JSA Prism | Electricity and Power | September 2026

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Determination of levellised generic tariff for renewable energy projects for the third year of the control period

The Central Electricity Regulatory Commission (“CERC”), by its suo motu order dated August 23, 2026, passed in Petition No. 12/SM/2026[1], has determined the levellised generic tariff for Renewable Energy (“RE”) projects for the third year of the Control Period[2] under the Central Electricity Regulatory Commission (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2024 (“RE Tariff Regulations”). The tariff applies from August 1, 2026, to March 31, 2027, and covers small hydro projects, biomass power projects with Rankine cycle technology, non-fossil fuel-based co-generation, biomass gasifier-based projects, biogas-based projects and refuse-derived fuel based municipal solid waste projects.

Background

1. The RE Tariff Regulations, notified on June 12, 2024, provide for determination of generic tariff for 6 (six) categories of RE projects, namely small hydro projects, biomass power projects with Rankine cycle technology, non-fossil fuel based co-generation projects, biomass gasifier-based power projects, biogas-based power projects and refuse-derived fuel based municipal solid waste power projects.
2. Regulation 8(1) of the RE Tariff Regulations requires CERC to determine the generic tariff prior to the commencement of each year of the Control Period. In discharge of that mandate, CERC undertook the determination for the third year of the Control Period, running from August 1, 2026 to March 31, 2027.
3. For this purpose, CERC issued a public notice on July 3, 2026, along with a proposal for determination of the levellised generic tariff for the third year of the Control Period, and invited comments, suggestions and objections from stakeholders.

Comments received and Commission’s Analysis

Capital Cost

1. CERC proposed to retain the normative capital cost specified in the RE Tariff Regulations for the third year of the Control Period. It recorded that it had compared the capital cost norms specified by the State Commissions for the various RE technologies, along with project-specific tariff orders reflecting prevailing market conditions and had found the norms under the RE Tariff Regulations to be either aligned with or broadly comparable to those norms. Accordingly, no change in capital cost was proposed for the third year of the Control Period.
2. For small hydro projects, the proposed normative capital cost in accordance with Regulation 27(1) of the RE Tariff Regulations was INR 1,200 (Indian Rupees one thousand two hundred) lakh/Mega Watt (“MW”) for Himachal Pradesh, Uttarakhand, West Bengal, the Union Territories of Jammu and Kashmir and Ladakh and the North Eastern States, for both projects below 5 (five) MW and projects between 5 (five) MW and 25 (twenty-five) MW. For other States it was INR 890 (Indian Rupees eight hundred and ninety) lakh/MW below 5 (five) MW and INR 1,027 (Indian Rupees one thousand and twenty-seven) lakh/MW between 5 (five) MW and 25 (twenty-five) MW.
3. The following comments and suggestions were received from stakeholders on the aforesaid proposal:
   • the capital costs should be benchmarked against recently commissioned projects, Engineering, Procurement, and Construction contracts and competitive bidding outcomes before the tariff is finalised;
   • a uniform capital cost for a Control Period of about 3.5 (three point five) years does not account for inflation, increases in input costs, force majeure delays or interest during construction on accepted delays. Accordingly, annual determination of the capital cost for each year of the Control Period was sought;
   • small hydro projects in hilly regions incur higher civil works and equipment transportation costs, with plant and machinery costs rising by 8% to 12% during the period. Accordingly, a 7% increase in the capital costs of such projects was proposed; and
   • increase in Goods and Service Tax on contract works from 12% to 18% has resulted in a significant escalation in project costs and the same must be considered while determining the normative capital cost.
4. After considering the above, CERC declined to revise the capital cost. It held that its review of the norms against those specified by the State Commissions and against project-specific tariff orders showed that the capital cost under the RE Tariff Regulations remains broadly aligned with prevailing market conditions. The normative capital cost was accordingly retained for the third year of the Control Period. CERC added that the capital cost of the various technologies will be reviewed as part of the exercise of finalising the RE Tariff Regulations for the next Control Period.

