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India: Power Consumers to see 5 paise rise in tariff

   January 13, 2020        185        Debjoy Sengupta

Kolkata- Power consumers may see a 5 paise per unit rise in tariff, against initial estimates of 30 paise per unit for installing pollution-curbing equipment if the centre waives off coal cess and the savings is used for such installations as proposed by the Prime Minister’s Office (PMO), analysts have estimated.

According to recent reports the PMO has proposed waiver of the coal cess, the savings from which is to be used for retrofitting pollution curbing equipment.

This would raise consumers’ monthly bills between Rs 5 and Rs 20 per month only for domestic consumers using between 100 units and 400 units of electricity a month. In contrast, if the coal cess remained and generators were to install pollution control equipment, bills would have gone up by between Rs 30 and Rs 120 per month for the same consumer category.

In December 2015, the ministry of environment, forest & climate change (MoEF&CC) announced tighter standards for coal-based thermal power plants. This necessitated installing retrofit equipment for augmenting electrostatic precipitators (ESPs), flue gas desulphurization (FGD) to control SOx emission levels and adoption of selective catalyst reduction (SCR) technology for controlling NOx emissions.

“Overall impact of installing equipment for curbing pollution is estimated at around Rs 1 crore per megawatt which would in turn increase cost of generation by 30 paise per unit,” said Girishkumar Kadam, sector head & vice-president at ICRA Ratings

Despite a Supreme Court order directing power plants to adhere to new environment norms by 2022 in a phased manner or face closure, a host of state governments expressed their inability to finance these upgrades and has recently asked for financial aid from the centre in an effort to adhere to the norms. States cumulatively have an installed capacity of 72.85 GW. It will require investments in excess of Rs 73,000 crore to adhere to the norm.

State government owned utilities and power plants are plagued with high average technical & commercial losses, unsustainable borrowings by distribution companies, huge increase in regulatory assets, high cost of power purchase, government overdues and very high cross subsidization straining their cash flow and has been acting as a deterrent in enabling them to afford the necessary investment.

In 2010, the centre imposed a Clean Energy Cess – a carbon tax on coal at Rs 50 per tonne. Since its inception, it has been increased three times to Rs 200 per tonne in March 2015 and Rs 400 per tonne in March 2016. In 2017, with the introduction of Goods and Service Tax (GST) the cess was abolished and a new cess on coal production, called the GST Compensation Cess, was put in its place at the same rate of Rs 400 per tonne.

“Removal of GST Compensation Cess on coal is estimated to reduce cost of power generation by 25 paise per unit for lower grade of domestic coal,” said Kameswara Rao – leader-energy, coal and mining at PWC India.

Kadam from ICRA said: “…thus the overall impact following increase in cost of power generation due to retrofit pollution control equipment and savings as a result of waiver of the GST Compensation Tax, as proposed is estimated to be 5 paise per unit, thus reducing the burden on electricity consumers.”

“However, incorporation of the change in cost into tariff for passing it on to consumers would require regulatory approvals which often comes with a significant lag,” he said.

PWC’s Rao said: “The expectation is that removing coal cess creates space to invest in emission control units. However, if not handled carefully, this could go the way of UDAY scheme where states did little to use the fiscal space to invest in performance improvement.”

· Supreme Court directs thermal power plants to adhere to new environment norms by 2022 in a phased manner or face closure

· To cost around Rs 1 crore per MW
· States express inability to finance pollution related upgrades
· Asks for financial aid from the centre in an effort to adhere to the norms
· Additional cost for pollution control equipment on power generation costs estimated at 30 paise per unit
· Savings following waiver of coal cess @ Rs 400 per tonne estimated at 25 paise per uni
· Overall impact of cess waiver and increased costs on equipment retrofit estimated at 5 paise per unit
· Consumer bills to go up between Rs 5 and Rs 20 a month only

The Economic Times