The Ministry of Power (MoP) has advised the state electricity regulatory commissions (SERCs) to establish the reduction of generation or transmission tariffs in cases of full or advance payments by the distribution companies (DISCOMs) and procurers to the generating stations or transmission companies.

The MoP has written a letter to the Central Electricity Regulatory Commission (CERC), SERCs, and Joint Electricity Regulatory Commissions (JERCs) about the decrease in the cost of power due to prepayment in the entire value chain of the power sector.

The ministry has also suggested that the retail tariff for the consumers should also be reduced in case the DISCOMs pay the tariff in advance.

As clarified by a project developer, “only the projects for which tariffs are determined by the regulatory commissions will be considered for this, which would mean most thermal projects and the projects which fall in the feed-in-tariff regime will be considered. But solar and wind projects and any projects for which tariffs are determined through competitive bidding would not be generally considered here.”

The move comes in the wake of discussions held during the Power Ministers’ Conference in October 2019 in the state of Gujarat. During the meet, it was decided that an appropriate rebate mechanism may be developed by the appropriate state commission for DISCOMs that opt for advance payments.

The other benefit of the advance payment is that the state commissions may also provide suitable rebate or reduction in generation tariff for the power purchased from the competitively bid generating projects. In such cases, the supplier and procurer can mutually agree on such a mechanism, states the MoP.

The ministry has also stated that if the DISCOMs make payments even one day prior to the due date to either the generating or transmission company or by the consumer to the distribution company, then “there may be either no requirement or reduced requirement of working capital” by the generating or transmission company or DISCOMs, if the consumers have made a prepayment.

The present system of rebate in case of the “timely payment” does not fully compensate against the reduced requirement of working capital.

The Ministry has asked for an appropriate Commission to act on this matter and to submit an Action Taken Report (ATR) to the Forum of Regulators, which in turn has to provide a monthly ATR to the Ministry.

In July 2019, Mercom reported that the MoP had issued procedural guidelines for the scheduling of power to the distribution companies in case of non-maintenance of the line of credit under the payment security mechanism.

Minister of Power R.K. Singh had earlier announced that it would be mandatory for DISCOMs to open and maintain adequate Letters of Credit as the payment security mechanism under the power purchase agreements.

Image credit: USFWS Mountain-Prairie [Public domain]