Power ministry to cap price of merchant power sale: reports

The power ministry plans to cap the sale price of electricity for the open market or merchant power if the projects claim tax benefits, The Economic Times reported quoting an unnamed source.

Power projects involve long-term power purchase agreements (PPA) between producers and buyers that cover the bulk of the power produced, but the balance can be sold in the open market and is known as merchant power.

While the rates under PPA range between Rs1.20 to 3.50 a unit, the premium on merchant power can be quite high, as high as Rs15 a unit, the paper said.

The government is trying to ensure that power companies are not allowed to make windfall gains while availing of tax benefits, the paper, quoting official sources, says.
The paper reports that the cap could be in the range of Rs5 to Rs7.

The move could hit projects that do not have long-term power purchase agreements (PPAs) with state utilities and trading

Power companies enter into firm commitments with states and trading firms to sell 60 to 80 per cent of generated power at pre-agreed rates and sell the balance output in the open market with thermal power plants being allowed to sell 15 per cent of the output, hydel power plants can sell as much as 40 per cent of the power they generate.
Under the current arrangement mega power policy provides tax benefits to thermal projects over 1,000 mw capacity and to hydel projects with over 500 mw capacity. These project need to have tied their entire capacity under long-term PPAs with state utilities and trading entities.

The policy allows waiver of customs duty on import of capital goods and deemed export benefit under excise duty waiver for supplies by domestic bidders. The projects also are eligible for income-tax holiday under Section 80-IA.