4. Electricity Act 2003 de-licensed the generation sector
Private Power Policy of 1991 Electricity Act 2003
• Under this policy CEA became pivotal • CEA approval for TEC for generation
with its project appraisal role projects was done away with but for
large hydro projects
• CEA’s function was to evaluate PPA’s
entered into by SEB’s, approve tariffs • Under EA 2003, as per Sec 82, setting
and issue techno economic up of state regulatory commissions is
clearances (TEC) made mandatory and under Sec 86
(b), Commissions are given authority
• CEA approval was a huge bottle neck
to regulate power purchases
for most of the projects
• Section 63 of EA has revolutionized
power purchase procedures and
erstwhile MoU route with state
utilities is no longer valid as a means
of procurement
4
5. Guided by Section 63 of Electricity Act 2003, National Tariff Policy
mandates the utilities to procure power through competitive bidding route
Before 06 Jan 2006 After 06 Jan 2006
• Approval of PPA governed through • National Tariff Policy mandates that the
individual State Regulatory Acts, which power procurement for future
was on a cost plus basis and offered a requirements should be through a
regulated return of only 14% transparent competitive bidding
mechanism
• There was lack of clarity on the basis for
approval of PPA and the scope for • Process to be followed as per the
negotiations on almost every cost item guidelines issued by the Central
resulted in long drawn processes Government
Clause 5.1 of tariff policy “Even for the Public • Competitive bidding mechanism allows
Sector projects, tariff of all new generation and for the bidder to bid on a competitive
transmission projects should be decided on the return basis and the process is
basis of competitive bidding after a period of transparent and time bound
five years or when the Regulatory Commission is
satisfied that the situation is ripe to introduce • From 6th January 2011, all new public
such competition.” sector projects also required to supply
through competitive bidding
5
6. Developers now have option to invest in mega power projects, facilitated
by Government, through a tariff based competitive bidding process
Power procurement under Case 2 Winning Bids for Ultra Mega Power Projects
• Central Government/State Government Project Fuel
Tariff
Winner
facilitates these projects and the (Rs./kWh)
procurers are the state utilities Sasan Captive 1.19 Reliance
Tilaiya Captive 1.77 Reliance
• location, technology and fuel is
Mundra Imported 2.26 Tata
specified by the procurer
Krishnapatnam Imported 2.33 Reliance
• tariff (capacity and energy charges) for
25 years to be quoted in the bid Winning Bids for state sponsored Case 2 projects
Tariff
‒ selection is based on lowest Project State
(Rs./kWh)
Winner
levelized tariff Jhajjar Haryana 2.996 CLP
Talwandi
Punjab 2.864 Sterlite
sabo
• Bidders have bid higher for levelized fixed cost for
linkage projects (state specific risks/ transaction 0.81 (35%
Bhaiyathan Chhattisgarh Indiabulls
costs being factored into higher FC) merchant)
• Reliance, Lanco, Tata Power, Sterlite, CLP etc. Karchana UP 2.97 JaiPrakash
have all quoted FC in a narrow range on all other
Projects – Key differentiator is Fuel Strategy!!! Bara UP 3.02 JaiPrakash
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7. Independent Power Plants can tie up their capacities under long term
PPAs through a transparent tariff based competitive bidding process
Power procurement under Case 1 Players participating in Case 1 bids
• State utilities are now mandated to Developer Capacity bid*
Adani Power 8500
procure power through competitive CLP 1150
bidding process Essar 4050
Indiabulls 1200
‒ quantum is to be approved by the JSW Energy 1500
Commission and bid process must be Lanco 1500
as per standard guidelines PTC + Players 2200
Reliance Power 5400
‒ tariff discovered to be adopted by Tata 800
regulator, subject to overall 4.50 * Same plant may have been offered in different bids
4.00
reasonableness 3.50
3.00
• power can be sourced from any 2.50
2.00
developer 1.50
1.00
‒ location, technology or fuel is 0.50
-
UP
Karnataka
AP
R-infra
Rajasthan
Gujarat
Gujarat
