Markets & Policy

CERC Proposes Draft Generic Tariffs for FY 2026-27: A Strategic Pivot for Waste-to-Energy and Small Hydro

July 15, 2026 By Gaurav Nathani 5 min read
0:00 / 05:52

In a strategic regulatory move designed to incentivize the waste-to-energy sector and stabilize high-cost hydro benchmarks, the Central Electricity Regulatory Commission (CERC) issued a comprehensive draft proposal on July 3, 2026. The proposal outlines levellised generic tariffs for renewable energy projects scheduled for commissioning between August 1, 2026, and March 31, 2027.

Crucially, the 2024 regulations signal a policy shift by re-integrating Municipal Solid Waste (MSW) and Refuse Derived Fuel (RDF) projects into the generic tariff fold—a departure from the project-specific route mandated in the 2020 regulations. This change, coupled with a 0.5% increase in the Return on Equity (RoE) for small hydro, underscores the Commission’s intent to provide investment clarity for technologies that have yet to achieve the market maturity seen in the solar and wind sectors. Stakeholders and developers have until July 21, 2026, to submit formal comments before these benchmarks are finalized.

Technology Scope: Market Maturity vs. Regulated Tariffs

The CERC maintains a sharp distinction between mature renewable technologies, which are now driven by competitive bidding and market discovery, and “cost-plus” technologies that require regulatory support.

  • Included Technologies (Generic Route): Eligible for the proposed levellised tariffs are Small Hydro, Biomass (Rankine Cycle), Non-fossil fuel cogeneration, Biomass gasifier, Biogas, and MSW/RDF projects.
  • Excluded Technologies (Project-Specific Route): Solar, Wind, Hybrid Renewable Energy, and Energy Storage projects remain excluded from generic tariffs. As these technologies are considered mature and are largely governed by reverse auctions, they continue to operate under project-specific tariff mechanisms to ensure cost-reflectivity.

Proposed Levellised Tariffs for FY 2026-27

The proposed tariffs reflect the Commission’s assessment of current capital costs and operational realities. Notably, for MSW/RDF projects, the Commission has simplified the regulatory burden by omitting Station Heat Rate (SHR) and Gross Calorific Value (GCV) clauses, treating fuel costs as nil by incorporating fuel preparation and processing equipment directly into the project’s capital cost.

Technology CategorySub-Category / RegionProposed Tariff (₹/kWh)
Small HydroHimalayan & NE States (<5 MW)6.69
Small HydroHimalayan & NE States (5-25 MW)6.02
Small HydroOther States (<5 MW)7.70
Small HydroOther States (5-25 MW)7.49
Biomass (Rankine)Varies by technology/cooling9.50 – 11.60
Biomass GasifierRange by capacity9.30 – 10.50
Biogas-basedNormative11.17
MSW / RDF-basedBefore Accelerated Depreciation10.69
MSW / RDF-basedAfter Accelerated Depreciation10.14

Note: For biomass and bagasse-based projects, fuel costs have been adjusted using a 3.45% annual escalation factor. Small hydro regions include HP, UK, WB, J&K, Ladakh, and Northeastern States.

Key Financial and Technical Parameters

The draft proposal provides the technical “teeth” required for project IRR calculations, including specific discount factors and tax grossing-up provisions that are vital for developers.

Debt-Equity Ratio The normative ratio remains fixed at 70:30, maintaining the industry standard for project financing.

Interest on Loan and Discount Factors The interest rate is set at 10.71% (average 1-year SBI MCLR + 200 bps). For levellised tariff calculations, CERC has proposed a discount factor of 9.38% for small hydro and 9.08% for all other technologies.

Return on Equity (RoE) Reflecting the longer gestation periods of hydro, the RoE is set at 14.5% for small hydro and 14% for other technologies. Crucially, this RoE is to be grossed up by the latest Minimum Alternate Tax (MAT) for the first 20 years of the tariff period, and by the corporate tax rate thereafter.

Useful Life and Depreciation The useful life is technology-specific: Small Hydro (40 years), Biomass/Biogas/Cogen (25 years), and MSW/RDF (20 years). Depreciation is set at 4.67% per annum for the first 15 years, with the remaining value divided equally over the balance of the project’s useful life.

O&M and Fuel Escalation Operation and Maintenance (O&M) expenses carry an annual escalation rate of 5.25%. Biomass and bagasse fuel prices are subject to an annual escalation factor of 3.45%.

Regulatory Provisions and Legal Nuance

The draft specifies several operational rules that carry significant legal weight for Power Purchase Agreements (PPAs):

  • Treatment for Over-generation: Energy generated in excess of the normative CUF/PLF will be priced at 100% of the applicable tariff for that year. However, the first right of refusal for this excess energy vests with the concerned beneficiary, a critical legal provision for grid management.
  • Late Payment Surcharge: Penalties for payment delays will be governed strictly by the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.
  • Subsidies and Grants: Any government incentives or capital subsidies not accounted for in the initial determination will be trued up and adjusted in future payments to prevent over-recovery.

Next Steps and Timeline

The CERC’s consultation window is brief, with a July 21, 2026, deadline for feedback. Following the review of stakeholder suggestions, the Commission will finalize the order, which will serve as the benchmark for State Electricity Regulatory Commissions (SERCs) to determine tariffs within their respective jurisdictions.

Further details regarding the normative cost assumptions and the Commission’s logic for these benchmarks can be found in the Explanatory Memorandum and the draft regulations, both of which are available on the official CERC website.

Official Source Citations

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