The Task Force on Hydro power development may take up the issue of the extension of provision of cost plus tariff regime for hydro utilities in its meeting this month. In an agenda note by the power ministry, it is mentioned that the Tariff Policy of 2006 requires distribution utilities to procure power through a bidding process or from a PSU generator on cost plus basis. The cost plus regime for a PSU generator was available only up to January 5, 2011. Since the private developers were not able to participate in Tariff based bidding, they were not able to sign PPAs with any purchasers. Hence, they were finding it difficult to achieve financial closure. Even without this problem, achieving financial closure for such high cost, long gestation projects requiring long terms finance is not very easy.

In view of this, it was decided to make the dispensation of regulated tariff available to the private sector, through Hydro Policy 2008. Accordingly, the Tariff Policy was amended in March 2008, providing cost plus tariff fixation to private hydro projects in addition to the PSU hydro projects, which already had this dispensation up to January 5, 2011. This provision was further extended up to December 2015 by an amendment in the Tariff Policy in July 2011 for both private and public sector hydro project developers.

The issue of cost plus tariff regime has lately been discussed in the Advisory Group of the power ministry in May 2013. Further, the sub-group on hydropower has recommended that the cost plus regime be extended further without a sunset clause.

The note mentions that keeping in view that the conditions which necessitated the introduction of cost plus regime in the first place remain unchanged, there is hardly any hydro project which has been successful in a Tariff based bid since the introduction f the Tariff Policy in 2006. A large number of projects under survey and investigation at this stage, the approval of DPRs and signing of PPAs thereof are most likely to miss the deadline of December 31, 2015. It is hence proposed to extend provision of cost plus regime for hydro projects beyond 2015 to the end of the 13th Plan which is March 31, 2022.

Courtesy: project monitor