ACHILLES HEEL High Assured RoE push up power tariffs, need abolition
Indian Economy & Market|September 2021
High RoE that was offered as an incentive to boost power generation in the country two decades ago has now become Achilles heel for the regulators and consumers across the country as it is one of the major fixed cost factor driving retail power tariff higher.
Aditya Jaura

The Forum of Regulators (FoR), a group of state electricity regulatory authorities, will prepare norms on various performance parameters and power tariffs which would be adopted by the state electricity regulatory commissions (SERCs).

High assured Return on Equity (RoE) to power producers that was introduced decades ago to incentivize investments in highly capital incentive power sector is now proving to be Achilees Heel for the power regulators SERCs as consumers demands for power and transparency in its tariffs become loud. As the costs of capital, interest rates in the economy, have come down drastically, less than halved, over the last two decades, such demands are only logical and perhaps long overdue.

Power Discoms in 12 states are cumulatively paying a hefty Rs 17,500 crore a year as fixed costs for the power they don’t use. Under contractual obligations, discoms have to pay fixed cost to power producers to recover capital expenditure.

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