National Tariff Policy (NTP) 2016

The union government has amended the National Tariff Policy for Electricity on 20 January, 2016. The National Tariff Policy (NTP) 2016 focussed on renewable energy and sourcing of power through competitive bidding. The amendments also aimed at achieving the objectives of UDAY scheme.

Power tariff policy is governed under the Electricity Act. The policy guides in setting power rates, signing of power purchase agreements, sale and purchase of coal and power (both conventional and renewable energy).

Major amendments and their impact

Electricity to all

• The policy envisages 24*7 power supply to all consumers by 2022. State Governments and regulators will devise a power supply trajectory to achieve this.
• Power would be provided to remote unconnected villages through micro grids. Micro grids are allowed to feed the electricity into the grid as and when the grid connection reaches remote locations.
• The policy allows production of power from coal washery rejects {these are generated during coal washing} to provide affordable power to people living near the coal mines.

Environment-friendly

• Procurement of power from waste-to-energy plants has been made compulsory. This will help the Swachh Bharat Mission.
• To reduce the pollution of rivers, thermal plants within 50km of sewage treatment facilities need to use treated sewage water.

Efficiency

• To increase efficiency through optimal utilisation of land and other resources, power plants will be allowed to increase power production on the same project site to the extent of 100 per cent capacity.
• This will remove the hassles of land acquisition, forest and environment clearance, etc. This will also promote private investment.

Renewable Purchase Obligation (RPO)

• To promote renewable energy, it is proposed to increase solar RPO to 8% by 2022. Solar RPO will not apply to power sourced from hydro power plants. Currently solar RPO is below 1% in most states.

Renewable Purchase Obligation is an obligation imposed by law on some entities to either buy electricity generated by specified ‘green’ sources, or buy, in lieu of that, ‘renewable energy certificates (RECs)’ from the market.

• Renewable generation obligations (RGOs) are introduced for new coal/lignite based thermal plants that will need to establish or procure a certain percentage of renewable energy to meet their RPO. The modalities of both the RPO and RGO will be determined by the State electricity regulators.

Transmission of power

• Inter-State transmission charges and losses for renewable power (wind/solar) have been exempted. This will encourage inter-state power transmission but the exemption is applicable only to wind and solar power, and not for other renewables like small hydro and biomass.

Hydro power

• For the growth of hydropower generation capacity, hydro power projects will be awarded under cost-plus basis and they are exempted from competitive bidding till 2022. A cost-plus model promises assured returns over the investment made. For existing hydro power projects, the power purchase agreement will extended by 15 years beyond the existing 35 years.

Other Changes

• Power plants are allowed to sell the surplus power generatedin spot market through power exchanges. This is applicable when State electricity distribution utilities are not buying the contracted capacity as per the power purchase agreements. This would improve the PLFs of generating station which have to reduce the capacity when states don’t buy the contracted power.
• Central regulator will decide tariff for composite schemes where more than 10% power is sold outside State. This will give clarity on tariff setting authority for multi-State sales.
• To ensure faster completion at lower cost, transmission projects will be developed through competitive bidding process.This will allow greater flow of private capital into the lagging transmission sector.
• The policy removed market uncertainty by allowingpass through for impact of any change in domestic duties, levies, cess and taxes in competitive bid projects.
• Smart meters are must be installed for consumers consuming 500 units by 2017 and 200 units by 2019.

Comment

The Government has made 30 amendments in the existing tariff policy viz.  National Electricity Policy, 2005. Overall, the new Tariff Policy tightens the discretion allowed to regulators while setting power tariffs and makes a strong pitch for promotion of clean energy. Further, one of the significant addition in the policy is promotion of renewable generation sources and creation of more competition, efficiency in operations and improvement in quality of power supply.  The new policy says that Central Electricity Regulatory Commission and State Electricity Regulatory Commissions (SERCs) shall necessarily be guided by the tariff policy in discharging their functions including framing the regulations under section 61 of the Electricity Act 2003.

Overall, the new tariff policy is encouraging and it would have a great impact on renewable energy sector. The amendments would ensure provision of electricity to all consumers at reasonable and competitive rates; improve the ease of doing business to improve financial viability of the sector and to attract more investors.