Centre takes more steps in power distribution reforms
The Centre’s intention of revamping the power distribution sector—the weakest link in the power value chain—appears to be serious, in light of the various measures recently announced.
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A big step in power distribution reforms
This move is very significant as it marks the entry of the Central government in power distribution—an area that has traditionally been handled by state governments.
On June 21, 2019, the foundation for what could be a defining phase for the country’s power distribution sector was laid. Two Central government companies—NTPC and Power Grid Corporation of India—signed an MoU to form an equal joint venture “National Electricity Distribution Company Ltd.” that would undertake the business of power distribution on a pan-India basis.
This move is very significant as it marks the entry of the Central government in power distribution—an area that has traditionally been handled by state governments, and in a limited way, by the private sector. Power is a part of the Concurrent List, which is to say is it part of both the Union and the State List. In other words, it is a subject that is handled by both Central and state government entities.
The Central government has for long been in the power generation sector with mega entities like NTPC, NHPC, Nuclear Power Corporation, etc. The Central government entered power transmission in 1989 through Power Grid Corporation of India, which took over all the power transmission-related assets of Central PSU power generators, especially NTPC and NHPC.
The Central government’s decision to get into power distribution stems from the fact that most state government utilities have just not been able to manage the situation. Power distribution is responsible for the unbridled losses of state discoms. Several Central governments have tried to resuscitate state discoms through bailout packages (seen in the UPA regime) or through schemes like UDAY (NDA regime). However, there has been no positive transformation on the operational aspect of state discoms. They continue to be in losses. It is estimated that in FY19, aggregate losses of discoms grew by over 40 per cent, year-on-year, to reach Rs.21,658 crore.
One more pending reform is the separation of “carriage” and “content”. Power distribution is today considered as a single activity. With the proposed separation, which will suitably incorporated in the Electricity Act, owning and maintenance of infrastructure (carriage) and supplying of electricity (content) will be regarded as two separate activities. There will also be a provision of having multiple service providers within the same area of service. This will bring in competition amongst different service providers. The proposed National Electricity Distribution Company Ltd will also be one such service provider. The “carriage-content” phenomenon is also referred to “wire” and “supply”.
Clearly, the entry of Central PSUs in power distribution is a welcome step. State government power distribution utilities have been provided ample opportunity to reform, but a true transformation has been elusive.
The author of this article, Venugopal Pillai, is Editor, T&D India, and may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
The evolving role of power financing
Power Finance Corporation Ltd (PFC), a Central PSU and the leading public sector financing entity in the power sector, recently held a media conference in Mumbai to discuss the company’s performance in FY19.
While the main purpose of the event was to analyze the PFC’s financial performance, which incidentally was much better than what was widely expected, it also gave a glimpse of PFC’s future plans. It has become increasingly clear that PFC will be moving from its traditional avenues—largely financing conventional power generation plants—to newer areas. Modern ideologies like energy efficiency, low carbon footprint, etc is gradually getting imbibed into PFC’s financing culture.
Some of the new areas identified by PFC include smart cities, electric vehicle manufacturing, charging stations for e-vehicles, battery manufacturing for solar projects, mini and micro grids for distributed generation, energy efficient systems like co-generation, tri-generation (electricity, heat and cooling), CHP (combined heat and power), waste recovery systems, etc.
Energy efficiency, clean energy, lower carbon footprint, reduced use of natural resources like coal and even water, will influence PFC’s loan portfolio in the time to come.
One interesting that came about at the media briefing was that PFC is financing a sewage treatment plant. Prima facie, it seemed very odd that PFC would be involved in such a seemingly unrelated activity. However, the story, as it unfolded, was very interesting. There is a sewage treatment plant (STP) that is being set up at Nagpur—a traditionally water-starved region in Maharashtra. The STP will treat sewage in the area and the water so obtained will be supplied to conventional coal-fired power plants in the region. Thermal power plants—those that use heat to generate electricity—need plenty of water, for generation of steam that is in turn used to rotate the turbines. The equipment used to boil water to create steam is known as the steam turbine generator (STG) or simply boiler, while the turbine-generator (TG) is the place where the mechanical energy obtained by the rotation of turbines is converted into electrical energy.
