The Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) released a commercial circular no. 190 last month (dated March 14 2013), clarifying the matter of Cross Subsidy Surcharge (CSS) for Open Access (OA) consumers. Under this circular, all generators including renewable energy generators who opt for open access will have to pay MSEDCL the CSS.

• Earlier, open access consumers that procure renewable energy had to pay only 25% of the applicable charges. This concession has now been removed
• Project developers are obliged to go via the open access route in order to register for the REC mechanism
• This hike in CSS will increase charges payable to the distribution licensee and introduce uncertainty in changes of CSS over the lifetime of the project

This order overturns the previous circular no. 155 (dated January 23 2013) that provided a concession to renewable energy consumers. Under the earlier commercial circular no. 155, open access consumers that procure renewable energy had to pay only 25% of the applicable charges. This concession has now been removed. The CSS for a typical 33 kV High Tension (HT) consumer now totals to INR 1.18/kWh. This is an increase of INR 0.57/kWh from the previous circular no. 155.

This latest announcement comes as a surprise to solar PV project developers. With the distributed energy generation market picking up, many developers are looking at the Renewable Energy Certificate (REC) Mechanism as a potential additional off-take option. A project developer is obliged to go via the open access route in order to register the project under the REC mechanism. This announcement increases the charges payable to the distribution licensee (MSEDCL in this case) and introduces the uncertainty that the CSS can change over the lifetime of the project.

The revenues from the REC mechanism are already uncertain due to the lack of enforcement of Renewable Purchase Obligations (RPOs). The uncertainty over the open access charges will further weaken the possibility of off-take through the REC mechanism. This in turn would have two specific effects on the market:

The off-take of distributed generation of power will be slower than anticipated

Solar power prices for an end customer under private PPAs will be much higher due to the absence of REC revenue flows

Update:

Several developers have petitioned MERC against MSEDCL’s commercial circular no.190. MERC has stated that there will be a clarification on this issue in the second week of May.

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