.2.9. A Public Hearing was held on 10 June, 2016 at the Office of the Commission, 13th

Floor,

Centre No. 1, World Trade Centre, Cuffe Parade, Colaba, Mumbai. The list of persons at

the Public Hearing is at Appendix-2.

1.2.10. The Commission has ensured that the due process contemplated under the law to ensure

transparency and public participation was followed at every stage and adequate

opportunity was given to all concerned to file their say.

1.3. Organisation of Order

1.3.1. This Order is organised in the following 7 Sections:

Section 1 provides a brief history and sets out the quasi-judicial regulatory process

undertaken by the Commission. A list of abbreviations with their expanded forms is

included.

Section 2 describes the salient features of the Concession Agreement between KMC

and the Concessionaire.

Section 3 details the Tariff philosophy underlying the tariff determination.



Section 4 comprises the submissions with respect to performance parameters and

financial parameters, the Commission's analysis, and the methodology adopted to

determine the tariff and other parameters.

Section 5 summarises the directives and rulings of the Commission.

Section 6 addresses the applicability of this Tariff Order.



2. CONCESSION AGREEMENT BETWEEN KMC AND CONCESSIONAIRE

2.1. Salient features of Concession Agreement

2.1.1. The Project is allotted on DBFOT basis for construction and operation of a MSW

processing facility for 180 TPD for a period of 30 years.

2.1.2. KMC has agreed to deliver the assured waste quantity of 180 TPD at the Project site for

processing. KMC has also agreed to pay a Tipping Fee of Rs 308 per MT of MSW till the

end of the Concession Period.

2.1.3. The MSW processing facility is to be designed for a minimum processing capacity of 180

TPD of MSW as per the schedule shown in the Table below.

Table 1: Daily Minimum Waste Quantities

Sr. No. Financial Year Daily minimum waste

quantity (TPD)

1 2015 140

2 2016 140

3 2017 140

4 2018 150

5 2019 150

6 2020 150

7 2021 150

8 2022 150

9 2023 160

10 2024 160

11 2025 160

12 2026 160

13 2027 170

14 2028 170

15 2029 to End of

Concession Period 180



2.1.4. The Concessionaire can market and sell or dispose of all the components/ products of

MSW, including but not limited to electricity, methane, RDF, compost, and retain any

revenues there from.

2.1.5. The Concessionaire shall receive all financial benefits accruing in respect of or on

account of the Project, including Certified Emission Reductions (CERs) under the Clean

Development Mechanism (CDM).

2.1.6. The treatment facility selected for the Project would scientifically process the MSW.

KGEPL is to ensure that not more than 20% of the MSW received at the processing

facility will be sent to a Landfill.

2.1.7. The Concessionaire should transfer the Project facility at the end of the Concession

Period to KMC.

2.2. Salient features of the MSW Plant, as per KGEPL

2.2.1. The proposed MSW Project involves use of mass combustion / incineration technology

for WTE conversion.

2.2.2. The Project will process approximately 180 TPD of MSW and produce around 12.6

million units of green power yearly.

2.2.3. The proposed technology is capable of meeting the emission norms specified by the

Central Pollution Control Board (CPCB) / Ministry of Environment and Forests (MoEF).

2.2.4. The Project proposes a Single Segment Reverse Push Stoker System, capable of

combusting Municipal Waste containing moisture up to 45%.

2.2.5. The special design of the stoker system and grate increases the retention time of the

MSW on the grate and helps in complete combustion of the MSW.



3. PREMISES FOR DETERMINATION OF PROJECT-SPECIFIC TARIFF

3.1. Regulatory Framework for Tariff Determination

3.1.1. As per Section 62(1) of the EA, 2003, the Appropriate Commission is empowered to

determine the Tariff for supply of electricity by a Generating Company to a Distribution

Licensee, and for transmission and wheeling of electricity. As per Section 61 (h), the

Commission shall be guided, among others, by the aspect of promotion of electricity

generation from renewable sources of energy.

3.1.2. Section 86(1)(e) of the EA, 2003 stipulates that –

"The State Commission shall discharge following functions, namely

(1)(e) promote cogeneration and generation of electricity from renewable sources of

energy by providing suitable measures for connectivity with grid and sale of electricity to

any person, and also specify, for purchase of electricity from such sources, a percentage

of total consumption of electricity in the area of distribution licensee.”

3.1.3. Regulation 3.1 of the RE Tariff Regulations, 2015 states that:

“3.1 These Regulations shall apply to those new RE Projects which are commissioned in

the State of Maharashtra for the generation and sale of electricity to Distribution

Licensees in the State, are Eligible Projects for the purposes of these Regulations, and

whose tariff is to be determined by the Commission under the provisions of Section 62

read with Section 86 of EA, 2003:”

3.1.4. As per Regulation 8.1, a Project-specific Tariff shall be determined on case to case basis

in case of MSW-based Power Projects.

3.1.5. Regulation 8.2 provides that the financial norms set out in the Regulations, except for

capital cost and O&M expenses, shall be the ceiling norms while determining the Project-

specific Tariff:

“8.2 The determination of project-specific tariff for generation of electricity from such

RE sources shall be in accordance with such terms and conditions as may be stipulated

in the relevant Orders of the Commission:

Provided that the financial norms specified in Chapter 2, except with regard to

Capital Cost and O&M expenses, shall be the ceiling norms while determining such

project-specific tariff.”

3.1.6. The Commission has issued a generic Tariff Order for procurement of power from RE

sources (namely, wind, non-fossil fuel-based co-generation, biomass, small hydro and

solar) for FY 2016-17 in Case No. 45 of 2016, dated 29 April, 2016. While determining



the Project-specific Tariff for this MSW Project, it has considered the relevant principles

and methodology adopted in the RE Tariff Order so as to ensure consistency and

certainty in the regulatory approach.

3.2. Premise for Development of Tariff Structure

3.2.1. The Commission has analysed the Detailed Project Report (DPR) and the Petition

submitted by KGEPL taking into consideration the regulatory framework and the

objective of promoting generation from MSW-based Power Projects. The Tariff has been

determined as per Regulation 9.2 of the RE Tariff Regulations, which reads as follows:

“9.2 A Petition for determination of project-specific tariff shall be accompanied by such

fee as may be specified in the applicable Regulations of the Commission, and shall be

accompanied by:

(a) Information in Forms 1.1, 1.2, 2.1 and 2.2, as the case may be, appended as

Annexure-A to these Regulations;

(b) A detailed project report outlining technical and operational details, site-specific

aspects, premises for Capital Cost and financing plan, etc.;

(c) A statement of all applicable terms and conditions and expected expenditure for the

period for which tariff is to be determined;

(d) A statement containing details of any grant, subsidy or incentive received, due or

assumed to be due from the Central Government and/or State Government, which shall

also include the computation of tariff without consideration of such grant, subsidy or

incentive;

(e) Details of financial gain through REC or any other mechanism;

(f) Any other information that the Commission may require KGEPL to submit.”

