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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. 

Venugopal Pillai by — December 26, 2018 in Power Transmission 0
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.

Venugopal Pillai by — November 2, 2018 in Electricity 0
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

Venugopal Pillai by — October 6, 2018 in Electricity 0
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

Venugopal Pillai by — September 10, 2018 in Electricity 0
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.

Venugopal Pillai by — August 25, 2018 in Electricity 0
RBI stringency on NPAs not out of place

On February 12, Reserve Bank of India (RBI) had issued guidelines that help define non-performing assets (NPAs) of banks and lending institutions. These guidelines also put a question mark on around 40,000 mw of power generation projects that are stuck for various reasons. According to the guidelines, power producers are expected to come out with a resolution plan for their stressed projects, within a time frame of 180 days. Failing this, insolvency proceedings will be initiated against the defaulter, which is to say, the power producers.

It is estimated that around 40,000 mw of thermal (mainly coal) power projects are stuck due to inability of finance. This, in turn, is the result of developers not being able to secure coal linkages, sign power purchase agreements, etc. Power producers have of course appealed against the RBI directive and the matter is still pending final resolution.

The question now is what should be the best way to resolve the long-pending matter. If one sees this from a very clinical point of view, there had to be a time-bound measure from RBI because the case of stressed power generation projects has been going on for years on end. Power producers have cited on reason or the other, explaining why their projects were not moving ahead. Lending institutions are also stuck with over Rs.1.5 lakh crore in the form of bad loans. This makes further lending difficult and lends a tag of “non-bankability” to the power sector, at large.

One way to resolve the issue is to take up the stressed projects, on a case to case basis, and devise a bespoke solution. This approach is tenable as every stressed project has its unique fingerprint of difficulties. While some projects are stuck for want of coal linkages, others are stuck for inability to stitch up long-term PPAs.

Having said this, the approach of RBI must also be understood. The apex bank believes that promoters do have the scope to resolve their projects in a time-bound manner. If no resolution is arrived at, it is only befitting that projects be consigned to insolvency-related proceedings.

The bigger point is that the power ministry has targeted to add over 90,000 mw of new power generation capacity in the next 5-7 years. Given this, it is but logical that every effort be put in resolving the 40,000 mw of stressed capacity, and that too, as a time-bound exercise. The RBI’s stance of initiating insolvency-related proceedings after the 180-day deadline is therefore not out of place.

Venugopal Pillai by — August 14, 2018 in Electricity 0
Smart meter procurement drive chugging along

Energy Efficiency Services Ltd (EESL) is progressing with its smart meter procurement drive. EESL, a five-way joint venture with power ministry PSUs, recently announced that it will be procuring 1 million smart meters to be deployed in Haryana. Agreements have been entered into with two discoms — Uttar Haryana Bijli Vitran Nigam (UHBVN) and Dakshin Haryana Bijli Vitran Nigam (DHBVN). The initial cost of the project will be borne by EESL and its payback would be made through monetization of commercial efficiency from the use of meters. EESL is expected to float tenders for the smart meters and for the system integrator in the coming weeks.

According to information available, EESL has floated three major tenders so far for procurement of energy meters. In March 2018, a tender for 5 million smart meters to be deployed on pan-India basis was floated and the finalization is under process.

In December 2017, a mega tender for 10 million prepaid meters was floated. These meters are to be deployed in Uttar Pradesh, a state with ATC losses way above the national average. This tender was recently formalized, according to very reliable sources, though there is no official communication from EESL.

The very first tender by EESL was in July 2017 where 5 million GPRS-based smart meters were procured for deployment in Uttar Pradesh (4 million units) and Haryana (1 million units).

Speaking of the 10 million prepaid meter tender for Uttar Pradesh, it is learnt that 5 million would be supplied by Larsen & Toubro, 3 million by Genus Power Infrastructures and 2 million by Delhi-based Allied Engineering Works Pvt Ltd. It is encouraging to observe that the allocation of this mega tender was quite “clean” unlike the July 2017 tender that generated a fair amount of controversy.

