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NOT FOR SALE

JUNE 2015

Quarterly Journal from PTC India Limited

JUNE 2015 | PTC INDIA LIMITED | 1

2 | PTCHRONICLE | JUNE 2015

Economic growth and urbanization has factored increase


in power demand surpassing the power supply potential
of the country. To garner efficiencies in the market,
amendment to Electricity Act 2003 is proposed to
encourage competition in serving consumers. Also, with
the government increasing the pre-envisaged renewable
energy generation targets, the objective of effective
utilization of renewable sources is clear and augmented.
Coal block auctioning, subsidizing imported gas prices
to augment gas based power generation for stranded
gas-based capacities, and governments endeavor to
strengthen ties with energy-rich nations - all aim towards
improving energy security in Asian energy corridor.

Chief Editor
Harish Saran

Editorial Team

Sneh Daheriya
Shashank Gupta
Saurabh Kaura
Raghuram C. Soragavi
Parvesh Sharma
Lavjit Singh
Shruti Rai
Surinder Sharma

Editorial Address:

PTC India Ltd., 2nd Floor, NBCC Tower, 15, Bhikaji Cama
Place, New Delhi 110066
PTChronicle takes no responsibility in case of any
unsolicited photographs or material.
PTChronicle journal is the property of PTC India Ltd. No part
of this publication or any part of the contents thereof may
be reproduced, stored in a retrieval system, or transmitted in
any form without the written permission from PTC India Ltd.

Design & Printing by:


Colour Bar Communications, New Delhi

The edition of PTChronicle allows deliberations and


knowledge sharing on issues related to power sector with
various important stakeholders. With 267 GW of installed
capacity, India is the 5th largest electricity market globally,
a quantum leap from 10th position a decade ago. Led
by the growth in industries and urbanization, demand for
power has surpassed the supply and the country is facing
energy and peak deficits. Understanding the need for
reforms to cater to the growing demands of electricity as
well as incentivizing investments into the sector, Electricity
Act 2003 was enacted a decade ago which delicensed
power generation, recognized power trading and provided
open access to transmission and distribution system. To
take a step further, the proposed Electricity Amendment
Act further brings competition into the retail consumer level
and emphasizes the need to set up renewable energy
projects.
This 12th edition of PTChronicle deliberates on several
issues regarding the changing business scenarios,
challenges being faced for the renewable capacity
addition with specific focus on solar power, expectations
for coal block auctioning process, South Asia regional
power market and investment opportunities, challenges
and opportunities in the short term bilateral markets, need
for strengthening of regulators for market evolution, and
UK experience in retail electricity market.
We hope the edition is valued by its readers, and we
continue to deliberate on issues and developments
relevant to the growth of the power market.

Deepak Amitabh

Chairman & Managing Director

PTC India Limited


JUNE 2015 | PTC INDIA LIMITED | 3

FOREWORD

From the
Chairmans Desk

initiate your green footprint


Facilitating Obligated & Voluntary Consumers in Purchase of RECs,
Facilitating RE Generators in Issuance and Redemption of RECs,
Green Solutions for Renewable Energy Portfolio

PTC Retail
A Strategic Business Unit of PTC India

2nd Floor, NBCC Tower, 15 Bhikaji Cama Place,


New Delhi - 110066 Tel.: 011-41659500, Fax: 011-41659126
E-mail: marketing@ptcindia.com Website: www.ptcindia.com

4 | PTCHRONICLE | JUNE 2015

Editorial
T

he pace at which the Indian power market is exhibiting the inherent dynamism across the value chain needs to be
appreciated. Coal block auctioning and allocation of coal blocks, implementation of National Transmission Asset
Management Centre for transmission planning, introduction and planning of separation of content and carriage, a move
embarking on increasing competition in retail power supply and delivering value to end consumers, revision and increase
of renewable energy targets to 175000 MW by 2022 based on growth in India's environmental stewardship, all expressing
clearly the potential and future growth story of the sector.
The key to sustainability will prove to be continuing reforms to address inefficiencies and irregularities in the sector,
and successful implementation of the same. This edition of PTChronicle will deliberate on the multifarious power sector
developments, and regional power markets in South Asia aimed towards improving synergies and resource mobilization
in the sub-continent.
Power trading has been a subject of discussion right from the very first day of its existence. There have been various
impediments for the growth of the power trading in the Indian Power Sector. Bottlenecks being experienced are issues
related to creditworthiness of the distribution utilities, open access restrictions, fuel shortage and transmission congestion.
The evolving policy framework for reforms in the sector are expected to create solutions to these bottlenecks gradually.
Aggregation and disaggregation of contracts as envisaged by CERC in its staff paper may open up new avenues for the
short term bilateral markets however, the collective open access provisions for such transactions similar to power exchange
will be needed for effective implementation of aggregation and disaggregation.
We thank you for your continued support and solicit your suggestions to make PTChronicle more enriched with each
edition.