3.2.2. Useful Life: Regulation 2.1 (mm) stipulates as follows regarding the Useful Life of RE

Projects requiring a Project-specific Tariff.

“Provided that the Useful Life of other RE Projects shall be as stipulated by the

Commission while determining the Project specific tariff, taking into consideration the

norms of the Central Commission.”

3.2.3. The Central Electricity Regulatory Commission (CERC) (Terms and Conditions for

Tariff determination from Renewable Energy Sources) (Fourth Amendment) Regulations,

2015, specifies 20 years as the Useful Life of MSW Projects. Accordingly, the

Commission has taken the Useful Life of the present Project as 20 years from its

commercial date of operation (COD).



3.2.4. Levelised Tariff Design: In accordance with Regulations 11.2 and 11.3, the Commission

has determined the levelised tariff for the representative case in respect of MSW-based

Projects. The relevant provisions are given below:

“11.2 For the purpose of computation of levelised tariff, a discount factor equivalent to

the normative post-tax weighted average cost of capital shall be considered.

11.3 Levelisation shall be carried out for the ‘Useful Life’ of the RE Project, while tariff

shall be determined for the period equivalent to the Tariff Period.”

3.2.5. Tariff Period: The Commission has considered a Tariff Period of 20 years for the MSW

Project from the COD.

3.2.6. The assumptions and rationale for input values of Project-specific parameters have been

elaborated in the subsequent Section.



4. PARAMETERS OF TARIFF DETEREMINATION

4.1. Background

4.1.1. Under Regulation 10 of the RE Tariff Regulations, 2015, the Tariff for RE Projects shall

be a single-part tariff consisting of the following cost components:

a) Return on Equity (RoE);

b) Interest on Loan Capital;

c) Depreciation;

d) Interest on Working Capital;

e) O&M expenses;

The performance parameters and financial parameters are discussed in this Section.

4.2. Technology of proposed MSW Project

KGEPL’s submission

4.2.1. KGEPL has proposed to use mass combustion technology for the proposed Project, after

having studied the merits and demerits of other technological options and analysis of the

quality of waste and local conditions. Regarding quality of waste, National Environmental

Engineering Research Institute (NEERI) has done a study of the characteristics of waste.

Samples from different Wards, dumping sites and waste bins of Kolhapur city were

collected for physical and chemical analysis. The study revealed that the moisture content of

the waste varied widely from 5.79% to 64% in the 29 samples collected.

4.2.2. KGEPL has referred to the Ministry of New and Renewable Energy (MNRE) document

“Technical Memorandum on Waste to Energy Technologies”, under the National Master

Plan for Development of WTE in India. MNRE has assessed the available technologies

for conversion of MSW to Energy, i.e., bio-methanation, gasification/ pyrolysis,

incineration and land filling. This assessment by MNRE is done on criteria such as

system configuration, system auxiliaries, environmental aspects, resource recovery and

commercial aspects. The advantages of the incineration / combustion technology as per

this assessment are:

a) Mass-combustion systems have larger capacities and higher thermal efficiencies.

b) Mass-combustion systems, as compared to modular systems, generate higher quality

steam, allowing for higher revenues per tonne of waste.

c) The facilities with mass-combustion systems can accept refuse that has undergone

very little pre-processing, like the removal of oversized items.



d) Mass-combustion avoids many of the refuse handling problems caused by the

extreme heterogeneity and variability of available waste.

e) If efficient burning is ensured, as in this case, most of the burning occurs on the grate,

less particulate matter enters in the gas stream, and the cost of maintaining air

pollution levels is thus reduced.

f) Even within combustion technology, the net energy conversion in mass combustion

system can be equal to or better than in RDF systems, since minimal energy is used

for front-end processing and no burnable material is removed

g) The units are compact and, therefore, land requirements are less than for RDF.

4.2.3. A comparison of various MSW to Energy conversion technologies is given below:

Table 2: Comparison of MSW to Energy Conversion Technologies, as per KGEPL

Sr.

No

Associated

Factors Composting

Bio-

methanation Incineration Gasification SLF

1 Air Pollution

a Extent Low Low Medium Medium High

b

Requirement of

Air Pollution

Control

Yes Yes

c Dixons/ Furans

Possibility

exists: but

minimized due

to removal of

plastics from

waste by rag

pickers

d

Release of

Green House

Gases

Uncontrolled Controlled and

utilized

Controlled and

utilized

Controlled

and utilized

Mostly

uncontrolle

d

2 Water Pollution

a Exists Yes Yes Yes Yes Yes

b

Requirement of

Waste water

treatment

Yes Yes Yes Yes Yes

c Quality of

treated water

May be

discharged into

water bodies

May be

discharged into

water bodies

Used in the

process

Used in the

process

Discharged

into water

bodies

d Degree of

Pollution High Medium Low Medium High



Sr.

No

Associated

Factors Composting

Bio-

methanation Incineration Gasification SLF

3 Rejects

a

Solid Waste

generation due to

rejects/ sludge

formation in the

process

High Low Low Low Low

b

Volume

reduction of

waste

15-30% 45-50% 80-90% 65-75% 70-80%

4.2.4. The important features of the proposed technology are:

a) The technology is based on mass-combustion of the combustible materials present in

MSW.

b) The heat generated is used to produce steam that in turn produces power through

steam turbines.

c) The technology can be used for a very wide range of wastes.

d) The process can reduce the waste volume up to 90% and its capital cost is lower than

other MSW treatment technologies.

e) The entire MSW is converted into energy with higher efficiency as compared to the

other technologies.

f) Complete combustion optimally involves a two stage transformation of fuel, in this

case solid waste into carbon dioxide (C02) and water vapour.

4.2.5. The process flow diagram is shown below:





Commission’s Analysis and Ruling

4.2.6. The National Master Plan (NMP) for Development of WTE has recognised various

technologies such as bio-methanation, landfill gas recovery, gasification, composting,

incineration, etc. for WTE Projects. Of these, gasification/pyrolysis and

incineration/combustion are suitable for solid waste. The technology adopted by KGEPL

i.e. mass-combustion (incineration) technology for the WTE process, is also recognised

in the NMP. The Commission also verified that the proposed technology is capable of

meeting the emission norms specified by the CPCB and MoEF.

4.2.7. The Commission has considered the technology particulars and specifics for determining

the Project-specific Tariff.

4.3. Seasonal effect on MSW and power output


4.3.1. KGEPL had not considered the seasonal impact on the receipt of MSW and the output of

power in its Petition.


4.3.2. The Commission asked KGEPL regarding any seasonal impact on receipt or processing

of MSW and consequently on the Tipping Fee and, if so, whether it had been factored

while calculating the annual energy generation. Further, in the rainy season, the moisture

content of the waste may often be above 45%. The Commission asked KGEPL whether

there is any process to handle extremely wet waste and any safeguard to ensure that the

generation is not interrupted due to rain. It also asked whether there is any safeguard to

ensure that the generation is not interrupted if KMC is unable to provide MSW daily as

per the minimum requirement of the Plant.

