Clean energy cess will spur power tariff hike

The cess would spark-off an immediate hike in tariff quoted by merchant power generators and could have an impact on the domestic consumer who had to face an upward revision last year when CIL revised its prices.The ‘clean energy cess' imposed on coal, lignite and peat is likely to translate into an average tariff impact of close to 3 paise a unit (or kilo Watt hour) for electricity end-users. This is less than one per cent of the average consumer tariffs across the States.

With Coal India Ltd (CIL) set to incorporate the cess in its billings from Thursday, the levy will also affect cost of captive production across user industries such as steel and cement. The steel sector is likely to pass on the burden of the cess on the back of robust demand, even as the cement sector players have indicated that they may have to absorb the cost.

Estimates suggest the Rs 50 a tonne cess on coal, which will fund the new National Clean Energy Fund, could mobilise well over Rs 2,500 crore in 2010-11. The country's coal production is expected at more than 570 million tonnes by the end of this fiscal.

Tariff hike

Analysts estimate that the cess would spark-off an immediate hike in tariff quoted by merchant power generators and could have an impact on the domestic consumer who had to face an upward revision last year when CIL revised its prices.

“The impact will vary depending on the quantity of coal used by specific generation units. Also, actual increase at retail tariff level would depend on the hydel-thermal mix in the power supply. In the power sector, since fuel cost is a ‘pass through' component, it will translate into a marginal increase in power tariffs across the country,” an official with the Central Electricity Authority, said.

Coal-fired generation accounts for about 53 per cent of the installed capacity of about 1.61 giga watts (GW). On an average, a tonne of Indian coal translates into about 1,500-1,600 units of generated power. The Rs 50 a tonne cess on coal would increase the generation cost by slightly over three paise a unit.

Commercial users

After factoring in the transmission and distribution losses involved, the retail tariff of power should go up by about five paise a unit. With coal-fired generation accounting for slightly over half the generation, the cess should translate into a hike of around 2.5-3 paise a unit on a nation-wide basis.

According to experts, in some States, power regulators may not allow an increase for retail consumers and this will have to be compensated by a higher increase for commercial users. However, for the other major user industries such as cement and steel, which, along with power, make up for 72 per cent of the coal demand in the country, passing on the burden of the cess will be dependent on demand. A cement industry player said: “We will absorb the cost and there should not be any increase in prices. However, there will definitely be an impact on our margins.”

The Finance Minister, Mr Pranab Mukherjee, had proposed the levy of a clean energy cess in Budget 2010-11 to build the corpus of the Fund, which will finance research and innovative projects in clean energy technologies. The Finance Ministry has, through the Clean Energy Cess Rules 2010, spelt out the manner in which the cess would be collected and assessed by the Revenue Department.