Tuesday, April 15, 2014

No merit in insisting on competitive bidding

       - Despite the best efforts of the government, there is virtually no competition in power sector
       - Uncertainties of fuel linkages and transmission make it an impossible proposition in India

Competition in the power sector in India was talked about first at a seminar held by the Administrative Staff College of India (ASCI) in 1996. The full day exercise was very illustrative because all it explained was that competition had to be brought in to give comfort to the policy makers/ decision makers and save them from any criticism of playing favorites. The issue was not how to get the cheapest power or even how to get power for a customer at a favorable price or to conduct a study as to its affordability. The issue was to protect the decision maker at any cost! This was done in an era where competition, as a concept in the power sector, did not exist because everything was in state hands. So the Electricity Regulatory Commissions Act 1998 and the Electricity Act2003 were passed, and steps were undertaken to give comfort and attract private investors into the power sector, promising competition and market development .Till date, competition has not happened and the reason is not far to see: the majority of players, like NTPC and NHPC are monopolistic and enjoy that status because of the ease with which they are able to signup contracts; brandish their legacy powers with the states and distribution companies, receive special treatment which insulates them from payment defaults through the tripartite payment formula between them, the state, and the Reserve Bank of India whereby they have access to state subventions in case of defaults .Further, if efforts made to bring in competition in the Electricity sector were examined one would find a half-baked approach where, in the absence of separation of wires from supply, it has given birth to a still-born child – it does not have any owner or pedigree; and the only justification for its existence is its stone-age policy maker unencumbered by any semblance of accountability. These are symptoms of the malaise that exists in the power sector. The effort to bring in competition was stymied from the start. Starry eyed Ultra Mega Power Projects (UMPPs) made their foray into competitive bidding on a single tariff basis. The effort never bore fruit. Why? Because it was a waste of time to try and do competitive bidding by predicting long term fuel prices.

The first effort to bring in competition was stymied from the start. Starry eyed UMPPs made their foray into competitive bidding on a single tariff basis. The effort never bore fruit. Why? Because it was a waste of time to try and do competitive bidding on such projects from the very beginning.

Even the US had failed in trying to get competitively bid projects in the power sector. In the Indian context, competitive bidding becomes more difficult due to the uncertainties of fuel linkages, of transmission, of consumers payment defaults, of the difference between the levelised tariff and the first year tariff that actually has to be paid, etc. The fact that some of the UMPP projects have actually come back to the Central Electricity Regulatory Commission(CERC) with a very clear issue of not being able to comply with the conditions in their competitively bid project, it clearly shows that we are back to Section 62 (cost plus) of the Electricity Act 2003 from section 63(competitive bidding).Whichever way we try to defend it, competitive bidding under Section 63,which had become mandatory from January 2011, has failed to deliver the goods. It is time that the policy makers woke up to this reality at least now.

 The story of coal, power, and the bauble

      - Those agitating against “free” allocation of coal blocks do not know of the hidden costs involved

      - For power firms to sign long-term PPAs through competitive bidding is well neigh impossible

Examining a recent proposal of the Government of India, one would find that between the Ministry of Power and the Ministry of Coal, there appears to be a brilliant concept brought in which looks at making it mandatory for companies, which have got coal blocks, are mining them and sell or how efficiently they use the coal blocks. But the power producers are being told that those who produce power must subject themselves to public scrutiny because of some politically motivated allegations of unfair allocation of coal blocks which, the government in its stated policy to encourage those who are on the fast track to making the country power independent, has allocated to them for free. These “free” coal blocks come with hidden costs that nobody is interested in. Those agitating about the unfair allocations are not interested in what it costs to develop a coal mine situated on barren land, nor the infrastructure and finance that is required to extract, refine, and transport the coal. The power companies are not exactly overjoyed with this situation but they realize they have no choice but to hunker down and make the most of this so called “free” allocation. In other be arrived at through the competitive bidding process.

These power companies are now being fed to the wolves and, after all the blood, sweat and toil, they are being accused of profiteering by misusing the national mineral resource and of covertly conniving with unknown parties to sell power at exorbitant prices. In other words, merchant power plants and, by extension, merchant power generation and purchase, is no longer a good idea, even though the Electricity Act 2003 manifestly encourages competitive development of the power market. The bad news for those pushing this line of allocation of coal only against long term PPAs is that there is hardly any interest from anyone on calling for long term power purchase contracts for various reasons, the main one being that the market trend is moving from long term to short term purchase of power. So we may end up in another long and litigious imbroglio which will add to the uncertainty amongst the power sector developers. So we are now going to be left with the daunting prospect of private sector power purchasers not having any coal unless they have signed long term PPAs. What will the policy makers come up with next? The idea of the Electricity Act 2003 was to allow competition and market forces to bring in efficiency and to allow the markets to give power and good service to the consumer. However, this particular initiative goes beyond comprehension. The knee-jerk reaction and advice of unaccounted people in the power sector leaves a bad taste and we are still far from getting a fair deal for private sector investors and consumers in this sector. As for the consumer, the wait for 24x7 power only gets longer! 

