Central Electricity Regulator’s New Tariff Norms: Analysts Predict Positive Impact on Power Sector

The Central Electricity Regulatory Commission (CERC) has recently unveiled its draft tariff regulations for the period 2024-29, which are expected to have a positive impact on the power sector players, especially the thermal power generators and transmission companies. The draft regulations aim to improve the operational efficiency, financial viability and environmental performance of the power sector, while ensuring fair returns to the investors and affordable tariffs to the consumers.

Key Features of the Draft Regulations

Some of the key features of the draft regulations are:

  • For thermal power plants, like those of NTPC, the return on equity (RoE) for regulated projects remains at 15.5%. There is also an increased incentive for thermal power plants that operate at over 85% capacity during peak times — they will now receive ₹0.50 per unit as against ₹0.35 per unit earlier.
  • The fixed cost recovery of thermal power plants will be linked to the normative quarterly plant availability factor (NQPAF) instead of the normative annual PAF (NAPAF). This will encourage the generators to maintain higher availability during peak demand periods and reduce their dependence on supplementary charges.
  • The working capital norms for thermal power plants have been tightened with receivables reduced to 45 days from 60 days earlier. This will improve their cash flow situation and reduce their interest burden.
  • The generators will be allowed to recover fuel costs through billing on actual gross calorific value (GCV) of coal received, instead of billing on declared GCV. This will eliminate the disputes arising from GCV variations and ensure timely payment of fuel bills.
  • The efficiency gains sharing for thermal power plants has been increased from 50:50 to 60:40, with 60% of the gains going to the beneficiaries. This will incentivize the generators to adopt best practices and technologies to improve their heat rate and reduce their fuel consumption.
  • For transmission companies, like Power Grid Corporation of India, the RoE for regulated projects remains at 15.5%. However, there is a provision for an additional RoE of 0.5% for timely completion of projects and another 0.5% for projects involving new technologies or innovation.
  • The transmission charges and losses will be shared by the beneficiaries based on contracted capacity instead of allocated capacity. This will provide a clear signal to the beneficiaries to optimize their power procurement and scheduling decisions and reduce their transmission costs.
  • The transmission availability factor (TAF) has been increased from 98% to 99% for inter-state transmission systems (ISTS) and from 97% to 98% for intra-state transmission systems (InSTS). This will ensure higher reliability and quality of power supply to the consumers.
  • The CERC has also introduced a provision for time of day (ToD) tariff, which will vary according to the demand and supply situation in different time slots. This will encourage the consumers to shift their load from peak hours to off-peak hours and reduce their electricity bills.

Impact on Power Sector Players

According to analysts, the draft regulations are largely positive for the power sector players, as they provide clarity and stability on the tariff framework for the next five years. The regulations also reflect the changing dynamics of the power sector, such as increasing renewable energy penetration, rising peak demand, emerging technologies and consumer preferences.

The thermal power generators are expected to benefit from the higher peak incentives, quarterly availability-linked fixed cost recovery, actual GCV-based fuel cost recovery and increased efficiency gains sharing. These measures will improve their operational performance, cash flows and profitability.

The transmission companies are expected to benefit from the higher RoE for timely completion and innovation, contracted capacity-based transmission charges sharing and higher TAF norms. These measures will enhance their project execution capabilities, revenue visibility and returns.

The consumers are expected to benefit from the ToD tariff, which will enable them to save on their electricity bills by shifting their load from peak hours to off-peak hours. The ToD tariff will also promote demand-side management, energy efficiency and load balancing in the power system.

The draft regulations are open for public consultation till February 10, 2024. The final regulations are likely to be notified by March 31, 2024 and will come into effect from April 1, 2024.



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