4.3.3. KGEPL replied that the proposed reverse reciprocating grate incineration/ combustion

route for conversion of MSW to energy is a thermo-chemical conversion of WTE. The

seasonal variations in moisture levels in MSW does not affect the power generation as

may be the case with the bio-chemical conversion of WTE observed in bio-methanation/

gasification technology. Further, the primary air used for supporting burning is pre-

heated by a secondary air heater to raise the temperature to more than 240 ºC to 250 ºC so

as to ensure that the MSW that enters the furnace is dry. The design also allows control

over the amount of primary air in one or several or all air chambers, thereby improving

the regional or whole combustion. The waste holding pit has a capacity to hold waste for

4-5 days, which provides a buffer in case of shortage of waste.



4.3.4. Considering the submissions of KGEPL, the Commission has not considered any

seasonal impact on receipt of MSW since it appears that the technology and processes

involved are capable of handling significant variations. The Tipping Fee is also taken as

constant, based on an average yearly MSW receipt of 180 TPD as submitted by KGEPL.

4.4. Installed Plant Capacity


4.4.1. KGEPL has taken the installed Plant capacity as 1.8 MW.


4.4.2. The Commission referred to the DPR submitted by KGEPL and noted that the proposed

capacity is in line with it. Accordingly, the Commission has taken the installed capacity

of 1.8 MW for the purpose of this Project-specific Tariff determination.

4.5. Capacity Utilisation Factor


4.5.1. Considering the availability of MSW from KMC and variation in the quality of MSW

across seasons, KGEPL has considered the Capacity Utilization Factor (CUF) as 65%

during the stabilisation period (first year) and 80% for the remaining period.


4.5.2. KGEPL has proposed a higher CUF than considered by CERC and of other similar MSW

Projects. Accordingly, the Commission has considered the CUF of 65% for the first year

and 80% for the remaining life of the Project, as proposed by KGEPL.

4.5.3. The operational risk of the MSW Power Plant operations has to be borne by KGEPL. The

risk of lower generation and consequent lower CUF cannot be passed on to the

Distribution Licensees/consumers at a later stage. Similarly, the benefit of excess

generation beyond the threshold value of CUF will be allowed to be retained by KGEPL.

4.5.4. The MSW Project shall be treated as a “Must Run” Power Plant and shall not be subject

to Merit Order Despatch (MOD) principles till such time as the Commission stipulates or

specifies otherwise as per clause 16.3 of the MERC (Distribution Open Access)

Regulations, 2016.



4.6. Auxiliary Energy Consumption Factor


4.6.1. The overall Plant Auxiliary Consumption has been considered as 20% of gross generation

for tariff computation. Of this 20%, 16% has been considered for the main Plant

equipment Auxiliary Consumption and 4% for Plant lighting, building services and

transformer/other equipment losses.


4.6.2. The Commission had asked KGEPL to explain the higher Auxiliary Consumption

proposed as compared to its Projects at Patna and Surat and other technology-based

MSW Power Projects approved by the Commission. KGEPL stated that the Auxiliary

Consumption of the proposed Plant is higher on account of its smaller capacity (1.8 MW)

as compared to other MSW Projects which have a higher capacity (average of 10 MW).

4.6.3. The Commission also asked for the reasoning/justification for considering 20%

Auxiliary Consumption and sought the equipment-wise break up of Auxiliary

Consumption in terms of equipment ratings. KGEPL submitted that the ID Fan, FD Fan

and boiler feed pumps are required to be operated for 7,008 hours in a year. It submitted

details of the type of auxiliary equipment, their individual load and operating hours as

shown in the Table below:

Table 3: Auxiliary Equipment Details submitted by KGEPL

Sr. No Equipment

Power

Consumption

(kW)

Working

hours in a

year

Annual Energy

Consumption

(kWh)

1 ID Fan 50.0 7,008 350,400

2 FD Fan 30.0 7,008 210,240

3 Boiler Feed Pump 86.0 7,008 602,688

4 Cooling Water System 65.0 6,360 413,400

5 Crane 30.0 4,225 126,750

6 Trommel 35.0 5,618 196,630

7 Fuel Feeding 30.0 4,220 126,600

8 Plant Lighting 35.0 4,225 147,875

9 Building services like air-

conditioning, fire prevention 25.0 8,760 219,000

10 Transformer and other equipment

loss 15.0 8,760 131,400

Total 401

2,524,983



4.6.4. The Commission has verified the assumptions made by KGEPL and considered an

Auxiliary Energy Consumption factor of 20%.

4.7. Capital Cost


4.7.1. The Capital Cost is proposed at Rs. 2482.68 crores, as presented in the Table below:

Table 4: Break-up of Capital Cost

Sr. No Project Cost Amount (Rs. lakh)

1 Civil Work for Plant and Machinery 613.42

2 Plant and Machinery 1,666.68

3 Total of Plant and machinery (EPC cost)(1 +2) 2,280.10

4 Financing cost @ 1.50% of the EPC Cost 34.20

5 Preliminary and pre-operative expenses @ 4% of EPC Cost 91.20

6 Interest during construction 77.18

Total Project Cost (3+4+5+6) 2,482.68

4.7.2. KGEPL has submitted the detailed Techno-Economic Viability (TEV) Report of the

Project giving details of the capital cost.


4.7.3. The Commission had asked KGEPL for the detailed break up of audited capital cost.

KGEPL stated that the major cost of the mass-combustion technology proposed is on

account of the power generation facility, as the fuel treatment and pre-treatment facilities

cost is negligible. There is no compost generation, and hence no compost-related facility

is required. For the fuel treatment, no major equipment/belt conveyor is involved in this

process.

4.7.4. The Commission notes that the capital cost of the Project includes plant and machinery,

civil works, erection and commissioning, financing costs, preliminary and pre-operative

expenses and interest during construction (IDC). As per the proviso to Regulation 13 of

the RE Tariff Regulations, 2015, KGEPL has submitted the detailed break-up of the

capital cost items as specified in Regulation 9.2.

4.7.5. While the entire technology risk entailing selection of capacity, configuration,

technology, etc., is borne by KGEPL, the Commission has to ensure that the capital cost

is optimal and reasonable so that no undue cost burden is passed on to consumers through

the Project-specific Tariff determination.



4.7.6. In response to a query, KGEPL confirmed that, as submitted in the TEV Report, it has

considered the cost of evacuation arrangement up to the HV side of the generator

transformer which is the inter-connection point. This cost is included in the total capital

cost.

4.7.7. The Commission has considered the documents furnished, such as the TEV Report of an

independent agency, details of bids quoted by the technology providers, and the

submissions made by KGEPL. In its proposed norms for determination of Generic Tariff

for MSW/WTE Projects for 2015-16, CERC has considered a capital cost of Rs 1500

lakh/MW, excluding land cost. In its recent Order dated 4 August, 2015, the Gujarat

Electricity Regulatory Commission (GERC) has determined the Project-specific Tariff

for the 11.5 MW MSW Plant of RGE Surat Pvt. Ltd. considering Rs 1778 lakh/MW

based on mass-burn combustion technology. A comparative Table of recently approved

capital costs for WTE Projects by several Regulatory Commissions in India with the

capital cost approved in the present case is presented below:

Table 5: Comparative Capital Cost of MSW Projects

Sr. No

Waste to Energy Project

Capital Cost

(in Rs.

