The Central Electricity Regulatory Commission (CERC) is making moves to amend its rate regulations in a bid to promote hydro power projects to meet peak-hour demand. In a draft regulation to amend its terms and conditions of rate regulations, 2009, the central power regulator has proposed 16.5 per cent for reservoir-based hydro electricity generating stations, including pumped storage schemes. It has also suggested that capital cost must consider the cost for creating infrastructure for power supply to rural households located within a radius of five km of the power station.
As per the draft regulations, return on equity (RoE) would be computed on pre-tax basis at a base rate of 15.5 per cent for thermal generating stations, transmission system and run-of-the-river hydro power generating station with or without pondage, besides 16.5 per cent for the reservoir-based hydro generating stations including pumped storage schemes.
According to CERC, providing of higher return on equity for the reservoir-based hydro sector can encourage developers. There is also a case for providing higher returns to the reservoir-based hydro generating stations. This is from the point of view of encouraging hydro sector development to have energy security in the long run, to have peaking support and to harness renewable source of energy.
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CERC chairman Pramod Deo said his office has, in its effort to promote investment in hydro power — especially for peaking purpose, told the power ministry that the country needs to plan for peaking power than just adding base-load capacity. “Towards this end, the proposal to increase return on equity and other proposals in the draft regulation will encourage investment in peaking capacity,” he told Business Standard.
CERC’s move comes at a time when, despite being recognised as relatively benign, the share of hydro power in the overall generating capacity in the country has been steadily declining since 1963. The hydro share has declined from 45.68 per cent in the 3rd Plan (1961-66) to about 21.60 per cent in May 2011. The Government of India has set the target for India’s optimum power system mix at 40 per cent from hydro power and 60 per cent from other sources.
Further, the regulator has proposed that the capital cost of the generating station would include the cost for creating infrastructure for supply of power to the rural households located within a radius of five km of the power station. Even though the power ministry had made a similar notification way back in July 2009 for central public sector undertakings including NHPC, CPSUs argued for capitalisation of the expenditure. Since there was no provision in the 2009 tariff regulations for capitalisation of such expenditure, the regulator proposed to make appropriate provision for the same through amendment of the regulation.
Power analyst D Radha-krishna noted that CERC, “as a matter of fact”, is the central agency for tariff determinations. “The rationalisation of tariff and minimising the perception of risks will lend a ray of hope to the power sector when it is showing a declining phase,” he added.
Further, in the case of the hydro power generating stations of NHPC located in Jammu and Kashmir, the beneficiaries will — as per the Jammu and Kashmir Water Resources Act, 2010 — have to pay any expenditure incurred for payment of water usage charges to the state water resource development authority as additional energy charge in proportion of the power supply from the generating stations on a month-to-month basis.
This became necessary after NHPC argued that since the tariff of the generating stations were determined on cost plus basis, beneficiaries should bear additional expenditure, which were in the nature of input cost for generation of the hydro power stations. However, CERC, in its draft regulation now, has clarified that an amendment in this regard would be subject to the decision of Jammu & Kashmir High Court, and it would be modified to the extent of inconsistency with the judicial verdict.
