All Posts in "TBCB"

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
States must actively draw upon PGCIL’s expertise

One option by which PGCIL could meaningfully engage in intrastate projects is through joint ventures with state power utilities, at least for specific projects.

Very recenty, there was a news report that Kerala State Electricity Board was seeking the involvement of Power Grid Corporation of India (PGCIL) in the southern state’s ambitious “Transgrid-2.0” project. The Rs.10,000-crore project envisages substantial upgrade to its power transmission network, and that too, with a conscious adoption of modern technology.

It is well known that even if almost all the erstwhile state electricity boards have been split into separate entities for generation, transmission and distribution, most of them still lack the technical expertise or the financial prowess to deal with complexities in their intrastate transmission networks. This is exactly why drawing upon PGCIL’s competency could be harnessed advantageously.

Special Cases

In some deserving cases, PGCIL is carrying out intrastate power transmission upgrade, thanks to extreme conditions that the state government-utilities would find difficult to contend with. For instance, PGCIL is implementing a project worth over Rs.5,000 crore to improve transmission network in topographically-challenging northeastern India, touching all northeastern states except Arunachal Pradesh. However, in Arunachal Pradesh and Sikkim alone, PGCIL has been entrusted with a Rs.4,700-crore project to improve transmission and distribution infrastructure. In Jammu & Kashmir also, PGCIL is involved in a Rs.1,800-project to connect the isolated Leh-Kargil area to the northern grid with a 220kV line. In these cases, PGCIL is playing the role of a “consultant” and has received the mandate from the Central government.

The real problem lies with states that are not “special” like the northeastern ones or Jammu & Kashmir, nor at the other extreme, are fully equipped to deal with their power transmission network.

TBCB might not work

State power utilities of course have the option of using the tariff-based competitive bidding mechanism that can bring in enterprise and investment, in a competitive environment. However, not many states of them have pursued this option aggressively although there are honourable exceptions like Haryana, Uttar Pradesh, Rajasthan, Haryana, etc. All said, the extent to which TBCB has percolated into intrastate projects, at the national level, is still shallow. Even if states float projects on the TBCB mechanism, PGCIL is free to bid just as it has successfully done in interregional lines. In such a case, states stand a potential chance to get PGCIL’s involvement. But the point is: Would PGCIL be excited enough to proactively participate in micro-level intrastate projects?

The JV option

One option by which PGCIL could meaningful engage in intrastate projects is through joint ventures with state power utilities, at least for specific projects. It has done so with Bihar, resulting in the formation of Bihar Grid Company Ltd, a 50:50 joint venture. PGCIL was engaged in similar talks with Odisha but the proposal did not take shape, ostensibly due to insufficient propulsion by the state government.

State governments must draw upon the rich technical and managerial experience of PGCIL and actively consider the joint venture route. To start with, JVs could be formed for specific but complex projects. Quite admittedly, formation of joint ventures would involve extended discussions and procedural formalities. The JV with Bihar, for instance, was formed in 2013 and has had its share of teething troubles. But once again, state governments would do well to realize that roping PGCIL has a JV partner is well worth the effort. For PGCIL too, an equity stake would mean closer bonding with the project, perhaps much more than it would in the capacity of a consultant.

(Photo: RTS Power Corporation)

(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 — October 18, 2017 in Power Transmission 0
Protecting generators in this era of falling tariffs

Competitive bidding in the renewable energy space has never failed to surprise. Solar tariffs had their share of excitement with falling tariffs, and now it is the turn of wind energy. The very recent wind energy auction by SECI, its second, saw tariffs of Rs.2.64 per kwh, much lower than the Rs.3.46 per kwh seen in the first auction in February 2017, which by itself was an incredulous figure.

There are reports that NLC India (formerly Neyveli Lignite Corporation) encountered similarly surprisingly low quotes for its solar energy cum battery storage projects. Mahindra Susten (the renewable energy arm of Mahindra & Mahindra Group) has emerged the L1 bidder with a quote of Rs.298.8 crore for a 20-mw solar power project equipped with a battery storage system. NLC India was expecting quotes upward of Rs.500 crore and there were five bidders (including Adani Group, Sterling and Wilson, etc) that quoted below this benchmark figure.

Venugopal Pillai by — October 13, 2017 in Renewable Energy 0
The highs and lows of tariff-based competitive bidding

It is a matter of irony that while the country the celebrating the success of the tariff-based competitive bidding (TBCB) mechanism in the solar and wind energy sectors in terms of historically low tariffs quoted by developers, the same philosophy is creating turmoil in the conventional power generation and transmission industry.