                          Sourced by IPPAI


Monday, April 7, 2014

Off Grid Energy: Regulatory Framework

Life in many remote villages of India comes to a standstill after the twilight. School students are unable to read their books, the women struggle to do basic chores of family. Only aid to do the necessary work comes from faint glow of kerosene lamps. The relief in this situation has been provided by the entry of solar power in remote villages. Off grid solar lanterns, small domestic PV systems, solar torches and other similar products have come to the rescue of the people residing in these villages. The lighting needs can be fulfilled by lanterns and torches and small domestic PV systems can help in operating a lamp, fan and mobile charger. Provision of such basic amenities helps the society at a larger level.

The affordability of these devices depends at large on the economic status of the people living in these remote areas. At such a stage, it becomes essential to have intervention from Government to assist in accelerated penetration of the technology in deprived areas. MNRE is extending support to different states under various schemes based on off grid energy. These schemes assist in meeting the basic requirements of areas which are not electrified or where limited power is being used inefficiently.

The scheme viz. ‘localization of solar energy through local assembly, sale and usage of one million solar study lamps (CFL/LED)’ was announced in January, 2014. It provides financial support of INR 14.81 Crores to empower population in under served communities of Rajasthan, Maharashtra and Madhya Pradesh. IIT Bombay is partnering with remote rural organizations to provide solar study lamps for school children to enhance their daily night studies, exams preparation, home work and other educational programs. The selection process of districts will be based on parameters like; number of households using Kerosene, illiteracy rate, number of schools and students density in schools. The project will be implemented for a period of eighteen months from 2013-15. This scheme will benefit the communities without access to electricity and thus help in improving the quality of their lives.

A similar scheme has been announced by MNRE under JNNSM. It extends financial subsidy for installation of Solar Photovoltaic lights and small capacity systems through cooperation of various banks. The scheme ‘Financial Support for extending subsidy- for installation of 68,000 numbers of Solar Photovoltaic lights and small capacity systems through NABARD/ RRB’s, Nationalized banks and Cooperative banks under Jawaharlal Nehru National Solar Mission (JNNSM)’ was announced on 28th February, 2014. Estimated Central Financial Assistance for 68,000 installations stands out at INR 149.81 Crores. In addition to this, central Government subsidy will be given as per the rules specified in the released scheme document. NABARD will be responsible for implementation and monitoring of the project through Regional Rural Banks and Nationalized Banks during the duration of one year. Recently, a sanction of INR 148 Crores has been approved by National Clean Energy Fund (NCEF) for various states with high number of villages detached from the grid. This financial assistance supports the installation of domestic SPV power plants of 1kWp capacity under the scheme ‘Installation of 23,500 nos. SPV power plants of 1kWp capacity each for Domestic household in Rajasthan, Andhra Pradesh, Kerala, Tamil Nadu, Chhattisgarh and other selected States’.  The total project cost is INR 493 Crores. The power plants are to be installed on the roof top of individual houses. The duration of project is one year.

The main objective of the project is to provide clean and better light to individual households in rural, semi-urban and urban areas where the electricity supply is very unreliable and unstable. Limited grid availability in remote areas of some states has paved the way for introduction of clean energy solutions. These initiatives will help in reducing the consumption of kerosene and will give an opportunity to improve the results of children studying in schools. It will also help the women in carrying out household chores in the evenings after the sun set. It will also provide better light for cottage industries.

Other than domestic sector, there are certain schemes supporting the agricultural sector also. One of the schemes ‘Installation of 17,500 nos. of SPV water Pumping System in Rajasthan, Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Maharashtra, Chhattisgarh, Madhya Pradesh, Bihar and other selected states to meet the irrigation requirements’ has been announced on 5th March, 2014 by MNRE. The financial support of INR 299.5 Crores is provided by NCEF in the project cost of INR 997.5 Crores. The states need to contribute 15 percent of the project cost from state’s share. SPV pumping systems can easily meet the irrigation requirements for land holdings of small and marginal farmers in place of the large number of diesel pump sets which are being deployed every year in the country. This project will help in reduction of diesel consumption. It will obviate farmers from long distance travels to procure and transport diesel. It will increase the cropping intensity of the states. Duration of project is two years in which ministry will provide 30 percent of the cost as subsidy. The renewable energy development agency of the respective state will be responsible for the implementation of this scheme. Complete technical specifications of the pump set required to be installed under the scheme is given in the scheme document.

The demand of electricity in India is decentralised as still there are far flung areas which are out of grid’s connection and in some cases the distances being so long, the introduction of transmission lines seems infeasible and unviable. Due to such circumstances it becomes important to have decentralised supply of energy in the country which becomes attainable only with the backing of Government policies.

           Infraline Energy Renewable Energy Research Team