competitive tarriff bidding

TOTA

L 341

94MW

INSTA

LLED C

APACITY

MORE THAN 3

DECADES OF O

&M EXPERIENCE

BETTER N

TPC P

LF vs

NATIO

NALOVER 25

000 S

KILLED M

ANPOWER

SOUND FINANCIA

L STR

ENGTH

INHOUSE R

&D (NETR

A)

FIRST M

AHARATNA OF I

NDIA

SASAN1.19

2.12

TILAIYA1.85

2.40 ?

Roadmap To carry outBest Competitive Tariff

Bidding

NTPC TandaAmit Nayak(TMD)Praveen Prajapati (BMD)Ravi Pal Singh (OPN)Shahnawaz Akhtar Khan

(TMD)

• Tariff determined through the process of competitive bidding.• Procurer can invite bids for purchase of power.• Contract for supply of power is awarded based on the lowest

tariff.• Supply of power by the generating company could be with or

without any fuel and specific location.

TARIFF BASED COMPETITIVE BIDDING

Case-II Bidding

Bidding Mechanism

Case-I Bidding

Not specified.Developer is responsible for all the clearances.

PPA for the portion or the total power generated.

Higher risk for developerLower risk for procurer

Provided by Procurer.Procurers (SPVs) responsible for all the clearances.

PPA for the portion or the total power generated.

Higher risk for procurerLower risk for developer

One part tariffMedium term

Two part tariffLong term

Optional

Capacity Charges Energy Charges

Non Escalable

(Firm price)

Escalable (Base price with index)

Base price (With Index) NQHR

Index notified by CERC

•Tariff in INR only-EXCEPT FERV on imported coal in Case-II

TARIFF STRUCTURE

• Lower Project Cost.

• Competitive Tariffs.

• Higher Benchmark of performance ;Heat rate, Auxiliary Power consumption, Availability etc.

• Induce market driven pricing mechanism.

BENEFITS OF THE COMPETITIVE BIDDING

ULTI

MAT

ELY

BENE

FIT

TO

CONS

UMER

RESEARCH AND FINDINGS

Mundra Tata (2.265)

K’patnam Reliance(2.336)

Tilaiya Reliance(1.77)

Sasan Reliance(1.196)

Girye

Tadri

Cheyyur

Sundargarh

Akaltara

UMPPs Allotted

UMPPs yet to be Allotted

EFFECT OF FUEL COST

≈65%

PROJECT Eqpt. Supplier

AGENCY

FUEL LINKA

GE

REMARK

Sasan-660X6(1.196)

Shanghai Electric

Reliance Indian Allocated capacity 707 MnT requirement 350 MnT

Tilaiya-660X6(1.77)

Shanghai Electric

Reliance Indian Coal mine allotted of total 1.23 Bn Tonne

Krishnapattanam-660X6(2.336)

Shanghai Electric

Reliance Imported Coal mines acquired by Reliance in Indonesia

Mundra-800X5(2.265)

DoosanToshiba

TATA Imported Coal blocks Acquired in Indonesia

EFFECT OF FUEL COST contd…

In spite of higher calorific value, generation with imported coal is costlier.

PARAMETER RATEEscalation Rate-Domestic Coal (Rs./kWh) 6.01%

Escalation Rate-Imported Coal Variable Cost (Rs./kWh)

Coal Sub-component 16.40%

Transportation Sub-component 16.23%

Inland handling Sub-component 5.11%

CERC RATES OF ESCALATION

Acquisition of coal mines will rid the developer from escalation component (6.01 %) of coal

BOILER-TURBINE-GENERATOR (BTG) EQUIPMENTS COST

•NTPC relies heavily on BHEL for supply of its BTG packages. Since BHEL is itself over burdened hence delay in delivery is inevitable.•Chinese BTG equipments are about 20% cheaper than BHEL.