Harish Saran

Executive Director

PTC India Limited

JUNE 2015 | PTC INDIA LIMITED | 5

C O N T E N T

INDIAN POWER MARKET IMPROVING BUSINESS PARADIGM


Deepak Amitabh

MARKET WATCH

28

CMD, PTC India Limited

THE PTC TIMES


CURRENT UPDATES - POWER SECTOR

CHALLENGES OF SOLAR
POWER - GRID PARITY
Dr. Rajib K. Mishra

12

POWER SUPPLY POSITION

PLANNING FOR GRID


STABILITY - SOLAR PV
Vijay Bisht

20

30

32

Director (BD & Marketing)


PTC India Limited

Executive VP,
PTC India Financial Services Ltd.

SOUTH ASIA - ENABLING


A SUCCESSFUL
REGIONAL POWER MARKET
Harish Saran

SHORT TERM BILATERAL


MARKET - CHALLENGES & OPPORTUNITIES
Md. Zeyauddin

22

AVP, PTC India Limited

Executive Director,
PTC India Limited

Your feedback is valuable to us. Kindly share them at marketing@ptcindia.com


6 | PTCHRONICLE | JUNE 2015

36

COAL MINES AUCTION NEED FOR TANGIBLE SUCCESS


Arpit Agarwal

POLICY INSTRUMENTS FOR


RENEWABLE ENERGY - EFFICACY ANALYSIS
Sapan Thapar

38

Manager, PTC India Limited

RETAIL ELECTRICITY
MARKET - UK EXPERIENCE
Sneh Daheriya

48

Faculty, TERI

42

AVP, PTC India Limited

STRENGTHENING OF REGULATORS A MUST FOR MARKET EVOLUTION


Manan Thaper

44

Sr. Manager, Price Waterhouse Coopers

APPLICATION OF ARBITRATION CLAUSE IN POWER PURCHASE AGREEMENTS


R. D. Gupta

46

Ex Director, Commercial, NTPC &


Ex Member, UPERC

All the contents of PTChronicle are only for general information and/or use. Such contents do not constitute advice and should not be relied upon
in making (or refraining from making) any decision. Any specific advice or replies to queries in any part of the journal is/are the personal opinion of
such experts/consultants/persons and are not subscribed to by PTC India. PTChronicle has employed due care and caution in compilation of data
for preparing this journal. The information or data of photographs have been compiled from various sources including newspapers, websites, etc.
PTChronicle does not guarantee the accuracy, adequacy or completeness of any data/information that was furnished by external reports and is not
responsible for any error or omission or for the results obtained from the use of such data/ information.

JUNE 2015 | PTC INDIA LIMITED | 7

CMD Speaks

Deepak Amitabh
Chairman & Managing Director, PTC Group

INDIAN POWER MARKET


IMPROVING BUSINESS PARADIGM

8 | PTCHRONICLE | JUNE 2015

ndia - The 10th largest economy in the world


by nominal GDP and 3rd largest by Purchasing
Power Parity to have an annual growth rate of 7.4%
in 2014-15 and as per the IMF forecast the same
would grow by 7.5% in FY 2015-16. Union Budget
has pegged GDP growth at 8-8.5% in 2015-16.
As per World Bank, India is on course to overtake
China to claim the position as the world's
fastest growing economy in the next two years.
Implementation has stepped up during the fourth
quarter, supported by opening up of the coal
industry to private investors, deregulation of diesel
prices to reduce the fiscal subsidy bill, relaxation
of labor market laws, and linking of cash transfers
with efforts to increase financial inclusion.
The power sector in India has witnessed credible
growth in the last financial year meeting the targets
for energy generation growth (achievement of 8%
growth viz-a-viz 5.77% targeted growth), capacity
addition exceeding the targets (installation of
22566 MW as compared to target of 17830
MW in FY 2014-15), successful auctioning and
allocation of a number of coal blocks. However,
lower PLF, poor financial health of discoms, high
peak power deficit, stranded generation capacity
and transmission congestion are still a matter
of concern. As on 31st March, 2015, country's
installed capacity stood at 267.6 GW with Coal
based capacity at 164.6 GW, Gas based at 23
GW, Nuclear at 5.78 GW, Hydro at 41.2 GW and
renewables at 31.7 GW. In renewables, Small
Hydro capacity is at 3.8 GW, Wind at 21 GW,
Biomass at 4 GW, Waste to Energy at 0.1 GW and
solar installed capacity is 2.63 GW. Addition of
22101 ckt km transmission lines till March 2015 has
created better transmission availability and should
boost the power market which was struggling from
transmission congestion. Per capita consumption
of electricity in the country is 957 which is one of
the lowest in the world.
The cause of worry is low PLF due to fuel shortage,
transmission constraints, payment issues from
discoms and plant inefficiencies. All India PLF was
around 66% - Coal projects running at 65%, and
Gas based at 21%. Central Sector coal projects
had higher PLF of 75% as compared to Private
sector projects (IPP -61% and private utilities
69%). State sector coal projects PLF are lowest at
59%. There is a need to relook at the plants which

