Govt working on centralised bidding to reduce cost of electricity

Power purchase to be eased for states; fixed cost to be reduced for assured offtake, demand-supply to be aggregated

A novel idea is in the works to enhance power procurement by states through reducing the cost of electricity.

New centralised bidding will be held and quotations for lump sum tariffs will be invited from power developers. This will also involve power aggregation and disbursement in accordance with cost and the demand from states.

Tariffs will have to be quoted with a “very nominal” fixed-cost portion. Power developers would bid against the cap on fixed cost, said officials. 

Tariffs for coal-based power plants consist of “fixed cost” and “variable cost”. Fixed cost is the capital cost of the power plant and variable cost comprises the cost of fuel, transportation, etc. 

When a state has a power purchase agreement (PPA) with a developer, it has to pay the fixed charge even when not procuring power.

“Most states are not issuing any PPAs as they are supposed to pay the fixed cost even when no power supply is scheduled. This was hitting their already languishing power distribution companies (discoms). The idea now is to reduce the fixed cost so that the impact on the discoms’ finances is minimal,” said a senior official.

The government will also set up a power aggregator, which will call tenders and collate bids. It will disburse power to states wishing to procure this “low fixed-cost” electricity.

Sources said state-owned Power Trading Corporation (PTC) would be the aggregator and Power Finance Corporation (PFC) was drafting the bid document. 

Among other criteria is that the plant should have a steady supply of coal, whether through linkage, associated coal blocks, or imported coal. “This bidding is not just for stressed assets. It is for any plant that has unutilised power. Power developers need to offer discounts on fixed cost,” said the official. 

The industry, however, is expecting a minimum offtake written into the bid document. “There also needs to be clarity on how the government decides on the power dispatch, which depends on energy cost,” said a senior industry executive. He added it needed to be seen how power developers would forego the fixed cost. “It could be by foregoing return on equity or reducing debt through various restructuring mechanisms. But the scheme does offer an opportunity to the sector,” said the executive.

In the past five years, there has been no fresh PPA issued by any state barring Kerala and Uttar Pradesh. UP later cancelled the PPAs it signed. Plants with a capacity of close to 105,000 MW are classified as stressed assets due to either a lack of fuel supply or PPA or both.

“We welcome the scheme being formulated by the power ministry to provide off-take contracts to stranded projects. To avoid any surprises and ensure its smooth operationalisation, stakeholder consultation is imperative once the scheme’s broad contours are established,” said A K Khurana, director general, Association of Power Producers (APP).

Recently, the Union government, under the new SHAKTI scheme, offered long-term coal linkages to plants that have PPAs if they quoted discounts on tariffs. After the first bidding, wherein private players quoted discounts in the range of one-four paise per unit, units of 10,000 MW would get assured coal supplies. 

Last month, NTPC issued a tender to purchase stressed power units through reverse bidding.