EQUIPMENT SUPPLIER PROJECT COST PER MW EFFECT

Indian equipment(BHEL) 4.5-5.0 Crore 25-30% Reduction by using Chinese EquipmentChinese equipment 3.5-4.0 Crore

As per past record Chinese suppliers deliver the BTG

equipment well within scheduled time period,

thereby cutting down the delay costs

HIGHER CAPACITY WITH NEW TECHONOLOGY

LIMITATIONS

•Develop materials to withstand the tough operating conditions.•Developing technologies for castings, forgings and welding.•Component testing facility for corrosion/erosion with Indian coals.

ADVANTAGES

•Reduction in heat rate.•Higher efficiency.•Low APC.•Reduction in annual overhauling cost.•SOX/NOX reduction.

LOCATION EFFICIENCY CAPACITY MS/HRH MS PRESSURE HEAT RATE APCTANDA 32.00 110 535/535 138 2700 12.0

UNCHAHAR 35.70 210 535/535 152 2410 8.5

SINGRAULI 36.60 500 538/538 170 2390 6.0

SIPAT 39.56 660 (SC) 537/565 247 2174 5.0

LUNEN, GERMANY 45.60 800 (USC) 600/610 280 1885 4.2

YUHUAN, CHINA 46.00 1000 (USC) 600/600 262 1869 4.0

110 210 500 660 (SC) 800 (USC)

1000 (USC)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

APC VS CAPACITY

APC VS CAPACITY

110 210 500 660 (SC)

800 (USC)

1000 (USC)

0

500

1000

1500

2000

2500

3000

HEAT RATE vs CAPACITY

HEAT RATE vs CAPACITY

HIGHER CAPACITY WITH NEW TECHONOLOGY

EFFECT OF FINANCIAL FACTORS

Normative ratio of debt/equity is 70/30, changing it to 80/20 or 75/25 marginalise the tariff cost

PROJECT TARIFF WINNER DEBT/EQUITY RATIO

Sasan UMPP 1.196 Reliance Power 75/25Krishnapattam UMPP 2.336 Reliance Power 75/25Mundra UMPP 2.265 Tata Power 75/25

Bara 3.02Jaiprakash Associates 75/25

Karchana 2.97Jaiprakash Associates 75/25

Bhaiyathan 0.81 India Bulls 75/25NORMATIVE 70/30

DEBT/EQUITY RATIO

EFFECT OF FINANCIAL FACTORS contd...

Normative financing period for power project loans is 10-12 years, increasing the period, pulls down the tariff rates.

PROJECT TARIFF WINNER YEARS OF FINANCING

Sasan UMPP 1.196 Reliance Power 18

Krishnapattam UMPP 2.336 Reliance Power 18

Mundra UMPP 2.265 Tata Power 18

Bara 3.02 Jaiprakash Associates 15

NORMATIVE 10-12

LONG TERM LOAN REPAYMENT


INTEREST RATE

•Smart usage of Hedging to shield against foreign exchange risk

Cheaper loan from Domestic/Foreign lenders


LOAN COMPONENT COST OF CAPITAL (%)

DOMESTIC LOANInterest rate 8

8Foreign exchange risk 0Compliance cost 0

FOREIGN LOANInterest rate 4

6Foreign exchange risk 1Compliance cost 1

FUNDS MANAGEMENT OBSERVATIONNTPC As per balance sheet 2009-2010(approx)Total Profits : 8000 CroreProfits From O&M : 5000 CroreInterest from surplus fund : 3000 CroreAs per DPE guidelines:• 30% surplus funds can be invested in public sector mutual fund.• In case of Short Term Deposits with Banks, at least 60% of total deposits should be placed with Public sector Banks• Similar trend shown by 2010-2011 balance sheet as well.

Reliance Power The IPO gets oversubscribed 69 times and total funds of Rs 11,600-crore which was floated in market.


