Indian power sector is policy driven and being governed by stiff regulations. Any policy level changes have impacted the power sector in both positive as well as negative sense. In this milieu this fiscal was no different as the sector is set to register turbulence prior stabilization, courtesy the on-going coal block re-allocation, intent of Govt. on fuel pooling coupled with the repercussions of CERC’s Tariff Regulation 2014-19. The CERC’s Tariff Regulation 2014-19 have intensified the competition in the Indian power sector, by curbing the shield that has earlier been provided to the CPSUs/ SEBs generation utility in the form of incentive linked to PAF (Plant Availability Factor). The regulation has reduced the revenue margin of Central Power Station Units (CPSU’s) by a significant quantum of 7-15%. It is pertinent to note that for end consumers of electricity a degree of relief has come through reduction in power tariffs by 5-6% from erstwhile prevailing rates, which deems as a positive impact of 2014-19 regulations.
Since coal has been the key fuel option for power sector and its availability will govern the fate of installed power generation capacities in India. In this regard the coal blocks reallocation and coal swapping are certainly the steps which would enable robust fuel supplies to upcoming and stalled power generation units. Interestingly to keep a cap on the power tariffs, reverse bidding mechanism for coal blocks re-allocation was adopted initially. But the aggressive participation from the developers have led the policy makers to come up with the negative bidding for the respective blocks. But as the policy doesn’t permit the cost incurred in acquiring these assets to be a pass through, the revenue margin of power generation utilities will see all time low. And this margin per unit of generation is anticipated to dwindle in the range of 5-10 paise a unit. Fuel pooling on the other hand has seen partial acceptance, as coal pooling is still under consideration. Gas pooling will help in reviving up 16 GW of stranded capacity and as Government of India is providing subsidy to check the tariff at INR 5.50. Only future will unveil the extent of benefit to the gas based power plants.
Key Queries Resolved
- What is likely rationale behind tariff calculations followed in India for 2014-19?
- What are the key impacts on the stakeholders due to these regulations?
- What is the likely pressure on generating utilities with incentives linked to PLF instead of PAF?
- What would be the cost of power supply and cost of procurement vis-à-vis from power distribution utility’s perspective?
- How Indian Electricity generation sector would respond to new tariff norms?