The Regulators’ and Policy Makers’ Retreat 2012

23-26 August, Goa

By Shri V. P. Raja, Chairman Maharashtra Electricity Regulatory

Commission

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Background Electricity Act 2003 emphasizes the promotion of

competition in the sector through various

provisions, such as delicensed generation, open

access for T&D systems

All these provisions leading to the development of

an open and competitive market in electricity

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Electricity Act 2003: Provisions for Competitive Markets Electricity Act, 2003 opens up the power sector for

competition with the following provisions:

Delicensed captive generation

Encourages distributed generation

Open Access to transmission and distribution systems

Removal of exclusivity in Distribution License

Trading is recognized as a distinct activity

Mandatory Electricity Regulatory Commissions

Establishing an Appellate Tribunal for Electricity (APTEL) for dispute resolution

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Provisions for Competitive Markets Section 66 of the Act mandates the development of an

electricity market & market institutions

Section 60 empowers the ERCs to issue such directions as it considers appropriate to a licensee or a generating company if the licensee or generating company enters into an agreement or abuses its dominant positions or enters into a combination which is likely to cause an adverse effect on competition in the electricity industry

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Provisions for Competitive Markets Allows multiple generators to come up and compete

Allows larger consumers to choose supplier

Prescribes competitive procurement of power on long term

Aims to create a National Market via compulsory open access

Policy framework assures

reasonable and stable returns on investments

Well defined Regulatory mechanisms

Makes governments responsible for providing power on demand

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Why Competitive Bidding Competitive procurement of electricity reduces the

cost of power procurement for the discoms

It prevents the formation of buyer/seller cartels

End-consumer gets electricity at optimum price as 80-

85% of what consumers pay as tariff is power

procurement cost

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Why Competitive Bidding

Efficient power procurement becomes important to ensure that:

Consumers get affordable power

Generation and transmission capacity owners and developers get attractive return on their investments

Discoms remain financially viable

Competitive tariffs ensure that operational and financial efficiencies are enhanced in a sector largely dominated by state-owned companies used to working on the cost-plus methodology

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CERC Study Findings

The levelized prices discovered under the competitive bidding process are lower compared to levelized prices under cost plus methodology for 11 of the 14 projects examined

Sensitivity analysis also shows that levelized prices discovered under competitive bidding process would continue to be lower as compared to levelized prices arrived at under cost-plus methodology even after accounting for considerable variation in coal costs and coal cost escalation rates

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S.

No. Project Size State Developer

Levelized Tariff (`

/kWh) as per

Competitive

Bidding

Calculated

levelized Tariff

under MOU Route

(` /kWh)

1 Talwandi Sabo 3 x 660 MW Punjab/Case 2 Sterlite 2.8643 3.0428

2 Rajpura 2 X 660 MW Punjab/Case 2 L&T 2.89 3.4228

3 Kamalanga 3 X 350 MW Haryana, Case 1 PTC/GMR 2.54, Bus bar 2.57, Bus bar@

4 Babandh 4 X 660MW Haryana, Case 1 LANCO 2.075, Bus bar 2.5159@

5 Jhajjar 2 X 660 MW Haryana, Case 2 CLP Power 2.996 3.2502

6 Mandva 2 X 660 MW Maharashtra, Case 1 LANCO Mahanadi 2.70 2.9537

7 Tiroda Ph.1 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 2.642 2.91782

8 Chitrangi, Ph 1 3 X 660 MW MP, Case 1 Reliance 2.45 2.5126

9 Mahan 2 X 600 MW MP, Case 1 Essar 2.45 2.2593

10 Nandgaonpeth 2 X 660MW Maharashtra, Case1 India Bulls 3.26 3.2397

11 Tiroda Ph. 2 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 3.28 2.8190

12 Mahanadi 3 X 600 MW Gujarat KSK Energy 2.345 2.4513**

13 Pragraj 3 X 660MW UP, Case 2 JP Associates 3.02 3.4047

14 Sangam 2 X 660 MW UP, Case 2 JP Associates 2.97 3.2418

CERC Study Findings

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Competitive Bidding Guidelines: Objectives