UTILIZATION OF BY-PRODUCTS

BY-PRODUCT UTILIZATION REMARKS

Fly Ash Cement/brickReliance Power is expected to earn Rs 450 Cr per annum by selling ash at the rate of Rs 300/- per tonne

Carbon Emissions Carbon Credits

Reliance Power is expected to earn Rs 1000 Cr per annum by Carbon Credit at current CER rate

Flue Gas Bio-DieselExtraction of Bio fuel can be to be sold in open market or can be used as secondary fuel in plant

ROADMAP

PARTICULARS VALUECapacity 4000 MWAvailability 85 %Generation (Ex-Bus) 28291 MUS Heat rate 2450 kCal/kWhSpecific coal consumption 0.7 KG/KWH APC 5.00 %

ASSUMPTIONS

Financial ParametersCapital Cost 5.00 Rs.Cr./MWReturn on Equity 16.00 %Rate of Interest on Loans 8.00 %Depreciation rate 5.28 %Interest rate on working capital 10.00 %Price & GCV of FuelsLanded Coal Price 700 Rs/MTCoal GCV 3500 kCal/kgOil Price 18000 Rs/KL Oil GCV 10000 kCal/litre

ASSUMPTIONS

FINANCIAL RESTRUCTURING

Increase the Debt/Equity ratio from conventional 70/30 to 80/20 or 75/25

Increasing the period Normative payback period of financing from 10-12 years.

Boost performance to obtain cheaper loans both from foreign as well as domestic investors

COMPONENT MODIFICATION paise/kWhDebt/Equity ratio 70/30 to 75/25 2.830Interest rate By decreasing 1% 5.300Payback period 10 years to 15 years 13.500

COMPONENT MODIFICATION paise/kWhDebt/Equity ratio 70/30 to 75/25 2.830Interest rate By decreasing 1% 5.300Payback period 10 years to 15 years 13.500Chinese BTG Equipment 1500 Cr cheaper than BHEL 2.662

EFFICIENCY CAPACITY HEAT RATE APC

PER UNIT COAL COST

EFFECT OF APC ON TARIFF

SAVINGS BY USING 800 MW USC IN PLACE OF 660 SC

DUE TO HEAT RATE

DUE TO APC

TOTAL SAVING

% MW kcal/kWHr % paisa

32.00 110 2700 12.0 51.429 19.8206

ALREADY RUNNING 35.70 210 2410 8.5 45.905 14.0396

36.60 500 2390 6.0 45.524 9.9103

39.56 660 (SC) 2174 5.0 41.410 8.25865.504 1.3214 6.826

45.60 800 (USC) 1885 4.2 35.905 6.9372

46.00 1000 (USC) 1869 4.0 35.600 6.6069 5.809 1.6517HIGHER CAPACITY WITH NEW TECHONOLOGYAssumptions: Calorific Value : 3500 kCal/kg.

COMPONENT MODIFICATION paise/kWhDebt/Equity ratio 70/30 to 75/25 2.830Interest rate By decreasing 1% 5.300Payback period 10 years to 15 years 13.500Higher capacity with new technology

Opting 800 MW units based on USC instead of 660 MW SC units 6.826



Man/MW ratio 0.86 to 0.42 6.221



Man/MW ratio 0.86 to 0.42 6.221Inland acquisition of coal mines Freedom from Escalation component of coal i.e. 6% 8.871




Working capital cost

Coal Stock 45 days to 15 days reserve 0.360

Oil Stock 60 days to 15 days reserve 0.023Spares 1% to 0.5 % of Capital Cost 0.353







Oil consumption reduction 1 ml to 0.5 ml/kWh 1.620







Oil consumption reduction 1 ml to 0.5 ml/kWh 1.620SUB TOTAL-1 45.904

NTPC quoted in Sasan 212.000After considering above mentioned factors 166.096

TREASURYNegotiate with DPE for more liberal financial investment regulations to:•Effectively utilize the dead surplus funds.•Short term earnings from project funds.

