CERC orders on compensatory tariff to restore investors' sentiments

The tariffs are proposed for the imported coal based power projects of Tata Power and Adani Power in Gujarat

The Association of Power Producers (APP) said the Central Electricity Regulatory Commission's (CERC) orders on compensatory tariff for the imported coal based power projects of Tata Power and Adani Power in Gujarat would go a long way in restoring the economics of the generation projects facing financial hardships and in reviving the investors’ sentiment.

Even after factoring in the proposed compensatory tariffs, the resultant tariffs of the said projects would be quite competitive compared to the tariffs discovered through recent bids for long-term power in Tamil Nadu, Rajasthan and Uttar Pradesh.   CERC in its orders has allowed compensation of Rs 830 crore to  Adani Power and Rs 329 crore to  Tata Power  from state-owned distribution companies in five states.   

"The orders try to find a way out of a very difficult and complex situation. We hope all stake holders will accept it and move forward as the sector has already lost three years. The non-implementation of these orders by any of the concerned stake holders would lead to stranded generating assets, loans turning bad and further shortages of much needed and competitively priced electricity,'' says Ashok Khurana, director general, Association of Power Producers.  

CERC orders are well balanced and calibrated. Accordingly, while trying to impart commercial viability to developer's projects, the orders have also envisaged certain sacrifices by developers including reduced Return of Equity (RoE) by one percent, sharing of exchange rate impact. ''Viewing the orders from a sectoral standpoint makes it evident that the interests of all stake holders have been balanced, thereby making the orders sustainable in the long run,'' notes Khurana.

Further, on the technical front, CERC has maintained the values as specified in the Bid thus ensuring the sanctity of the bid process. ''CERC has also suggested a periodic review of the Compensatory Tariff based on the need every three years.  Such a provision is expected to enhance the acceptability of the proposed framework for Compensatory tariff amongst the procurers as well as the developers and paves way for dealing with any eventualities,'' says Khurana.