This STP will create a supply of good water from wastewater, thus obviating the use of fresh water by the power generation plants. In doing so, it will conserve the supply of fresh water, and effectively, augment the availability of water for residential use. PFC is involved in this project due to the “power generation” connection.
The use of treated water from STPs for power generation is a novel idea that is born from the need to conserve water in deficient regions. In India, there are also instances where STPs are used gainfully to generate electricity. STPs generate methane—a greenhouse gas– that is used to generate electricity, through the combustion route.
PFC’s diversification into micro grids, e-vehicles, batteries for solar projects, etc. represent a new financing culture. Clearly, energy efficiency, clean energy, lower carbon footprint, reduced use of natural resources like coal and even water, will influence PFC’s loan portfolio in the time to come.
The author of this article, Venugopal Pillai, is Editor, T&D India, and may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
Private utilities give energy storage the initial push
Energy storage, a relatively new subject on India’s power T&D landscape, was provided initial momentum with two private power distribution licencees establishing pilot projects. In independent developments, Tata Power and BSES (representing the two discoms managed by Reliance Infra) announced that they had put up energy storage projects in their command areas, on pilot basis.
Maharashtra makes progress on DF front
Maharashtra State Electricity Distribution Company Ltd (MSEDCL) has appointed input-based distribution franchisees for two circles – Malegaon and Shil, Mumbra & Kalwa.
The Malegaon mandate has been clinched by CESC Ltd, an RP-Sanjiv Goenka company. In a stock exchange communication, CESC said that it has received a letter of intent from MSEDCL declaring it the successful bidder for the Malegaon Municipal Corporation area under the Malegaon circle.
In an independent announcement, Torrent Power said that it has emerged winner as the input-based distribution franchisee for the Shil, Mumbra & Kalwa sub-divisions under the Thane Urban Circle.
In both the cases, the tenure of the appointment will be 20 years.
The Shil, Mumbra & Kalwa sub-divisions have a consumer base of 2.15 lakh. In FY17, considered as the base year, the ATC losses for the given region were estimated at 47 per cent. The quantum of electricity supplied was 677 million kwh while net sales were only 376 million kwh.
It may be mentioned that in January 2007, Torrent Power was appointed DF for the loss-making Bhiwandi circle. This represented Maharashtra’s first experiment with private sector participation in the power distribution sector. Following the impressive turnaround staged by Torrent in Bhiwandi, the the ten-year contract was extended for another ten years, up to January 2027.
For CESC, this is first distribution franchisee mandate in Maharashtra. It may be recalled that towards the end of fiscal year 2012-13, CESC did win the DF mandate for the Ranchi circle in Jharkhand. However, this agreement was cancelled sometime in 2015, as were the mandates for the Jamshedpur circle that had gone to Tata Power. CESC made it big on the DF landscape by winning three DF appointments in Rajasthan—Bikaner, Kota and Bharatpur—during 2016 and 2017 It may be mentioned that CESC is also the distribution licencee — not franchisee — in Kolkata and Noida.
For Maharashtra, the appointment of the two DFs is a major comeback after some untoward experience with the Jalgaon and Aurangabad circles where the appointment of DFs had to be cancelled.
According to information compiled from various sources, the DFs currently active in India include CESC (three aforementioned circles in Rajasthan), Essel Utilities (Nagpur in Maharashtra and Muzaffarpur in Bihar), Torrent Power (Bhiwandi in Maharashtra and Agra in Uttar Pradesh), India Power Corporation (Gaya in Bihar) and SPML Infra (Bhagalpur in Bihar). [This list represents power distribution franchisees and not licencees.]
The author of this article, Venugopal Pillai, is Editor, T&D India, may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
PGCIL debuts in intrastate power transmission
Earlier this month, Power Grid Corporation of India (PGCIL) debuted in the intrastate power transmission space by winning a concession in Uttar Pradesh, under the tariff-based competitive bidding route. The Central utility clinched the transmission scheme associated with the upcoming 2×660-mw Jawaharpur power generation project in Uttar Pradesh.
