How playing the Tata, Adani card will do no good to power producers

Some 20 power producers, generating via solar, wind and coalfired thermal plants, have reportedly petitioned the central regulator CERC seeking higher rates, taking a cue from the compensatory tariffs awarded to Tata Power and Adani Power, for their plants in Mundra, Gujarat. The demands make no sense; CERC would do well to dismiss the pleas outright.

The fact of the matter is that the marginal tariff increase, of about Rs 0.50 or so per unit, allowed for the Tata and Adani plants following tariff-based competitive bidding, merely compensates for higher duties and levies on Indonesian coal, and only partly so. The CERC order does take into account the higher returns likely for the coal subsidiaries of Tata and Adani in Indonesia, following the regulatory hike in export prices there. Also, revised tariffs would be in line with merit order dispatch or least-cost rates, and so should not really be burdensome for either the utilities across several states, or consumers. Note that recent winning bids reveal far higher tariffs, in the range of Rs 4.5-5 per unit of electricity.

Besides, both the Tata and Adani plants are ultra-large capacity units and it makes sense to go for a marginal tariff revision rather than make the plants unviable with inflexible regulation that fails to factor in force majeure events, which the coal export-price hike certainly was. In any case, the revised tariffs would be purely of a temporary nature, for about a year. Note that the original tariff-based competitive bidding for both Tata and Adani does have provision for gradual tariff increases, to take into account dearer operations and maintenance costs.

The compensatory tariff simply takes into account the sharp one-off regulatory increase. Also, the costs for solar power — and even wind — have steeply declined in recent years.