Analysis of Amendments Proposed in the National Tariff Policy

The Ministry of Power has proposed several changes to the National Tariff Policy. Some changes are significant, like the proposal to substantially increase solar RPO (from 3% by 2022 to 8% by 2019), to remove inter-state transmission charges on RE power and curtailing cross-subsidy to 15% of applicable tariff.
Key points in the amendments to the National Tariff Policy:

• The SERCs and CERC shall necessarily be guided by the National Tariff Policy
• Promotion of renewable energy has been added as an objective of the policy
• In the tariff policy, the word ‘Non-conventional’ is sought to be replaced with Renewable energy
• For RPO, long term trajectory to be provided by Ministry of Power (MoP), in consultation with MNRE and keeping in view the objectives of NAPCC
• Solar RPO targets to be ramped up more aggressively – the exisiting policy provids for reaching 3% by 2022, the proposals to increase this to 8% by 2022.
• The policy envisages a REC multiplier to differentiate between technologies, and to accommodate changes in price (through a ‘vintage multiplier’)
• The tariff policy envisages that procurement of renewable energy, as far as possible, will be done on a competitive bidding basis. Further, “an appropriate bid-based tariff framework for renewable energy, allowing the tariff to be increased progressively in a back-loaded manner over the life cycle of such a generating plant” is planned. The back-loaded manner could imply costs are kept low at present so as to minimize cost burden on the Discom’s, to be increased over the life of the project.
• For a new coal/ lignite based plant, RE capacity to the extent of 10% of thermal generation capacity will have to build. This will be allowed to be bundled with the conventional power.
• No inter-state transmission charges for RE power

• Time differentiated tariff to be implemented for large consumers (>1MW) within one year, and for all consumers within 5 years

• In calculating the cross-subsidy surcharge (CSS) a change in the methodology is proposed. At present, cross subsidy is calculated by using the cost of marginal power (top 5% power at the margin). Instead the weighted average cost of power including transmission and wheeling losses and charges, and the cost of carrying regulatory assets is proposed to be used.

• Further, the provision requiring gradual reduction of cross-subsidy to a maximum of 20% of its opening level is proposed to be deleted.

• A new provision limited the CSS to 15% of the applicable tariff category has been proposed.

Conclusion –
The changes proposed in the Tariff Policy are welcome, and in line with the government’s objective to promote RE power. However, the effectiveness of the same remains a question mark. Several provisions in the existing policy (of January 2006) remain only on paper. A good example of this is the requirement that “Availability Based Tariff (ABT) is to be introduced at State level by April 2006”. In several states this still remains a distant dream 9 years after the deadline.
Similarly, the ability of reaching 8% solar RPO remains doubtful when several states did not even follow the minimum requirement of 0.25% as per the existing policy. Also, the intent and conduct of SERCs in enforcing RPO regulations has been a big question mark.
It is noteworthy that the Electricity Act 2003 says that the Appropriate Commissions ‘shall be guided’ by the Tariff Policy in tariff determination. The proposed amendment to the EA says “the provisions of Tariff Policy shall be followed by the Appropriate Commission for the purpose of Tariff determination.”
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