For PGCIL, which specializes in interregional and even cross-border transmission lines, winning an intrastate project assumes significance. When the TBCB mechanism was launched in January 2011, the initial projects were all of interregional lines—crucial components of the National Grid. It is only in recent years that state governments started using the TBCB mechanism for intrastate lines. However, this culture did not spread widely with only few states like Uttar Pradesh, Haryana, Rajasthan and a few others, deciding to adopt this modality.
Coming back to the concession won by PGCIL, the project special purpose vehicle is “Jawaharpur Firozabad Transmission Ltd,” which was incorporated on August 20, 2018, as a wholly-owned subsidiary of REC Transmission Projects Company Ltd. This SPV has now been transferred to PGCILwho will develop the project on build, own, operate, maintain (BOOM) basis under a 35-year concession period.
The transmission scheme comprises of three broad elements:
- LILO of the 765kV Mainpur-Greater Noida single-circuit line at Jawaharpur thermal power project
- 400kV double-circuit quad line from Jawaharpur thermal power project to Firozabad
- 400/220/132kV air insulated substation (AIS) substation at Firozabad
The project will also include some more LILOs and a 132kV double-circuit line connecting the upcoming Firozabad substation to Narkhi.
UP takes the lead: It is worth observing that Uttar Pradesh has formalized three intrastate power transmission projects this year. This is a very commendable achievement considering that there was hardly any movement in other states in the intrastate TBCB power transmission space.
Of the three projects that UP formalized this year, one project (the Jawaharpur scheme discussed above) has gone to PGCIL and two have been bagged by Adani Power. In June this year, Adani Transmission Ltd (ATL) clinched the Ghatampur power transmission project under the tariff-based competitive bidding route, marking its first presence in Uttar Pradesh.
The transmission project involves around 900 ckm of transmission lines at 765kV and 400kV levels. Some major 765kV lines include Ghatampur-Agra, Agra-Greater Noida and Ghatampur-Hapur.
Incidentally, the Ghatampur project saw very aggressive bidding at the RfP stage with PGCIL being the only other contender in the race when the project ultimately went to Adani Group.
Very recently, Adani won the transmission scheme involving evacuation infrastructure for the upcoming 2×660-mw Obra-C thermal power project of state government utility Uttar Pradesh Vidyut Utpadan Nigam Ltd (UPVUNL).
Uttar Pradesh is seen to be very aggressive in recent years, in all aspects of the power value chain—generation, transmission and distribution. The northern state is gearing up to meet growing demand from both the industrial and household sector. Under the nationwide household electrification scheme “Saubhagya”, over 68 lakh households have been electrified since October 2017. This represents nearly 30 per cent of the 231 lakh households that have been electrified since the launch of Saubhagya.
UP is doing well to expedite its power generation projects and also step up household electrification. Its effort in accelerating the creating of power transmission infrastructure is a step in the right direction.
The author of this article, Venugopal Pillai, is Editor, T&D India, may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
A welcome ray of hope for TBCB
The Supreme Court’s ruling of October 22 on the troubled power projects of the Tata, Adani and Essar business houses, is very significant. The apex court directed the Central Electricity Regulatory Commission (CERC) to decide on changes to the power purchase agreements of the three Gujarat-based power plants, within eight weeks.
All the three power projects are facing financial difficulties in honouring the tariffs envisaged in the PPAs. It may also be recalled that all these three projects are based on imported coal (largely from Indonesia) and the PPA-bound tariffs were based on long-term deals entered with Indonesian coal suppliers. However, in 2010, the Indonesian government declared that coal could not be exported out of the country at less than market rates. This caused steep escalation in coal procurement costs, which adversely affected the ability to sell power gainfully at tariffs committed in the PPAs.
