Doubled coal cess to increase power tariff by 15 paisa/unit

Clean Environment Fund to hurt power prices

The government's effort to push clean energy will lead to a spike in the price of power. The government has for the third time in a row increased the cess on coal and lignite production to Rs 400 per tonne.

As the increase in price of coal comes under the “change of law” regulation of the Electricity Act, any change in price will be reflected in the final power tariff. According to industry calculations, the latest increase will cause a change of 12-15 paise per unit in the final power tariff.

The Indian power industry consumes close to 500 million tonnes of coal annually and with the doubling of the cess, close to 800 billion units of electricity will bear the impact of the higher price of coal.

“Looking at the objective, no one can have any quarrel with it. However, it may be noted that the environment ministry has recently notified stringent emission norms for coal-based power plants that need to be complied with in two years. Our ballpark calculations indicate the industry will need to spend Rs 2 lakh crore to be compliant with the new norms,” said AK Khurana, director-general, Association of Power Producers (APP), the representative body of private power producers.

During the current financial  year, the coal cess collected was around Rs 12,000 crore, taking the total to Rs 50,000 crore.

The cess on coal was doubled to Rs 200 per tonne in the budget for 2015-16. In his maiden budget in July 2014, Finance Minister Arun Jaitley had increased it to Rs 100 per tonne from Rs 50 per tonne.

The cess is collected as the National Clean Energy Fund and is disbursed for renewable energy projects.

But with the change in name to the Clean Environment Fund, it was expected the fund would be used for environment conservation drives as well.

Projects depending on the Clean Environment Fund are the Rs 40,000 crore Green Energy Corridor and the National Wind Energy Mission, which will entail a total expenditure of Rs 18,000 crore.

“Funds from the Clean Environment Cess (to which the power sector is the biggest contributor) could be used for opening a concessional window of financing for meeting the new emission norms,” said Khurana.