CERC’s draft norms to cut tariffs, hurt power companies

The Central Electricity Regulatory Commission’s (CERC) recommendations in the draft regulations for 2014-19, if accepted, may bring down tariffs marginally across the country but will hurt central power companies and spell more financial trouble for state utilities.

Tariff regulations are reviewed every five years. The existing regulations will expire on March 31, 2014. The draft aims at cutting flab from the tariff structure and usher in more efficiency.

But, one change that will benefit consumers the most is the suggestion to scrap tax arbitration. Generation utilities are now allowed to charge the applicable tax rate from buyers even if they actually pay lower tax on account of depreciation, exemptions or incentives. In the new dispensation, companies will only charge the tax they have actually paid.

Losing this benefit will hurt generation companies in states. For a big player such as NTPC, the impact could amount to a loss of Rs 500 crore annual income through tax arbitration. Other generating units too will take a hit, which will hurt the state generation companies more as most of them are in dire straits.

The draft also suggests changing the incentive structure from PAF (plant availability factor) to PLF (plant load factor). PAF is the average of actual capacity available for generation daily in a power station. This is taken in terms of a percentage of installed capacity. PLF is the amount of power generated daily and is also taken as a percentage of installed capacity.

Under the existing regulations, a power plant gets incentives if it just notifies its availability for generating power for any willing buyer. In the new regulations, incentives will be given on the power actually produced for a buyer.

This again will hit major central generators who, despite their efficiency, will lose the incentive as a punishment for inefficiencies of state electricity boards. In the present scenario, cash-strapped state boards resort to blackouts but do not buy power even if generation capacity is available.

To encourage new technology and efficient operation of plants, the draft suggests lowering the benchmark station heat rate — or the amount of heat being used to produce a unit of power — from 2,425 kcal (kilo calorie) to 2,375 kcal.

A lower heat rate means more efficiency. But here again, NTPC will be a loser. In the present dispensation, a plant gets incentives if its heat rate is lower than CERC’s benchmark. NTPC has already averaged a heat rate of 2,350 kcal and will see its incentives reduced.

The new regulations retain the RoE (return on equity) at 15.5%. But, reduced overall incentives will lower returns for companies, which generally earn more than 15.5% by way of incentives. For example, NTPC earns RoE of over 24% from incentives, operational efficiency and tax benefits. This is expected to go down.

Source: TOI

About Ritesh Pothan

Ritesh Pothan, is an accomplished speaker and visionary in the Solar Energy space in India. Ritesh is from an Engineering Background with a Master’s Degree in Technology and had spent more than a decade as the Infrastructure Head for a public limited company with the last 9 years dedicated to Solar and Renewable Energy. He also runs the 2 largest India focused renewable energy groups on LinkedIn - Solar - India and Renewables - India
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