The Hindu Business Line : New power policy may lead to rise in tariff for SEBs

The draft policy has suggested that distribution entities should purchase power from the generator preferably through a competitive bidding process, moving away from the current policy of bidding on the capital cost of the project, which reflects a `cost-plus' tariff regime.

For example, PSUs like National Hydroelectric Power Corporation (NHPC) float tenders for purchase of individual equipments for a power plant.

The plant is then erected and a power sale agreement with the purchasing electricity board facilitates sale of power on a committed basis for a specified period of time.

Thus, in the case of NHPC, the power sale agreement is renewed every five years. Over time, the tariff comes down since in the `cost-plus' regime the tariff is determined by cost elements like depreciation and over time, the assets depreciate.

The proposed power policy states that the electricity board or the purchasing power distribution entity should procure electricity through a tariff-based competitive bidding process.

This means that in cases where the duration of the Central power generator's power purchase agreement has expired, the power generator can contract to sell power at the market price and not based on the depreciated cost of the plant.

Currently, several PSUs including NTPC have power purchase agreements with State electricity boards expiring and hence coming under review.

This offers them an opportunity to offer power from their plants on a tariff-based bid.

Since the country is in a power-deficit situation, competitively priced generators will have the upper hand in offering a tariff in a bidding system.

The NTP is one of the key aspects of the new Electricity Act 2003. Section 3(1) of the Act empowers the Central Government to formulate the tariff policy.