The Central Electricity Regulatory Commission (CERC) has allowed power plants (selling electricity under the ‘cost plus’ system) to receive higher compensation for loss in fuel quality while coal is ferried and stored. Additionally, for computing tariff of power from such plants, the electricity regulator also maintained the base return on equity (RoE) at 15.5%.
The latest regulations will impact the electricity tariff for 76 giga-watt (GW) power plants that sell power under the ‘cost-plus’ system between FY19 and FY-24. Apart from state-run NTPC, the new regulations would also have a bearing on returns of stressed power assets such as Jaiprakash Power Ventures’ Nigrie and Bina plants, Avantha Group’s Jhabua plant, GVK Power’s Goindwal Sahib, KVK Group’s Nilachal unit and Lanco Babandh station, which supply part of their electricity under the ‘cost plus’ regime.
The CERC has decided to continue with the prevalent two-part tariff structure, which comprises fixed and energy charges. Fixed charges represent fixed cost components, including debt service obligation and risk-free returns, while energy charges represent fuel costs, which vary according to the market.
In its earlier draft, the regulator had proposed to introduce a ‘three-part tariff’ structure with the addition of a “variable charge” component, which would have provided incremental return and balance operation and maintenance expenses.
While allowing generators recover more money through the ‘variable cost’ — which is primarily the cost of fuel, the regulator has tightened a few norms for recovering ‘fixed costs’. It has been more stringent on working capital norms as the power plant would now have to pay late payment surcharge of 1.5% if it fails to clear bills within 45 days, lowering the receivable period from the previous span of 60 days. The normative coal stock at non-pit head plants has also been brought down to 20 days from 30 days.
The CERC kept the definition of ‘useful life’ for coal power plants intact at 25 years. For hydro power plants, the same has been increased to 40 years from 35 years.