Power Sector Regulations in India
CERC has issued draft guidelines for tariffs for the period 2009-14. The proposed guidelines has retained the 14% ROE for tariff fixation. However, it has proposed to link incentives based on plant availability as against the earlier practice of incentive based on PLF. There has been change in depreciation charges which is aimed at avoiding front-loading of tariffs.
Fuel efficiency norms tightened. If implemented, may reduce fuel cost savings for generators like NTPC.
Some of the salient features are
The new guidelines propose linking incentives to plant availability as against the earlier practice of plant load factor (PLF). Several power generators including NTPC and NLC have earlier favoured incentive based on plant availability. According to them, generator can only ensure availability of the station whereas generation schedule depends on demand by the customers. Plant availability is within the control of the plant management while the generation depends on available demand from the SEBs.
For example consider two stations A and B located in different regions and having the same plant availability and generation cost. Further, A operates in a region of perennial deficit and hence is able to achieve its targeted PLF. However, B being located in a power surplus region is not able to achieve targeted generation on account of lower demand. Thus, station A would generate a higher PLF than B and hence would qualify for incentives despite B being as efficient.
Return based on 14% ROE - status quo maintained To maintain the attractiveness of the power sector as an investment segment, the CERC has proposed to retain the 14% ROE norm. This would do away with the uncertainty regarding any reduction in normative return.
The new norms may result in lower tariff fixation for generators like NTPC mainly on account of tightening of benchmark fuel efficiency norms. However, NTPC has a track record of improving its efficiency parameters and we expect the company would be able to meet the new efficiency norms in the subsequent years. Moreover, NTPC has a high plant availability as hinted by its high PLF of 92.2% and hence should be able to generate healthy incentives.
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor