competitive bidding in the power sector : is it working?
DESCRIPTION
Mr. V.P. Raja Chairman, Maharashtra Electricity Regulatory Commission at RPR 2012, 23-26 August, Goa, IndiaTRANSCRIPT
The Regulators’ and Policy Makers’ Retreat 2012
23-26 August, Goa
By Shri V. P. Raja, Chairman Maharashtra Electricity Regulatory
Commission
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
10 24/8/2012
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
11 24/8/2012
Competitive Bidding Guidelines
24/8/2012
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
24/8/2012
Case 1 & Case 2 Bidding
24/8/2012
Case 1 Bidding
24/8/2012
Case 2 Bidding
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
8/31/2012
Recent RFPs in the Market
8/31/2012
24/8/2012
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
8/31/2012
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
8/31/2012
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
0
1
2
3
4
5
6
0
5
10
15
20
25
30
35
40
Pri
ce(R
s/K
Wh
)
Vo
lum
e (
BU
s)
Volume & Avg.Priceof Electricity Transacted through Traders and Power Exchanges
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
Fuel Supply Issues 2 main issues in both domestic and imported coal
Uncertainty of pricing
Uncertainty of supply
24/8/2012
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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
24/8/2012
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.
8/31/2012
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.
8/31/2012
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
8/31/2012
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
8/31/2012
Conclusion
24/8/20128/31/2012
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
24/8/2012
24/8/2012
THANK YOU