Promote competitive procurement of electricity

Facilitate transparency and fairness in procurement

processes:

Transparency ensured by Guidelines & Standard Bid

Documents for tariff based bidding

Enhance standardization and reduce ambiguity and time

for materialization of projects

Standardization of Bid documents, Bid submission and

evaluation process, timeline for bidding process, tariff

structure

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Competitive Bidding Guidelines: Objectives Provide flexibility to suppliers on internal operations while

ensuring certainty on availability of power and tariffs for

buyers

Tariff to be quoted upfront for life of plant and Regulator to

adopt tariff arrived at through transparent bidding process as

specified by the Guidelines

Developer has the flexibility to choose optimum unit

configuration

Provides incentive to Developer to adopt innovative financial

modelling and tax planning to ensure competitive tariff &

return on investment

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Competitive Bidding Guidelines

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March 2009 Amendments The National Electricity Policy stipulates that 15% of the new

generating capacity can be sold outside the long term PPA

Hydro project tariffs to be determined by the ERCs, provided it has long term PPA for at least 60% of the total saleable design energy of the project

Sale of electricity outside long term PPA: Usually for less than 1 year

Under Case 2 bidding, in order to ensure timely commencement of supply of electricity and to convince the bidder of the irrevocable intension of the procurer, project preparatory activities must be completed on time by the procurer

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Case 1 & Case 2 Bidding

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Case 1 Bidding

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Case 2 Bidding

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UMPPs: Case 2 Bids

Pit Head coal based project at Sasan to Reliance Energy at evaluated levelised tariff of Rs 1.196/kWh – the lowest ever levelised tariff

Imported coal based project at Mundra to Tata Power at evaluated levelised tariff of Rs 2.26/kWh

Imported coal based project at Krishnapatnam to Reliance Energy at evaluated levelised tariff of Rs 2.332/kWh

Pit Head coal based project at Tilaiya to Reliance Energy at evaluated levelised tariff for Rs. 1.77/kWh

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Case I Bids: Gujarat

S.No Bidders name

Capacity offered

(MW) Plant location

Levelised Tariff

(Rs./kWh)

1 KSK Energy Ventures_Wardha 1010 Chhattisgarh 2.34

2 Shapoorji Pallonji 800 Gujarat 2.80

3 Essar Power Ltd. 800 Gujarat 2.80

4 Pipavav Energy Ltd. 500 Gujarat 3.18

5 TRN Energy Pvt. Ltd. 150 Chhattisgarh 3.28

6 PTC India Ltd 300 Chhattisgarh 3.50

7 OPG Power Gujarat Pvt. Ltd. 300 Gujarat 3.66

8 MB Power (Madhya Pradesh) Ltd. 170 Madhya Pradesh 3.70

9 Avantha Power & Infrastructure Ltd. 200 Madhya Pradesh 3.94

10 Jindal India Thermal Power Ltd. 200 Orissa 4.36

4430 3.02

2610 2.62

Case- I Gujarat 3000 MW (-20%/+30%)

Total offered capacity Weighted Average

Bid Capacity & Average Tariff Weighted Average

Bids received for 4430 MW as against requirement of 3000 MW

Levelised Tariff quoted by the bidders was in the range of Rs 2.34/kWh to Rs 4.35/kWh at Gujarat STU interface

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Case I Bids: Karnataka

S.No Bidders name

Capacity offered

(MW) Plant location

Levelised Tariff

(Rs./kWh)

1 Monet Power (PTC) 150 Orissa 3.76

2 Thermal Power Tech (PTC) 430 Andhra Pradesh 3.77

3 Meenakshi Energy (PTC) 200 Andhra Pradesh 3.80

4 JSW Bellary 600 Karnataka 3.81

5 East Coast Energy (PTC) 400 Andhra Pradesh 3.89

6 NCC Power Projects (PTC) 400 Andhra Pradesh 3.89

7 JITPL 200 4.46

8 JSW Maharashtra 600 Maharashtra 5.30

2980 4.17

2000 3.82

Case- I Karnatka 2000 MW (+-20%)