According to reliable reports, the Supreme Court has disallowed any increase in tariffs from Tata Power’s 4,000-mw Mundra ultra mega power project (UMPP) to be passed on to beneficiary utilities. Tata Power in late 2006 had clinched the Mundra UMPP quoting a levelised tariff of Rs.2.26 per kwh during the 25-year concession period. The tariff quoted by Tata Power was based on long-term negotiated deals signed with Indonesian coal suppliers. However, Indonesia in 2010 ruled that coal cannot be exported at less than market price. The fuel cost for Tata Power shot up, rendering the tariff (of Rs.2.26 per kwh) simply unviable.

Two mega transmission schemes of Reliance Power (Anil Ambani Group) have been under litigation for quite some time now, on the same grounds. Reliance Power had won the North Karanpura and Talcher-II transmission schemes under the TBCB mechanism, back in 2009. Reliance Power has sought revision in tariffs as the company has alleged that work on the projects could not start on time due to non-timely pre-project clearances from the Union government. Reliance Power has sought 160 per cent increase in tariff for the North Karanpura project and 90 per cent in the case of Talcher-II. Beneficiary state utilities have contested this plea and the matter is still sub-judice. The next hearing of the Appellate Tribunal of Electricity (ATE), with whom the matter is now resting, is scheduled on July 12, 2017, for both these projects. Incidentally, Power Grid Corporation of India has stepped in and offered to take over the projects but on conventional “cost-plus” basis, and not under the tariff-based competitive route.

Selling stake

Coming back to the Mundra UMPP case, Tata Power has offered GUVNL 51 per cent stake in Coastal Gujarat Power Ltd (the 100 per cent Tata Power subsidiary that owns the Mundra UMPP) for just Re.1. This will result in CPGL relegating itself to an O&M contractor. GUVNL (Gujarat Urja Vikas Nigam Ltd) is the parent body of all power utilities in Gujarat. It is never going to be easy for power utilities to take over the project and sell power at Rs.2.26 per kwh. The project is designed to run on imported coal; domestic coal will be an inferior alternative from both technical and commercial standpoints.

Adani Power and Essar Power are also saddled with their projects – Mundra (4,620 mw) and Salaya (1,200 mw), respectively – that are based on imported (Indonesian) coal. Both the developers are finding it difficult to sell power at rates contracted in the power purchase agreements. [These projects do not technically fall under the TBCB mechanism but are based on long-term PPAs signed with beneficiary utilities. However, the impact of rising fuel costs on the commercial viability of the power generation asset is the same.]

Also read: Tariff-based bidding in wind energy to gain momentum

The TBCB mechanism has done wonders for the solar industry with tariffs falling to a historical and incredulous low of Rs.2.44 per kwh, as seen in the Bhadla-Phase III project in Rajasthan. Even in the recent 1-GW wind energy auction conducted by SECI, the winning tariffs have been around Rs.3.50 per kwh, much lower than the Rs.4-6 per kwh band seen in the feed-in tariff regime. The biggest advantage that solar and wind projects have is a complete insulation from the vagaries of fuel cost. Despite this, experts believe that such aggressive quotations have been submitted with an underlying desperation to bag projects. Solar developers have set up large teams but the flow of projects has not been much slower than anticipated.

What next?

Based on the cases under discussion, it appears that the TBCB regime is going through a rough patch. While the developer does his homework in quoting the winning tariff, there is always room for unexpected developments that can make financial calculations go awry. Agreed that developers fully subscribe to the project risk but what happens when a developer is confronted by a totally unanticipated situation that makes the tariffs unviable? This is more so considering that the concession periods are long—25 to 30 years. Although concession agreements provide for force majeure, not all eventualities can qualify.

The power projects of Tata, Adani and Essar under discussion are stuck in a policy logjam, and there is no easy way out. It is a tragedy that technically efficient power generation projects are becoming victims of commercial inefficiency.

The tariff-based competitive bidding mechanism, a sound philosophy of power procurement implemented in the country since January 2011, needs some rethinking. Right now, the Central government appears to be distancing itself as issue is strictly between the power generator, the procuring state government utilities, and the lending institutions. While this is understandable, the Centre could do well in reworking the nuances of the otherwise sound tariff-based competitive bidding mechanism, protecting the long-term interests of all stakeholders.

venu by — June 29, 2017 in Policy 0
Tariff-based bidding: A game changer for wind energy

 

In early 2011, it became mandatory for all power procurement to be made through the tariff-based competitive bidding (TBCB) mechanism. The TBCB philosophy ensures that the procurer of power gets the best possible tariff. There is no distinction between public or private sector suppliers of power. While much efficiency has been achieved through the TBCB modality in conventional power, the positive impact of TBCB is now being felt in the renewable sector as well.

venu by — February 15, 2017 in Renewable Energy 0