Draft Tariff Regulations Propose Higher Return On Equity On New Storage-Based Projects

The Central Electricity Regulatory Commission, in its draft tariff norms for FY25–FY29, has raised the return on equity for new storage-based hydro projects—including pumped hydro—to 17% from 16.5%.

It has kept the majority of norms for thermal and other power projects unchanged. The norms will be effective on April 1.

The ROE on thermal power projects and existing transmission projects remains unchanged at 15.5%, but for transmission projects getting commissioned on or after April 1, the ROE has been toned down marginally to 15%.

The draft norms released on Jan. 4 are expected to benefit companies such as NTPC Ltd.—India’s largest power producer, with the majority of thermal power projects—Tata Power Co., Adani Power Ltd., JSW Energy Ltd., NHPC Ltd., Power Grid Corp. and all other companies involved in pumped hydropower projects and storage-based hydro projects.

The impact on the power grid will be marginal, given that the majority of capex now happens in tariff-based competitive bidding projects rather than regulated projects. The company will continue to get a 15.5% ROE on existing regulated projects, Citi Research said in a note.

The Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2024, have also kept the working capital norms for power projects unchanged at 45 days of receivables, one month of operations and maintenance expense, maintenance spares at 20% of O&M expense, and coal inventory at 10 days for pit-head plants and 20 days for non-pit-head plants.

ROE on additional capitalisation by companies due to change in scope, change in law, and force majeure conditions will be calculated at SBI MCLR plus 350 basis points (with a cap of 14%) versus weighted average interest cost earlier.

The regulations have made explicit provision for the difference between the calorific value of coal on an as-billed and as-received basis in cases where third-party sampling is not possible. For pit-head plants, the limit of difference is 300 kcal/kg and for non-pithead plants, the limit is 600 kcal/kg. No loss in gross calorific value is allowed for coal from integrated coal mines or imported coal.

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