JUNE 2015 | PTC INDIA LIMITED | 9

are highly inefficient as they are blocking other required infrastructure


as well, which may be available to other projects if the highly inefficient
plants are discontinued.
Coal Auctioning of 33 blocks (out of which 5 mines from Schedule II
and 4 from Schedule III mines have been earmarked for power sector)
has taken place. Further, out of 42 mines earmarked for allotment
to power sector, 26 mines have been allotted to Central and State
Govt companies for power sector usage. Government is expecting
coal auction proceeds to be more than two lakh crore rupees which
include e-auction proceeds, royalty and upfront payment. There have
been few disputes and obstacles in the transition phase, such as
compensation to prior allottees, issues related to low bidding price in
some bids, etc. Despite few issues, the opening up of the coal mining
to the private companies is a historical development in the country
and is expected to bring in transparency, higher efficiency and pace
in the mining sector and mitigate fuel shortage issues to the power
projects.

There is a need to relook


at the plants which are
highly inefficient as
they are blocking other
required infrastructure
as well, which may be
available to other projects
if the highly inefficient
plants are discontinued.

10 | PTCHRONICLE | JUNE 2015

As far as power market is concerned, out of total electricity generation,


around 9.5% is transacted through Short term. Bilateral contracts
through traders, term ahead contracts in the power exchanges and
directly between discoms constitute around 5%, day ahead collective
transactions on power exchanges is around 2.5% and around 2% is
through Unscheduled Interchange (UI). There is a need to introduce
ancillary market to reduce the UI volume to bring in stability and grid
security in the system. Ancillary market is in a position to supplement
the renewable energy market. CERC had issued a staff paper on
introducing ancillary services in the Indian electricity market which
talked about introduction of Frequency Support Ancillary Services,
Voltage Control Ancillary Services and Black Start Ancillary Services.
For optimum ancillary services procurement, load generation balance
forecasting at national and regional grid levels as well as state grid
level is essential. CERC has also recently issued draft (Ancillary
Services Operations) Regulations, 2015 for creating ancillary market
in the country.
Prices of the electricity in short term transactions through traders
were ~4.33 /kWh in the month of March, 15 and the prices in the day
ahead market varied from minimum of Rs 0.5 to Rs 15/kWh with an
average price of Rs 2.87/kWh. Initially, when the short term market
was under development stage say in year 2005-2008, the short term
rates were higher than the long term rates, however, in last few years,
short term rates are lower than the long term power procurement
rates. Higher rates provided incentive for setting up of power projects
and capacity addition at a fast pace creating more surplus power in
the market, making it a buyer's market. Loss making discoms are
finding it difficult to buy short term power at a higher rate and tend to
opt for power cut, resulting in tilting the market more towards buyers.
Southern region having transmission constraints and less merchant
capacity is factoring increase in the prices in the region. However, as
transmission connectivity gets strengthened with other regions in the
country, this anomaly is expected to reduce.

Government is working on a mission to achieve


electrification of remaining 20,000 villages by 2020
through measures like off-grid solar power generation.
The aim is to extend 24 hour power supply to each house
by 2022: 75th year of Independence. Capacity addition for
both thermal and renewable energy has been planned to
achieve this target along with distribution reforms. Setting
up of 5 Ultra Mega Power Projects has been announced
in the Union Budget for FY 2015-16 on plug and play
model. All the clearances and linkages will be in place
before the projects are awarded by a transparent auction
system, promising an improving business environment.

Renewable Energy is expected

MNRE has revised its target of renewable energy capacity


to 175,000 MW till 2022, comprising 100,000 MW of Solar,
60,000 MW of Wind, 10,000 MW of Biomass and 5,000
MW of Small Hydro. Excise duty exemptions have been
announced on certain equipments for wind and solar
plants. Additional depreciation @ 20% is allowed on new
plant and machinery installed by a manufacturing unit or
a unit engaged in generation and distribution of power.
The effective rate of Clean Energy Cess on coal, lignite
and peat is being increased from Rs 100 per tonne to Rs
200 per tonne with the scheduled rate being increased
from Rs 100/ tonne to Rs 300/tonne. Increase in clean
energy cess on coal/lignite by Rs 100/tonne though will
be passed on to customers automatically under current
PPAs, indicating that players with significant merchant
power exposure will get adversely impacted with this
provision.

renewable energy are essential.