The Supreme Court’s decision is fair to the three power producers as none of them had ever anticipated the unfortunate turn of events with respect to the Indonesian coal issue. Of course, the power purchasers (discoms of various states like Haryana, Gujarat, Maharashtra and Rajasthan) are going to be affected as they would not like to pay more than what has been legally contracted, and the Indonesian coal issue is certainly not their lookout.
It is also encouraging to see that the Supreme Court has also directed a consumer rights group to raise objections, if any, to potential amendments to the PPAs, before CERC.
Tariff-based competitive bidding (TBCB) is a very important aspect of power sector reforms. TBCB, as a culture, must be protected as it promises to bring much needed commercial efficiency in the power value chain. Recent history is replete with examples of how TBCB has resulted in incredulously low tariffs in the fields of conventional power generation, power transmission and even renewable energy. In any form of “regulated” environment, such tariffs would be unthinkable. Needless to say, it is the consumer that ultimately benefits from lower tariffs.
All the same, it is also expected that genuine concerns are addressed fairly. It is nobody’s interest to see the 4,000-mw Mundra power project of Tata Power—considered as amongst the most technically advanced power plants in India—generating financial losses alongside electricity. If the interests of power producers are not protected adequately and fairly, the TBCB culture will not find takers and can perish.
It is also worth looking at reworking the PPA framework. The country could perhaps benefit from shorter-term PPAs. In this current milieu of rapidly changing economic climates, both locally and globally, a legal agreement of a 25-year tenure appears anachronous.
In summary, it is only expected that the current imbroglio is not only resolved in the interest of all stakeholders but that it also promotes the TBCB culture and fortifies its policy framework.
Upholding the tariff-based regime
When it comes to path-breaking reforms in the power sector, one aspect that readily comes to mind is the tariff-based competitive bidding (TBCB) mechanism. Right from conventional power generation to power transmission and now to renewable energy like solar and wind, the TBCB philosophy has resulted in a drastic reduction in power tariffs, which has been in the ultimate interest of the consumer.
When it comes to interregional transmission lines, Power Grid Corporation of India was always the sole implementing agency. Matters changed in January 2011 with the advent of the TBCB mechanism. PGCIL now had to compete with other contenders and the project was awarded on the basis of tariff quoted. This has resulted in overall efficiency—lower capital costs, faster gestation period, faster returns on investment and of course, lower tariff for the ultimate consumer.
However, there are instances where PGCIL is awarded a project directly when the power ministry feels, for a variety of reasons, that the project is not amenable to the TBCB mechanism. This could happen if the project involves too much technical complexity or needs to be completed within a compressed time schedule. What is beginning to be a cause for concern is that there are growing instances of such projects being awarded to PGCIL, under what is called the regulated tariff mechanism (RTM). Under this mode, the tariff is fixed upfront. This tariff is not discovered through a bidding process but negotiated. Invariably, this tariff ends up being higher than what would have been the case if TBCB were employed.
The Empowered Committee on Power Transmission, now known as the “National Committee on Transmission” is the authority that decides, among other things, the modalities of building power transmission systems, based on recommendations of the regional standing committees. NCT is chaired by the Chairman of Central Electricity Authority (CEA) and its membership includes officials of CEA, the Union power ministry, Niti Aayog and two independent power experts. What is intriguing is that one PGCIL official is also a part of the committee. Furthermore, of the two power experts, one is a retired official of PGCIL, in the current composition of NCT.
The presence of PGCIL in the NCT is questionable. How can PGCIL be part of a committee that decides on matters where PGCIL is a potential beneficiary? This point has generated substantial debate, and quite justifiably so.
In the first meeting of NCT that was held on July 27, 2018 and whose minutes were recently made public, an overwhelming number of projects were awarded to PGCIL under the RTM philosophy. This allotment may be fair but as long as PGCIL is part of NCT, there will always be a lurking element of bias.
Whatever militates against the TBCB mechanism ultimately works against the competitive spirit in the power sector. The TBCB philosophy, and nothing else, has brought unprecedented efficiency in the power sector; every effort must be made to uphold and support it.
