Stricter norms on captive plants worry renewable energy firms

July 09, 2018 12:00 am | Updated 04:58 am IST - CHENNAI

Ministry pushes for 26% stake in plants with voting rights; cross-subsidy charges will apply otherwise

Renewable energy players are worried about the Centre’s proposed amendments calling for stricter norms on the shareholding pattern of captive power plants.

If the amendments are implemented, most of the firms have to restructure their business, which industry players say would make several existing projects unviable.

The Centre and State governments promoted the captive power model in order to ensure more competition. Under the model, a group of consumers come together and set up plants to meet the power requirements without depending on the State utility or grid.

They can also sell the surplus power to the State grid and are excluded from levy of cross-subsidy charges. As per existing norms, the owners of captive power plant need to consume 51% of the power and the remaining can be sold to other industrial users who are required to own 26% in the captive power plant.

However, the captive power plants were issuing shares without voting rights or at a discount to the face value to meet the 26% shareholding requirement. In return, customers got access to cheaper power. This captive power model was more popular in the case of renewable energy.

Huge upfront cost

Distribution utilities across States including Tamil Nadu have been complaining about such captive sale arrangements, which they said were making them lose out on high-paying industrial and commercial customers. According to the recent draft amendments to the Electricity Rules, released by the Union Ministry of Power, captive power consumers have to buy the 26% stake with voting rights. If the condition is not met, the plant would not be considered a captive unit and would be required to pay cross-subsidy charges.

Of the 7900 MW of wind energy capacity in Tamil Nadu, the largest in the country, captive generation accounted for nearly 70% or 5500 MW.

“The upfront capital requirements for captive consumers are likely to increase, with the proposed shareholding requirements. This, in turn, will force companies to offer a higher tariff discount,” Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, said.

According to India Ratings, the average realisations of renewable energy group captive companies were in the range of Rs. 4.5-6 per unit over FY16-FY18, depending on the location and capacity for sale. The customers saved about Rs. 0.50-0.75 per unit when purchasing from these companies, it added.

Loss of competitiveness

The Indian Wind Power Association (IWPA), a grouping representing more than 1,615 generators in the country, has already rung the alarm bells over the proposed amendments.

In its comments to the Ministry, it said operational captive plants would be severely impacted by the proposed amendments.

“It would significantly increase the cost for consumers as they will be forced to buy power from discoms. Industrial consumers would lose their competitiveness, both in the domestic and the international markets, which would only add to the woes of the economy,” the IWPA said.

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