CERC Maintains Return On Equity For Operational Power Projects, Hikes For New Hydro Projects

The Central Electricity Regulatory Commission, in its tariff regulation for 2024–2029, has maintained the return on equity for all operational thermal and hydropower assets, while increasing it by 50 basis points for new hydro projects with storage. However, the returns were cut by 50 basis points for new transmission assets.

The measures, though not very different from the proposed draft regulations, will benefit the thermal and hydropower companies and can be slightly negative for transmission companies, according to analysts.

While the regulator has largely maintained the RoE for existing thermal, hydro and transmission assets and incentivised the new hydro assets with a 17% RoE from 16.5% earlier, it has reduced the RoE for new transmission assets to 15% from 15.5% earlier.

The new regulations are beneficial for thermal generation companies owing to higher renovation and maintenance costs, higher incentives for off-peak supply, and hydro generators for a higher RoE on new assets, ICICI Securities said in a report. But it is slightly negative for NLC Thermal Power Station-II as the normative plant availability factor has been increased to 70% versus 50% in the draft regulation, it said.

Tariff regulations have historically been an overhang on the sector in anticipation of incremental tightening of operational and performance norms, the ICICI Securities report said.

The new regulations have abstained from any significant tightening, it said. It also incentivises new hydro assets with a higher RoE and reduces RoE on new transmission assets, since a large chunk of new transmission assets are being executed through a tariff-based competitive bidding mechanism, according to the report.

IIFL Securities said that it liked the approach of the regulator to reflect underlying inflationary trends in the benchmark costs, which should allow better cost recovery. “In all, the regulations are balanced and address the needs of the hour to attract fresh investments in the sector, and offer energy at a reasonable price,” it said in its report.