Electricity amendments are with the Parliamentary


Standing Committee on Energy, which invited public
comment allowing various stakeholders and institutions to
provide their comments. Renewable energy generation of
at-least 10% of thermal generation capacity is envisaged.
However, there is a need to formulate guidelines clearly
outlining the mechanism of absorption of such renewable
energy.
The Government is also planning to introduce provisions
for reducing cross subsidy surcharge. As the amendment
will encourage competition in supply of power to retail
consumers through separation of carriage and content, it
is imperative to progressively reduce and eliminate cross
subsidy surcharge in a definitive timeline for success of
this model.
The experience of competitive bidding in the country shows
that more than half of the projects have quoted tariffs that
would make these projects unviable. Therefore multiple
regulatory forums are currently engaged in resolving
disputes / issues in the nature of `Compensatory Tariff
Mechanisms'. The expected benefit of attractive tariffs

to be the future of power sector.


However, grid connectivity and
availability, ancillary services
and creation of market for

through competitive bidding is misplaced at the current


stage of the evolution of India's power industry, as we
are still coping with the base level issues of discovering
latent demand, finding means to fulfill the demand
through physical delivery of electrical energy, resolving
transmission and sub-transmission capacity bottlenecks
and making Utilities accountable for minimum service
level obligations. Price discovery through competitive
bidding in the current scenario is unlikely to be efficient
due to the structural weaknesses in the market, and
regulatory determination of tariff would be the primary
route to ensure consumer protection. Therefore, both
cost plus and competitive bidding should co-exist, and
clarity should be brought in provisions of Section 62 and
63 allowing a licensee to procure power.
Renewable Energy is expected to be the future of power
sector. However, grid connectivity and availability, ancillary
services and creation of market for renewable energy
are essential. Innovative solutions are being thought of
to make renewable energy competitive as compared to
the conventional energy, such as dollar tariff for solar
power, making net metering a part of the Electricity Act,
etc. There is also a need to strengthen REC market.
Enabling alternative markets such as bilateral trade of
RECs through traders may help creating more liquidity in
the REC market.
The developments in the power sector at policy level are
opening up many opportunities for investment in particular
coal mining, supply to retail consumers and development
of renewable energy projects. It is the collective efforts of
all the stakeholders viz Government, Regulatory bodies,
developers, traders, transmission entities, financial
institutions and consumers to create sustainable growth
and higher efficiency levels in the sector.
JUNE 2015 | PTC INDIA LIMITED | 11

HIGHLIGHTS
AP TO ADD OVER
1000 MW WIND
ENERGY PROJECTS
THIS FISCAL

RENEWABLE POWER TO NEED RS 12


LAKH CR INVESTMENT IN 5-7 YRS: PFS

n an interview with CNBC-TV18's Anuj Singhal and Ekta


Batra, RM Malla, the then Managing Director and CEO
of PTC India Financial Services, outlined developments in
the renewable power space.
The MD said that with solar costs coming down, as well
as with the government's renewed focus on alternative
sources of energy, the market was staring at an investment
of about Rs 12 lakh crore in the next five-seven years.

ddressing
a
press
conference
Ajay Jain,
Secretary, Energy, Andhra
Pradesh, said, Even though
the 'Power for All' scheme had
projected a capacity addition
of 800 MW through wind
farms in the State, we expect to
augment additional capacity
of 1000 MW this fiscal.
The State is planning to install
about 6,500 solar pump sets
during the year supported
by the Central Government
(MNRE
scheme)
and
funding from Power Finance
Corporation. The beneficiaries
are now being identified, he
said.

RENEWABLE ENERGY
GOALS MAY SLIP ON
FUNDING GAPS

oncerns are beginning to be raised


over India's ambitious targets
to crank up solar and wind energy
production, thanks to the perilous
finances at the primary customers: the
state government-owned distribution
utilities.
The inability of these utilities to effect
necessary but unpopular tariff hikes
are expected to impact their ability
to purchase costlier green power. In
consequence, the entire renewable
energy industry may add only 4,0005,000 MW of capacity in the second
year of the NDA government, the head
of an industry panel on renewable
energy said. That compares with the
official target to install 100 gigawatts
(GW) solar power and 60,000MW wind
power by 2022.

12 | PTCHRONICLE | JUNE 2015

THE PTC TIMES


SOLAR POWER COST TO COME DOWN
TO RS 4.50/UNIT BY DECEMBER 2015

GOVERNMENT AIMS TO
MAKE GURGAON A SMART
CITY IN SIX MONTHS

he government aims to turn


Gurgaon into a so-called smart city
by the end of this year and wants it to
be a model for other such projects in
the rest of the country, energy minister
Piyush Goyal said in an international
conference, Gridtech 2015, organized
by Power Grid Corporation of India
Limited (PGCIL).

entre is working on innovative measures which will help in cutting down


the cost of solar power by 25-35 per cent to Rs 4.50 per unit by December
2015 Power, Coal and New and Renewable Energy Minister, Mr. Piyush Goyal
said.
At present, solar power tariff is about Rs 6-7 per unit. "We are looking at bringing
in innovative financing solutions and improve the counter party risk and bring
down the cost of solar and wind energy," he added.

