OERC Retains Small Hydro Tariffs, Introduces New Revenue Model

The Odisha Electricity Regulatory Commission (OERC) in its latest ruling has upheld the existing tariff for small hydro projects in the state. However, the state regulator introduced a new provision for revenue sharing in case of excess energy generation. 

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The decision follows a petition filed by GRIDCO Limited, Odisha’s bulk power procurer. GRIDCO had sought a downward revision of tariffs in light of higher-than-expected generation from existing hydropower plants.

GRIDCO’s plea, requested amendments to OERC’s earlier order dated December 4, 2023, which had fixed a normative Capacity Utilisation Factor (CUF) of 30% for SHEPs and corresponding levelised tariffs of Rs 5.93/kWh (for projects below 5 MW) and Rs 5.82/kWh (for projects between 5 MW and 25 MW), applicable for FY 2023–24 to FY 2027–28.

The company based its request on new Central Electricity Regulatory Commission (CERC) regulations notified in June 2024, which increased the normative CUF for Odisha SHEPs to 45%. GRIDCO argued that many operating projects had been consistently outperforming the 30% CUF threshold, resulting in "huge profit" margins, and demanded that the tariffs be recalculated based on the new benchmark.

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Developers Oppose Move

Several project developers, including Pallavi Power and Mines Ltd., Power Tech Consultants, Sidheswari Power Generation Pvt. Ltd., and Jaypore Hydro Power Pvt. Ltd., opposed GRIDCO’s request, citing concerns over regulatory unpredictability. They warned that a mid-term tariff revision would undermine the sanctity of the Multi-Year Tariff (MYT) framework, essential for attracting long-term infrastructure investments.

The developers also argued that Odisha’s monsoon-dependent water regime could not reliably support a uniform 45% CUF, and if CERC norms were to be adopted, they should be implemented in totality, including the higher capital cost allowance of Rs 10.27 crore/MW, as opposed to Rs 7.80–9.00 crore/MW under current OERC benchmarks.

OERC’s Stand On The Issue

The OERC sided with the developers on the question of regulatory certainty, refusing to alter the financial or operational parameters mid-period. In its order, the Commission noted that adopting only selective provisions from the CERC’s revised framework would lead to “regulatory inconsistency” and affirmed that the existing tariff order would remain in force until FY 2027–28.

However, the Commission took note of GRIDCO’s contention regarding disproportionate profits from generation beyond the normative CUF. In a move to balance investor incentives with consumer interests, the Commission ruled that:

• Energy generated above the 30% CUF will be procured by GRIDCO at only 25% of the generic tariff.
  
  

• The remaining 75% of the tariff value for surplus generation will effectively benefit consumers, reducing overall power procurement costs.
  
  

• Both GRIDCO and SHEP developers have been directed to update Power Purchase Agreements (PPAs) to reflect this clause.
  
  

This new mechanism, the Commission noted, will allow project developers to retain a share of their operational efficiencies while ensuring that the majority of the financial gains from excess generation are passed on to consumers.