India’s Push For Cleaner Air May Make Power Costlier

Power consumers may have to pay more for cleaner air in India.

That's because the government has asked the Central Electricity Regulatory Commission to allow coal-based units to pass on the costs of upgrading their plants to curb emissions to consumers, according to a May 30 letter written by the Ministry of Power to the regulator. That will push up power tariffs.

BloombergQuint has obtained a copy of the letter.

The letter offers clarity on the change in law for pass-through of incremental cost because of the implementation of new environmental norms, said Girishkumar Kadam, vice president, and sector head of corporate ratings at ICRA Ltd. “Given that the cost of power purchase accounts for 80 percent of the cost of supply for distribution utilities, the additional power purchase cost arising from additional tariff adjustment for generating companies would put an upward pressure on retail tariffs in the near to medium term.”

India has deferred its ambition to curb emissions by coal-fired power producers— that meet nearly 70 percent of the nation's electricity demand — by five years. The effort to curb toxic emissions could cost about Rs 2.5 lakh crore, Bloomberg had reported quoting Association of Power Producers, a lobby group of private power generating companies.

Kadam said the fixed cost of generation for independent thermal power producers will go up by nearly 13 paise a unit to 22 paise per unit as the capital expenditure varies between Rs 0.6 crore and Rs 1 crore per megawatt. The operation and maintenance costs are likely to increase as well.

The Ministry of Environment, Forest and Climate Change's 2015 standards had given coal-based plants time till December 2017 to curb emissions. The power regulator, however, had said the countrywide rollout of emission control systems like flue-gas desulfurisation system and electrostatic precipitators would take at least six years.

The ministry, in its latest letter, said the regulator should develop appropriate mechanism to provide certainty to producers about cost recovery through tariffs.

Pass-through of cost for upgrades won't be applicable where tariff is determined under Section 63 of the Electricity Act, according to the letter. Under Section 63, tariff is determined through competitive bidding. Pass-through of cost will be allowed in case of plants with feed-in tariff only. It will not be allowed in cases where requirement of pollution control system was mandated under the environmental clearance of the plant or envisaged otherwise before the notification of amended rules (new norms), it said.