Govt mulls capping price of captive power: Report

The government is looking at capping the price of electricity produced from captive coal to ensure that power producers do not reap "super normal" profits, says a research report.

Global research firm Macquaire prepared the report after its recent meetings with various stakeholders of the power sector, including government officials.

"The government is also mooting the idea of capping power prices based on captive/regulated coal to avoid super-normal profits by generators," it said.

According to Macquaire, the Power Ministry's idea is unlikely to be enforced retroactively but would be enforced for future projects.

The power sector is grappling with multiple woes including fuel shortages, which is hurting capacity addition plans.

Going by official data, about 20,000 MW of captive power capacity is connected to the national transmission grid.

Companies spread across diverse sectors including Hindalco are into captive power generation.

"Regulators and industry participants are cautiously optimistic about the future prospects, driven by recent policy actions/proposals on revising tariffs," the report said.

Meanwhile, faced with spiralling coal prices, some private players are looking to renegotiate their existing power purchase agreements (PPAs) to reflect the higher fuel costs.

Regarding the same, Macquaire said the government has no intention to intervene in the PPAs signed by power producers so far.

"The ministry representative was of the view that central government is unnecessarily being dragged into arbitration as PPAs provide for renegotiation between seller and buyer. So power companies and state governments are free to enter into these negotiations," the report noted.

The country is expected to see a capacity of about 52,000 MW in the current five-year plan (2007-12), much lower than the revised target of 64,000 MW.