Power industry fears 10-12 paise tariff per unit on clean environment cess hike

100% village electrification is positive but power supply needs to be ensured

Power industry fears the Finance Minister's proposal to increase rate of Clean Environment Cess from Rs 200 per tonne to Rs 400 per tonne will have adverse impact on tariff structure. The industry players expect there will be an increase of about 12-13 paise per unit.

Association of Power Producers (APP) director general Ashok Khurana said, "Looking at the objective though, no one can have any quarrel with it. However, it may be noted that the recently notified stringent emission norms for coal based power plants need to be complied with, within a short time frame of 2 years. Our ballpark calculations indicate that the industry would need to spend about Rs 2 Lakh crores to be compliant with the new norms."

According to Khurana, with the current state of stretched balance sheet of developers and banks, finding funds of this magnitude for the power sector looks very difficult. Accordingly, funds from the Clean Environment Cess (in which power sector is the biggest contributor) could be used for opening a concessional window of financing for meeting the new emission norms. Such usage of funds is reinforced by the fact that the intent behind the Clean Environment Cess and the new emission norms is the same - to reduce the polluting footprint of coal.

KPMG India Partner (Infrastructure & Government Sergices) Anish De said the increase in coal cess will improve relative attractiveness of renewables, but increase the overall cost of power for utilities by approximately Rs 10,000 crores, thus impacting retail tariffs and utility financial health.

"For renewables, the reduction of accelerated Depreciation is a negative that will cause wind tariffs in particular to go up for projects set up after March 2017. All in all it is a mixed bag and the measures appear to be aimed more at shoring up government finances," he noted.

ICRA senior vice president (corporate sector ratings) Sabyasachi Majumdar observed that the increase in clean energy cess on steam coal by Rs 200/MT would increase cost of coal based generation by about 10-12 paise/unit, putting a modest upward pressure on retail tariffs and also on margins of merchant power producers.

"Power generators supplying power under competitive bids or on cost plus basis will however not be impacted as such costs will be pass through. Reduction in accelerated depreciation benefit from 80% to 40% is negative for the renewable energy sector, as it is likely to affect the demand from financial & corporate investors in non-IPP segment," he opined.

On the government's focus on 100% rural electrification by May 2018, coupled with higher funding under Din Dayal Grameen Vidyutikaran Yojana (DDGVY) and Integrated Power Development Scheme (IPDS), Majumdar said it is likely to improve energy demand and offtake and hence increase in PLF levels for gencos. Proposed guidelines for renegotiation of PPP contracts is a positive for gencos, which have been affected by unviable tariffs quoted in past bids.

Further, Khurana said it is heartening to see the resolve towards 100% village electrification by May 1, 2018. The next step is to ensure that these electrified villages get power and this would require very strict monitoring of the milestones and the roadmap in UDAY (Ujwal Distribution Assurance Yojana) scheme.