Power tariffs may drop as norms for producers are tightened

Siddhartha P Saikia Updated - March 12, 2018 at 09:34 PM.

Draft proposals, if implemented, could lower electricity rates by 5%

These tariff rules would be mandatory for all power plants selling electricity under norms set by CERC cost-plus mechanism.

Electricity rates may see a marginal drop if the draft regulations on power tariffs, issued by the Central Electricity Regulatory Commission (CERC), are approved. Back-of-the-envelope calculations show that the CERC proposal may bring down rates by 5 per cent. Currently, a consumer in Delhi pays about Rs 4 a unit.

But the CERC mechanism will have a negative impact on the revenues of power producers such as NTPC, NHPC, Tata Power and Lanco. In fact, the news created panic on Dalal Street and NTPC saw its market value eroded by more than Rs 14,000 crore. Shares of the country’s largest power producer dropped 11 per cent to close at Rs 136 on the BSE.

Shares of NHPC, PowerGrid, Tata Power, Lanco Infratech and SJVN also fell.

According to analysts, if the draft norms are implemented, NTPC’s revenue may drop by around 15 per cent, Power Grid’s by 8 per cent, NHPC’s by 6 per cent, and SJVN’s by 7 per cent.

The power companies would earn lower revenues because the CERC draft has changed some key parameters, including calculation of incentives based on plant load factor, heat value and tax benefits.

This time, the incentive structure has been linked to actual generation beyond the threshold level of 85 per cent. CERC has reduced the station heat rate from 2,425 kcal/kwh to 2,375 kcal/kwh. The lower the heat rate, the more efficient is the plant.

“We believe this is a negative for independent power producers such as NTPC, as plant load factor is subjected to demand fluctuations by State Electricity Boards (SEBs) and fuel supply variations,” said Elara Securities (India).

However, Arup Roy Choudhury, CMD of NTPC, maintained that there is “no need to panic”, as these are draft regulations and would be discussed before finalisation.

Choudhury said NTPC would take up these issues with CERC.

The plant availability factor proposed by CERC is the declared capacity or the total generation capacity of the plant, whereas plant load factor is the actual generation, which is based on demand, on which a producer has no control, he explained.

More tax In addition, the draft regulations do not allow grossing up of taxes. Companies such as NTPC are allowed tax benefit on assets under Section 80 IA and, therefore, the effective tax rate is lower than the corporate tax rate. Henceforth, NTPC may have to shell out Rs 600-800 crore as an additional tax burden.

CERC reviews tariff regulations every five years. The existing regulations (2009-14) will expire on March 31. The draft norms have been put up for consideration. There is a public hearing on January 15, and a final notification is expected by March. The new tariffs that are approved will be applicable from April 1.

>siddhartha.s@thehindu.co.in

Published on December 10, 2013 06:52