Reverse auction for short term power to benefit discoms by 50-60 paise/unit: ICRA

This implies a decline by about 13% over the prevailing bilateral traded price level, says the ratings agency

The recent decision of the ministry of power to allow reverse auction for short term power procurement through e-bidding route would benefit the discoms and their end consumers, said ICRA in its latest report.

The credit rating agency said the average traded bilateral price level across India would come down by 50-60 paise/unit. "This implies a decline by about 13 per cent over the prevailing bilateral traded price level", said Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.

Read more from our special coverage on "ICRA"

• Challenges persist for construction sector and recovery may be delayed due to sharp fall in commodity prices: ICRA
• Data boom to drive spectrum demand: ICRA
• Indian economy to grow 7.7% in 2016-17: ICRA
• Three-wheeler volumes expected to rise 10% in FY17: ICRA report
• ICRA reduces outlook of banks

In its recently amended guidelines for procurement of power by distribution utilities (or the discoms) on short term basis (for a period of up to one year) through a competitive bidding route, the ministry of power said such procurement would be done on an electronic platform based reverse auction system. The same is effective from April 1, 2016,

"Under assumption of cost-plus tariffs for discoms and a 10.5% share of short-term traded power (based on trends in the last 5-6 years) in the total procurement mix , this is estimated to provide a relief in the average retail supply tariff by about 4-5 paise per unit (or 0.8%) for end consumers of discoms on all India basis," said ICRA.

It also said the benefits would be higher for discoms which have relatively higher dependence on short term power, especially the ones in southern India.

The share of short-term based power transactions in the overall electricity generation in the country has been in the range of 10-11% over the past 5-6 years. In terms of mix of short-term traded power, bilateral route based traded power continued to have the highest share in the range of 52-53% followed by power exchange transactions (29%) and remaining accounted by deviation settlement. The higher share of bilateral based transactions can be attributed to the certainty of supply and tariff rates for the discoms.

"While the reverse auction based procurement of short term power is beneficial for discoms, in our view it is a negative for power generation capacity, which sell a substantial part of their output through bilateral short term PPA contracts. This is primarily because of our expectation of moderation in bilateral tariff," Majumdar said.