The Central Electricity Regulatory Commission (CERC) has clarified tariffs for power projects acquired through the insolvency route. The CERC has come out with a draft power tariff policy. The five-year policy will come into effect from April 1, 2024.

This development comes when the Union power ministry has identified 6550MW of stressed power projects available for acquisition through the National Company Law Tribunal.

In the acquisition of insolvent assets, the calculation of capital costs is a big challenge to regulators. Capital cost is a key component in determining power tariffs’ fixed cost portion.

The matter has been discussed in the Central Electricity Authority’s approach paper on tariffs from April 1, 2024, to March 31, 2029.

“It is observed that the acquisition costs of such assets have been considerably lower than the historical value of the assets, and the creditors have to take a haircut, and so too the defaulting entities, who have had to forego their equity investments.”

“In such cases, if the tariff is to be determined under section 62, appropriate clarity needs to be provided in the regulations as to what capital cost is to be considered for computing the tariff,” the paper had said seeking stakeholder comments.

In line with the approach paper, the draft regulation has proposed that for projects under operation, historical gross fixed assets of the project acquired or the acquisition value paid by the generating company, whichever is lower, must be considered while determining the capital cost for tariff determination for assets acquired through the NCLT.

Further, if any under-construction project is acquired, the acquisition value or the actual audited cost incurred till the date of acquisition, whichever is lower, shall be considered.

The power ministry in November identified six projects with an aggregate capacity of 6550MW that are under insolvency.

It urged state power-generating companies to acquire these assets through the NCLT route.

The list includes Rattan India Power Limited (1350MW, including projects under construction), Coastal Energen Pvt Ltd (1200MW), KSK Mahanadi Power Co. Ltd (3600MW) and Shri Maheshwar Hydel Power Corporation Ltd (400MW).

“This would help the states to meet their increasing power demand economically with significant control on such power generated,” the ministry advisory said.

A report by global think tank Institute of Energy Economics and Financial Analysis said that out of the 34 stressed assets identified by the Parliamentary Standing Committee on Energy in 2018, 26 projects with installed capacity of 21.4GW have been resolved partially or fully as of May 2023.

Out of these, 11 were resolved through acquisition by a strategic buyer.