State may make local power sales mandatory

May make it mandatory for independent power producers to sell 50% power within the state.

The Maharashtra government’s energy ministry wants to make it mandatory for independent power producers (IPPs) in the state to sell 50 per cent of the power generated by them within the state. The move follows a power shortage of 4,500-5,000 Mw that the state is facing, forcing power cuts of up to four hours in urban areas and 12 hours in rural areas.

The proposal has been sent to the state cabinet, which is likely to discuss it in its next meeting. If the proposal is accepted, it will apply to all 25 projects of IPPs whose combined capacity is expected to be around 35,000 Mw.

Energy ministry officials said they were alarmed after the lukewarm response to the bids invited by the state power distribution utility, Mahavitaran, for supply of 2,000 Mw from 2011 onwards. As the country is facing a huge power-shortage, IPPs can earn Rs 7-10 per unit if they sell power on a merchant basis and so are reluctant to enter into such agreements.

As power projects come under the infrastructure sector, the state government has been making land available to these projects on a priority and at confessional rates. The projects are also given preferential treatment in allotment of water. The state government also lobbies with the central government for coal linkage and environmental clearance to these projects.

Despite these sops, the power producers are reluctant to sign long-term power purchase agreements (PPAs) with the state power utility, according to a senior ministry official. He added that according to the proposal, selling to Mahavitaran would not be mandatory and the power producers would be able to sell to even a private distribution utility like Reliance Energy or a municipal power utility like BEST, both of whom supply power to Mumbai and its suburbs. The supply could also be to a large industrial plant or a special economic zone, he added.

It is expected the first 500 Mw unit of JSW Energy Ltd’s 1,200-Mw plant in the Ratnagiri district in the Konkan region will be the first one to become operational by the end of this year. This will be followed up by the Adani group’s 2,000-Mw project in Gondia district of Vidarbha in late 2010 or early 2011.