Centre's move to amend tariff policy evokes mixed response

Some say actual passing on of costs or levies may be politically driven, based on states' financial health and commitment to greener energy

Sector analysts have welcomed the central government’s amended power rates policy as a needed step in the right direction.

They have noted in this regard the permission for pass-through in rates of any change in domestic duties, levies, cess or taxes in competitively-bid projects. It also brings clarity on the rate-setting authority for multi-state sales.

Though, some note, actual passing on of increased costs or statutory levies or of retail rate revisions would be a political call that states would take, depending on their financial health and commitment to greener energy.

Motilal Oswal Financial Services says the power ministry is working constructively to overcome the hurdles in achieving its ambitious targets. “Challenges still remain,” it says, “in reducing targeted aggregate technical & commercial losses under the Ujwal Discom Assurance Yojana because of regional political equations. Yet, we are optimistic because the social fabric and aspirations of the young generation are changing fast, with deep penetration of information technology and social media.” Pramod Deo, former chairman of the Central Electricity Regulatory Commission, told Business Standard: “As the proposed amendments to the Electricity Act are stuck in Parliament, the Centre has tried to incorporate certain features of that Bill through the amended policy.”

He felt, though, that the liberal open-access regime proposed would almost certainly not be favoured by state governments and regulators. “The huge cross-subsidy to agriculture by industry and commercial establishments will be the biggest barrier in allowing access to the latter category of consumers to power markets,” he said.

Association of Power Producers’ director-general Ashok Khurana said the exemption to hydropower projects from competitive bidding till 2022 and extending of power purchase agreements (PPAs) by 15 years beyond the current 35 years would help to even out rates over a longer period and save the early shocks in this regard for this mode of power, with its high cost and long gestation.

SBI Cap Securities says the amendments are positive to the hydro sector in the long term. It is a significant boost for renewable energy (RE), with the higher RE purchase obligation.

“The greater issue pertains to execution issues on account of terrain, local agitation, clearances and natural calamities. Further, expansion of existing capacity would now be easier in case land is available. While this is positive on the expansion perspective, we believe the larger issue today is on power demand and PPAs,” it adds.