On January 20, 2016, continuing the policy overhaul in the power sector, the cabinet approved the amendments to the Tariff Policy, 2006. Such comprehensive amendments have been made for the first time in a decade since the policy’s notification, with the aim of aligning it with the current state of the power sector. The changes focus on the four E’s: electricity for all, efficiency to ensure affordable tariffs, environment for a sustainable future, and ease of doing business to attract investments.
Indian Infrastructure presents an update on the policy…
Electricity for all
To meet the government’s objective of 24×7 Power for All by 2022, the revised policy guidelines call for the formulation of a defined power supply trajectory jointly by the state governments and electricity regulatory commissions.
In a bid to expand electricity access in places where grid supply is infeasible, microgrids have been proposed in rural areas with a provision for grid connectivity in the future. The setting up of small washery reject-based plants near coal mines has also been envisaged to make power available at affordable rates to the nearby population.
Efficiency to ensure affordable tariffs
The revised guidelines also highlight the central government’s focus on ensuring power affordability. They allow 100 per cent expansion of existing power plants to reduce tariffs as greenfield projects have high generation costs due to expenses associated with land acquisition, clearances, etc.
States often fail to procure committed power from central generating stations. The benefits from the sale of such unrequisitioned power will now be shared, allowing for a reduction in the overall power cost. Meanwhile, all transmission projects, including intra-state ones, are proposed to be awarded through a competitive bidding process to ensure faster completion at a lower cost. The creation of significant pan-Indian transmission capacity is also expected to increase power sharing and reduce supply costs.
On the consumer front, the coverage of smart meters will be increased to enable functionalities like time-of-day tariffs so that informed electricity consumption choices can be made. Smart metering is expected to reduce thefts and increase power availability. Net metering arrangements implemented through smart metering technologies can let consumers sell surplus power back to the grid.
Environment for a sustainable future
A range of new initiatives have been lined up to augment renewable energy capacity and promote sustainable practices in power generation. A share of 8 per cent of electricity consumption from solar power is targeted by March 2022. The policy has also introduced the concept of renewable generation obligations under which new coal- and lignite-based plants will be required to set up or procure renewable capacity.
To reduce tariffs, renewable energy will be bundled with power from plants whose power purchase agreements (PPAs) have expired. In addition, no interstate transmission charges and losses will be levied for solar and wind projects. Ancillary services to support grid operations will be developed for the expansion of renewable energy.
The revised guidelines also promote waste-to-energy projects and the use of treated sewage water for thermal power plants located within 50 km of sewage treatment plants. This is in alignment with the central government’s Swachh Bharat Mission. The hydro sector, which has been neglected so far, also received some attention in the amendments, with stipulations for promoting hydro projects through long-term PPAs and the provision of exemption from competitive bidding till August 2022.
Ease of doing business
The revisions also lay stress on improving the business environment for power generators. Investments in coal-rich states like Odisha, West Bengal, Jharkhand and Chhattisgarh will be encouraged for creating employment opportunities. The states will be allowed to set up plants with up to 35 per cent of power procured by discoms on regulated tariffs.
Market uncertainties will no longer affect competitively bid projects as changes in domestic levies, cess, duties and taxes will be passed through. The powers of the Central Electricity Regulatory Commission have been increased as well, with it now determining tariffs for composite schemes where more than 10 per cent power is sold outside the state.
Overall, the tariff policy amendments are positive for the power sector. Since policies determine investments, it is important for them to be aligned with the prevailing business needs. The changes aptly focus on expanding electricity access, promoting renewable energy, providing predictability in regulatory roles, and ensuring affordable power for consumers.