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Regulated RoE (cost-plus) model
What it is
Central and state generators supplying under long-term PPAs earn a regulator-determined return on equity - set at 15.5% for central sector thermal projects under CERC norms - with fuel and approved costs passed through
Capacity charge recovery depends on declared availability rather than actual generation, typically against a normative availability of 85%
Impact on industries
- Delivers predictable, annuity-like returns insulated from merchant price volatility, which is what makes thermal capex financeable at scale
- Capacity charges are earned on availability, so a plant backed down for grid reasons still recovers fixed costs
- Returns are capped by regulation, so operational outperformance earns little and the model rewards asset accumulation over efficiency
- Recovery depends on discom payment discipline, and receivables from state distribution companies have been a chronic sector problem
- Regulatory review cycles can revise norms, so the certainty is administrative rather than contractual