The National Democratic Alliance


(NDA) government had last year
declared its mission to create 100 smart
cities with better technology, superior
management and modern governance.
The project is likely to be rolled out
after extensive consultations with
stakeholders.

COAL INDIA, NTPC BURY THE HATCHET OVER FUEL SAMPLING

ational miner Coal India and state-run power


producer NTPC have agreed to end their dispute on
coal sampling, an outcome that could be related to having a
common minister for power and coal.
For nearly two years, NTPC led a pack of state-owned
utilities in demanding that fuel sampling be held at the
plant-end, even as CIL refused to grant utilities such a
liberty.
Both sides now agree by ironing out differences on a new
mechanism that involves independent testing laboratories.
According to the new sampling method, which came into
effect in September 2014, both buyer and seller are expected
to appoint 'independent' agencies (from a list of empanelled
vendors), which will collect samples jointly but test them
separately.
In case of a discrepancy between two results, a third sample
(separated during joint collection of samples) will play
decider.
JUNE 2015 | PTC INDIA LIMITED | 13

HIGHLIGHTS
AN E-EYE ON NETWORK

he
state-owned
power
transmission
behemoth Power Grid Corporation (PGCIL)
is in the final stages of implementing the National
Transmission Asset Management Centre
(NTAMC) project, a system that would give the
company a bird's eye view of its vast network
spread across the country and help resolve
technical issues quickly.

NITI AAYOG
MAKING A
BLUEPRINT TO
TACKLE INDIA'S
ENERGY WOES

ndia has started


work on a plan to
ensure energy security
that's being shaped by
a group at the newly
established NITI Aayog
think tank, Energy
Minister Piyush Goyal
said.
The NDA government
is looking to supply
adequate power at
affordable prices and
double
electricity
generation
capacity
to two trillion units
by
2019,
Goyal
told delegates at a
conference organized
by the CII, a lobby
group. NITI Aayog
has set up a group
which is now looking
at energy security plans
for the next 100 years,
Mr. Goyal said.
The govt has also put
special focus on the
importance of energy
diplomacy, specifically
with
reference
to
building
India's
relationship with the
energy-rich regions of
West Asia, Central Asia
and the South Asian
energy corridor.

14 | PTCHRONICLE | JUNE 2015

To manage and control such a vast network,


we decided, around three years back, that
information technology should be leveraged to
maximise efficiency, bring about transparency
in operations and optimise utilisation of the
assets that are spread across the country. This
resulted in the conceptualisation of the National
Transmission Asset Management Centre (NTAMC) project, a PGCIL official told.
The project will eventually have national level control centres at Manesar in addition to nine
regional control centres that will remotely operate 192 sub-stations of the firm and manage
assets. All the sub-stations and assets will have visibility through close circuit cameras with video
analytics.
The system will provide experts sitting at different location access to theintelligent electronic
devices (IEDs) for fault analysis and speedy decision-making even for assets that are located in
far flung areas. The system will have facility for automatic fault analysis, making it possible for
us to sort out issues in a coordinated manner, the official said.

L&T BAGS ` 5,580-CRORE ORDER FROM


NTPC FOR THERMAL POWER PROJECT

arsen & Toubro (L&T) has secured a


turnkey order from NTPC for setting
up a 2x660 MW greenfield thermal
power plant in Khargone district of
Madhya Pradesh on EPC (engineering,
procurement and construction) basis a
statement by the L&T. It further says Valued at over Rs 5,580 crore, the project
entails design, engineering, manufacture,
supply, erection and commissioning of
two coal-fired thermal units of 660 MW
each with ultra-supercritical (energy
efficient) parameters.
Earlier, L&T, through its joint venture
company L&T-MHPS Boilers Private
Limited, had secured an order worth Rs
1,885 crore from NTPC, in September
2014, for setting up two units of 660
MW each supercritical steam generators
for Tanda thermal power plant in Uttar
Pradesh.
L&T-MHPS Boilers Private Limited is a
joint venture between L&T and Japan's
Mitsubishi Hitachi Power Systems.