Total offered capacity Weighted Average

Bid Capacity & Average Tariff Weighted Average

Bids received for 2980 MW as against requirement of 2000 MW

Levelised tariff quoted by the bidders was in the range of Rs 3.76/kWh to Rs 5.30/kWh at Karnataka STU interface

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Case I Bids: Maharashtra

S.No Bidders name

Capacity

offered (MW) Plant location

Levelised

Tariff

(Rs./kWh)

1 GMR Emco 200 Maharashtra 2.88

2 India Bulls Power Ltd. (Amravati) 450 Maharashtra 3.27

3 India Bulls Power Ltd. (Amravati) 750 Maharashtra 3.27

4 Adani Power Maharashtra 1200 Maharashtra 3.28

5 Wardha Power Company Ltd. 675 Maharashtra 3.62

3275 3.32

2000 3.23

Case- I Maharashtra 2000 MW (-20%/+30%)

Total offered capacity Weighted Average

Bid Capacity & Average Tariff Weighted Average

Bids received for 3275 MW as against requirement of 2000 MW

Levelised tariff quoted by the bidders was in the range of Rs 2.88/kWh to Rs 3.62/kWh at Maharashtra STU interface

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Recent RFPs in the Market

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Section 62 & Section 63

Section 62 provides for determination of tariff through the MOU route

Section 63 says that the ERC “shall adopt the tariff” if it is determined by a transparent bidding process according to guidelines

Aptel ruled in 106 & 107 of 2009 that it is “purely” an ERC’s decision whether it approves a negotiated tariff or directs a licensee to procure power through compettitive bidding

Competitive Bidding - Issues Association of Power Producers and Prayas in their recent

presentation to Forum of Regulators have apprised the Forum about the emergent issues in competitive bidding:

Co-existence of cost plus regime with competitive bidding

Rebidding based on unconvincing grounds

Post bidding changes

Issues with the time period of 25 years and the uncertainty that it may bring to project developers, especially with respect to fuel costs & fuel availability

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Competitive Bidding - Issues State owned discoms seem reluctant to issue RFPs for

power procurement

Many states have state owned gencos whose power they have to buy

As these state owned gencos have not been efficient in delivering contracted quantum of power, discoms have tended to buy more in the short term market

Data on power procured through bilateral trades Vs exchanges shows significantly higher volumes and prices for bilateral trades than for exchange traded power

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Competitive Bidding - Issues

2009-10 2010-11 2011-12

volume-traders 26.72 27.7 35.84

volume-Power Exch. 7.19 15.52 15.54

Price-traders 5.26 4.79 4.18

Price-Power Exch. 4.96 3.47 3.57

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Volume & Avg.Priceof Electricity Transacted through Traders and Power Exchanges

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Competitive Bidding - Issues In the recent years, many state governments have started to

demand up to 50% of the power generated from a plant situated in their state should be allocated to them – example, Chhattisgarh, Orissa, in return for land, water, etc

Tamil Nadu has demanded that the entire power from phase 1 of the Kudankulam nuclear power plant (1000 MW) should be allocated to it

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Competitive Bidding - Issues NTPC – India’s biggest generator is still selling its power

through the MOU route

With next scheduled plants coming up in three power hungry states – UP, Bihar and Tamil Nadu, the states are likely to up the ante on the allocation issue

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Competitive Bidding - Issues The 5 year exception granted to NTPC and other PSUs by

MOP on competitive bidding 2006-2011 has been withdrawn from FY 14 onwards, through a new circular dated 5 Jan, 2011

All appeals by the PSUs have been rejected by MOP

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Fuel Supply Issues 2 main issues in both domestic and imported coal

Uncertainty of pricing

Uncertainty of supply

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Domestic Coal CIL’s inability to fulfill targets

Project developers not getting coal on time or in contracted quantities

Project developers’ risk goes up as PLFs fall or forced use imported coal, raising generation costs – domestic coal is 45-70% cheaper than imported coal

