Coming at a time when an increasing number of private project developers in the power generation sector have threatened to go back on the tariffs they quoted during the competitive bidding stage, an embattled government is considering two key changes to the current format for awarding power projects.
Take a cue from the roads sector, the power ministry is looking to switch to a BOT (build-operate-transfer) model to offer future large-sized generation projects such as the 4,000 MW ultra mega power projects (UMPPs) to private developers under what is termed the ‘case II’ bidding route. The ‘case II’ model covers projects wherein the home state earmarks the land and specifies the fuel source prior to initiating the bidding process.
Under the proposal, being spearheaded by the Planning Commission, the selected developer would be required to offer the project awarded through the competitive bidding route (case II) at a pre-specified rate back to the home state after the 25-year concession period spanning the power purchase agreement comes to an end. For ‘case I’ projects, where the bids for selecting the electricity supplier are independent of the location of the project or fuel source, the extant BOO (build-own-operate) route would continue.
Besides, the other key revision planned in the current set of standard bidding documents (SBDs) is that bidding for new projects will be based on a single variable — the capacity charge or essentially the fixed-cost component — with the first year tariff quote essentially deciding who emerges the winner in the bidding process. This is as opposed to multiple biddable parameters in the current SBDs.
Also, the fuel cost is proposed to be made ‘pass-though’ and thereby is to be borne by the consumer. After the developer is selected through the bidding process, 20% of the tariff is to be indexed to inflation while the remaining 80% will have a pre-defined trajectory over the 25-year concession period.
The move is being seen as a via-media on the lines of projects set up by state-owned NTPC to ensure that private developers are insulated against uncertainty in the market and defaults arising from the vagaries of fuel risk.
If it passes muster, these two measure could lead to the possibility of an escalation in tariffs, as developers would try and recoup their entire investments and profits in the first 25 years of the project, instead of spreading it further over the life-span of a thermal project (generally 30-35 years). With fuel proposed to be made pass-through, this could also offer sufficient grounds for reopening the power purchase agreements (PPAs) of existing projects where developers have been hit by problems of higher than envisaged fuel prices.
The existing competitive bidding guidelines require developers — those bagging projects by quoting the lowest average (levelised) tariffs — to sign standard ministry-approved 25-year PPAs with distribution utilities. These guidelines for case II bidding, however, do not provide for any mechanism to insulate the developers from fuel price vagaries, even when these occur because of factors beyond their control.
Reliance Power had, midway through last year, stopped work on the 4,000 MW Krishnapatnam UMPP, claiming higher fuel costs on account of revised imported coal prices. Tata Power has also sought higher tariffs for its Mundra UMPP, citing higher cost of coal sourced from Indonesia.
Take a cue from the roads sector, the power ministry is looking to switch to a BOT (build-operate-transfer) model to offer future large-sized generation projects such as the 4,000 MW ultra mega power projects (UMPPs) to private developers under what is termed the ‘case II’ bidding route. The ‘case II’ model covers projects wherein the home state earmarks the land and specifies the fuel source prior to initiating the bidding process.
Under the proposal, being spearheaded by the Planning Commission, the selected developer would be required to offer the project awarded through the competitive bidding route (case II) at a pre-specified rate back to the home state after the 25-year concession period spanning the power purchase agreement comes to an end. For ‘case I’ projects, where the bids for selecting the electricity supplier are independent of the location of the project or fuel source, the extant BOO (build-own-operate) route would continue.
Besides, the other key revision planned in the current set of standard bidding documents (SBDs) is that bidding for new projects will be based on a single variable — the capacity charge or essentially the fixed-cost component — with the first year tariff quote essentially deciding who emerges the winner in the bidding process. This is as opposed to multiple biddable parameters in the current SBDs.
Also, the fuel cost is proposed to be made ‘pass-though’ and thereby is to be borne by the consumer. After the developer is selected through the bidding process, 20% of the tariff is to be indexed to inflation while the remaining 80% will have a pre-defined trajectory over the 25-year concession period.
The move is being seen as a via-media on the lines of projects set up by state-owned NTPC to ensure that private developers are insulated against uncertainty in the market and defaults arising from the vagaries of fuel risk.
If it passes muster, these two measure could lead to the possibility of an escalation in tariffs, as developers would try and recoup their entire investments and profits in the first 25 years of the project, instead of spreading it further over the life-span of a thermal project (generally 30-35 years). With fuel proposed to be made pass-through, this could also offer sufficient grounds for reopening the power purchase agreements (PPAs) of existing projects where developers have been hit by problems of higher than envisaged fuel prices.
The existing competitive bidding guidelines require developers — those bagging projects by quoting the lowest average (levelised) tariffs — to sign standard ministry-approved 25-year PPAs with distribution utilities. These guidelines for case II bidding, however, do not provide for any mechanism to insulate the developers from fuel price vagaries, even when these occur because of factors beyond their control.
Reliance Power had, midway through last year, stopped work on the 4,000 MW Krishnapatnam UMPP, claiming higher fuel costs on account of revised imported coal prices. Tata Power has also sought higher tariffs for its Mundra UMPP, citing higher cost of coal sourced from Indonesia.
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