In a recent development, the Cabinet Committee on Economic Affairs (CCEA) has extended the time limit for 10 power projects by 36 months in order to furnish the documents required for becoming certified “mega” projects so as to avail of tax benefits and bid for tenders regarding electricity supply.
For granting the extension, the CCEA has approved an amendment in the Mega Power Policy 2009. Earlier, the timeline for such power projects was to get over on March 31, 2022, after which the projects would have lost their bank guarantees. Furthermore, the 2009 Mega Power Policy promised an exemption of customs duty on equipment and excise duty benefits to 25 power projects of 30,000 MW capacity, which were signatories of long-term power purchase deals. However, due to the lack of power procurement tenders from states, the government has now extended the deadline, giving producers ample time for compliance.
As per the extension, 10 provisional mega power projects, which are commissioned/partly commissioned, each with a capacity of 1,000 MW, will get an additional window of three years to comply with the requirements, for availing of defined tax benefits.
The move is expected to benefit companies such as GMR, Essar, Lanco and Torrent, among others. Moreover, some units that are under the insolvency resolution process can become one of the key beneficiaries of this extension.
The timeline extension will enable project developers to furnish the required documents to the tax authorities so as to receive numerous benefits, that is, once project developers are able to achieve the tag of “mega” projects, the extension assists them in competitively bidding for future power purchase agreements (PPAs) and receiving tax exemptions.
Specifically, from the date of import, the time period for the 10 provisional mega projects, which are commissioned and/or partly commissioned for furnishing certificates to tax authorities, has been extended to 156 months from 120 months.
During the extended period, bids for firm power, comprising a combination of storage, conventional power and intermittent renewable energy, will be invited in coordination with Solar Energy Corporation of India (SECI) and the Ministry of New and Renewable Energy (MNRE), wherein mega projects will be expected to participate for securing PPAs. Moreover, the power ministry will be developing an alternative in this period, based on current electricity markets. Another focus area will be to ensure that benefits related to the extension are passed on to consumers in a competitive manner.
The extension will not only enable developers to competitively bid for future PPAs to get tax exemptions but will also lead to an increase in the liquidity of such projects. Thus, the move is set to play a pivotal role in boosting the country’s overall growth, ensuring the revival of various stressed power assets. Once the MNRE and SECI commence inviting tenders for hybrid (wind-solar) projects along with conventional power capacities, the timeline extension would allow 10-12 GW of coal-based power projects to come online in the coming three years. Today, states prefer buying short- or medium-term power via exchanges or competitive bidding. This is because there has been a sharp decrease in exchange prices, while long-term tariffs have increased steadily, as a result of which states did not issue any long-term power procurement tenders in the past decade.
Challenges and the way forward
A key concern is that discoms have surplus PPAs for coal-based projects. In addition to this, discoms also prefer to pay fixed costs and buy renewable energy from the spot market. Also, experts believe that the government should refrain from high capital cost projects with environmental concerns wherein tariffs cannot be less than Rs 5.50 per unit. Given the high capital cost and environmental concerns, many industry experts fear that the mega power projects will have high variable costs and PPA rates will not be less than Rs 5.50 per unit, advising to go for renewable power rather than signing PPAs, in collaboration with these projects. Moreover, letting these players become a part of the bidding procedure can increase the competition, further lowering costs.
Net, net, the extension will allow mega projects to sign PPAs in the coming years, assisting developers to get refunds of their paid duties. This will not only help developers in clearing their dues to banks and lowering their non-performing assets, but will also lower the tariffs for consumers. Many industry experts also believe that the extension will bring about a positive change in the power sector as there is a growing demand for power that can only be met by coal-based projects in the near future, until and unless renewables are able to meet the power needs completely.