ICRA: CERC’s approval of tariff relief for IPPs affected by domestic coal shortfall

The Central Electricity Regulatory Commission (CERC) vide its order recently, has approved a tariff relief for the coal-based power project of GMR Warora Energy Limited arising from the use of imported / e-auction coal in lieu of shortfall in supply of domestic linkage coal under the fuel supply agreement (FSA) signed with Coal India Limited. This is with respect to the power purchase agreements (PPAs) signed by the company with Maharashtra State Electricity Distribution Company Limited (MSEDCL) and Electricity Department, Union Territory of Daman and Nagar Haveli. According to ICRA note, this order issued by CERC would enable resolution for affected domestic coal-based IPPs aggregating to 14-15 GW having long-term PPAs with state distribution utilities and facing coal supply shortfall from domestic linkage sources.

Sabyasachi Majumdar, Group Head – Corporate ratings, ICRA, says, “The tariff relief approved by CERC follows similar orders issued for other IPPs in the recent past and culminates a long-drawn process for domestic coal-based IPPs seeking pass-through of the higher cost of imported coal under the PPAs signed with state distribution utilities in lieu of shortfall in supply of domestic linkage coal. More importantly, this order by CERC clarifies that the projects using coal under the SHAKTI scheme are also entitled for compensation for any shortfall in supply of annual contracted quantities by CIL.”

While the Government of India approved the use of imported coal because of the shortfall in supply of domestic coal and pass-through of the higher cost of the imported coal in tariffs in July 2013, the implementation of tariff pass-through was marred by significant delays, because of delays in issuing orders by the regulators as well as discoms contesting these orders at various forums.