Power tribunal allows passing pollution control costs on to tariffs

Moves comes as a breather for Vedanta and L&T for their plants in Punjab

Setting the stage for meeting the cost of mitigating pollution by passing it on to tariff, the Appellate Tribunal for Electricity (APTEL) has asked the Punjab government to treat investment made by Vedanta promoted-Talwandi Sabo Power Ltd and Larsen & Toubro’s Nabha Power Ltd as "change in law relief". This will allow the companies to recover costs for setting up FGD (flue-gas desulfurization) mandated under the ministry of environment norms from tariff to be paid by the state owned power distributor.   

APTEL, simultaneously, rejected an appeal filed by the Maharashtra State Electricity Distribution Co. Ltd. against a state regulator’s order allowing Adani Power’s 3300 Tiroda plant to load on the increased cost on to tariffs.

Vedanta’s Sterlite Power Ltd signed a share purchase agreement for taking over the Punjab government special purpose vehicle on September 1, 2008. On the same day, a power purchase agreement (PPA)   was executed between TSPL and erstwhile Punjab State Electricity Board for sale of power from its 1980 (3x660) MW plant. The company contended that almost seven years after that the Environment (Protection) Rules, 1986 were amended by the MoEF on December 7, 2015 introducing the standards of emission and the level of water consumption for all coal based thermal power plants in India.  

L&T, on its part, argued that the cut-off date for specifications of 1400 MW Nabha power project was October 10, 2009 while the share purchase agreement and PPA with the Punjab government was executed on January 18, 2010.

“This judgment seeks to resolve the challenge of addressing how to implement sustainable development in brownfield thermal plants treating the 2015 notification as a change in law event. It gives a path to effectively implement Central Pollution Control Board’s phased timelines to implement revised emission norms across 189 thermal power plants aggregating to 167 GW of installed capacity,” said Amit Kapur, joint managing partner, J Sagar Associates.

Kapur cited the Central Electricity Authority’s estimates that the equipment cost would be around Rs 45-50 lakh per MW besides other costs including taxes. “This would translate to over Rs 1 trillion in capital expenditure. Now, there would be greater regulatory certainty for lenders/financial institutions to finance the FGD related expenditure,” he added.

According to a senior Punjab government official, they were studying the order and are likely to go for an appeal in the Supreme Court. “If the cost is passed on to tariff, it would translate to about 30 paise increase for a unit (kilowatt per hour) of power purchased under the long-term power purchase agreement signed with the two companies. We are still working out the details,” said an official.

The Punjab State Electricity Regulatory Commission (PSERC) in its December 21, 2018 order rejected the relief sought by TSPL on the ground that its environment clearance envisaged installation of FGD and hence MoEFCC notification did not qualify as an event of change in law and compensation to the company for Rs 1,000-1,200 crore was rejected.

The order effectively stalled the implementation process of the FGD system at TSPL’s plant, as lenders did not sanction the required funds. TSPL in January 2019 filed a petition before the Appellate Tribunal for Electricity (APTEL).

The MoEF rules set emission limits of suspended particulate matter and introduced new emission norms of sulphur dioxide (S02), nitrogen oxide (NOx) and mercury came in December 2015. Thermal power plants are required to adhere to the specified emission and water consumption limits based on the year of their commissioning. All power plants have to be compliant by December 2022. Around 190 power plants across the country are required to install FGDs at an estimated cost of Rs 80,000 crore.