THE PTC TIMES


Centre gains leverage with coal auction windfall for states
Coal Ministry
removes cap
on Coal
India's eauction sales

oal India Ltd. (CIL)


was at loggerheads
with the coal ministry
around six months
ago over the latter's
directive to halve its
lucrative
e-auction
volumes. It finally
settled for keeping its
e-auction sales to seven
per cent of the total
sales.

ix coal-rich states are set to reap a bonanza from coal-field auctions in the form of upfront
payments, revenue and royalty, the promise of which may have spurred the ruling parties
of Odisha and West Bengal to break ranks with the opposition and support the coal mines bill
passed by Parliament.
At stake is the Rs.2.097 trillion in bids received for 33 blocks from two rounds of auctions, which
will accrue to the states.
While the Biju Janata Dal (BJD)-governed Odisha will get Rs.33,741.94 crore over the life- time of
these blocks, the Trinamool Congress (TMC)-led West Bengal will get Rs.13,354.23 crore.
Other states such as Madhya Pradesh, Maharashtra, Jharkhand and Chhattisgarh will get
Rs.42,811.44 crore, Rs.2,738.53 crore, Rs.49,272.92 crore and Rs.67,821.18 crore, respectively.
Odisha and West Bengal will also get an upfront payment of Rs.273.89 crore and Rs.143.37 crore,
respectively, from these schedule II (operational) and schedule III mines (ready to be mined).
The crucial Coal Mines (Special Provisions) Bill, 2015, won Parliament's approval on 21 March
when the Rajya Sabha, where the NDA is in a minority, passed the legislation.
The finances of coal-bearing states are expected to improve thanks to the passage of the bill. More
money may accrue from a possible auction of coal linkages through which projects get assured
supply of the fuel at a discounted price. The government is to take a call on this shortly.
A total of Rs.3.35 trillion will accrue to the states from 66 blocks, which are being awarded
through a mix of auctions and allotments to the state-owned public sector firms, leaving another
138 blocks to be allotted in the next fiscal year, which will add to the proceeds.
Additionally, electricity tariff benefits totaling Rs.69,311 crore will accrue to the state distribution
companies.

Now, the ministry has


allowed CIL to revert
to the old system,
removing the cap on
e-auction volumes with
effect from April 2015.
This might boost the
miner's bottom line in
the coming days.
The coal ministry has
issued a directive to
revert to the old system
on e-auction volumes,
Coal India chairman
and managing director
Sutirtha Bhattacharya
told.
According officials, this
means Coal India will
now be able to increase
its e-auction volumes
to 10 per cent of total
sales, which was the
standard practice.
However, there is no
hard and fast rule. It
has gone beyond 12
per cent earlier. But
yes, CIL's first priority
is to supply coal to the
power sector, said an
official.

JUNE 2015 | PTC INDIA LIMITED | 15

HIGHLIGHTS
Adani Power in for 5/25
model relief

ith the option of classifying restructured assets


as standard loans no longer available to them,
it would appear banks are taking recourses to the 5/25
scheme to refinance stressed loans so as to prevent them
from turning into non-performing assets (NPAs).
Led by State Bank of India (SBI), lenders to two
subsidiaries of Adani Power Adani Power Maharashtra
(APML) and Adani Power Rajasthan (APRL) are in the
process of finalising a Rs. 15,000-crore term-loan refinance
proposal.
According to sources, bankers have agreed to extend
the loan repayment period of 10 years to a repayment
option spanning 19 years under the 5/25 scheme of the
Reserve Bank of India (RBI). Unlike in the corporate debt
restructuring (CDR) cell, where the promoter needed
to bring in some equity as a contribution to the recast
package, in the case of a refinancing under 5/25, there is
no such requirement.

Two auctions to determine


subsidy for gas-based power
plants

REC share sale, subscribed over


5.5 Times, earns RS.1,550 crore

he government's bailout package for gas-based


power generation companies would have differential
subsidy mechanism and separate bidding for stranded
and underutilized plants.
It has classified 14,305 megawatts (MW) as stranded gasbased power capacity, which will get the lion's share in
subsidy. Another 9,845 MW with tie-up for domestic
gas but an average plant load factor (PLF) of only 32 per
cent owing to non-availability of enough fuel, too, would
be bailed out but with an overall kitty of Rs 500 crore
available.
Since the scheme is primarily intended to address
lenders' concerns, all receipts and payments made by
distribution companies for purchase of power generated
from these plants would be routed through a single "trust
and retention" account. This account would be controlled
by the lead lender to the power generator.
Other states such as Madhya Pradesh, Maharashtra,
Jharkhand and Chhattisgarh will get Rs.42,811.44 crore,
Rs.2,738.53 crore, Rs.49,272.92 crore and Rs.67,821.18
crore, respectively.
Odisha and West Bengal will also get an upfront payment
of Rs.273.89 crore and Rs.143.37 crore, respectively, from
these schedule II (operational) and schedule III mines
(ready to be mined).