Return on equity

1. CERC proposed to apply the rate of return on equity specified in Regulation 16(2) of the RE Tariff Regulations, being 14% for RE projects other than small hydro and 15% for small hydro projects, grossed up by the latest notified minimum alternate tax rate for the first 20 (twenty) years of the tariff period and by the latest notified corporate tax rate thereafter;
2. in response, it was suggested that the normative return on equity be reviewed in light of the maturity of RE technologies, reduced project risks and prevailing regulatory and financing conditions; and
3. after considering the aforesaid suggestion, CERC held that:
   • the return on equity for generic tariff determination is governed by the RE Tariff Regulations; and
   • the suggested revision amounts to an amendment of the RE Tariff Regulations and is therefore outside the scope of the annual tariff determination exercise.

Interest on loan

1. CERC proposed a normative interest rate of 200 (two hundred) basis points above the average State Bank of India Marginal Cost of Funds Based Lending Rate (“MCLR”) prevailing over the last available 6 (six) months, e., 8.71%. Accordingly, the normative rate worked out to 10.71%;
2. in response, it was submitted that the proposed normative interest rate exceeds prevailing borrowing rates for RE projects and the same ought to be rationalised to reflect actual financing conditions; and
3. however, CERC rejected the suggestion holding that the interest rate is fixed by the RE Tariff Regulations and that its revision would require an amendment of those regulations, which is outside the scope of annual tariff determination.

Interest on working capital

1. CERC proposed to compute interest on working capital at the average MCLR of 8.71% plus 325 (three hundred and twenty-five) basis points, giving a rate of 11.96%;
2. stakeholders submitted that the aforesaid rate is excessive in the present lending environment and requested that it be reduced in line with prevailing lending practices; and
3. after considering the above, CERC again held that the rate is governed by the RE Tariff Regulations and that its revision lies outside the scope of the annual tariff determination.

Operation and maintenance expenses

1. CERC proposed that in terms of Regulation 19 of the RE Tariff Regulations, Operation and Maintenance (“O&M”) expenses are determined on the normative values specified for the first year of the Control Period, escalated at 5.25% per annum over the tariff period;
2. accordingly, for small hydro projects, CERC proposed normative O&M expenses of INR 54,55,000 (Indian Rupees fifty-four lakh fifty-five thousand)/MW for projects below 5 (five) MW and INR 40,91,000 (Indian Rupees forty lakh ninety-one thousand)/MW for projects between 5 (five) MW and 25 (twenty-five) MW in Himachal Pradesh, Uttarakhand, West Bengal, the Union Territories of Jammu and Kashmir and Ladakh and the North Eastern States. For other States the normative O&M expenses are INR 43,93,000 (Indian Rupees forty-three lakh ninety-three thousand)/MW for projects below 5 (five) MW and INR 31,81,000 (Indian Rupees thirty-one lakh eighty-one thousand)/MW for projects between 5 (five) MW and 25 (twenty-five) MW;
3. the following comments and suggestions were received from stakeholders on the aforesaid proposal:
   • the rising incidence of extreme weather events has increased insurance premiums for small hydro projects from 0.1% to between 0.4% and 0.5% of capital cost, which translates to an additional cost of about INR 4,20,000 (Indian Rupees four lakh twenty thousand) to INR 4,80,000 (Indian Rupees four lakh eighty thousand)/MW per year. Accordingly, an increase in the O&M expenses for hilly States was proposed from INR 54,55,000 (Indian Rupees fifty-four lakh fifty-five thousand)/MW per year to between INR 59,35,000 (Indian Rupees fifty-nine lakh thirty-five thousand) and INR 59,75,000 (Indian Rupees fifty-nine lakh seventy-five thousand)/MW per year for projects up to 5 (five) MW, and from INR 40,91,000 (Indian Rupees forty lakh ninety-one thousand)/MW per year to between INR 45,11,000 (Indian Rupees forty-five lakh eleven thousand) and INR 45,71,000 (Indian Rupees forty-five lakh seventy-one thousand)/MW per year for projects above 5 (five) MW and up to 25 (twenty-five) MW;
   • O&M expenses must account for higher maintenance, transportation and logistical expenses in remote and inaccessible areas; and
   • a uniform escalation rate of 5.25% per annum does not reflect the varying cost trends across RE technologies. Accordingly, it was requested that the escalation be linked to appropriate inflation indices or prevailing market trends; and
4. after considering the above suggestions, CERC held that O&M expenses for generic tariff determination are governed by the RE Tariff Regulations and that any change is outside the scope of the annual tariff determination exercise.

