MERC Allows Maharashtra DISCOM to Procure 7 GW of Solar Power for Farm Sector

The Maharashtra Electricity Regulatory Commission (MERC) has approved the Maharashtra State Electricity Distribution Company’s (MSEDCL) petition seeking approval to initiate a competitive bidding process to procure 7,000 MW of solar power under the Mukhyamantri Saur Krishi Vahini Yojana (MSKVY 2.0) initiative, to manage the rising demand in the agricultural sector.

The Commission also approved most of the 34 amendments petitioned to be introduced in the request for selection (RfS) document and the draft power purchase agreement (PPA) by MSEDCL.

Background

MSEDCL submitted a petition seeking approval to initiate a competitive bidding process through MSEB Solar Agro Power (MSAPL) to procure 7,000 MW of solar power. MSAPL has been incorporated as a wholly owned subsidiary of MSEB Holding Company as the nodal agency.

MSAPL incorporated eight special purpose vehicles (SPVs) and identified 2,731 substations across Maharashtra. It intends to conduct a bidding process in multiple phases for different districts, with the first phase of 4,000 MW solar capacity by April 2025.

MSEDCL had also requested approval for deviations from the standard bidding guidelines concerning the proposed long-term solar power procurement.

The second phase of the MSKVY 2.0 initiative aims to utilize decentralized solar power to improve power quality, reduce costs, decrease dependence on conventional sources, and meet renewable purchase obligations (RPO).

The current average power demand for the agricultural sector in Maharashtra is about 14,000 MW. MSEDCL proposes to replace the nighttime conventional power supply with a daytime solar supply for agricultural needs.

MSEDCL intends to reduce reliance on Koyna hydroelectric power due to water table restrictions.

MSEDCL already holds contracts with renewable power developers for a capacity of 13,465 MW. The proposed solar power procurement under MSKVY 2.0 can address potential shortfalls in meeting RPO in the coming years. MSEDCL plans to utilize a mix of short-term and long-term power purchase tenders to achieve RPO targets.

In pursuit of these objectives, MSEDCL has outlined several amendments to be incorporated into the bidding documents, including capacity utilization factor (CUF) and shortfall compensation, excess generation and right of first refusal, deemed generation and compensation for grid unavailability, and dispute resolution through MERC.

MSED has also requested the deletion of a clause on removing an insurance-related clause from the MSKVY 2.0 PPA that was present in the KUSUM PPA or MNRE Guidelines. The clause discussed an insurance scenario related to force majeure events that render the power project economically and technically unviable.

In the original clause, if insurers under the insurance policies made payments on a “total loss” or equivalent basis due to such events, the DISCOM could claim proceeds from the insurance, limited to the outstanding dues of the DISCOM against the renewable power generator.

However, this clause has been deleted from the MSKVY 2.0 PPA under which the project is wholly owned and operated by the SPV, and there is no involvement of DISCOM or RPG in this context. Since the SPV develops the project on a ‘Build Own Operate’ (BOO) basis, the responsibility for insurance claims and settlements rests solely with the SPV. Therefore, the clause related to insurance claims against outstanding dues of DISCOM is not applicable in this PPA, leading to its deletion. This deletion aligns the PPA with the new ownership structure and operational framework of the MSKVY 2.0 Program.

MSEDCL, in its additional submission, mentioned the following:

Size of Cluster: MSEDCL proposes a minimum cluster size of 250 MW for MSKVY 2.0. The final determination of the cluster size is based on a comprehensive assessment of several factors at the identified locations designated for the cluster:

Available Substation Capacity: The cluster size is constrained by the capacity of the existing substations within the designated areas. Substations earmarked for the clusters have been identified.

Land Availability: The extent of revenue (government-owned) and private land available for the cluster project is a factor in deciding the final cluster size. While maximizing revenue land is intended, private land may also be required.

Commission’s Analysis

The Commission observed that daytime availability for agricultural feeders is provided on a rotational basis, with 50% of the feeders receiving energy during the day and rest at night. Given that the average power demand for the agricultural sector is around 14,000 MW, daytime demand is higher than nighttime demand. Considering this, the planned capacity of 7,000 MW appears justified to accommodate the additional daytime load.

MSEDCL has also highlighted the shortfall in its Solar RPO targets. The agency intends to procure solar power to address this shortfall and cater to RPO requirements for future years.

The MSKVY 2.0 project is expected to be commissioned by the end of December 2025, aligning with the timeline for new RPO trajectories. The Ministry of Power has issued a trajectory for long-term RPOs and energy storage until FY 2029-30. The trajectory indicates a rising trend in “Other RPO,” which includes solar, and it exceeds the combined Wind+Solar RPO of 25% for FY 2024-25, thus justifying the proposed procurement.

MSEDCL has built scenarios to showcase the net savings in power purchase costs. The analysis estimates net savings of 0.11 to 0.09 per kWh for FY 2025-26 and 0.15 to 0.13 per kWh for FY 2026-27. This procurement will allow MSEDCL to rationalize its dependence on the Koyna Hydro project for base load requirements, potentially using it for peak loads and emergencies.

Considering these factors, the Commission approved MSEDCL’s proposal.

The MNRE recognizes the concept of a ‘State Nodal Agency’ as per guidelines issued in July 2023. Given this alignment, the Commission approved MSAPL to oversee the bidding process and other nodal agency functions for MSKVY 2.0. This development also aligns with the Commission’s previous recommendation to establish an agriculture electricity supply company.

The Commission evaluated the deviations sought by MSEDCL from competitive bidding guidelines concerning the MSKVY 2.0. MSEDCL had proposed 34 deviations, encompassing amendments, additions, and a deletion across various clauses in the bidding documents.

Operational and Performance-Related Deviations:

Billing-Related Deviations:

Procedural and Contractual-Related Deviations:

Additionally, certain clarifications and modifications in specific clauses are recommended for better communication of intent and more favorable terms for landowners.

MERC approved most of the deviations proposed by MSEDCL as they align with the specific operational and procedural characteristics of MSKVY 2.0 and aim to enhance project performance, efficiency, and clarity for prospective bidders.

The Commission directed MSEDCL to adhere strictly to a set of timelines for different activities under MSKVY 2.0 to prevent any future instances of delays.

MSEDCL proposed enabling successful bidders to claim CFA under the PM-KUSUM program. However, the Commission noted that MSEDCL should revise its bid document to ensure transparency and avoid disputes. It should include a list of substations/plants eligible for CFA, and bidders should quote a single tariff for the entire project/cluster. They should also indicate a percentage discount on the tariff for energy from substations/plants eligible for CFA. Bid evaluation should be based on the weighted average tariff, incorporating both the quoted and discounted tariffs for CFA-linked capacity.

The formation of clusters for bidding might exclude certain substations initially due to conditions like land availability. To address this, MSEDCL could implement a Green Shoe Option. This would allow DISCOM to purchase more than the bid capacity at the discovered tariff. Successful bidders must specify whether they will offer additional capacity under this option. If selected, the LoA would include the base and additional capacity.

MERC approved the RfS document and the draft PPA with proposed deviations filed by MSEDCL. However, once the bidding process is completed, MSEDCL must file a separate petition to adopt the tariff.

In May, The Commission approved MSEDCL’s proposal to procure 150 MW of solar power at ₹3.3 (~$0.040)/kWh from projects under MSKVY 2.0.

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