GS-3, Indian Economy, Uncategorized

Power Tariff Policy

What is the policy?
Tariff policy for power is governed under the Electricity Act. The policy is the guiding principle for setting power rates, power purchase agreements, sale and purchase of coal and power – both conventional and renewable energy
Why was it revised?
The policy revision was undergoing since 2006 in wake of increasing basket of power generation, corresponding growth of transmission & distribution and lack of regulations to tackle new issues cropping up in the ever dynamic power sector. Power ministry in its first draft said the revision was taken up “to provide affordable power to consumers and ensuring fair returns to generators, transmitters and distributors of power and to facilitate development of markets and market instruments in the power sector.”
 Major Amendments:
1. For optimal utilisation of land and other resources that are used for power projects, the policy allows increasing power production on the same project site to the extent of 100 per cent capacity. (Subject to regulatory approvals)
Impact: hassles of land acquisition, forest and environment clearance reduced without effecting power generation. Impetus to private investment.
2. Sale of surplus power generated which has no takers, in spot market through power exchanges
Impact: As spot market is mostly buyer’s market, cheap power would be available for states/discoms to buy. It would improve the PLFs of generating station which have to reduce the capacity when states don’t buy the contracted power.
3. All transmission projects to be awarded through tariff based competitive bidding. The basket of exceptions reduced to minimal list of security related projects. Even intra-state projects which are above a stipulated cost to follow bid regime.
Impact: The policy has given a clear directive to follow competitive bidding in both central as well as state transmission projects. This will allow greater flow of private capital into the lagging transmission sector.
 4. Hydro power projects to be awarded under cost-plus basis and not reverse bidding. The tenure of power purchase agreement extended by 15 years over and above the existing 35 years
Impact: Hydro power gets a new lease of life. Also, hydro when compared to thermal takes longer time and faces lot regulatory hurdles. Any forecast regarding tariff is difficult, so cost plus is a blessing for private investors in the hydel sector.
5. Solar Renewable Purchase Obligation (RPO) to reach 8 per cent by March, 2022. Also, the policy introduces Renewable Generation Obligation, which allows new coal/lignite based thermal plants to also establish renewable capacity to meet their RPO. Existing plants can set up such capacity subject to approval of procurers.
Impact: This will mandate discoms towards providing clean energy to the consumers and prevent payment default to the power producers. Market experts are however still reading the fine print of how much would 8 per cent solar power purchase entail on generation and demand for solar power.
6. Bundling of renewable power with power from those plants whose PPAs have expired or plants which have completed their useful life, subject to development through competitive bidd
7. No inter-State transmission charges and losses–No inter-State transmission charges and losses to be levied for renewable power (solar/wind) till such period as notified by GoI. Impact: One major worry that renewable energy investors face is procurement. “Leveraging existing power assets to expand capacity in both conventional and unconventional energy to boost generation suggests better utilization of invested capital. The continued preoccupation with renewable energy is heartening. This is in line with the growing expectation that cleaner energy like solar shall increasingly displace conventional sources in energy portfolios of developed and developing countries. The intentions have been reiterated, what remains to be seen is how these are implemented and the various parties involved held accountable to deliver the commitments proposed,”
8. Enhanced role of regulators: Both central and state regulators have been strengthened to take up hard tasks and be the final word in most cases. The state regulator would devise the trajectory for achieving 24*7 power by 2022 and closely monitor it as well. Regulator would also mandate compulsory purchase of power from micro grids set up in remote locations.
Impact: Tariff Policy being just a guiding principle is usually twisted by state regulators. The policy amends the legal position of SERCs to “may” which entails falling in line with most regulations. SERCs being given executive role also strengthen their role further.
 Other important amendments for:
Power Producers:
1. Cost pass through of change in domestic duties, levies, cess and taxes in competitive bid projects
2. Cost pass through for use of imported/E-auction coal in competitive bid projects which the producer had to use in case of shortfall contracted coal supply by Coal India.
3. Recovery of costs owing to variation in prices of fuel / power purchase etc. on monthly / quarterly basis.
Consumers:
1. To benefit from periodic cost variation as there would be no carry forward cost.
2. Upfront payment for several cost variables.
3. Smart meters to simplify billing, demand monitoring, help choose power supplier in future
4. Net metering for roof-top solar. Two way smart meters shall be provided to all consumers for roof top solar

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