The author of this article, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be reached at venugopal.pillai@tndindia.com
PPA regime needs serious rethink
The government has proposed to amend the Electricity Act, 2003 with a view to imposing heavy penalties on power generators that do not honour terms in the power purchase agreement (PPA). These amendments, if made, will be applicable to both conventional and renewable energy-based power projects.
The PPA has almost become a three-letter word for power generators. Inability to honour the terms of the PPA in view of extraneous and of course unanticipated factors, is a very contentious issue that needs to be handled deftly.
It is a very well known fact that Tata Power was willing to sell its 4,000-mw Mundra ultra mega power project in Gujarat for a nominal amount of Re.1, simply because it was unable to sell power at the rates prescribed in the PPA. The biggest power plant in India was ironically generating financial losses, as an unhealthy by-product, alongside electricity. The same has been the case with Adani Group’s Mundra plant and Essar’s Salaya project, both in Gujarat. These power producers were finding it difficult to honour their PPA-bound tariffs because prices of imported coal had increased—an unfortunate development that was well beyond the control of power producers, and of course, altogether unanticipated when PPAs were formalized.
It is another matter that the a high-powered committee appointed by the Gujarat government is reportedly considering giving respite to these power producers by allowing revisions in the tariffs envisaged in the PPA.
Whatever be the specific cases, it must be accepted that there is need to give a serious rethink to the entire PPA ecosystem. For one reason or the other, PPA-driven conflicts are bound to crop up. One must also bear in mind that all power procurement now is done on the basis of tariff-based competition bidding. There is very little scope for renegotiating tariffs. Even power purchase through renewable energy sources like solar and wind are driven by tariff –based competitive bidding. Though solar and wind are generally not affected by fuel price variations, there could be other reasons like sharp fluctuations in foreign exchange, adversely affecting the project’s capital cost, and ultimately tariffs.
One modality that is worth considering is to have PPAs of shorter duration. This could give more flexibility to both generators and procurers. As of now, typical PPAs are of 25-year duration—a dangerously long tenure to safely presume that nothing would go wrong. Short-term PPAs would also mean more electricity available on exchanges where price discovery would be much more scientific.
The author of this article, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be reached at venugopal.pillai@tndindia.com
Waterway movement of fly ash must be encouraged
Very recently, it was reported that a large consignment of fly ash was flagged off from NTPC Kahalgaon in Bihar, destined for Pandu in Assam. The interesting part of this movement was that it will be taking place via waterways. The 2,000-tonne consignment will take the Indo-Bangla route to reach Assam. While NTPC bore the cost of loading the fly ash into the barges, the cost of transporation will be borne by Inland Waterways Authority of India (IWAI) and Star Cement, the ultimate consumer of the fly ash.
Disposal of fly ash has been a perennial issue with operators of coal-based power plants. Not only is handling fly ash expensive, it has far reaching environmental implications.
Due to favourable physical and chemical properties, fly ash can be used in low-density fly ash bricks, village roads and even in the manufacture of sewage pipes. However, due to its low commercial value and the high cost of transport, fly ash could not be efficiently delivered from the point of generation to the point of consumption.
Currently, fly ash is transported by rail, which is not very cost effective. Secondly, there is also the issue of availability of rakes. It is estimated that there exists potential to dispatch 30 rakes of fly ash from the Kahalgaon plant, on a monthly basis. However, the actual number of rakes is in the region of 15-20 only.
Coal-fired power plants meet the base load, and as such, the reliance on coal plants is predominant. Electricity generated from coal accounts for over 70 per cent of the total electricity generated from all sources. India is also moving to supercritical technology for coal-fired power plants. Experts suggested that though such power plants are more efficient, in terms of electricity produced per unit of coal consumed, the generation of fly ash is more than that in conventional (subcritical) power plants.
There is huge demand for fly ash in north east India. With existing practices, which is to say movement by railways, this demand cannot be met. Movement of fly ash through waterways could be just the right solution, addressing the needs of both power plant owners and fly ash consumers.