Lakh) MW

Capital Cost /

MW (In Rs.

Lakh) Technology

1 MERC, Case No. 87 of 2015

(KGEPL) (present Case) 2482.7 1.8 1379.3

Mass

Combustion


(Solapur Bioenergy) 3614.6 2.8 1277.2 Gasification


(Rochem Pune, RGEPL) 12949.9 9.0 1443.7 Gasification

4 GERC, Case No. 1433 of 2014

(RGE Surat Pvt. Ltd.) 20448.0 11.5 1778.1

Mass

Combustion

5 CERC (Generic, SM/03/2015) 1500.0 Combustion

6 BERC, Case No. 22 of 2015

(PGEPL, Patna) 20542.8 11.5 1786.3 Combustion

4.7.8. Considering the above comparison of capital costs for WTE projects, the Commission

finds the capital cost claimed by KGEPL to be within reasonable limits, especially when

compared to similar combustion technology-based projects. Accordingly, for tariff

determination for the 1.8 MSW Power Project of KGEPL, the Commission has taken a

capital cost of Rs 2,482.68 lakh (1379.27 lakh/MW), as submitted by KGEPL.



4.8. Subsidy


4.8.1. KGEPL has not considered any MNRE subsidy for determination of tariff for the Project.

It would inform the Commission as and when any MNRE subsidy is sanctioned.


4.8.2. The Commission asked KGEPL to confirm the nature and extent of grant or capital

subsidy available for such MSW Projects, whether it has been availed or is proposed to

be availed, with justification. KGEPL stated that, as per the MNRE Administrative

Approval dated 12 September, 2013, the capital subsidy is to the extent of Rs 2

crore/MW. A total outlay of Rs 38 crore was allocated for the programme on energy from

Urban, Industrial and Agriculture Waste for 2013-14. However, MNRE has not

announced any capital subsidy for FY 2015-16 and, therefore, KGEPL has not applied

for it.

4.8.3. The Commission noted from the documents submitted by KGEPL that it is yet to receive

any MNRE subsidy as it has not been announced yet.

4.8.4. In view of the above, the Commission has not taken any MNRE subsidy for tariff

determination. KGEPL is directed to submit the details of such subsidy as and when

sanctioned by MNRE. The Commission also directs the Maharashtra Energy

Development Agency (MEDA), which is the State Nodal Agency, to inform the

Commission and the concerned Distribution Licensee of any such grant or subsidy if and

when it is provided to KGEPL. The treatment of any such grant or subsidy received in

future shall be in accordance with Regulation 24 of the RE Tariff Regulations. Further,

specific provisions for recovery of any such grant or subsidy by the Distribution Licensee

(if availed by KGEPL), reflecting the relevant provisions of Regulation 24, shall be

incorporated in the Energy Purchase Agreement (EPA) between KGEPL and the

concerned Distribution Licensee.

4.9. Debt-Equity Ratio


4.9.1. The Project’s actual debt: equity ratio is 65:35. However, KGEPL has proposed a debt:

equity ratio of 70:30, in line with the RE Tariff Regulations, for determination of tariff.




4.9.2. The Commission has taken the debt-equity ratio of 70:30 as specified in Regulation 14 of

the RE Tariff Regulations, 2015, which states as follows:

“14.2 For project-specific tariff determination, if the equity actually deployed is

more than 30% of the Capital Cost, the equity in excess of 30% shall be treated as

normative loan:

Provided that, where the equity actually deployed is less than 30% of the

Capital Cost, the actual equity shall be considered for determination of tariff;…”

4.9.3. Since the equity actually deployed is more than 30% of the capital cost, the equity in

excess of 30% has been considered as normative loan, and a debt:equity ratio of 70:30

has been applied for tariff determination.

4.10. Depreciation


4.10.1. KGEPL has computed depreciation at the rate of 5.83% per annum for the first 12 years

of the Tariff Period. The remaining depreciation amount (up to 90% of capital cost) has

been spread over the remaining Useful Life of the Project (8 years), in line with the RE

Tariff Regulations, 2015.


4.10.2. The Commission has accepted the computation of depreciation proposed by KGEPL,

which is in accordance with Regulation 16 of the RE Tariff Regulations, 2015.

4.11. Accelerated Depreciation


4.11.1. KGEPL has not claimed any Accelerated Depreciation benefit.


4.11.2. Regulation 24 of the RE Tariff Regulations, 2015 requires that the accelerated

depreciation benefit be taken into account while determining the tariff if it has been

availed. In its Petition, KGEPL did not consider any Income Tax benefit on account of

accelerated depreciation. In response to a query, KGEPL clarified that the benefit of

accelerated depreciation has not been availed by it. Hence, the Commission has not

considered accelerated depreciation while determining the tariff. However, the



Distribution Licensee entering into an EPA with KGEPL shall verify this claim of not

having availed accelerated depreciation benefit after the accounts of KGEPL for the 1st

year of operation are audited. The Distribution Licensee shall pass on the benefit to

consumers if accelerated depreciation is actually availed by KGEPL. Further, provisions

reflecting the Regulations in this regard for passing on the benefit of accelerated

depreciation (if availed by KGEPL) shall be incorporated in the EPA.

4.12. Operation and Maintenance Expenses


4.12.1. KGEPL has estimated the O&M cost at 6.6% of the Project cost (Rs. 165 lakh in the first

year). The projection of O&M expenses is based on the Technical Memorandum on

Investment and Funding Strategies prepared under the NMP for the development of

WTE, under which a comparison of the available technological options in terms of capital

cost, O&M cost, and Project life was done. The summary of O&M expenses for different

types of WTE technologies as given in the Technical Memorandum is set out below:

Table 6: O&M Expenses of different Waste to Energy Technologies

Particulars Units Capacity (1000 TPD) Capacity (500 TPD) Capacity (150 TPD)

Bio-

methanati

on

Gasificat

ion

RDF –

INC

Bio-

methanati

on

Gasificat

ion

RDF

INC

Bio-

methanati

on

Gasificat

ion

RDF

INC

Project Life Years 15 15 15 15 15 15 15 15 15

Capital Cost Rs. lakh 10000 21904 6483 6000 13000 3890 1800 4600 1400

O&M % of CC 8.5 7.43 13.54 8.33 6.5 13.55 9.44 6.5 13.57

4.12.2. The above benchmarks are based on 2002-03 data. For a typical 150 TPD capacity MSW

Plant using RDF-based incineration technology, the capital cost is Rs 14 crore, and O&M

cost is around 13.57% of the capital cost.

4.12.3. Due to the pre-treatment (screening, shredding and segregation of waste) requirement, the

KGEPL Project’s O&M cost is slightly higher than that of other WTE Power Projects.

