Petition of Adoption of tariff for approval of prefixed levelized tariff for PoP from Decentralize Ground / Stilt Mounted Grid Connected Solar ad PM-KUSUM scheme as per Government of Gujarat – EQ

Summary:

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**Core Matter:**
This order pertains to a petition filed by the **Uttar Gujarat Vij Company Limited (UGVCL)** , a state-owned distribution company. UGVCL sought the approval of the Commission to adopt tariffs discovered through a transparent reverse bidding process for solar projects under the PM-KUSUM Scheme.

**Background & Regulatory Context:**

– **PM-KUSUM Scheme:** Under this scheme, UGVCL invited applications for solar capacity aggregation at 73 notified sub-stations, with a total capacity of 634.650 MW. Initially, 142 applications for 277.2 MW were received.
– **Prior Commission Order (06.05.2025 in Petition No. 2247 of 2023):** The Commission had approved a pre-fixed levelized tariff of **Rs. 2.95 per unit** . This tariff included a component of **Rs. 0.05 per unit** as a partly pass-through of the Ministry of New and Renewable Energy’s (MNRE) Performance-Based Incentive (PBI) of Rs. 40 lakhs/MW for the first five years, which was levelized over 25 years. This Rs. 2.95/unit was also set as the **ceiling tariff** for conducting competitive bidding at sub-stations where applied capacity exceeded notified capacity.
– **MNRE Office Memorandum (31.12.2025):** MNRE issued a critical memorandum stipulating that:
1. No new liabilities would be recognized after 31.12.2025.
2. Only projects with PPAs signed on or before 31.12.2025 would be eligible for the PBI.
3. No extensions would be granted.

**Impact of MNRE Memorandum:**

Because of the MNRE’s cut-off date, the PBI (which amounted to approximately Rs. 0.08 per unit levelized over 25 years, and was represented as a Rs. 0.05 per unit pass-through in the tariff) was no longer available for PPAs signed after 31.12.2025. Consequently, the effective ceiling tariff post-31.12.2025 was recalculated to be **Rs. 2.87 per unit**.

**The Current Petition (No. 2602 of 2026):**

Following the initial process, for 6 sub-stations, UGVCL received 41 applications for 35.5 MW, which exceeded the notified capacity. A reverse auction was conducted. The discovered tariffs varied. The petition sought approval for the tariffs discovered through this reverse auction.

**Key Developments & Petitioner’s Proposal:**

1. **Two-Tiered Proposal:** UGVCL proposed a mechanism to handle the post-MNRE memorandum situation:
– **Case 1 (Discovered tariff ≤ Rs. 2.87/unit):** Proceed to issue Letters of Award (LoAs) and sign PPAs at the discovered tariff.
– **Case 2 (Discovered tariff > Rs. 2.87/unit):** Cap the tariff at **Rs. 2.87/unit**. UGVCL would issue a counter-offer to these bidders to accept the Rs. 2.87/unit tariff, with no penalty for non-acceptance.
2. **Outcome of Reverse Auction:** Out of the 41 applications in the reverse auction:
– **16 applications** (from 13 bidders) had a discovered tariff **≤ Rs. 2.87/unit**. A list of these successful bidders with their respective sub-stations and tariffs was provided in the order.
– **25 applications** had a discovered tariff **> Rs. 2.87/unit**.

**Commission’s Findings and Directions:**

1. **Approval for Tariffs ≤ Rs. 2.87/unit:** The Commission granted approval for UGVCL to issue LoAs and sign PPAs with the 13 bidders listed in the order (for the 16 applications) at their respective discovered tariffs, as they were all below the Rs. 2.95/unit ceiling tariff. The process was deemed transparent based on the Bid Evaluation Committee Report.
2. **Liberty for Counter-Offers (Tariffs > Rs. 2.87/unit):** The Commission did not grant prior approval for the counter-offers. Instead, it noted that since the ceiling tariff was already set at Rs. 2.95/unit, any negotiated tariff lower than that would be acceptable. UGVCL was given the **liberty to negotiate and issue counter-offers** at its discretion, provided the final agreed tariff remains below Rs. 2.95/unit.
3. **Post-Facto Approval:** UGVCL was directed to approach the Commission again (within two weeks) with an additional submission detailing the outcome of the negotiations and seeking final approval for the tariffs adopted for the remaining 25 applications.

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**Strategic Implications:**

1. **Risk of Policy Change:** This case highlights the significant risk that changes in central government policies (like MNRE incentives) pose to project viability and state-level procurement processes. The cut-off date of 31.12.2025 created a clear “before and after” scenario.
2. **Resolution for Lower-Tariff Bidders:** The 13 developers who bid at or below Rs. 2.87/unit received a clear path forward. Their PPAs are approved and will be signed, providing them revenue certainty. Their low tariffs reflect strong competitiveness.
3. **Uncertainty for Higher-Tariff Bidders:** The 25 developers who bid above Rs. 2.87/unit now face an uncertain outcome. They can either accept a lower tariff (Rs. 2.87/unit) via the counter-offer or walk away without penalty. This puts pressure on them to decide whether the project is still viable at the lower tariff.
4. **Financial Prudence for UGVCL and Consumers:** By capping the tariff for the higher bids at Rs. 2.87/unit (or at the ceiling of Rs. 2.95/unit after negotiation), UGVCL protects itself and its consumers from paying a higher rate that was based on an incentive that no longer exists. This demonstrates regulatory and utility prudence.
5. **Precedent for Future Procurement:** The order establishes a mechanism for handling similar policy disruptions in the future. It confirms that the ceiling tariff is a critical benchmark and that utilities have the discretion to negotiate downwards to ensure financial viability, subject to post-facto regulatory approval.

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