New Power Tariff Mechanism and REC based projects

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.

 

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One Response to New Power Tariff Mechanism and REC based projects

  1. It is better to disclose the Tariff calculations and the basis with assumptions to arrive at Rs.7.5/kwh with NVVNL project award. This shall remove all these apprehensions of feasibility of Solar PV project. REC will not have any meaning as Indian govt had not honoured ENRON, so, few CREDL projects which have roof top (for an Airport ) tariff as Rs.6 (for first 5 years from 2012 i.e upto 2017) + REC, Rs.8.2 (2017 to 2022) + REC, and then up to Rs. 14 (2022 to 2027)+ REC, Rs.22 (2027 to 2032) + REC etc sounds crazy. If CDM benefits and 30% MNRE subsidy is given for off grid roof top projects (for Airport) are also added (may be given already !!), then, further crazy tariff or gifting more money to IPP, which is against democratic norms or policy….. How Chattisgarh REDL propose such disparity with other payment mechanism?? Will the next change in Government in Chattisgarh agree to such disparity or will DISOM pay such kind of roof top projects ?? Is this the sustainable way of developing the Solar Projects? Policy making has to be with a sense and good foresight with lots of variations and with less government support or dependence on sanction of projects or project award mechanism.

    REC price after control period will certainly come down and that too drastically, thus, making REC based project development as highly risky, may be…with low IRR.

    Better late than never, we need to get a standard tariff regime like Wind / Biomass with fixed PPA or Allow open access with good reforms in policy, allow interstate buying with simplified procedure etc. REC concept must go and the payment mechanism through DISCOM must be through ESCROW account or LC backed system to avoid State government babus certification or such time delay or DISCOMs going bankrupt further. Whatever be the payment mechanism has to be secure without any negative cash flows for Solar PV due to payment delays like what happened in Wind farms in Tamil Nadu.

    Let any body establish power plant in any state, but, the state which needs power, let it buy from the state / power producer throughout the country at the specified limits to avoid cartel or opportunity costs like what is now happening and common man is paying for high cost buying decision by the state government machinery to support few politically backed power producers in the name of artificial shortages or intentional thermal power plant break down or maintenance during the peak hour demand or due to center state fight of irrational coal supply from Central govt cos to state govt..

    Coal import through CIL is a ridiculous matter as the open access or interstate buying is not working properly or does not exist in reality. If these two are implemented with well laid policy, we can expect even the tariff to go down and the IPPs will sell at the competitive price for the benefit of consumers.

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