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News: CERC has announced Draft tariff regulations for 2024-29. The key takeaway includes 1) The regulated ROE for thermal plants and run on river hydro plants remains unchanged at 15.5%, 2) The same for transmission assets has reduced from 15.5% to 15% , 3) ROE’s for Pumped hydro storage and run on river with pondage has increased from 16.5% to 17%, 4) Capex on emission control equipments will also attract regulated ROE which will MCLR of SBI + 350 bps with a ceiling of 14%, 5) Normative PAF is pegged at 85% for all thermal plants while normative PLF to earn incentive is at 85%.
Views: From segment and stock perspective, the regulations are positive for hydro generating companies like NHPC and SJVN who will be investing into pumped hydro projects coupled with capacities getting commissioned on pondage basis. Allowing ROE on emission control equipment and no cut in ROE’s for Thermal plant will benefit NTPC given majority of capex on emission control equipment which will get commissioned in the said tariff control period. From negative standpoint, Powergrid will be affected to some extent given ROEs are prosed to be cut by 50 bps on projects commissioned after 1st April 2024.
Impact: Positive