Refusal to sign FSA with generators Despite a Presidential directive, CIL is yet to sign FSAs with

generators

CIL’s board is yet to approve fresh penalty clauses

Proposed penalty levels:

Domestic Coal CIL is also considering introducing a mechanism to pool

the prices of imported coal with domestic supplies

CIL has sought technical advice from CEA on the feasibility of a pooling mechanism as most plants can handle only up to 15% imported coal mix

Such a pricing system would work only if all domestic consumers accept the resulting higher price

CIL board has yet to decide on final draft of standard FSA

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Domestic Coal CIL’s independent directors have objected to severe

penalties for non-performance.

NTPC has refused sign FSAs until the penalty clause is made stiffer

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Imported Coal Imported coal

Indonesian coal prices have gone up significantly since that government’s decision to link export prices of coal with international benchmarks

The escalation of fuel cost will continue to be governed by CERC regulations in force

Two UMPPs, Tata Power’s Mundra and Reliance Energy’s Krishnapatnam projects are in trouble on account of the Indonesian government’s decision to raise coal export prices

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Natural Gas KG D6 production is falling – is expected to be down to

65% of the target

Affects power plants proposing to use KG D6 gas 1st priority to fertilizer sector; then power

RGPPL was to get gas allocation on par with the fertilizer sector (up to 90% of the allocation) but the order has been held back after other power producers protested. Current production in the range of 1000 MW

Reliance Energy’s Samalkot power plant based on KG D6 gas is practically shelved

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Update on UMPPs Of the 4 awarded UMPPs, 2 were imported coal based –

Mundra (Tata Power) and Krishnapatnam (Reliance)

Mundra - 2 units of 800 MW have been commissioned as of date, well behind schedule

Tata Power filed a case in CERC for revisiting the levellised tariff of Rs 2.34/kWh.

Subsequently, Tata Power moved the ATE and has now moved the Supreme Court seeking tariff revision citing force majeure

Krishnapatnam – according to media reports, Reliance has stopped land acquisition.

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Other PPAs in trouble - Adani-GUVNL According to the PPA signed by Adani Power and GUVNL

in 2007, the company was to supply GUVNL 1,000 MW for 25 years at a levelised tariff of Rs 2.35 a unit.

Adani sought termination of the PPA in November 2008 claiming difficulties in obtaining coal (from Gujarat Mineral Development Corporation Ltd). It also cited the rise in the prices of imported coal from Indonesia.

GUVNL moved GERC which refused to terminate the PPA

Adani Power moved the ATE which also ruled in GUVNL’s favour last year.

Following this, Adani approached the Supreme Court and the case has been admitted.

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Some Other PPAs in trouble – Tiroda Tiroda TPS in Maharashtra (Adani Power)

To supply 1320 MW to MSEDCL @Rs.2.64 levellised tariff, fuel sourced from Lohara coal block with a performance guarantee of Rs 99 crore. But was denied MOEF clearance since it was in buffer zone of the Tadoba tiger sanctuary and was given tapering linkage in lieu of Lohara.

Adani claimed force majeure and asked for tariff revision/return of performance guarantee but not revoking of the PPA

Adani Power had already obtained additional coal linkage from WCL and SCCL meeting entire capacity of 1980 MW, which together with the tapering linkage is enough for the full 1980 MW

Case is subjudice

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Recent Directives on Competitive Bidding MOP has asked the MOC to direct all the entities being

allocated coal blocks by the government to sell power through competitive bidding, failing which their allocation could be cancelled.

The Ministry has suggested a similar tariff-based bidding condition for those already allotted coal blocks for power sector IPPs

MOC has directed that projects that don not have a long term PPA in place will not get a coal linkage

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Conclusion

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Competitive bidding is one of the ways to introduce transparency and accountability in the sector

Present glitches are part of the learning curve

Competition will bring in optimisation of resources, bring in operational and other efficiencies and ultimately, lead to greater customer satisfaction

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THANK YOU