Depreciation

1. CERC, while calculating the rate of depreciation, proposed to apply Regulation 15 of the RE Tariff Regulations, under which the base value is the capital cost admitted by CERC, salvage value is taken at 10%, and depreciation is allowed up to 90% of capital cost;
2. accordingly, the rate of depreciation was computed as 4.67% per annum for the first 15 (fifteen) years for all RE projects, with the balance spread evenly over the remaining useful life;
3. in response, stakeholders submitted that small hydro projects in Karnataka are generally allotted for 30 (thirty) years and that depreciation and tariff should be determined on the basis of the same; and
4. after considering the aforesaid suggestion, CERC held that depreciation is governed by the RE Tariff Regulations and that the suggestion amounts to an amendment of those regulations, which is outside the scope of annual tariff determination.

Capacity utilisation factor

1. CERC proposed that in terms of Regulation 28 of the RE Tariff Regulations, the normative Capacity Utilisation Factor (“CUF”) for small hydro projects is 45% for Himachal Pradesh, Uttarakhand, West Bengal, the Union Territories of Jammu and Kashmir and Ladakh, the North Eastern States and Odisha, 40% for Punjab and 30% for other States;
2. in response, it was submitted that the normative CUF of 45% should be reduced to reflect regional hydrological conditions, particularly in hilly areas where seasonal freezing and variations in river flows affect generation; and
3. after considering the aforesaid suggestion, CERC held that the CUF is governed by the RE Tariff Regulations and that its revision is outside the scope of the annual tariff determination exercise.

Biomass Fuel Cost

1. CERC proposed to specify the biomass fuel price for the third year of the Control Period by escalating the prices notified for the first year at 3.45% per annum;
2. the following comments and suggestions were received from stakeholders on the aforesaid proposal:
   • the proposed normative fuel cost does not reflect the actual landed cost of biomass in Haryana and Rajasthan, given higher diesel prices, increased labour costs and growing demand from competing biomass-consuming sectors. Accordingly, normative prices of INR 5,337 (Indian Rupees five thousand three hundred and thirty-seven)/MT for Haryana and INR 4,659 (Indian Rupees four thousand six hundred and fifty-nine)/MT for Rajasthan were proposed. Further, an escalation mechanism weighted 60% to the diesel price index and 40% to the labour wage or consumer price index was suggested; and
   • biomass fuel prices vary across States on account of local availability, transportation costs and seasonal factors. It was therefore requested that the latest State-wise market data be taken into account; and
3. after considering the above suggestions, CERC held that the fuel cost is governed by the RE Tariff Regulations and that its review is outside the scope of the annual tariff determination exercise.

Miscellaneous suggestions

1. In addition to the above, the following suggestions were made by stakeholders in relation to small hydro projects:
   • the reduction of tariff to 85% of the previous tariff on renewal of the power purchase agreement after 20 (twenty) years adversely affects the viability of small hydro projects in Karnataka;
   • provision should be made for major capital expenditure aggregating to at least 10% of the capital cost after 20 (twenty) years of operation;
   • given the increase in operation and maintenance costs over the life of the project, the tariff for projects having 40 (forty) year power purchase agreements should be reviewed after 30 (thirty) years of operation;
   • separate tariffs should be determined for projects with and without Central Financial Assistance (“CFA”);
   • the tariff reflecting CFA should be made applicable only from the month following actual disbursement of the full CFA; and
   • only 50% of the CFA should be adjusted against the project capital cost, with the balance 50% retained by the developer; and
2. after considering the aforesaid suggestions, CERC held that the same are outside the scope of the present exercise of determining levellised generic tariff.

Conclusion

1. CERC has drawn a firm line between the annual generic tariff determination under Regulation 8(1) and the framing of tariff norms under the RE Tariff Regulations. The Commission held that all suggestions put forth by the stakeholders pertained to tariff norms fixed under the RE Tariff Regulations for the entire Control Period. Accordingly, the annual determination is limited to applying these prescribed norms and does not involve revisiting them.
2. The order does not affect solar, wind, hybrid or storage projects, for which tariff continues to be determined on a project-specific basis under Regulation 7 of the RE Tariff Regulations. The project-specific route also remains available to biomass, biomass gasifier, biogas and municipal solid waste projects where the developer elects such project-specific route.

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[1] Decided on August 23, 2026

[2] The period during which the tariff norms specified in the regulations remain valid, being July 1, 2024 to March 31, 2027 under Regulation 5 of the RE Tariff Regulations.