KGEPL has applied an annual escalation of 5.72% per annum in O&M cost, and

considered Rs. 100 lakh as periodic maintenance cost (included in the O&M cost) every

three years.


4.12.4. The Commission asked KGEPL for the detailed break up of proposed O&M expenses,

comprising repairs and maintenance (R&M), establishment (including employee

expenses), and administrative and general (A&G) expenses including insurance. KGEPL

submitted the break-up as below:



Table 7: Break-up of O&M Expenses as submitted by KGEPL

Description Rs. (In lakh)

Administrative Expenditure and Labor Cost (Incl. Insurance) 50

R&M including Plant Spares and Consumables 115

Total O&M Cost 165

4.12.5. The Commission also asked KGEPL for justification for the additional capital

expenditure of Rs 100 lakh after every three years of operation, over and above the

regular O&M expenses. KGEPL stated that this periodic additional capital expenditure is

envisaged for major overall maintenance work required for the entire process plant after

every 3 years. In this major maintenance schedule, major and critical equipment like

boiler tube, reciprocating grates and ducting will be replaced/ repaired, for which a

provision of Rs. 100 lakh has been made. KGEPL has submitted the details of machinery

requiring replacement along with the associated cost. Some of the machinery / parts

require replacement / overhaul every year from the 5th

year onwards. Therefore, KGEPL

has considered the additional Rs 100 lakh O&M in the 4th

year, and thereafter escalated

the amount at a normative escalation factor of 5.72% in subsequent years.

4.12.6. The Commission notes that the O&M expenses projected by KGEPL are within the

norms provided in the Technical Memorandum on Investment and Funding Strategies

prepared under the NMP for the development of WTE.

4.12.7. The O&M expense projected by KGEPL has three components:

Regular O&M expense of Rs. 165 lakh in the first year, escalated every year

based on the inflation factor

Additional O&M expense of Rs. 100 lakh after every three years for machinery

requiring replacement every three years (Heat exchanger, Grab crane feeding

system, Feed hoppers with bridge breakers, Hydraulic ram feeder and Reciprocating

grate)

Additional O&M expense on machinery / parts requiring replacement / overhaul

every year from the 5th

year onwards.

4.12.8. The Commission notes that the O&M escalation of 5.72% applied by KGEPL is as per

the RE Tariff Regulation, 2010 and not as per the latest RE Tariff Regulations, 2015

which are applicable to its Project.

4.12.9. The RE Tariff Regulations, 2015 provide that the Base Year O&M expense is to be

escalated at the rate specified in the Commission’s Multi-Year Tariff (MYT)

Regulations over the Tariff Period for determination of the levelised Tariff. Regulations



45.1(d), 47.1(c) and 47.2(b) of the current MYT Regulations, 2015 specify the norms

for escalation of O&M expenses in subsequent years beyond the Base Year:

“The O&M expenses for each subsequent year shall be determined by escalating

the base expenses determined above for FY 2015-16, at the inflation factor

considering 60% weightage for EA, 2003ual point to point inflation over

Wholesale Price Index numbers as per Office of Economic Advisor of

Government of India in the previous year and 40% weightage for EA, 2003ual

Consumer Price Index for Industrial Workers (all India) as per Labour Bureau,

Government of India in the previous year, as reduced by an efficiency factor of

1%, to arrive at permissible O and M expenses for each year of the Control

Period.”

4.12.10. Thus as per the MYT Regulations, 2015, the escalation factor for O&M expenses from

FY 2016-17 is to be worked out based on the inflation factor considering 60% and 40%

weightage for actual point to point Wholesale Price Index (WPI) and Consumer Price

Index (CI), respectively, in the previous year, reduced by an efficiency factor of 1%.

4.12.11. The Commission has analysed the WPI and CPI data for the previous year, i.e., FY

2015-16. Based on the analysis, the Commission notes that, by applying 60% weightage

to WPI and 40% weightage to CPI for FY 2015-16, the inflation factor works out to

0.74%. When the efficiency factor of 1% is applied, the escalation factor to be

considered for projecting O&M expenses from FY 2016-17 works out to (-) 0.26%

(negative).

4.12.12. The Commission recognises that the escalation rates worked out based on actual WPI

and CPI have reduced significantly during the last 2 years as compared to previous

years. The Commission is of the view that it may not be appropriate to apply a negative

inflation factor for projecting O&M Expenses from FY 2016-17 onwards for the entire

Useful Life of the Project as a certain portion of O&M expenses are likely to increase

from year to year.

4.12.13. In this context, the Commission also analysed the approach adopted by the CERC for

fixing the O&M expenses while framing its Tariff Regulations, 2014. It is observed that

CERC has considered the escalation rate based on 5-year average WPI and CPI from

FY 2008-09 to FY 2012-13, with 60% and 40% weightage to CPI and WPI,

respectively, and compared it with the actual increase in O&M expenses.

4.12.14. The inflation factor based on the provisions of the MYT Regulations, 2015 works out to

be negative due to the reduction in WPI in FY 2015-16 over FY 2014-15. The

Commission is of the view that, at this stage, it will be more appropriate to consider the

WPI and CPI variation over a longer period so that wide fluctuations in any one

particular year are smoothened, for arriving at the inflation factor to be applied. Hence,



the Commission has considered the 3-year average variation in WPI and CPI to arrive at

the inflation factor to be applied for projecting the O&M Expenses from FY 2016-17

onwards. Based on this approach, the inflation factor, considering 60% weightage to

WPI and 40% weightage to CPI, works out to 3.97%. After applying the efficiency

factor of 1%, the escalation factor to be applied for projecting O&M expenses from FY

2016-17 to FY 2019-20 works out to 2.97%.

4.12.15. In this background, in its Generic RE Tariff Order for FY 2016-17 dated 29 April, 2016

in Case No. 45 of 2016 also, the Commission had invoked its power to remove

difficulties under Regulation 82 of the RE Tariff Regulations and revised the O&M

escalation percentage to be applied to RE Projects. In that Order also, the Commission

has applied the escalation factor considering 60% and 40% weightage to the WPI and

CPI numbers, respectively, for the average of the previous three years (upto FY 2015-

16), as reduced by the efficiency factor of 1%.

4.12.16. In view of the above, the Commission, in exercise of its powers under Regulation 82 of

the RE Tariff Regulations, 2015, has computed the O&M expenses for the period

beyond FY 2016-17 applying the escalation factor of 2.97% considering the 3 year

average variation in WPI and CPI instead of one year.

