All Posts in "Venugopal Pillai"

Rethinking E-Reverse Auctions

It is reliably learnt that the Union ministry of new & renewable energy (MNRE) is planning to do away with the process of e-reverse auctions (e-RA) for renewable energy projects – mainly wind and solar.

 

The rationale behind this proposed move is to remove the unhealthy competition that the bidding process potentially witnesses, due to the e-RA element.

 

In a typical solar or wind project that is awarded through the competitive bidding mechanism, bidders submit their price bids and are ranked in terms of the tariffs quoted. This gives rise to the L1 bidder – the one with the most competitive bid – followed by the succeeding L2, L3, etc. In the context of tariff-based bidding, the L1 bidder is the one quoting the lowest tariff at which he is willing to sell power generated from the project under bidding.

 

Once the initial price bid submission is completed, bidders undergo the e-RA round where every bidder is given a chance to match the L1 bid. It is here that aggressive bidding by all bidders, including the L1 bidder, kicks in. The price bids after the e-RA process, due to the fierce competition, undergo a dramatic shift.

 

The final winner (after the e-RA process) could be any of the bidders, not necessarily the L1 bidder, and the winning tariff could be way below the L1 bidder’s quote.

 

Such aggressive bidding, where tariffs could border on non-viability, might suit the power procurement agency. However, the potential situation of bidders offering “rock-bottom” quotes simply with the objective of winning a project is not in universal interest. Time and cost overruns, which are ingrained in any project, can result in a situation where the developer simply cannot honour the tariffs committed. If this happens, the entire downstream value chain gets adversely impacted.

 

E-reverse auctions are part of any power procurement drive, including power transmission projects that are awarded under the tariff-based competitive bidding (TBCB) route. Unrealistic aggression witnessed in the e-RA stage may result in established bidders staying away from the bidding process, even after submission of their initial price bids. It is roughly estimated that final bids (post e-RA) are 20 per cent lower than the L1 bid.

 

All said, the e-RA process is aimed at bringing tariffs to the lowest level possible. There is nothing wrong or unacceptable in this philosophy. However, any effort made to keep the final bids within the realms of viability, is always welcome.

 

Scrapping the e-RA routine is also not a bad idea. Bidders are well aware of the competitiveness and would yet work out their price bids keeping in mind project-specific factors. Such well-derived price bids, one can assume, would be viable as they are not the result of unrealistic last-minute aggression.

 

(The author of this article, Venugopal Pillai, is Editor, T&D India, and may be contacted on venugopal.pillai@tndindia.com. Views are personal.)

Venugopal Pillai by — July 15, 2022 in Policy 0
Fresh lease of life to privatization process

In a very significant recent development, Torrent Power moved closer to taking over power distribution in the Union Territory of Dadra & Nagar Haveli and Daman & Diu (DDN&DD). The Gujarat-based company, with a significant presence in the entire power value chain, has signed an agreement with the said UT administration to acquire controlling 51 per cent in the JV that will be responsible for power distribution activities in the UT of DNH&DD.

 

This is a major step forward for the government’s proposal, announced in May 2020, to privatize power distribution in all UTs.

 

The modality to be followed is the joint venture route where the private sector player will own 51 per cent equity stake (and management control) with the respective UT administration holding the remaining 49 per cent.

 

If matter progress well, power utility CESC will also take over power distribution in the UT of Chandigarh, on similar lines.

 

Privatization of power distribution of UTs is inherently different from the earlier attempts at privatization, which largely had to do with the asset-light distribution franchisee model. It must also be borne in mind that attempts at privatization were targeted in areas with high AT&C losses. However, in the case of UTs, the power distribution sector is not loss-making, if not highly profitable. This was precisely why several employee unions opposed the move, leading to some delay in finalizing the process.

 

The distribution franchisee model has not left a positive impression; there have been more failures and abortive attempts, than successes. What the government is now following is the distribution licensee model through the JV route where the private sector holds 51 per cent equity stake and management control, with the state government or UT administration holding the remaining 49 per cent.

 

This JV route has been phenomenally successful in Delhi, with Tata Power and Reliance ADAG Group being the private partners in two separate JVs. The recent attempt at similarly privatizing power distribution in Odisha, through four separate JVs with Tata Power, is also showing positive signs.

 

Power distribution is that area where the revenues for the entire power value chain are ultimately generated. It is also the only customer-facing link in the value chain. This being so, it is best that power distribution, in general, is handled by the private sector. Most state government discoms have a long legacy of commercial inefficiency. It is time that the private steps in.

 

While privatization needs to be pursued, it is also imperative that the much debated separation of “wire” and “supply” businesses of power distribution is implemented. This will bring more competition amongst private sector players in the “supply” side, which is in the ultimate interest of the end-consumer.

(Featured photograph, sourced from Torrent Power, shows replacement of electricity meters in Bhiwandi before and after Torrent Power took over as the distribution franchisee.)

(The author of this article, Venugopal Pillai, is Editor, T&D India. He may be reached on venugopal.pillai@tndindia.com.)

Venugopal Pillai by — April 15, 2022 in Power Distribution 0