Risks yours, profits mine
Why project developers aren't worried about flow?
The way the Centre has designed tariffs for hydropower, the power-generating company does not bear the risks of hydrological changes like less flow or more silt in the river. They can get away with almost no generation, while conveniently pocketing an annual fixed charge for having a plant in place. The buyers--usually state electricity boards (sebs)--have to suffer the loss because they have to pay the fixed fee even if they do not get the desired electricity.
The company setting up a hydroelectric plant does not have to generate huge funds on its own because it is required to invest only 30 per cent of the capital as equity in the project. The rest is taken as loan from banks. The government not only pays the interest on loan but also a return of 14 per cent on equity. These payments are part of the annual fixed charge paid to the investor.The fixed charge also takes care of the cost of operation and maintenance, depreciation and interest on working capital. "For private companies states have their own norms but usually they follow Central Electricity Regulatory Commission (cerc) norms. We do not regulate tariffs of private companies," said a cerc official.
The company setting up a plant gets the entire annual fixed charge if it has achieved a desired capacity index. Capacity index indicates actual power a plant generates as percentage of the maximum power it can generate with available flow. If a run of the river project achieves a capacity index of 90 per cent--85 per cent for storage projects--the company can claim the annual fixed charge. And if it exceeds the capacity index, the company is paid an incentive called capacity incentive. If it generates extra energy, called secondary energy, then it is paid for it also.
But capacity index is defined in such a way that the target can be achieved even if power generation is low due to less flow (see Amazing formula). If generation is low on account of machinery the company loses a part of the fixed charge. "Therefore, capacity index is just an indicator of machine availability. It is possible for a generating station to achieve a high index and thereby claim full capacity charge as well as incentive even when the actual generation has been low due to low water availability. In effect, the hydrological risk gets passed on to the beneficiaries," says the explanatory note for amendments in tariff regulations put up on the cerc website. The daily capacity index is on the basis of deemed generation as per the forecast of the water situation in the morning.
cerc is considering a change in tariff regulations. The amendments are said to propose equal sharing of hydrological risks between the power-generating company and the beneficiary. The new regulations will be implemented by 2009.
The current tariff structure makes hydel projects a good investment option but does not encourage maximum power generation or efficient use of resources. Take the case of Tehri. The dam is not able to generate energy as per its installed machine capacity because the Tehri Hydro Development Corporation claims the Central Water Commission has told it to maintain a lower storage level for safety. But the corporation is entitled to recover full charges from the sebs as it has the requisite installed machinery.
The Assam seb asked for a review of the tariff policy in 2006 after it faced shortage of energy.
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