4.12.17. Accordingly, the computation of O&M escalation percentage adopted in this Order is as

presented in Table below:

Table 8: O&M Expense Escalation applied by Commission

Month

WPI CPI

FY

2012-13

FY

2013-14

FY

2014-15

FY

2015-16

FY 2012-

13

FY 2013-

14

FY 2014-

15

FY

2015-

16

April 163.5 171.3 180.8 176.4 205 226 242 256

May 163.9 171.4 182 178 206 228 244 258

June 164.7 173.2 183 179.1 208 231 246 261

July 165.8 175.5 185 177.6 212 235 252 263

August 167.3 179 185.9 176.5 214 237 253 264

September 168.8 180.7 185 176.5 215 238 253 266

October 168.5 180.7 183.7 176.9 217 241 253 269

November 168.8 181.5 181.2 177.5 218 243 253 270

December 168.8 179.6 178.7 176.8 219 239 253 269

January 170.3 179 177.3 175.4 221 237 254 269

February 170.9 179.5 175.6 174.1 223 238 253 267

March 170.1 180.3 176.1 174.6 224 239 254 268

Average 168 178 181 177 215 236 251 265

YoY Increase %

5.98% 2.00% -2.52%

9.68% 6.29% 5.65%



Average of 3-year

CPI Growth %

Average of 3-year

WPI Growth %

Inflation Factor with

60% WPI and 40% CPI

Escalation rate considering

1% Efficiency Factor

7.21% 1.82% 3.97% 2.97%

4.12.18. Based on the above, the Commission has approved the following O&M expenses for the

Project.

Table 9: O&M Expenses as approved by Commission (Rs. Lakh)

Sr.No. Particulars/Year 1 2 3 4 5 6 7 8 9 10

1 Basic O&M

Expenses 165.09 170.00 175.05 180.26 185.62 191.13 196.82 202.67 208.69 214.90

2

Additional O&M of

Rs. 100 lakh

(escalated for

inflation) after every

three years for

machineries

requiring

replacement every

three years

100.00

109.19

119.22

3

Additional O&M for

the machineries /

parts required

replacement /

overhaul every year

from 5th year

onwards.

102.97 106.03 109.19 112.43 115.78 119.22

4 Total O&M 165.09 170.00 175.05 280.26 288.59 297.17 415.19 315.10 324.47 453.33

Sr.No. Particulars/Year 11 12 13 14 15 16 17 18 19 20

1 Basic O&M

Expenses 221.29 227.86 234.64 241.61 248.80 256.19 263.81 271.65 279.73 288.05

2

Additional O&M

Expenses after every

3 years

130.17

142.13

155.18

3

Additional O&M for

replacement /

overhaul every year

from 5th year

onwards

122.76 126.41 130.17 134.04 138.02 142.13 146.35 150.70 155.18 159.80

4 Total O&M 344.05 354.27 494.98 375.65 386.82 540.45 410.16 422.36 590.10 344.05



4.13. Interest on Term Loan


4.13.1. A loan repayment period of 12 years is taken, in line with Regulation 15.1 of the RE

Tariff Regulations, 2015.

4.13.2. KGEPL has taken the interest on long term debt at 300 basis points above the State Bank

of India (SBI) Base Rate of the previous year. Accordingly as given in the Draft RE

Generic Tariff Order for FY 2016-17, the Base Rate (9.56%) plus 300 basis points has

been applied, and interest on debt computed as 12.56% per annum.


4.13.3. The Commission has taken a loan tenure of 12 years, in line with Regulation 15.1 of the

RE Tariff Regulations, 2015. It has considered the weighted average of the SBI Base

Rate from April, 2015 to March, 2016 to arrive at the effective SBI Base Rate of 9.54%.

Accordingly, it has applied interest on term loan at 12.54% (9.54% + 300 basis points) in

accordance with Regulation 15.2.

4.14. Interest on Working Capital


4.14.1. KGEPL has computed the working capital in accordance with the Regulations

comprising (a) O&M cost for one month, (b) receivables equivalent to 2 months of net

energy charges for the sale of electricity calculated on the normative CUF and (c)

maintenance spares @15% of O&M expenses. IoWC is taken as the SBI Base Rate plus

350 basis points, which works out to 13.06 %.


4.14.2. Regulation 18.1 of the RE Tariff Regulations, 2015 specifies the components of working

capital for Wind, Small Hydro, Solar PV and Solar Thermal Power Projects (projects

with no fuel cost component). Regulation 18.2 specifies the components of working

capital for Biomass and non-fossil fuel-based Co-Generation Projects (Projects having

fuel cost component). Since there is no fuel cost component in the proposed MSW

Project of KGEPL, the Commission has considered the components of working capital in

accordance with Regulation 18.1, which is the same as submitted by KGEPL. It has

computed the interest rate on working capital in accordance with Regulation 18.3 and the

SBI Base Rate as elaborated in para. 4.13.3 above, and applied an interest rate on

working capital of 13.04%.



4.15. Return on Equity


4.15.1. The RE Tariff Regulations, 2015 allow RoE at the Base Rate of 16%, to be grossed up as

per the applicable Income Tax rate. The Regulations also provide for the rate of RoE to

be computed by grossing up the Base Rate with the Tax rate equivalent to Minimum

Alternate Tax (MAT) for the first 10 years from COD, and at the normal Tax rate for the

remaining years of Project life. Accordingly, as per the prevailing Tax rate, the Base Rate

of 16% has been grossed up with MAT (@21.34% for the first 10 years, and with

Income Tax (@ 34.61%) for the remaining 10 years of Plant operation.


4.15.2. The Commission accepts KGEPL’s submission since it has considered the RoE in

accordance with the RE Tariff Regulations, 2015.

4.16. Tipping Fee and Other Income


4.16.1. As per the Concession Agreement, a Tipping Fee of 180 TPD @ Rs 308/tonne, without

any escalation, has been taken as income. The yearly income has been calculated as

follows:

Yearly Income from Tipping Fee = TPD of MSW received (180 TPD) X Tipping

Fee rate X CUF of the Project (65% for first year and 80% for remaining period).

4.16.2. The income from sale of bottom ash (30 TPD) which will be generated in the process will

be sold in the open market @ Rs 150/tonne. The yearly income has been calculated as

Yearly Income from sale of bottom ash = TPD of by-product (30 TPD) X rate of

by-product X CUF of the Project (65% for first year and 80% for the remaining

period).

4.16.3. KGEPL has envisaged the income from by-product sale as Rs.10.68 lakh in the first year

and Rs. 13.14 lakh from the second year onwards.


4.16.4. KGEPL receives income for collection of MSW from KMC. The income from Tipping

Fee has been computed after taking into account the CUF of the Plant, as summarized

below:



Table 10: Computation of Income from Tipping Fee

Sr.

No Particular Unit First Year

Remaining

period

1 Waste Received Tonne per day (TPD) 180 180

2 CUF % 65% 80%

3 Rate Rs. Per tonne 308 308

Tipping Fee Receipt Rs. lakh 131.53 161.88

4.16.5. Based on the submissions of KGEPL, the Commission has also considered the income

from sale of by-products like bottom ash which will be produced during the process as

Rs.10.68 lakh in the first year and Rs. 13.14 lakh from the second year onwards.

