Centre and states should share cost of stranded assets: Forum of Regulators

Railway freight, coal pricing should come under independent regulator

In a bid to reduce the burden on financially stretched power distribution companies (discoms), the Forum of Regulators (FOR) has suggested that the Centre should share the cost of stranded power with the states. It said central funding should cover the fixed cost being paid by the states for the power generation assets that are no longer functional.  

A recent report by FOR, the apex regulatory advisory body revealed, states across the country are bearing the cost of stranded power generation assets to the tune of Rs 17,442 crore.

The report said 12 states are paying the fixed cost for the units which are no longer functional but the states continue to have power purchase agreements (PPAs) with them. The surplus energy from these units stands at 129,251 MUs for which the consumer is paying but not getting the electricity.

"The fixed cost of stranded generation assets is being paid for by the consumers without getting any benefit. Surplus energy of this magnitude and resultant costs (in the range of Rs 1.34 per unit) are a matter of great concern," said the FOR report released last week.

Most of the stranded units are gas-based power generation units which are not functioning for lack of domestic gas supply. Under the PPA, power discoms continue to pay fixed cost even if there is no supply. A stranded generation unit also pays interest costs to the bank.

"Government should extend help to the discoms to meet the fixed cost of the PPAs associated with the stranded assets. The burden of the stranded generation assets should be shared by the Central Government and the State Government respectively in the ratio of 60:40, in line with central plan funding," said the recommendation by the FOR.

The current report of the FOR focuses on the retail price of electricity for end consumers and the means to reduce it. The report has identified major cost factors that impact the price of electricity in the country.

The largest contribution to the cost is of the freight cost levied by the Railways on transport of coal. In the power purchase cost, the contribution of coal price has been in the range of 25 per cent, rail freight at 41 per cent, road transportation charges at 11 per cent, clean energy cess at 11 per cent and others at 12 per cent.

With regards to high railway freight, which has increased by more than 40 per cent in the last four years, the FOR had suggested "Railways should be brought under an independent regulatory body as they enjoy monopoly position and are still unregulated at present."

FOR has also batted for the coal sector to be also bought under independent regulator "at the earliest." It said, "Coal pricing needs to be regulated as in other sectors, since it is virtually a monopoly."

It said the Centre should also consider subsidising railway freight for coal for a distance beyond 750 km.

Among other suggestions to reduce power cost, the FOR has recommended transmission planning based on accurate demand forecasts. It said mismatch in generation and transmission planning leads to stranded transmission assets and additional cost is being borne by the states.

It has said the renewable energy projects with storage should be encouraged so that surplus transmission capacity can be utilised.

Clean Energy Cess should be ploughed back to electricity sector

Clean Energy Cess (CES) of Rs 400 per tonne, levied on coal should be given to the electricity sector for meeting the cost of environment norms, said the FOR.

CES launched in 2010 as the national clean energy fund (NCEF) was levied on production of coal and the proceeds from it were supposed to go for promoting clean energy projects. In 2018, it was subsumed under the Goods & Services Tax (GST).

The FOR has said, "With due regard to the increasing investment in renewables, the rationale for continuation of this cess needs review. There is a strong case for reduction in clean energy cess. Proceeds from this cess be ploughed back to the electricity sector to mitigate incremental cost on account of new environmental norms as per contribution made by each State."

In 2019-20, the CEC collection stood at Rs 24,883 crore.