 "Captive power equity structure to be modified")
Rules for captive power generating units are likely to be made more stringent by the government. The industry’s worry, especially of renewable energy (RE) units, is that this could mean higher costs.
The draft of the proposed change is open for comment till November 1. The suggestion is on the equity structure of owners in such units. Most power producers own at least 26 per cent of the equity and consume at least 51 per cent of the power generated from a captive unit. The rest is sold to entities in other states. The structure, known as ‘group captive’, is to avoid the cross-subsidy charges levied on interstate sale.
The modification proposed is on the definition of ownership. Ownership in relation to a generating station or power plant set up by a company or any other body corporate shall mean the paid-up equity share capital with full rights, such as value, share of profit/dividends, capital appreciation, voting rights, transfer of shares, etc. In other cases, ownership shall mean proprietary interest and control over the generating station or power plant, go the proposed changes, in the draft rules.
“It has been decided to remove the ambiguity that the ownership should be in terms of value of capital along with the voting rights and not in terms of number of shares only. The same is being misused by issuing shares of small face value, which actually do not represent the monetary share of the capital of the plant,” said the draft.
Industry executives said equity structures with different face value of shares will no longer be tenable, as ownership will have to be 26 per cent or more of the total value of equity capital.
“Group captive structures are a very important tool used by companies to avoid cross-subsidy charges. Once a project is classified as captive, cross-subsidy cannot be made applicable to power generated from it. This is validated in the Electricity Act and an order of the Supreme Court,” said an executive.
He said as states keep increasing the cross-subsidy charge, it is more than pertinent for companies to use captive units as a safeguard. Cross-subsidy surcharge levied by states in the past year has increased by a wide range of 30 per cent to 600 per cent, as reported by Business Standard recently.
“The proposed change ignores the context in which group captive projects are set up, of unreasonably high cross-subsidy charges imposed by states, which often make open access power sale unviable. This change will result in reduction in new RE capacity being set up,” said Vibhav Nuval, director, REConnect Energy, an RE solutions company.
Cross-subsidy charges are levied by state power distribution companies to recover their cost of supply. The subsidised population is mostly farmers, other rural population and lower income/consumption groups.
Industries are allowed to purchase power from outside their state and from the spot market, part of the category of ‘Open Access’. RE units use open access to sell their power outside the host state, also helping to meet the RE purchase obligations on states.
Open access is yet to be allowed for all consumers under the Electricity Act. It is also being proposed that this be made free of any additional charge, to entail a uniform power market across the country.
