New tariff policy for power sector to boost investment, clean energy

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The Cabinet on Wednesday approved several changes to the tariff policy for the power sector, with the broad objectives of promoting renewable energy, incentivising exchange-based power trading and shielding the producers from fluctuations in fuel and tax costs due to government decisions.

Also, the Cabinet Committee on Economic Affairs (CCEA) approved R5,050 crore to be used as viability gap funding for setting up of 5,000 megawatt of grid-connected solar capacity by Solar Energy Corporation of India.

It has been clarified that any changes in cost of fuel and state or central levies would be classified as ‘change in law’ making the extra cost pass-through in the tariff. Although the power ministry has said this in 2013, generators have been facing difficulty in realising added cost leading to litigation. The existing power plants with regulated tariff will now be allowed to double their extant capacities at the same sites thereby reducing time for various clearances required for a greenfield project.

Other amendments include allowing regulators flexibility in fixing cross-subsidy surcharge, making tariff revision by regulators more frequent (quarterly or monthly as needed, a provision also under the UDAY scheme for debt-laden discoms), bidding for intra-state transmission projects over a certain cost and making it mandatory for power plants located within 50 km of sewage treatment plant to use recycled water.

Power plants will be allowed to sell their un-requisitioned capacity– which has been abandoned by the procurer despite existing power purchase agreements– in the open market through power exchanges. The profit thus earned would be split between the generator and the procurer in half.

The new tariff policy requires future thermal power plants to set up a renewable capacity corresponding to a percentage of planned thermal capacity. However, the policy has left the mandated renewable capacity to the discretion of electricity regulators. “The regulators will determine the quantum of renewable capacity needed to set up for future thermal power plants,” power minister Piyush Goyal said.

Moreover, the policy has imposed an obligation on power distribution companies to procure solar energy amounting to a minimum of 8% of energy requirement by 2022. The policy has also exempted solar and Wind power from inter-state transmission charges to ensure affordability. The amendments to the policy would help India achieve a 40% renewable mix in its energy portfolio as per the commitment at COP 21 in Paris last year, Goyal said.

“The continued preoccupation with renewable energy is heartening. This comes amidst the lowest crude price environment. 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,” Kalpana Jain, Senior Director, Deloitte said.

Following an order from the central regulator that declared Railways as deemed licensee and exempt from paying cross-subsidy surcharge (CSS), the policy says that the states in consultation with Railways can exempt the national carrier from CSS which would improve its financial health.

The policy has exempted the hydro power projects from competitive bidding. These projects will continue to be awarded on cost-plus tariff basis till 2022. The power ministry will continue to exercise discretion in awarding Transmission projects on nomination basis as opposed to tariff based competitive bidding.

“The overall framework as proposed by the amendments to the Tariff Policy will impact the sector in a positive manner,” Ashok Khurana, Director General of Association of Power Producer said.

The new policy also brought relief to several renewable energy companies that have set up minigrid in remote parts of the country. As per the policy, the states’ reach to these areas will not render these investments unusable, instead these mini-grids would be allowed to feed-in power to such centralised grids at a predetermined price.


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