Impact of Electricity Amendment Rules, 2024 on Financing

Rule 21 inserted: The Amendment Rules exempt the following persons from the mandatory requirement of procurement of a license under the Act for establishment, operation or maintenance of a dedicated transmission line to connect to the grid to any of the following having load of not less than 25 (twenty five) megawatt in case of interstate transmission system and 10 (ten) megawatt in case of intrastate transmission system:

generating company; or

a person setting up a captive generating plant; or

an Energy Storage System; or

a consumer,

provided they comply with the regulations, technical standards, guidelines and procedures issued under the Act.

Rule 22 inserted: The Amendment Rules cap various open access charges to ensure rationalisation and prevalence of competitive rates. The charges to be capped are as follows:

Wheeling Charges: To be calculated on a formula based on annual revenue requirement towards wheeling divided by energy wheeled during that year;

Charges for using of State Transmission Utilities: Charges for using state transmission utility on short term basis have been capped at 100% (one hundred percent) of the charges levied on consumers using state transmission utility on a long-term basis or on General Network Access Basis;

Additional Surcharge: The additional surcharge levied on Open Access Consumer has been capped at per unit fixed cost of the power purchase of the concerned distribution licensee, provided that for availing General Network Access or Open Access there shall be a linear reduction in the additional surcharge from the value in the year such access was granted, to eliminate the additional surcharge within four years from the date of grant of such access. The limited exception for levying such additional surcharge shall be to the extent of contract demand being maintained with the distribution licensees to a consumer who has not been a distribution licensee till date.

Rule 23 inserted: To make the revenue mechanism more transparent the Amendment Rules prescribe that there shall be no gap between the estimated annual revenue and Annual Revenue Requirement (ARR) and the tariff shall at all times, be cost reflective, except under natural calamity and in the event there is a resultant gap, , the same shall not be more than 3% (three percent) of the approved ARR, provided that such gap alongwith the Late Payment Surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, shall be liquidated in not more than 3 (three) equal yearly instalments.

establishment, operations and maintenance of transmission lines by power project players, without the requirement of obtaining a license under the Act makes setting up of Energy Storage System unchallenging;

cap in the open access charges shall prove beneficial for small and medium scale power projects and we hope to see more activity involving setting up and funding of open access power projects;

the reduction in levy of additional surcharge on Open Access Consumers may widen the ambit of consumers for the power and transmission project companies and open a bigger market of power purchasers/consumers enabling the power project companies to obtain financing with ease;

the proposed amendments will also lead to a surge in procurement trends among C&I consumers;

the compliance mechanism of licensing being reduced under the Amendment Rules, for players setting up power generating plants (above 25 megawatt for interstate and ten megawatt for intrastate) will have a direct positive impact on the security creation timelines under the financing structure of such projects; and

the ease of setting up projects facilitated by the Amendment Rules will lead to a bare minimum requirement for the lenders’ independent engineers to provide additional certifications and diligence of requisite licenses/permits under the Act, thereby smoothening the financing and diligence process.