Preferential tariffs
Introduction
In order to harness the renewable energy potential and encourage developers to set up renewable energy facilities, preferential feed in tariffs (FiTs) for renewables are being offered by various states.
Rationale
- It is necessary to work out innovative and attractive pricing mechanism, which would ensure growth of renewable energy sector and at the same time be fair to the utility and consumers.
Basic elements of design
The preferential feed in tariff option is similar to the cost plus approach, but tariff is fixed on basis of technologies rather than project to project basis.
The preferential tariffs for grid-connected RE power projects allow recovery of following costs elements in additionto the high up-front capital cost:
(a) Return on Equity,
(b) Interest on loan capital,
(c) Depreciation,
(d) Interest on working capital and
(e) Operation and maintenance expenses.
Potential challenges
How to provide adequate incentives to RE technologies of different sizes?
How to address locational issues while designing FiTs?
Impact of FiTs on retail tariffs.
India experience
Most of the State Electricity Regulatory Commissions and Central Electricity Regulatory Commission (CERC) have already notified tariff regulations detailing out the set of technical & financial assumptions used, final generic levelised FiTs for various renewable energy technologies.
CERC tariff regulations for renewable energy acts as guidelines for tariff determination at the state level but applicable to inter-state schemes and central generating units.
FiTs are based on Capital Cost Benchmarks for all renewable energy technologies.
FiTs offered in the country are much above the market prices. These are commonly set for a number of years, providing security on income to developers/investors.
