India Ratings and Research opines that the final Central Electricity Regulatory Commission guidelines for the FY20-FY24 block period are favourable for power generators, as they are largely in line with the draft guidelines.
The CERC has maintained status quo on two of the key parameters: return on equity at 15.5% and debt: equity at 70:30.
Although Ind-Ra had estimated a decline in the annual fixed cost as per the draft FY20-FY24 guidelines, CERC has allowed higher operations and maintenance expenses in the final guidelines. Meanwhile, the commission has tightened the working capital norms by lowering the normative inventory and receivable period allowed by 10 days and 15 days, respectively, in line with the draft guidelines. Ind-Ra believes the increase in operations and maintenance expenses would offset the negative effect of the tightened working capital norms, leading to no significant change in the AFC. Moreover, the regulator continued with the change in the rate of interest on working capital to one year marginal cost of funds based lending rate +350bp as against the SBI base rate +350bp in the FY15-FY19 guidelines.
The final guidelines would offer relief to generators, as the billable energy charge rate would now be higher by INR0.064/kWh as against INR0.06/kWh under the draft tariff guidelines. The increase is mainly on account of a relaxation in the station heat rate by 15Kcal/kWh to 2,390kcal/kWh for units with a capacity greater than 500MW. In the final guidelines, CERC has maintained the relaxation of norms, including i) an increase in the normative auxiliary energy consumption and ii) the allowance of an additional 85kcal/kg gross calorific value loss on account of variations during storage at generating stations. However, CERC has revised back the increase in the normative allowance in transit losses to 0.8% for non-pithead stations.
The overall increase in the billable energy charge rate, along with no impact on AFC, is a positive development for generators.