Name of the Program EMBA(Power Management)

Course Code: MDSP 812. Course Title: Power Pricing and Power Purchase Agreement. Max. Marks : 100

Assignment-1
This question paper has2pages.

Section-A (4x5 Marks)

1. What is the difference between Pure Bundling and Mixed Bundling? 2. Describe how the recommendations of K P Rao committee altered the Electricity Tariff structure in India. 3. What are the different components of Transmission Tariff?

4. What are the demerits of tariff determination through competitive bidding process?

Section-B (3x10 Marks)

1. What is ABT.?How is it different from earlier tariff regimes? 2. Describe the key features of a Power Purchase Agreement. 3. Describe how Electricity Act 2003 affected tariff regulation in India? Section-C (2x25 Marks) Read the following and answer the questions below. (2x25) Reliance Power has been selected as the developer for 4000 MW Krishnapattanam Ultra Mega Power Project through tariff based competitive bidding. This UMPP is based on imported coal. To win the bid (to emerge as lowest levelized tariff bidder), Reliance quoted 0% (zero) escalation on coal cost (variable charge component of tariff). During the 2-3 years after the bidding for Krishnapattanam, imported coal prices increased manifold and much beyond the estimation of Reliance. Krisnappattanam UMPP became financially unviable as per the term of current PPA which has zero escalation rate on coal cost as per the bid of Reliance power. Now, Reliance Power is dragging its feet and taking various pleas not to develop the project. Questions 1. In light of the Krishnapattanam experience, discuss the limitation of PPAs as an effective tool to facilitate the development of power sector in India. (25 marks) 2. In your opinion, is tariff based bidding appropriate method to select developers of power projects in India? (25 marks)

Name of the Program EMBA(Power Management)

Course Code: MDSP 812. Course Title: Power Pricing and Power Purchase Agreement. Max. Marks : 100

Assignment-2
This question paper has3pages.

Section-A (4x5 Marks)

1. What is rate of return based regulation of electricity tariff? 2. What is the stipulation of Electricity Act 2003 regarding subsidy? 3. What is electricity trading margin?

4. What is ARR for electricity distribution companies ?

Section-B (3x10 Marks)

1. Discuss the different components of electricity generation tariff? 2. Discuss distribution tariff regulation mechanism in India. 3. Describe tariff based competitive bidding process for electricity generation? Section-C (2x25 Marks) Read the following and answer the questions below. (2x25)

As per the rough estimates, ABC Gas Power Project has projected natural gas requirement of 70490 MMBTU per day (on NHV basis) for operation of both the gas turbines at their base load of 140 MW each. As against the said requirement, ABC Gas Power Project has been allocated 57215 MMBtu of natural gas on firm basis and 11566 MMBtu on fall back basis. The natural gas production in KG basin after achieving a peak production of 48 MMSCMD in April 2009 has been declining continuously for the past one year. As against 62 MMSCMD of natural gas production, 31 MMSCMD has been allocated to the power sector. As per the Fuel Supply Agreement, Gas Supplier is required to supply a minimum of 90% of the contracted quantity in a contract year. Further, as against this, ABC Gas Power project is required to consume 2,19,75,530 MMBtu of natural gas as minimum take or pay gas. In the event of ABC Gas Power project unable to consume the allocated quantity it is required to pay minimum take or pay charges for the quantity less consumed by the company. As per the terms of Gas Sale Purchase Agreement, the contract year commences on 1 st April every year and ends on 31st March. During the contract period 2009-10 as against the annual contracted quantity of 62,30,714 MMBtu, ABC consumed a quantity of 21,84,473 MMBtu leading to a short fall of 40,46,241 MMBTU. During the contract year 2009-10, ABC was unable to consume the entire allocated quantity due to delay in commencement of combined cycle operations. ABC curtained its power

generation activities as it was entitled for reimbursement of energy charges under the PPA @ 1850 per kcal/kwh as against the actual consumption of 2100 kcal/kwh under open cycle operations. Due to the above said factor, ABC consumed natural gas of 40,46,241 MMBTU less than the actual allocated quantity. After prolonged discussions with the fuel suppliers, ABC effected payment of Rs. 24.20 crores as settlement as against the original claim of RIL of Rs. 82 crores. The shortfall in quantity resulted mainly because of non-synchronization of steam turbine and restrictions placed on the reimbursement of energy charges under the PPA. The natural gas production in KG basin have been showing declining trend from the month of September 2010 onwards and the gas supplies have been restricted to the firmed contracts prescribed about 75% of the total requirement in the Fuel Supply Agreement. In view of insufficient gas supplies, RIL is not been able to supply the balance 25% quantity on fall back basis. The operations of ABC have been severely affected because of insufficient supplies by RIL from September 2010 onwards as against the commencement of commercial operations achieved in June 2010. The actual natural gas supplies were less than the 75% quantity during the period October 2010 March 2011. During the period the ABC was able to secure natural gas in the range of 68% - 73% only. Taking the adverse scenario into account, the MoPNG directed Gas Supplier to supply natural gas on priority basis to core industries like fertilizer, power etc. and further instructed RIL to curtail supplies to non-core industries like steel, refineries etc. The said action of MoPNG in April 2011 enabled ABC to receive full quantity of 75% of the allocated quantity. However, in view of the deteriorating natural gas production, ABC is not able to receive the full allocated quantity of 57215 MMBTU at all times and the supply of natural gas on fall back basis of about 11566 MMBTU is not effected upon by RIL. The irregular supply of natural gas in insufficient quantities to ABC has resulted in higher station heat rate of about 2500 kcal/kwh as against the prescribed sufficient heat rate of 1850 kcal/kwh under the PPA. As per the terms of PPA, ABC is entitled to receive reimbursement of energy charges on pass through basis only upto 1850 kcal/kwh and in excess energy consumed by the company results in lesser net cash revenue generation. ABC is required to deliver a minimum of 80% of installed capacity on availability basis to APDiscoms during each tariff year commencing from 1st July to every year. According to the Central Electricity Authoritys report on Operational performance of power plants in 2010-11, National Average PLF during the year 2010-11 was 66.15% of all the gas based power plants. During the tariff year 2010-11, ABC was able to deliver 2543.809 million units amounting to about 71% of PLF as against its requirement of supply of 3112.113 million units being 80% of the recognized installed capacity. ABC was not able to adhere to the requirement of 80% of the PLF due to inadequate gas supplies of 75% of the total requirement, higher station heat rate resulting because of partial load operations and non-receipt of adequate RLNG supplies

arranged by APDiscoms during the period April11 to June11 as a fall back option. In view of the non delivery of the contracted energy, APDiscoms recovered the excess payment of fixed charges amounting to about Rs.32 crores for the tariff year 2010-11. During the current tariff year 2011-12, ABC have supplied 761.64 million units of energy amounting to about 60% PLF for a period of 4 months ending 31st October 2011. In view of partial load operations of both the gas turbines of the company due to inadequate gas supplies, ABC has been incurring higher station heat rates than the amount reimbursed by APDiscoms under the PPA. As per the terms of PPA, ABC is entitled to receive reimbursement of energy charges @ 1850 kcal/kwh and is required to absorb the additional burden of fuel charges incurred by it as the same is not being reimbursed by APDiscoms. In such a scenario, ABC is incurring the under mentioned excess energy charges being met out of other revenues under the PPA.
Questions 1. Analyze the merits and demerits of PPA of ABC. (25 marks) 2. Suggest PPA stipulations that can take care of the situation like that of ABC? (25 marks)