4.17. Discount Rate


4.17.1. KGEPL has applied a discount rate of 10.55% for determination of levelised tariff.


4.17.2. In accordance with Regulation 11.2 of the RE Tariff Regulations, 2015, for levelised

tariff computation the Commission has taken the discount rate as equivalent to the

weighted average cost of capital, which works out to 10.54% considering the approved

interest rate and rate of RoE in this Order.

4.17.3. In accordance with Regulation 11.3, the Commission has undertaken levelisation for the

entire Useful Life of 20 years.

4.17.4. The summary of various parameters and assumptions covering capital cost, financial

parameters, operating parameters and performance parameters, as considered for the

Project-specific Tariff determination in this Order, is shown in the following Table:

Table 11: Summary of Parameters

Sl.

No.

Assumption

Head Sub-Head Sub-Head (2) Unit

Assumptions

of KGEPL

Assumptions

as approved

in this Order

1 Power

Generation

Capacity

Installed Power

Generation

Capacity

MW 1.8 1.8

Auxiliary

Consumption % 20% 20%



Sl.

No.

Assumption


Assumptions

of KGEPL

Assumptions

as approved

in this Order

CUF(first six

months) % 65% 65%

CUF(remaining

period) % 80% 80%

Useful Life Years 20 20

Tariff Period Years 13 13

2 Project Cost

Capital

Cost/MW Power Plant Cost

Rs

lakh/MW 2482.68 2482.68

3 Financial

Assumptions

Debt: Equity

Debt % 70% 70%

Equity % 30% 30%

Total Debt

Amount Rs lakh 1737.88 1737.88

Total Equity

Amount Rs lakh 744.80 744.80

Debt

Component

Loan Amount Rs lakh 1737.88 1737.88

Moratorium

Period years 0.00 0.00

Repayment Period

(incld.

Moratorium)

years 12.00 12.00

Interest Rate % 12.56% 12.54%

Equity

Component

Equity amount Rs lakh 744.80 744.80

Return on Equity

for first 10 years

(16% gross up

with MAT rate)

% p.a. 20.34% 20.34%

RoE Period Year 10.00 10.00

Return on Equity

11th year onwards

(16% gross up

with Income tax

rate)

24.47% 24.47%



Sl.

No.

Assumption


Assumptions

of KGEPL

Assumptions

as approved

in this Order

Weighted average

of ROE 22.40% 22.40%

Discount Rate

(equiv. to WACC) 10.55% 10.54%

4 Financial

Assumptions

Fiscal

Assumptions

Income Tax % 34.61% 34.61%

MAT Rate (for

first 10 years) % 21.34% 21.34%

80 IA benefits Yes/No Yes Yes

Depreciation

Depreciation

Rate(power plant) % 5.83% 5.83%

Depreciation Rate

13th year onwards % 2.50% 2.50%

Years for 5.83%

depreciation rate 12 12

5 Working

Capital

O&M Charges O&M Charges Months 1 1

Maintenance

Spare

(% of O&M

expenses) 15.00% 15.00%

Receivables for

Debtors

Receivables for

Debtors Months 2 2

Interest On

Working

Capital

Interest On

Working Capital % 13.06% 13.04%

6 Operation and

Maintenance

Opening Opening 165.09 165.09

Total O and M

Expenses

Escalation

Total O and M

Expenses

Escalation

% 5.72% 2.97%



Sl.

No.

Assumption


Assumptions

of KGEPL

Assumptions

as approved

in this Order

7 Others

Amount of Waste

to be delivered

per day

Tonne 180.00 180.00

Tipping Fees to

be received by

Developer from

Corporation

Rs./Tonne 308.00 308.00

Annual Tipping

Fees Collection in

first year

Rs. lakh 131.53 131.53

Annual Tipping

Fees Collection

Second year

onwards

Rs. lakh 161.88 161.88

Tipping Fees

escalation over 20

years

% - -

Revenue from

sale of by-

products first year

Rs. lakh 10.68 10.68

Revenue from

sale of by-

products second

year

Rs. lakh 13.14 13.14

4.18. Tariff Rate and Other Conditions

4.18.1. Based on the parameters, assumptions and methodology outlined in earlier paragraphs,

the Commission has determined the tariff over the Useful Life of the Project as Rs 5.49

per kWh, which shall be applicable over a period of 20 years. The computations are

shown in Annexure-1 of this Order.

4.18.2. The above tariff shall be applicable for supply of electricity from the MSW Power Project

of KGEPL for supply to any Distribution Licensee in Maharashtra, subject to the

conditions set out below:

a) The tariff and structure shall be firm, and will not vary with exchange rate variations

or on account of changes in performance parameters.



b) The tariff determined in this Order shall be exclusive of taxes and duties on

generation and sale of electricity from the Project as may be levied by the appropriate

Government, which shall be allowed as pass-through on actually incurred basis.

c) In case any capital subsidy or grant from the Central or State Government or their

agencies is available or availed by the Project in future, its benefit will have to be

passed on in accordance with Regulation 24 of the RE Tariff Regulations, 2015.

d) The technology risk and MSW fuel supply availability risk will be borne by KGEPL.

4.18.3. Accordingly, the risk of sub-optimal syngas generation and consequent lower electricity

generation cannot be passed on to the Distribution Licensee(s) at a later stage. Similarly,

the benefit of excess generation over and above the normative CUF of 80% considered

for the tariff determination in this Order shall be available to KGEPL. The tariff for such

excess generation shall be the same as determined in this Order.

4.18.4. The performance parameters of this MSW Project shall be monitored by MEDA on a

quarterly basis, and be compiled and submitted to the Commission in an annual report for

each year.

4.18.5. The Commission notes that KGEPL has already made a request to the Maharashtra State

Electricity Distribution Co. Ltd (MSEDCL) for entering into an EPA with it. MSEDCL

has sought additional documents from KGEPL along with details of the Project-specific

Tariff approved by the Commission.

4.18.6. KGEPL may enter into an EPA with any Distribution Licensee in Maharashtra for the

Tariff Period of 20 years applicable to its MSW Project for the sale of power, in

accordance with Clause 6.4(1)(ii) of Tariff the Policy, 2016 (under which procurement of

all power produced by WTE Plants in the State by Distribution Licensee(s) is

mandatory). KGEPL shall submit a copy of the EPA to the Commission as soon as it is

entered into. The other terms and conditions of EPA such as rebate, late payment

surcharge, taxes and duties, etc. shall be in accordance with the RE Tariff Regulations,

2015.

4.18.7. In accordance with Regulations 4.1 and 4.2 of the MERC (Renewable Purchase

Obligation, its Compliance and Implementation of REC framework) Regulations, 2016,

the energy procurement from this MSW Power Project at the tariff determined in this

Order will be eligible for meeting the Renewable Purchase Obligation target of the

Distribution Licensee.



5. SUMMARY OF COMMISSION’S DIRECTIVES AND RULINGS

5.1.1. The Commission hereby determines the levelised Tariff for the said MSW-based power

Plant of KGEPL as Rs 5.49 per kWh, which shall be applicable over a period of 20

years.

