Centre may allow higher RoR in new power projects

Twesh Mishra New Delhi | Updated on July 06, 2018 Published on July 06, 2018

The company currently operates the Kudgi Power Transmission Line project in Karnataka

Discoms will be allowed differential rate of return

Players setting up new power projects may have something to look forward to, as the Centre proposes to allow them a higher rate of return (RoR). For power distribution companies (discoms), it proposes to bring in a differential rate of return.

A Power Ministry official told BusinessLine the Centre is mulling better rates for new projects (where financial closure is yet to be achieved) and different rates for generation and transmission projects. These incentives are going to be enabled for the tariff period from April 1, 2019 to March 31, 2024.

The proposal comes at a time when the Centre is looking at corporatising the functioning of discoms, which means the utilities will have to make profits and offer dividends. But the States feel this can be implemented only after reforming the State Electricity Regulatory Commissions (SERCs) to allow better margins for the discoms.

A Power Ministry official said the need to assure appropriate returns to the sector has been re-emphasised in the Draft Amendments to the Tariff Policy, 2018. “We have noted that the return should be enough to attract investments at par with, if not in preference to, other sectors so that the electricity sector is able to create adequate capacity,” it had said.

At present, the Central Electricity Regulatory Commission (CERC) specifies a uniform RoR on equity for projects across the power value chain. The SERCs then set tariffs based on this rate of return. The current RoR permitted by the CERC during the ongoing tariff period (2014-2019) is 15.5 per cent.

Adequate capacity

A private discom official said: “Going by the Central Electricity Authority’s estimates, power generation capacity addition is not a major challenge and if we take capacity currently under installation, there is adequate installed capacity for the next decade.

“The major capital expenditure focus in the near term should be on improving distribution and transmission. A higher RoR here will surely sweeten the deal.”

Published on July 06, 2018
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