Maharashtra
Maharashtra
Haryana
Bihar
specified by the procurer
• IPPs have an option to tie-up only part of
their capacity 2007 2008 2008 2009 2010 2010 2010 2010 2011 2011 2011
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8. More Peaking Case 1 bids are expected in future
• Traditional Case 1 bids were long term State Type Capacity
bids for base load for 25 years Maharashtra LT Base 4000
Gujarat LT Base 6000
• Gujarat and Haryana have called for fuel Haryana LT Base 2000
based bids or restricting bids on non- Bihar LT Base 1500
escalable basis
Rajasthan LT Base 1000
Karnataka LT Base 2000
• There have been many short term bids
and some medium term bids. Torrent Power MT Base 150
R-infra LT Base 1500
• Recently, some utilities have called for R-infra MT Base 450
peaking medium term bids, but have not R-infra MT Peak 450
got any participation. UP LT Base 5000
AP LT Base 2500
• There is a gradual shift to tie up for AP MT Base 700
peaking loads as base loads are expected Tata Power MT Base 200
to be met by UMPP and state and central
Tata Power MT Peak 150
additions.
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9. Solar Generation - CERC Tariff Vs Bid Tariff
CERC Tariff Avg. Bid Tariff
20
17.91
15.39 15.39
16
12.16
11.48
Rs. Per Unit
12
8.77
8
32 % 43% 25 %
reduction reduction reduction
4
0
SPV Batch-I SPV Batch-II ST
11. Case 2 Bidding
Domestic Coal Based Projects – Captive Mine-based
• Coal reserve estimations were inadequate in all cases bid out
• As a result, infeasible / substantially larger coal mines allocated than
required for Power Project, leading to allegations of misuse and profiteering
Linkage Based Projects
• Coal supply has varied significantly from assumptions at the stage of bidding
• Often ACQ is only at 50-60% of capacity, balance having to be procured from
other sources
Imported Coal Based Projects
• Major regulatory changes in countries of import not recognised
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12. Case 1 Bidding
Linkage based Projects
• Earlier formulation did not permit blending – not aligned to current realities!
• Current formulation permits blending only as a fixed proportion
‒ this is a risk inappropriate for Sellers to bear
• Wide post-bid variations in fuel supply conditions for a Power Project makes
a firm energy price bid impractical in current times
In all cases, including UMPPs, the Central Government distances itself after
projects are bid out.
• Are State Utilities capable of effective post-award monitoring?
• Weak monitoring will lead to private sector resorting to “managing” the
environment post project awards.
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13. Reverse Bidding in Solar
• Are underlying factors driving price reductions (from Batch 1 to Batch 2)
sustainable?
‒ Global oversupply in PV modules (particularly in thin-films), was a
major contributor
‒ Solar Projects still unable to get non-recourse finance
• Is competitive bidding the right strategy for emerging technologies?
‒ Is it a wise strategy for solar thermal ?
‒ What happened to the demonstration projects under JNNSM?
‒ Does excessive focus on tariffs hold the danger of early failures, which
could result in stakeholders confidence being set back by a few years ?
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15. Way forward
1. Nothing wrong with basic framework of Competitive Bidding u/s 63.
‒ Only modifications required to make implications of fuel side
contractual defaults by a Govt. Supplier (viz, CIL) to be passed-thru
2. Competitive Bidding in the Power Sector should not be confused with
Licensing.
‒ The role of the Public Sector is crucial in both Case-2 and Case-1
projects.
‒ Inadequately prepared projects will invariably create information
asymmetries & competitive distortion.
3. Technologies which are not fully commercial require public sector to
take a lead in on-field demonstration
‒ Uncertainties are too many to create true competition
‒ Need for high Technical Qual Req while selecting the Private Partner
‒ Focus on successful on-field demonstration first before expecting
competitive tariffs.
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