In pursuance of Clause 5.6 (vi) of the Ministry of Power (MOP) Notification on Guidelines for Determination of Tariff by Bidding Process for Procurement

## Policy Analysis Report: Notification Regarding Escalation Rates for Power Procurement (May 5, 2025) **1. Executive Summary:** This report analyzes a notification issued by the Central Electricity Regulatory Commission (CERC) on May 5, 2025. This notification amends existing guidelines related to the long-term procurement of electricity from thermal power stations. Specifically, it announces the monthly escalation rates applicable for April 2025 for imported coal, its transportation, and inland handling, for the purpose of payment under Power Purchase Agreements (PPAs). The key finding is that these rates are set at 0.72, 7.93, and 0.41 respectively, impacting the financial considerations within power procurement agreements. **2. Introduction:** The purpose of this report is to provide an informative analysis of a CERC notification dated May 5, 2025, concerning the escalation rates for imported coal used in thermal power generation. The analysis is based solely on the information provided in the notification text. **3. Policy Overview:** This notification is an *amendment* to existing guidelines. * It amends the "Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees dated 19.01.2005 as amended from time to time," as well as the "Guidelines for long term Procurement of Electricity from Thermal Power Stations set up on Design, Build, Finance, Own and Operate DBFOO basis and sourcing fuel as provided under Model Bidding Documents including allocation of coal under B I, BIII and BIV of SHAKTI Scheme for Harnessing and Allocating Koyala Coal Transparently in India Policy dated 6.03.2019." * **Core Objective(s):** Based on the text, the core objective is to set and notify specific monthly escalation rates for imported coal (including transportation and handling) for the purpose of payment under Power Purchase Agreements (PPAs) related to long-term electricity procurement. **4. Background and Rationale:** This notification amends existing guidelines. The amendment is likely driven by the need to adjust the payment mechanisms within PPAs to reflect fluctuating costs associated with imported coal. It suggests the original guidelines required periodic updates or lacked sufficient detail regarding escalation rates to account for variations in the cost of imported coal, its transportation, and handling. This amendment seeks to provide clarity and a defined methodology for adjusting payments to account for these cost variations. **5. Key Provisions / Changes:** This notification introduces specific changes to the existing guidelines: * **What is being changed:** The notification sets specific *monthly escalation rates* for components related to the cost of imported coal within Power Purchase Agreements. It doesn't explicitly state which section of the older guidelines this replaces. However, it clearly impacts the financial calculations within these agreements. * **What the *new* rule/provision is:** The CERC notifies the following monthly escalation rates for April 2025: * Escalation rate for imported coal: 0.72 * Escalation rate for transportation of imported coal: 7.93 * Escalation rate for inland handling of imported coal: 0.41 * **Explain the *difference* or the *effect* of this specific change:** This provides a specific, quantifiable mechanism for adjusting payments within PPAs based on imported coal costs. This reduces ambiguity and potential disputes regarding cost variations. The implication is that distribution licensees will adjust their payments to thermal power stations based on these percentages. **6. Target Audience and Stakeholders:** Based on the provided text, the target audience and stakeholders directly affected by this notification include: * Distribution Licensees: These entities procure power and will need to incorporate these escalation rates into their payments. * Thermal Power Stations: Especially those using imported coal, as their revenue will be directly affected by these rates. * Central Electricity Regulatory Commission (CERC): The issuing authority, responsible for overseeing and regulating the power sector. * Ministry of Power (MOP): As the original guidelines stem from MOP notifications. **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies mentioned:** * Central Electricity Regulatory Commission (CERC): Responsible for notifying and implementing these rates. * Ministry of Power (MOP): The originator of the broader policy framework. * Distribution Licensees: Responsible for incorporating these rates into payments. * **Any timelines or procedures specified *in the text*?:** * The notification specifies that these are *monthly* escalation rates applicable for *April 2025*. This implies that these rates may be subject to change and future notifications may be issued for subsequent months. The procedure is that the licensees will adjust their payments based on these specified rates. * This provides specific guidelines that influence the Power Purchase Agreements(PPA). **8. Expected Outcomes / Impact of Changes:** The likely intended outcome of these specific changes is to: * Provide clarity and predictability in payment adjustments for thermal power stations using imported coal. * Ensure that power procurement costs are fairly adjusted to reflect market fluctuations in the price of imported coal, transportation, and handling. * Potentially impact the overall cost of electricity for consumers, depending on how these escalation rates are factored into tariff structures. **9. Conclusion:** The CERC notification dated May 5, 2025, is a significant amendment to existing guidelines concerning the long-term procurement of electricity. By setting specific monthly escalation rates for imported coal and related costs, it aims to provide a more transparent and responsive mechanism for adjusting payments within PPAs. This has important implications for distribution licensees, thermal power stations, and ultimately, the consumers who rely on electricity generated from imported coal. This regulation ensures fair distribution of costs associated with imported coal based power generation.

Key Entities Referenced