The Central Electricity Regulatory Commission (CERC) will draw up a mechanism to determine the provisional increase in electricity tariffs for power plants that install emission control equipment, with some relief for power companies and lenders.
However, lenders and power companies said that most of the projects did not place orders for the equipment and therefore they were unable to complete the retrofit of the equipment by 2022.
Some financial institutions have sought the government's intervention to push the deadlines forward by two years. While state-owned power generation companies and PSUs, including NTPC, have placed orders for equipment, private companies have yet to catch up. Private companies have said that lenders are not comfortable in lending to the stressed power sector without clarity about tariff hikes. CERC issued an advisory to power companies in 2018 that investments made in equipment complying with environmental standards would be passed on to consumer tariffs.
In the case of Reliance Power Sasan Power Ltd, CERC approved the provisional capital costs associated with the installation of the Flue Gas Desulphurisation (FGD) system, which experts said is likely to provide financial institutions with comfort. “However, we recognise that certainty of stream of cash flow in form of tariff is likely to give further comfort to these financial institutions and that it is also equally important for the procurers as well as sellers to know the tariff implications on account of installation of FGD system,” the regulator said its order issued on Thursday. A discussion paper on the compensation mechanism and the tariff implications of the installation of emission control gears will soon be launched by the regulator.
A senior executive with a lending institution welcomed the order and said that it would give confidence to lenders to finance FGD, as the tariff impact will be known from the outset. He said, however, that the implementation of emission control gears should be delayed by at least two years, as some power plants do not have adequate power purchase agreements. “The entire investment in FGD cannot be compensated by tariff increases for part PPA,” he said.The lack of demand and PPAs has been a concern for the power sector and, according to experts, the situation is unlikely to change in the near future.