5.1.2. KGEPL is directed to submit the details of such subsidy as and when sanctioned by

MNRE. The Commission also directs the Maharashtra Energy Development Agency

(MEDA), which is the State Nodal Agency, to inform the Commission and the concerned

Distribution Licensee of any such grant or subsidy if and when it is provided to KGEPL.

The treatment of any such grant or subsidy received in future shall be in accordance with

Regulation 24 of the RE Tariff Regulations. Further, specific provisions for recovery of

any such grant or subsidy by the Distribution Licensee (if availed by KGEPL), reflecting

the relevant provisions of Regulation 24, shall be incorporated in the Energy Purchase

Agreement (EPA) between KGEPL and the concerned Distribution Licensee.

5.1.3. Distribution Licensee entering into an EPA with KGEPL shall verify this claim of not

having availed accelerated depreciation benefit after the accounts of KGEPL for the 1st

year of operation are audited. The Distribution Licensee shall pass on the benefit to

consumers if accelerated depreciation is actually availed by KGEPL. Further, provisions

reflecting the Regulations in this regard for passing on the benefit of accelerated

depreciation (if availed by KGEPL) shall be incorporated in the EPA.

5.1.4. The Commission directs that performance parameters of this MSW Project shall be

monitored by MEDA on a quarterly basis and to be compiled and submitted to the

Commission on an annual basis in form of an annual report.

5.1.5. KGEPL may enter into an EPA with any Distribution Licensee in Maharashtra for the

Tariff Period of 20 years applicable to its MSW Project for the sale of power, in

accordance with Clause 6.4(1)(ii) of Tariff the Policy, 2016 (under which procurement of

all power produced by WTE Plants in the State by Distribution Licensee(s) is

mandatory). KGEPL shall submit a copy of the EPA to the Commission as soon as it is

entered into. The other terms and conditions of EPA such as rebate, late payment

surcharge, taxes and duties, etc. shall be in accordance with the RE Tariff Regulations,

2015.

5.1.6. The MSW Project shall be treated as a “Must Run” Power Plant and shall not be subject

to Merit Order Despatch (MOD) principles till such time as the Commission stipulates or

specifies otherwise as per clause 16.3 of the MERC (Distribution Open Access)

Regulations, 2016.



5.1.7. In accordance with Regulations 4.1 and 4.2 of the MERC (Renewable Purchase

Obligation, its Compliance and Implementation of REC framework) Regulations, 2016,

the energy procurement from this MSW Power Project at the tariff determined in this

Order will be eligible for meeting the Renewable Purchase Obligation target of the

Distribution Licensee.



6. APPLICABILITY OF ORDER

The Project-specific Tariff determined in this Order for KEGPL’s MSW-based Project at

Kolhapur shall be applicable for 20 years from the COD of the Project.

The Petition of M/s Kolhapur Green Energy Pvt. Ltd in Case No. 87 of 2015 stands disposed of

accordingly.

Sd/- Sd/-

(Deepak Lad) (Azeez M. Khan)

Member Member



Appendix – 1

List of persons at the Technical Validation Session held on 10 September, 2015

Sr. No. Name Organisation

1. Shri Rohit Sharma KGEPL

2. Shri Paramvir singh KGEPL

3. Shri Ashok Mahendrakar KGEPL

4. Shri Harshad Patil KGEPL

5. Shri Surendra Pimparkhedkar World Institute for Sustainable Energy (WISE)

6. Shri M.M.Davare BEST Undertaking

7. Shri Mangesh Kharote BEST Undertaking

8. Shri V. K.Rokadpe BEST Undertaking

9. Shri A. W.Mahajan Maharashtra State Electricity Distribution Co.

10. Ms. Ambica Gupta Tata Power Co. Ltd. (TPC)

List of persons at the Technical Validation Session held on 9 December, 2015




3. Shri Surendra Pimparkhedkar WISE

4. Shri M.M.Davare BEST

5. Smt. Swati Mehendale TPC

6. Shri Ghanashyam Thakkar Reliance Infrastructure Ltd.



Appendix – 2

List of persons at the Public Hearing held on 10 June, 2016



2. Shri Balaji Iyer KGEPL


4. Shri Surendra Pimparkhedkar WISE

5. Shri Satadru Charkraborty WISE

6. Smt. Jitesh Nair Shapoorji Pallonji & Co. Ltd(SPCL)



Annexure-1: Summary of Annual Fixed Charge and Determination of Levelised Tariff

Particulars Unit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

FIXED COST

O&M Expenses Rs lakh

165.09

170.00

175.05

280.26

288.59

297.17

415.19

315.10

324.47

453.33

344.05

354.27

494.98

375.65

386.82

540.45

410.16

422.36

590.10

447.84

Depreciation Rs lakh 144.82 144.82 144.82 144.82 144.82 144.82 144.82 144.82 144.82 144.82 144.82 144.82 62.07 62.07 62.07 62.07 62.07 62.07 62.07 62.07

Interest on term loan Rs lakh

208.78

190.63

172.47

154.32

136.16

118.01

99.85

81.70

63.54

45.39

27.23

9.08 - - - - - - - -

Interest on working

Capital Rs lakh

16.86

15.99

15.86

17.95

17.90

17.86

20.25

17.81

17.80

20.45

18.50

18.53

19.83

17.39

17.87

21.51

18.85

19.37

23.34

20.44

Return on Equity Rs lakh

151.50

151.50

151.50

151.50

151.50

151.50

151.50

151.50

151.50

151.50

182.24

182.24

182.24

182.24

182.24

182.24

182.24

182.24

182.24

182.24

Total Fixed Cost Rs lakh

687.06

672.94

659.70

748.85

738.97

729.36

831.62

710.93

702.13

815.49

716.84

708.94

759.11

637.35

648.99

806.26

673.32

686.03

857.74

712.59

Net Energy

generation MU

9.15

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

10.09

Per unit Fixed Cost Rs/kWh

7.51

6.67

6.54

7.42

7.32

7.23

8.24

7.04

6.96

8.08

7.10

7.03

7.52

6.32

6.43

7.99

6.67

6.80

8.50

7.06

OTHER INCOME

Income from Tipping

Fee Rs lakh 131.53 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88 161.88

Income from sale of

byproducts Rs lakh 10.68 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14 13.14

Total Other Income Rs lakh 142.21 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02 175.02

Per Unit Other

Income Rs/kWh 1.55 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73 1.73

Per unit Tariff Rs/kWh

5.96

4.93

4.80

5.69

5.59

5.49

6.51

5.31

5.22

6.35

5.37

5.29

5.79

4.58

4.70

6.26

4.94

5.06

6.77

5.33

Levelised Tariff Rs/kWh 5.49

ADD Levellised

benefit Rs/kWh 0.52

Tariff net of ADD

Benefit Rs/kWh

4.97

Documents

Before the MAHARASHTRA ELECTRICITY …mercindia.org.in/pdf/Order 58 42/Order_87 of 2015-10102016.pdf · Sunil Hitech Engineers Ltd. (SHEL) and its subsidiary and affiliates, including