tariff-based competitive bidding in the power sector
DESCRIPTION
Mr. Shubhranshu Patanaik Senior Director, Energy & Resources, Deloitte India at RPR 2012, 23-26 August, Goa, IndiaTRANSCRIPT
Tariff-based Competitive Bidding in the Power Sector
Is it working or not?
Contents
• Overview of Competitive Bidding in India
• Concerns in Bidding Framework in Recent Times
• Aspects to be Reviewed
Deloitte 2
Overview of Competitive
Bidding
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Electricity Act 2003 de-licensed the generation sector
Private Power Policy of 1991
• Under this policy CEA became pivotal with its project appraisal role
• CEA’s function was to evaluate PPA’s entered into by SEB’s, approve tariffs and issue techno economic clearances (TEC)
• CEA approval was a huge bottle neck for most of the projects
Electricity Act 2003
• CEA approval for TEC for generation projects was done away with but for large hydro projects
• Under EA 2003, as per Sec 82, setting up of state regulatory commissions is made mandatory and under Sec 86 (b), Commissions are given authority to regulate power purchases
• Section 63 of EA has revolutionized power purchase procedures and erstwhile MoU route with state utilities is no longer valid as a means of procurement
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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
• Approval of PPA governed through individual State Regulatory Acts, which was on a cost plus basis and offered a regulated return of only 14%
• There was lack of clarity on the basis for approval of PPA and the scope for negotiations on almost every cost item resulted in long drawn processes
After 06 Jan 2006
• National Tariff Policy mandates that the power procurement for future requirements should be through a transparent competitive bidding mechanism
• Process to be followed as per the guidelines issued by the Central Government
• Competitive bidding mechanism allows for the bidder to bid on a competitive return basis and the process is transparent and time bound
• From 6th January 2011, all new public sector projects also required to supply through competitive bidding
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Clause 5.1 of tariff policy “Even for the Public Sector projects, tariff of all new generation and transmission projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition.”
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
• Central Government/State Government facilitates these projects and the procurers are the state utilities
• location, technology and fuel is specified by the procurer
• tariff (capacity and energy charges) for 25 years to be quoted in the bid
‒ selection is based on lowest levelized tariff
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Project Fuel Tariff (Rs./kWh)
Winner
Sasan Captive 1.19 Reliance
Tilaiya Captive 1.77 Reliance
Mundra Imported 2.26 Tata
Krishnapatnam Imported 2.33 Reliance
Winning Bids for Ultra Mega Power Projects
Winning Bids for state sponsored Case 2 projects
Project State Tariff (Rs./kWh)
Winner
Jhajjar Haryana 2.996 CLP
Talwandi sabo
Punjab 2.864 Sterlite
Bhaiyathan Chhattisgarh 0.81 (35% merchant)
Indiabulls
Karchana UP 2.97 JaiPrakash
Bara UP 3.02 JaiPrakash
• Bidders have bid higher for levelized fixed cost for linkage projects (state specific risks/ transaction costs being factored into higher FC)
• Reliance, Lanco, Tata Power, Sterlite, CLP etc. have all quoted FC in a narrow range on all other Projects – Key differentiator is Fuel Strategy!!!
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
• State utilities are now mandated to procure power through competitive bidding process
‒ quantum is to be approved by the Commission and bid process must be as per standard guidelines
‒ tariff discovered to be adopted by regulator, subject to overall reasonableness
• power can be sourced from any developer
‒ location, technology or fuel is specified by the procurer
• IPPs have an option to tie-up only part of their capacity
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Players participating in Case 1 bids
Developer Capacity bid* Adani Power 8500 CLP 1150 Essar 4050 Indiabulls 1200 JSW Energy 1500 Lanco 1500 PTC + Players 2200 Reliance Power 5400 Tata 800
- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
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2007 2008 2008 2009 2010 2010 2010 2010 2011 2011 2011
* Same plant may have been offered in different bids
More Peaking Case 1 bids are expected in future
• Traditional Case 1 bids were long term bids for base load for 25 years
• Gujarat and Haryana have called for fuel based bids or restricting bids on non-escalable basis
• There have been many short term bids and some medium term bids.
• Recently, some utilities have called for peaking medium term bids, but have not got any participation.
• There is a gradual shift to tie up for peaking loads as base loads are expected to be met by UMPP and state and central additions.
State Type Capacity
Maharashtra LT Base 4000
Gujarat LT Base 6000
Haryana LT Base 2000
Bihar LT Base 1500
Rajasthan LT Base 1000
Karnataka LT Base 2000
Torrent Power MT Base 150
R-infra LT Base 1500
R-infra MT Base 450
R-infra MT Peak 450
UP LT Base 5000
AP LT Base 2500
AP MT Base 700
Tata Power MT Base 200
Tata Power MT Peak 150
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Solar Generation - CERC Tariff Vs Bid Tariff
17.91
15.39 15.39
12.16
8.77
11.48
0
4
8
12
16
20
SPV Batch-I SPV Batch-II ST
Rs.
Pe
r U
nit
CERC Tariff Avg. Bid Tariff
32 %
reduction
43%
reduction
25 %
reduction
Concerns with Bidding Process
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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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
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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.
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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Aspects to be Reviewed
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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Thank You
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