New tariff regime for hydel power

India’s electricity regulator, the Central Electricity Regulatory Commission (CERC), has proposed a new tariff scheme for power generated from hydroelectric stations, whereby the risks associated with changes in water flow would now be borne by producers. This is a move that is likely to bring down the price being paid by users, usually the state electricity boards.

At present, hydrological India’s electricity regulator, the Central Electricity Regulatory Commission (CERC), has proposed a new tariff scheme for power generated from hydroelectric stations, whereby the risks associated with changes in water flow would now be borne by producers. This is a move that is likely to bring down the price being paid by users, usually the state electricity boards.

At present, hydrological risks (risks associated with changes in the water flow pattern) is borne by buyers, and power producers like NHPC, the largest hydroelectricity generator, take only risks associated with the failure of equipment. CERC is proposing the new regime for five years starting April 2009.

“We will now put this up as the new regulation, invite suggestions and the decision will be taken after a final hearing,” said S C Anand, joint chief (engineering), CERC. The entire process of inviting comments and final notification is expected to take at least five months. Hydroelectric power constitutes nearly a fourth of India’s total installed capacity of 1,43,000 mw at the end of March 2008.

The government has estimated an ideal thermal and hydro mix at 60: 40, meaning hydro projects should constitute 40 per cent of total installed capacity. In this context, the new tariff regime is also seeking to make hydro power investments attractive for the private investors.

In the current regulation, the installed capacity of a hydroelectric plant is determined first and thereafter, any shortfall in generation of electricity because of changes in water flow pattern is borne by the buyers. Thus, if a plant actually produced only 60 per cent of its installed capacity because of hydrological factors, the state electricity boards pay for the entire 100 per cent. With the proposed regulation, it would change and buyers will pay only for the power they actually get. The story began in November 2007, when the amendment proposal was circulated in response to complaints by buyers – the first being Assam State Electricity Board (ASEB) against North Eastern Electric Power Corporation.

In another proposal, the tariff from hydroelectric projects will continue to be linked to the return on equity, a measure on return on shareholders’ money. Earlier, CERC had said that it wanted to link the tariff to return on capital employed (the percentage of operating income to capital employed) leading to protests from project developers. Further, the 14 per cent RoE will be continue to be calculated post-tax, as long as the debt-equity ratio is 70:30. “We listened to the pros and cons and decided to stick with RoE,” said Anand.