Power generation cost across India set to rise by 2-3 per cent due to Centre's decision to impose a clean energy cess of Rs 50 per tonne on raw coal

Consumers of electricity would have to shell out more as the power generation cost across the country is set to rise by 2-3 per cent due to the Centre’s decision to impose a clean energy cess of Rs 50 per tonne on raw coal, lignite and peat, with effect from July 1.The rise in generation cost for coal-based power projects, which would be due to increase in coal prices by 5 to 7 per cent, would be passed on the consumers. The power industry estimates that the rise in generation cost would vary depending on the quantity and quality of coal.

The Centre expects to mobilise nearly Rs 2,750 crore annually, which would be used for financing and promoting clean energy initiatives and funding research. The cess is applicable to both domestic and imported coal.

“These calculations have been based on India’s domestic coal consumption of about 500 million tonnes (mt) and imports of 50 mt from Australia, Indonesia, South Africa and Mozambique. Coal-based generation capacity, which includes both central and state sectors as well as independent power utilities, is of the order of 86,003.38 Mw, of the country’s total installed generation capacity of 162,368.80 Mw,” coal ministry sources told Business Standard.

“The revenue ministry, in its recent communication, has made it clear that the cess would apply to the gross quantity of coal raised and dispatched from a coal mine. The cess would have to be paid entirely in cash. However, credit of any excise duties available with mining companies would be utilised for payment of cess,” they added.They also informed that full exemption had been provided to coal mined in the state of Meghalaya under traditional and customary rights.

On the payment of cess, the sources said: “For example, for coal dispatched in the month of July, the cess will be payable only by September 5.”

A senior executive of a power utility from Maharashtra, who did not want to be quoted, supported the purpose of cess. However, he observed that the proceeds generated from the cess would be quite inadequate to finance clean energy projects, which are captial-intensive.Rahul Bhandare, chairman and managing director of Knowledge Infrastructure Systems, said: “Energy cannot come at the cost of a rice bowl. Any cess goes against the grain of the one bulb per one home policy and does not suit an economy where the population below the poverty line is still high.”

D Ramachandran, a power analyst, said: “Imposition of coal cess will increase the coal prices by 5 to 7 per cent and this will hit the energy market.”