16 | PTCHRONICLE | JUNE 2015

he government's disinvestment programme for 201516 started on a strong note with the 5% stake sale of
state-run Rural Electrification Corp. Ltd (REC) through
the offer for sale (OFS) route getting oversubscribed by
5.5 times and raising Rs.1,550 crore.
Out of the 49.3 million shares offered for sale at the floor
price of Rs.315 per share, 20% were reserved for retail
investors placing bids for shares not more than Rs.2
lakh, which were oversubscribed by nine times. Retail
investors also got a 5% discount on price bid. After the
disinvestment, the government's share in REC will come
down to 60.64%.
Shares of REC rose 2.61% to Rs.330.05 each on BSE, while
India's benchmark Sensex gained 0.67% to 28,707.75
points. At the end of the day, with total subscription of
Rs.7,621 crore, the issue stood oversubscribed by 553%,
the highest ever for an OFS, a finance ministry statement
said.
JM Financial Institutional Securities Ltd, IL&FS Broking
Services Pvt. Ltd and Morgan Stanley India Co. Pvt. Ltd
managed the share sale.
Odisha and West Bengal will also get an upfront payment
of Rs.273.89 crore and Rs.143.37 crore, respectively, from
these schedule II (operational) and schedule III mines
(ready to be mined).

THE PTC TIMES


CLP India issues bonds to
raise Rs 476 crore

Railways achieve over 99% of


FY15 estimated revenue target

LP India arm Jhajjar Power has raised Rs 476


crore through issue of bonds, with partial credit
enhancement, to refinance existing debt, the company
said on Thursday. The company issued corporate nonconvertible bonds for its 1,320 MW coal-fired power plant
at Jhajjar in Haryana. The bond, which carries a 50%
guarantee from CLP India, has a semi-annual coupon of
9.99% a year and has been issued in two series of equal
amounts and will mature in April 2025 and April 2026.
CLP India is the wholly owned subsidiary of Hong
Konglisted China Light and Power Holdings. CLP entered
the Indian power sector in 2002 with the acquisition of
a 655 MW gas-fired power plant in Gujarat. "The Jhajjar
plant was financed in 2009 right after the global financial
crisis when the cost of funds was very high. That was
limiting the profitability of the project. The fund raised
now will help us refinance our most expensive Rupee
loan," Rajiv Mishra, Managing Director, CLP India told.

ndian Railways (IR) have managed to achieve more


than 99% of its estimated revenue target in FY15 albeit
a declining passenger traffic onboard thanks to a 14.2%
hike in passenger fares and higher than estimated freight
revenue.
Total earnings grew by 12.2% to Rs.1,57,881 crore from
Rs.1,40,761 crore in FY14. Its freight revenue went up to
Rs.1,07,075 crore, beating the revised estimates (RE) by
Rs.148 crore.
In FY15, the earning in the passenger segment has grown
by some 14.4% to Rs.42,866 crore compared to Rs.37,478
crore the year before. Though IR's passenger traffic has
declined by 2.34% to 822.8 crore in FY15, it managed
to achieve its revenue target in that segment mainly
helped by the increase in fares last June. Railways carried
some 842.5 crore people in 2013-14.
JUNE 2015 | PTC INDIA LIMITED | 17

HIGHLIGHTS
Government drops plan for
power sector asset reconstruction firm

Gujarat power panel


hikes tariff by up to 2.5%

he electricity regulator, Gujarat


Electricity Regulatory Commission
(GERC) allowed an average 2.47 per
cent tariff hike for state-run distribution
companies, (discoms) and an average 2.36
per cent for private sector player, Torrent
Power Limited (TPL).
The tariff hike will put an additional burden
of Rs. 781 crore annually on the consumers of
the four discoms, controlled by Gujarat Urja
Vikas Nigam Limited (GUVNL) while TPL
consumers will bear an additional burden
of Rs. 160 crore annually. TPL supplies
power in Ahmedabad-Gandhinagar and
Surat cities.
In its tariff order GERC allowed an overall
increase of 13 paise per kilowatt hour
(kWh) for the discom consumers except
agriculture, below poverty line and those
consuming electricity up to 200 units per
month.
The overall increase in tariff for TPL
consumers is 15 paise per unit. The new
tariff is effective from April 1, 2015.

he government has abandoned plans to create a specialized asset


reconstruction company (ARC) to deal with power sector loans after
banks expressed concern over the move.
Last year, the finance ministry proposed the creation of a separate ARC for
better handling of bad debts in this crucial infrastructure sector and help
revive stuck projects.
The government wanted state-run enterprises, such as Power Finance
Corp. Ltd and Rural Electrification Corp. Ltd, and some banks to pick up
stakes in the firm. The proposal has now been shelved after banks said they
were not willing to be part of such an entity.
An ARC typically buys the bad loans from a bank, looks at ways to make
the asset more attractive and then sells it. The idea behind a specialized
power sector ARC was to better understand the reasons for projects being
stalled and come up with effective solutions to revive them.
At the end of February, outstanding bank loans to the power sector stood
at Rs.5.5 trillion, an increase of 13.1% from a year ago, according to Reserve
Bank of India data.