ALTERNATE REVENUE SOURCES

• Fly ash used in production of ash brick and cement.

• Setting up Cement factory near station to utilize fly ash and wagon siding.

• Certified Emission Reduction (CER)• CERs could be traded in the Market.









ALTERNATE REVENUECarbon credits as mentioned by Reliance (Rs. 200 Cr. Per annum) from Sasan plant 6.720Selling of ash at the rate of Rs. 300 per tonne 5.840treasury functions 20 % against 8 % rate of return on 16000 Crore 6.600









ALTERNATE REVENUECarbon credits as mentioned by Reliance (Rs. 200 Cr. Per annum) from Sasan plant 6.720Selling of ash at the rate of Rs. 300 per tonne 5.840Treasury functions 20 % against 8 % rate of return on 16000 Crore 6.600

SUB TOTAL-2 19.160After considering income from alternate sources 146.936

EXPLORATION OF ALLOTTED COAL BLOCKS

•Emphasis on acquiring offshore coal blocks for secure and cheaper fuel supply for long term.

•It helps to reduce tariff bids where coal blocks are not allocated it slashes the tariff at time of bidding.

• Allocated coal mines can be over explored and excess amount of coal may be used for feeding other nearest or starving stations.

MERCHANT POWER IN OPEN MARKET

Some states (eg. Chattisgarh) are floating bids for procuring only a proportion of total capacity of generated power. Sell of the PPA power at break even tariff and make up for it by selling the merchant power in open market.

Project Capacity(MW) Winner Bid Price

Bhaithan 1320 India Bulls 0.81

CRUSHER HOUSE AT COAL MINE• Effective utilization of Wagons.• Preventing transportation of Stones.• Prevention of Coal pilferage.• Lesser Land required for CHP.

The available power of the hydro system can be roughly estimated as:

Head X Flow X 9.81 = kWIn case of Sipat Stage-I CW flow = 2 X 35000 m3/hr

= 19.444 m3/sTaking Head = 2.0 mtrHence Available Power= 19.444 X 2.0 X 9.81

= 381.491 kW

= 0.400 MW (APPROX.)

CW HYDRO POWERSet up mini or micro hydro power plant from the huge amount of water required for cooling in the condenser.

AVOIDING DELAYS• Reduce overall project cost• Foregone Profits• Enhanced market reputation.

ERECTION SIMULATOR• To build a Dedicated Erection Expert

Team in NTPC.

PERMANENT SHED(CANOPY) IN CHP• Coal can be protected from rain.• Avoid Choking during rainy season.

MISCELLANEOUS• Vapor absorption refrigeration using flue gases.

• Economy of scale in procurement

TYPE LOCATION STATE ALLOTTED TO

Costal Mundra Gujrat Tata power

Krisnapatanam

A.P. Reliance power

Tadri Karnataka --

Girye Maharashtra --

Cheyyur Tamil nadu --

Pit head Sasan Madhya pradesh

Reliance power

Tilaiya Jharkhand Reliance power

Sundergarh Orissa --

Akaltara Chhattisgarh --

CONCLUSION

• Cut down any of the possible extravagance.

• Possible areas may be higher capacity units, fuel cost and inventory cost.

• Avert any delay costs and boost the company market reputation.

"It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change."

-- Charles Robert Darwin (1809–82)

THANK YOU

Strategy LOWCOST

Cement factory for ash utilization

Strategic Pit-Head & Coastal Station Shed In Coal Yard

Acquire Coal Mines Erection simulator Exhaustive pooling of spares

Crusher house at coal mines

Faster Execution of Projects Coal Stock reduction

Reduce Man-MW Higher capacity units (SC & USC) Treasury functions

Debt/Equity ratio Cheaper loans Payback period

Low Cost Power Generation

QUERIES

Merchant power Carbon credits Economy of scale

competitive tarriff bidding

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