Amendment To The Power Tariff Policy

•  This  amendments will allow producers to pass on the effect of any change in domestic duties, levies, cess and taxes.
•  This also allows for pass-through of the cost of sourcing coal if Coal India fails to meet its fuel supply commitments.
•  This policy allows developers to expand their plants by up to 100 per cent of their capacity through the automatic route.
•  The tariff policy also allows power plants to sell the surplus electricity through power exchanges. The benefit of such sale of electricity, after deducting the variable cost, will have to be shared with the electricity distribution utility.
•  The tariff policy also provides for all transmission projects to be given through competitive reverse bidding. Only inter-governmental projects or those involving security risk will be given on a nomination basis.
•  The policy also waives inter-State transmission charges for solar and wind power.
•  The amended policy mandates consumers to use smart meters that will allow them to interact with distribution companies and make money by switching off appliances in peak hours and using them in non-peak hours. The meters will help check power thefts, allow net metering and improve accounting.
•  Consumers using over 500 units/month need to install these meters by December 2017, while those using 200-500 units per month need to do it by December 2019.
•  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.
•  Solar Renewable Purchase Obligation (RPO)[1] 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.

About Tariff 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.
• 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

Analysis:

•  This will remove ambiguity and uncertainty for competitively bid projects.
•  This would allow for the optimal use of land as well as reduce the time required to secure environmental clearances.
•  Removal of inter-State transmission charges for solar and wind power will help in reducing litigation
•  It brings clarity on the rate-setting authority for multi-state sales. Though  actual passing on of increased costs or statutory levies or of retail rate revisions would be  taken by states,depending on their financial health and commitment to greener energy.
•  Exemption to hydropower projects from competitive bidding till 2022 and extending of power purchase agreements (PPAs) by 15 years beyond the current 35 years would help to even out rates over a longer period and save the early shocks in this regard for this mode of power, with its high cost and long gestation.
•  RPO  will mandate discoms towards providing clean energy to the consumers and prevent payment default to the power producers.
•  But in contrary, Liberal open-access regime proposed would almost certainly not be favoured by state governments and regulators.
•  The huge cross-subsidy to agriculture by industry and commercial establishments will be the biggest barrier in allowing access to the latter category of consumers to power markets.
• The greater issue pertains to execution issues on account of terrain, local agitation, clearances and natural calamities.

By: Vishal