Recently Mr.Shinde, the then Power Minister of India, had announced that the Ministry will consider increase in power tariff if fuel costs rises.
This mechanism if and when implemented will be one of the best news for investors looking at India’s power sector.
The government’s UMPP plans have not really made much progress because of the fact that coal prices have risen considerably and the PPA terms and conditions are intact for the next 20-30 yrs. So power developers loose money on every unit of electricity generated and sold.
Now the question that arises is:
1. Will the increase in power tariff be passed to the end consumer or to the Discoms?
The Discoms are not in a state to take more hit and passing the hike to consumers completely will not be a good political move.
There was another news where Mr.Shinde spoke of increasing tariff every 6 months so that the end consumer does not feel the pinch at one go. So the message seems clear that the end consumer will need to bear the brunt.
What remains to be seen is the action from the new Power Minister on this front.
2. What impact will the increase in power tariff have on the REC rates?
If the PPA power tariff is linked the fuel prices; the APPC (Average Power Purchasing Cost of a State) will be increase thereby making REC based renewable energy projects with the States more attractive.
There may still be some delay in implementing everything that has been spoken. But solar power producers should take notice of the expected trend. With solar REC prices expected to come down and APPC prices expected to work in a reverse trend; it will be interesting to see the % by which these prices move.