While the government has accepted the Suresh Prabhu panel’s proposal to revisit the earlier Case-II bidding criteria for power projects with the key change of allowing fuel cost pass-through, it may retain the revised Case-I norms for plants that entail relatively higher risk, official sources said.
The rationale behind the different approaches to the two revised set of norms — both prepared by former Planning Commission advisor Gajendra Haldea — is that risk mitigation is embedded in the revised Case-I norms in the form of unrestricted escalation of the tariff discovered via auction, based on an index comprising inflation and debt reduction. The revised Case-II norms, on the other hand, not only require the operator to transfer the plant to the state government after the contract life — usually 20-25 years — but also provide for a cap on fuel cost that can be transmitted.
As far as the government is concerned, what gave more credence to Haldea’s Case-I norms is the Kerala State Electricity Board (KSEB), which pioneered a tariff bid that is a quarter less than the (pre-revision) levellised tariffs for such plants found by Tamil Nadu, Uttar Pradesh and Rajasthan in the immediate past instances. Of course, it needs to be reckoned that the earlier cases were of average levellised tariff for a 25-year power purchase agreement whereas KSEB’s tariff is for the first year, which will be used as the base for determining tariff for the subsequent year as per the escalation index of the Central Electricity Regulatory Authority (CERC).
For starters, under the bidding route for securing PPAs, a procurer has the options of Case-I and Case-II. As for Case-I fuel type, sources and the plant location are left to the developer to decide on/arrange for, meaning the majority of the risk is with him while in a Case-II bidding scenario, resources such as land, fuel and water linkages are identified and, in some cases, also provided to the developer by the government.
KSEB discovered a first-year weighted tariff of Rs 4.11 per unit for 865 MW of contracted capacity for a period of 25 years. Of course, the fixed cost component of the tariff at 70% is much higher than 30-40% in case of earlier Case I plants, but a Kerala government official defended this, saying the fixed cost in this instance consisted of transmission charges and transmission losses. “In the earlier Case-I bidding, the generator could bear the transmission charges under either fixed cost or variable cost,” the state government official said.
Explaining the rationale behind declaring the bid process a success despite higher fixed costs, the official said: “After accounting for these additional costs, which the procurer has to eventually bear in any case, the actual fixed cost recovered by the generator appears to be reasonable. Moreover, even though the bidder is loading these costs in the fixed charges, the same enables hassle-free bid evaluation, since the procurer can directly compare the delivered price of electricity.”
The revised Case-II bidding norms, however, have not mirrored that of Case I and may now be put in cold storage. “We have received several complaints regarding certain clauses of Case-II bidding norms, especially the restrictions they impose on securing finance for such projects.
However, no such complaints have been recorded for Case-I norms”, Piyush Goyal, power and coal minister, told the media while announcing scrapping of the bidding process for two UMPPs.
Private power producers, however, are slightly wary of revised Case-I norms despite their evident success in Kerala, and want it to be revisited.
“We are preoccupied with several other pressing issues and haven’t registered our disapproval of the revised Case-I bidding to the ministry. But most of the independent power producers are not happy with it. Even in case of Kerala, the comparison is being done between first-year tariff and levelised tariff over 25 years discovered by other states. The tariff for Kerala will see an upward tick for subsequent years,” a private power producer said on condition of anonymity.
Private developers had petitioned the power ministry that the DBFOT (design-build-finance-operate-transfer) model for UMMPs, as per the revised case II guidelines, was not ideal for such projects as lenders found it difficult to provide loans against projects that the developers did not own.
The petition urged the ministry to go back to the earlier build-operate-own (BOO) norm, which was used for bidding out UMPPs before. This view was also echoed by the Prabhu panel.
The rationale behind the different approaches to the two revised set of norms — both prepared by former Planning Commission advisor Gajendra Haldea — is that risk mitigation is embedded in the revised Case-I norms in the form of unrestricted escalation of the tariff discovered via auction, based on an index comprising inflation and debt reduction. The revised Case-II norms, on the other hand, not only require the operator to transfer the plant to the state government after the contract life — usually 20-25 years — but also provide for a cap on fuel cost that can be transmitted.
As far as the government is concerned, what gave more credence to Haldea’s Case-I norms is the Kerala State Electricity Board (KSEB), which pioneered a tariff bid that is a quarter less than the (pre-revision) levellised tariffs for such plants found by Tamil Nadu, Uttar Pradesh and Rajasthan in the immediate past instances. Of course, it needs to be reckoned that the earlier cases were of average levellised tariff for a 25-year power purchase agreement whereas KSEB’s tariff is for the first year, which will be used as the base for determining tariff for the subsequent year as per the escalation index of the Central Electricity Regulatory Authority (CERC).
For starters, under the bidding route for securing PPAs, a procurer has the options of Case-I and Case-II. As for Case-I fuel type, sources and the plant location are left to the developer to decide on/arrange for, meaning the majority of the risk is with him while in a Case-II bidding scenario, resources such as land, fuel and water linkages are identified and, in some cases, also provided to the developer by the government.
KSEB discovered a first-year weighted tariff of Rs 4.11 per unit for 865 MW of contracted capacity for a period of 25 years. Of course, the fixed cost component of the tariff at 70% is much higher than 30-40% in case of earlier Case I plants, but a Kerala government official defended this, saying the fixed cost in this instance consisted of transmission charges and transmission losses. “In the earlier Case-I bidding, the generator could bear the transmission charges under either fixed cost or variable cost,” the state government official said.
Explaining the rationale behind declaring the bid process a success despite higher fixed costs, the official said: “After accounting for these additional costs, which the procurer has to eventually bear in any case, the actual fixed cost recovered by the generator appears to be reasonable. Moreover, even though the bidder is loading these costs in the fixed charges, the same enables hassle-free bid evaluation, since the procurer can directly compare the delivered price of electricity.”
The revised Case-II bidding norms, however, have not mirrored that of Case I and may now be put in cold storage. “We have received several complaints regarding certain clauses of Case-II bidding norms, especially the restrictions they impose on securing finance for such projects.
However, no such complaints have been recorded for Case-I norms”, Piyush Goyal, power and coal minister, told the media while announcing scrapping of the bidding process for two UMPPs.
Private power producers, however, are slightly wary of revised Case-I norms despite their evident success in Kerala, and want it to be revisited.
“We are preoccupied with several other pressing issues and haven’t registered our disapproval of the revised Case-I bidding to the ministry. But most of the independent power producers are not happy with it. Even in case of Kerala, the comparison is being done between first-year tariff and levelised tariff over 25 years discovered by other states. The tariff for Kerala will see an upward tick for subsequent years,” a private power producer said on condition of anonymity.
Private developers had petitioned the power ministry that the DBFOT (design-build-finance-operate-transfer) model for UMMPs, as per the revised case II guidelines, was not ideal for such projects as lenders found it difficult to provide loans against projects that the developers did not own.
The petition urged the ministry to go back to the earlier build-operate-own (BOO) norm, which was used for bidding out UMPPs before. This view was also echoed by the Prabhu panel.
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