The strange outcome of reverse bidding

EESL’s first tender for 5 million GPRS-based smart meters, floated in July 2017, saw an interesting but strange turn of events. When the bids were opened, Larsen & Toubro emerged as the L1 bidder. However, when the reverse auction (as provided for in the tendering process) was carried out, Central PSU ITI Ltd (formerly Indian Telephone Industries) outbid L&T with a quote that was 8 per cent lower. The remaining qualified bidders were asked to match the best price quoted by ITI, and finally the contract for 5 million smart meters was divided amongst four suppliers—ITI (2.5 million units), Genus Power Infrastructures (1.35 million units), Karnataka State Electronics (0.9 million units) and ZenMeter Solutions (0.25 million). The total cost of procurement worked out to Rs.1,680 crore. The contract for system integration, valued at around Rs.1,020 crore was placed on Larsen & Toubro.

What is intriguing and perhaps disconcerting is that two of these suppliers – ITI and Karnataka State Electronics (or KEONICS) do not have prior experience in manufacturing energy meters. Though no official communication was available from procurement agency EESL, it is reliably that ITI would be outsourcing its order to Hyderabad-based JnJ Power Systems Ltd and to China-based Shijiazhuang Kelin Electric Co Ltd. KEONICS would be fulfilling its 0.9 million meter order through Flash Electronics (India). The question also arises as to how ITI and KEONICS, with no prior experience in the manufacture of energy meters, were considered eligible for the bidding process.

What is really disappointing is despite having reputed domestic manufacturers of energy meter business, a part of the tender will be fulfilled through Chinese equipment. This quite militates against the cherished “Make in India” philosophy.

The author, Venugopal Pillai, is Editor, T&D India and may be reached on venugopal.pillai@tndindia.com. Views expressed in this article are personal.

Venugopal Pillai by — July 14, 2018 in Electricity 0
Performing asset, non-performing loan

The financial results for FY18 of two leading lending institutions—Power Finance Corporation (REC) and Rural Electrification Corporation (REC)—were recently announced. As expected, concerns were expected on the loan asset portfolio with respect to non-performing assets (NPAs), especially in the wake of the February 12, 2018 guidelines of Reserve Bank of India. These guidelines aim at making NPA classification more stringent with a view to mitigating the overall incidence of bad loans.

Though PFC and REC are non-banking finance companies (NBFCs) and the guidelines do not strictly apply to them, both, as a matter of prudence, made provisions for NPAs, as per the new guidelines. As both the institutions have significant exposure in the power generation space—a sector of which analysts are not too optimistic—there would naturally be questions about the asset quality.

With the way India’s power demand is likely to rise in the coming years, a power plant can never be a non-performing asset.

While it is true that the power generation sector is going through a placid phase, it is important to realize that prospects are not too bleak. The government has tried to revive stranded private power generation assets, by a two-pronged approach. Under the scheme “Shakti,” an attempt was made to provide coal to power generation assets without a fuel supply agreement. Several IPPs have benefited from this scheme. Now, there is another scheme underway that seeks to procure buy power from private power projects that do not have firm power purchase agreements (PPAs). Called Medium Term PPA Scheme, this program, in its first round, hopes to sew up purchase agreements for 2,500 mw of capacity, for a three-year period. Going by reports, the response to the pre-bid meeting was impressive and there is a feeling that the scheme should be able to formalize the said PPAs, by mid-July 2018.

While power generation is not discussed with the same enthusiasm as it was a decade ago, power demand is poised to grow in the coming years. The Saubhagya scheme, launched in October 2017, has targeted complete national household electrification by April 2019.  REC, which is the nodal agency for Saubhagya, has stated that currently as many as 1 lakh households are getting electrified today, on a daily basis. Saubhagya is expected to create an additional demand of 28,000 mw.

For a lending agency, a stressed power generation plant is a non-performing asset. However, with the way India’s power demand is likely to rise in the coming years, a power plant can never be a non-performing asset. A power generation plant will always be a “performer”; it is only the loan that could be “non-performing”!

This article’s author, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be contacted on venugopal.pillai@tndindia.com)

Venugopal Pillai by — June 9, 2018 in Electricity 0
Bihar: Too much reliance on Central government

Last week, NTPC announced that it has taken over a stressed power generation plant owned by the Bihar state government. The Central utility also announced that it has acquired full control of two joint ventures, in which Bihar government had equity stake. The two joint ventures are Nabinagar Power Generating Company Pvt Ltd and Kanti Bijli Utpadan Nigam Ltd.

Venugopal Pillai by — May 19, 2018 in Electricity 0