BackCabinet revises power tariff policy
The policy allows producers to sell power that states or state utilities fail to procure as per commitments to industrial customers through exchanges
PremiumPhoto: Bloomberg
New Delhi: The government on Wednesday announced a revised power tariff policy, allowing producers to pass on any increase in statutory levies to distribution companies, finding industrial consumers for power that debt-ridden state utilities fail to purchase, and providing for a monthly or quarterly revision of tariffs charged from consumers.
It also announced measures aimed at building a robust market for solar power.
“The idea is to make power available 24x7 to all households, offices, institutions, factories and other consumers within the shortest possible time," power minister Piyush Goyal said after the cabinet meeting chaired by Prime Minister Narendra Modi.
The policy allows producers to sell power that states or state utilities fail to procure as per commitments to industrial customers through exchanges. This is expected to help distribution companies reduce the burden of paying a fixed cost, accounting for roughly a third of the total cost of power, for failing to procure the committed amount of power.
The fixed cost component that the producer realizes from an industrial unit will be shared equally with the state, thus bringing down its liabilities.
To promote renewable energy, the policy seeks to exempt solar and wind power from inter-state transmission charges and losses. Power distribution companies will have to compulsorily purchase the entire power produced from waste-to-energy plants. It also proposes to make it mandatory for coal and lignite-based thermal power plants to purchase renewable energy for their use.
The government wants solar power to account for 8% of the total power consumed by 2022, up from about 1.7% now.
The steps will, at the most, have a persuasive value on state electricity regulatory commissions which actually wield the authority to set tariffs for the consumer.
Experts said that the government had taken every possible step it could under the confines of its mandate to remove the hurdles faced by power producers and utilities. The actual passing on of increased costs or statutory levies or retail tariff revisions would be a political call that states would take depending on their financial health and risk appetite.
The revised tariff policy announced under the Electricity Act of 2003 introduces competitive bidding in power transmission projects, a cost-plus pricing formula for power from hydroelectric power projects till 2022 and pass-through of cost of coal, which is either imported or procured domestically by the power producer through an e-auction for meeting the shortfall in the promised coal linkage.
“The revised power tariff policy seeks to bring consistency and uniformity in the way tariff-related issues are addressed by state electricity regulatory commissions. The recommendations would serve as guidance to state regulators. It provides comfort to participants of the sector and will reduce reviews and litigations," said Sambitosh Mohapatra, partner, energy utilities and mining, PwC India.
Goyal said that with the ₹ 5,050 crore capital subsidy corpus for grid-connected solar projects, about 5,000-14,000 megawatts of solar energy can be generated. “Eligible projects will be decided through an auction. The government will decide the base rate of subsidy. Reverse bidding will be conducted on that base rate and the bidder who seeks the lowest viability gap funding will be awarded the project. While domestic companies can seek a maximum ₹ 1.25 crore subsidy, international bidders are eligible for a maximum ₹ 1 crore subsidy. We hope this will make solar energy even cheaper," said Goyal.
Kalpana Jain, senior director, Deloitte in India, said the continued focus on renewable energy is heartening. “This is in line with the growing expectation that cleaner energy like solar shall increasingly displace conventional sources in energy portfolios of developed and developing countries. The intentions have been reiterated, what remains to be seen is how these are implemented and the various parties involved held accountable to deliver the commitments proposed," said Jain.
To encourage balanced use of fertilizers and promote organic farming, the cabinet also approved a subsidy of ₹ 1,500 per tonne of compost so that city waste is put to good use—in line with Prime Minister Modi’s Swachh Bharat mission.
Fertilizer companies have also been asked to sell city compost along with chemical fertilisers through their dealer network. “The companies will adopt villages for promoting the use of compost. Government departments and public sector undertakings will also use city compost for horticulture and related purposes," an official statement said.
The cabinet committee on economic affairs also gave its approval for the widening of the 222 km National Highway 2 in Bihar and Jharkhand to six lanes at an estimated cost of ₹ 4,918.48 crore.
Sayantan Bera contributed to this story.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
