The hits and misses in TANGEDCO’s tariff petition

There needs to be an overarching energy policy that addresses environmental issues and also ensures affordable supply

By Martin Scherfler & Sandhya Sundararagavan

For the first time in years, the Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) has submitted a petition which proposes an annual increase of tariff by 6%. Reeling under the weight of mounting debts and long-pending payments to generators, this was a long anticipated step.

Key reasons

One of the reasons for TANGEDCO’s poor financial health is that tariffs have not been revised on an annual basis, thereby resulting in a gap between average revenue requirement and average cost of supply. Continuous under-recovery over the years and the cancellation and or delay of projects have adversely impacted TANGEDCO’s capability to upgrade and modernise its distribution network and hindered the transition towards a smart grid future. Hence, the proposal of an annual adjustment of tariffs by the rate of inflation is a positive step — this will not only provide more predictability to its consumers but also avoid the one-time steep tariff increase every few years.

It is a welcome step to protect its smaller consumers from the tariff impact in this petition. However, some of the additional tariff categories in this petition may be open to interpretation under non-verifiable conditions. Hence, a simplification of the tariff structures which is easier to comprehend could be considered.

Green tariffs, other charges

Green tariffs have been emerging as an alternative renewable energy procurement model for commercial and industrial consumers. However, TANGEDCO’s proposed premium green tariff, at 150% of the applicable tariff rate, may dissuade consumers from availing this. Green tariffs, if properly designed, could help TANGEDCO reduce sales migration of commercial and industrial consumers to open access while at the same time provide export-oriented industries with an opportunity to meet their sustainability commitments.

There is a steep increase in demand (fixed) charges for high tension consumers in this petition — more than 100% as compared to the last tariff order. Wheeling charges for open access have been increased from existing ₹0.21/unit to ₹1.52/unit for High Tension consumers (an increase of 624%). This may make Tamil Nadu one of the most expensive open access markets in the country, potentially impacting the industrial attractiveness of the State.

The inclusion of all high tension consumers (except lift irrigation) under the time-of-day tariff is a positive step, but this could have also included low tension consumers. The domestic consumer category is a main contributor to the evening peak load. In Tamil Nadu, the domestic consumer category (LT I-A) accounted for 41.28% (30,390 MU) of the total energy sales in the financial year 2020-21. Therefore, including the domestic consumer category under the time-of-day tariff and a detailed loss reduction plan could potentially result in cost savings for TANGEDCO.

Coal and renewables

TANGEDCO is planning to meet 87% of the expected increase in power demand from thermal power plants and only 13% from renewables. Commissioning of the announced coal power plants will lock-in TANGEDCO with a high fixed cost and could result in more expensive power for consumers in the years to come — 1,890 MW of TANGEDCO’s coal plants are 30 years and older, and are up for retirement. Also, 4,320 MW of TANGEDCO’s own-coal power plants need to be retrofitted with flue gas desulphurisation systems, which will further increase the per unit cost.

According to the Ministry of Power, TANGEDCO is to meet 35.95% of its energy from renewables by the financial year 2026-27 as in its renewable purchase obligations. However, less than half of the mandated target is shown in TANGEDCO projections. Additionally, it is not clear how the Ministry of Power notified storage obligation (starting from 1% in the financial year 2024 to 2.5% by financial year 2027), 20 GW solar by 2023 (as per the memorandum of understanding signed between Indian Renewable Energy Development Agency Limited (a Government of India Enterprise) and the Tamil Nadu government) and 3,600 MW rooftop solar (as per the Tamil Nadu Solar Energy Policy 2019) are considered in this petition.

Large-scale solar and onshore wind technologies have increasingly become cheaper than coal-powered plants and have continued to create employment opportunities. It will be useful for the utility to carve out a robust strategy to assess the risks associated with building new thermal power plants, especially in view of the State’s long-term energy security.

Focus on sustainability

While there is a strong equity focus in this petition, sustainability must also receive priority. Despite the climate change commitments, there are still plans to add coal capacities in the State’s electricity mix, as in the petition. Holistic scenario planning and exploring integration of distributed generation, storage, rooftop solar, green hydrogen, and offshore wind, will be helpful in visualising Tamil Nadu’s energy future, as well as building a climate-resilient infrastructure.

It is time to design an overarching integrated energy policy that addresses environmental issues, fosters economic development, and ensures reliable, secure and affordable energy supply for all. It must also inform the decision-making process on tariff determination in view of the State’s vision for a cleaner energy future.

Martin Scherfler is co-founder at Auroville Consulting. Sandhya Sundararagavan is the Lead on the Energy Transitions team at the World Resources Institute, India

The above article was published in The Hindu Business Line on 8th September 2022:

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