The government’s revised emission norms for thermal power projects, which were notified in December last year, are expected to cut emissions from these big emitters by as much as 40 per cent.
However, greening of black diamond is likely to cost people more.
According to ICRA Ratings, the move, with which new plants starting operations from January 2017 will have to comply immediately, while the older plants have time till December 2017, will entail significant investments.
In a statement Sabyasachi Majumdar, Senior Vice-President, ICRA Ratings, said: “These norms would entail a capital investment of ₹60 lakh to ₹1 crore per MW, based on the age of the plant. This amounts to an aggregate capex requirement of about ₹1.2 lakh crore, which is likely to materialise over a two to three year period, given our assumptions about the implementation delays. This is likely to result in an increase in the cost of generation of such plants by about 13-22 paise/unit on account of the capital charges alone, apart from entailing additional O&M charges.”
ICRA further said that compliance to these norms within the given timeline will be challenging, since the companies are apprehensive about the cost recoverability and timely approvals for such a cost under the change in law by the regulators.
Majumdar said that power-generating companies are likely to pass on the higher cost of generation to state-owned distribution utilities under the ‘change in law’ mechanism in the power purchase agreement.
“This would put an upward pressure on the retail tariffs, which could be seen in fiscal year 2019, assuming that the generating companies implement the revised norms over the next two years. Further, adequacy of tariff hikes by the regulators for the distribution utilities factoring such an increase in the cost of coal-based generation remains important from their cash flow perspective,” he said.
ICRA, however, expects that the move will boost the domestic capital goods sector (power generation equipment) over the medium term, which has been hit by a slowdown in fresh orders.