Transmitting the right signals with new power tariff policy

Maulik Madhu BL Research Bureau  | Updated on January 19, 2018 Published on January 22, 2016


But a lot hinges on implementation by the States

The new power Tariff Policy approved by the Union Cabinet incorporates changes that bode well for the power sector in the long run.

While some are intended at improving power supply, others aim at helping power companies recover costs. Then, there are amendments that are targeted at promoting renewable energy.

But, while the changes are positive, they are not legally binding as the policy serves largely as a guiding force.

Moreover, the actual implementation has to be undertaken by the State governments and the respective State electricity regulatory commissions (SERCs). “Electricity for all practical purposes is a State subject. The entire success depends on the extent to which the State governments adopt the changes and follow them,” says Pramod Deo, former chairman of the Central Electricity Regulatory Commission.

In fact, some amendments such as those relating to competitive bidding for inter-State transmission projects and renewable energy purchase obligations (RPOs) are not completely new. The implementation record on these has however been patchy.

The provision in the new Tariff Policy on procurement of power from smaller plants that use poor-quality coal (coal rejects generated from washeries) should aid power supply in the areas located close to the mines. Allowing private power producers to expand their capacity by up to 100 per cent at their existing sites too is a good move. This should help them better utilise the available land and do away with acquiring additional land, to a certain extent.

Action needed

The amendment permitting power companies to pass-through changes in domestic duties, cess and taxes to customers through tariff hikes is another positive. But, this is only a reiteration of what has already been advised by the Central Electricity Regulatory Commission (CERC).

“In the past, the CERC has held the view that changes in such costs come under ‘changes in law’ and can therefore be allowed to be recovered through tariff hikes but many SERCs have not followed this approach for their respective States,” explains Deo. “The policy is making an attempt at giving guidance on this,” he adds. Similarly, while tariff-based competitive bidding for transmission projects was introduced a few years ago, some projects have continued to stay outside this mechanism.

Under the existing rules, the Centre can allot projects which are technologically complex or require urgent implementation to Power Grid Corporation of India, the country’s principal power transmission company. The amendment in the new Tariff Policy is on similar lines. According to it, tariff-based competitive bidding can be done away with in case of exigencies. The new policy therefore has not been able to make the process completely competitive.

Then, the amendment on having eight per cent of the total electricity consumption from solar energy by March 2022 will remain a mere goal unless it is enforced by the States.

While the existing Electricity Act too mandates renewable energy purchase obligations (RPOs), it is up to the respective SERCs to decide on the quantum and also whether or not they should be legally binding.

Similarly, implementation of periodic tariff revisions as mentioned under the new Tariff Policy too is dependent on SERCs introducing orders to such effect.

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Published on January 22, 2016
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