18 | PTCHRONICLE | JUNE 2015

THE PTC TIMES


Uttar Pradesh gets first public
sector power project in 2
decades

DERC says Delhi govt free to


question tariff revisions in an
appropriate forum

ttar Pradesh Chief Minister Akhilesh Yadav


inaugurated the first unit of the 5002 MW Anpara D
thermal power station, the first project in the public sector
in over two decades. The project, that was sanctioned in
2008, has been built at a cost of Rs.7,000 crore and will
provide electricity to Bhadohi, Ghazipur, Mirzapur and
Varanasi, which are extremely backward. The second unit
of 500 MW is also expected to start generation by July this
year. The last project that had come up in the public sector
was the Anpara B project in 1993.

he Delhi Electricity Regulatory Commission (DERC) in


a stern message to the state government said the latter's
questioning of the quasi-judicial institution's decisions has
been inappropriate and unfair. The Delhi Government
had written to DERC chairman P.D. Sudhakar questioning
the basis of the tariff revisions that resulted in steep hikes
in prices to the consumer between 2011 and 2014.
Replying to the letter, the commission said: tariff
fixation exercise is a complex one where the commission
utilises multiple controls and prudent checks on various
elements, including power purchase, capex entitlement
and billing system. The commission added that all
stakeholders, including consumers and the govt. of Delhi,
were free to question the tariff fixation by filing appeals
before the Appellate Tribunal for Electricity.

PFC TO DISBURSE Rs 44K


CRORE LOANS IN FY'16

tate-owned lender Power Finance Corporation


plans to disburse over Rs 44,000 crore loans
during the current FY 2015-16. PFC signed an
MoU with the Ministry of Power for the financial
year 2015-16. As per the pact, the company will
disburse loans worth Rs 44,440 crore during
the current fiscal. Target of gross NPAs (nonperforming assets) as percentage of loan assets has
been kept as 1 percent. PFC, reported 4.83 percent
rise in net profit at Rs 1,541.73 crore for the third
quarter ended December 31, 2014-15, mainly on
account of increase in income from operations. It
had reported net profit of Rs 1,534.31 crore in the
October-December period of 2013-14 fiscal.
JUNE 2015 | PTC INDIA LIMITED | 19

Challenges of Solar Power Grid Parity

Dr Rajib K Mishra,
Director,
Marketing & Business Development,
PTC India Limited

Major steps are being taken by central


and various state governments to tap the
renewable, create grid parity at the earliest
and ensure that the renewable energy
certificate market picks up.

ndia is blessed with more than 300 days of sunshine,


while the coastal states have a lot of wind potential.
Major steps are being taken by central and various
state governments to tap the renewable energy, create
grid parity at the earliest and ensure that the renewable
energy certificate market picks up. The challenges facing
the country with regard to grid parity and the steps that
need to be taken by the government to overcome the
hurdles are on a sticky ground.
Nature has endowed some of the states such as
Rajasthan and Gujarat with lot of sunshine and solar
potential. Similarly coastal states such as Tamil Nadu
and Maharashtra have wind potential. But other states
are not so privileged in terms of renewable potential.
Renewables are not distributed evenly across the
country, which has at times inhibited State Electricity
Regulatory Commissions (SERCs) from specifying
higher renewable purchase obligation (RPO).
Renewable Energy Certificate (REC) was perceived
to create a nationwide renewable energy market and
expected to overcome geographical constraints and
provide flexibility to achieve RPO compliance. However
REC market has not lived up to the expectation. India
is the only country where REC Regulatory Commission
(CERC) had to extend the validity of RECs for 24 months.
In the incubation stage for any new technology or policy
initiative, government has to support and mitigate risks
through several incentives, tax holidays or gap funding.
The solar energy also requires such kind of support
for initial five years till it reaches grid parity. However,
there is another school of thought that propagates the
view point that this spoon-feeding may hamper the
commercialisation and development of large scale solar
20 | PTCHRONICLE | JUNE 2015

projects. Buyer state utilities today expect a tariff of `5.45


per unit for solar power as available under the viability
gap funding (VGF) scheme of the Jawaharlal Nehru
National Solar Mission and FIT (Feed-in-Tariff) co-exist.
Most of the European nations have implemented Feedin-Tariff. This has enabled most of the European solar
developers to draw comfort of de-risking investment
and ROI uncertainty. Ministry of New and Renewable
Energy (MNRE) has taken several steps to revive REC
market including proposed amendment in the Tariff
Policy for prescribing RPOs and Electricity Act of 2003.
MNRE took initiative for RPO compliance and advised
public sector units to procure RECs under corporate
social responsibility (CSR). However the unsold RECs
inventory in the exchange is a matter of concern for
all stakeholders. MNRE has also requested Central
Electricity RPO target set by CERC till 2020.
India is the only country where REC and FIT (Feedin-Tariff) coexist. Grid connectivity and reasonable
wheeling charges are other two factors affecting solar
development in a big way. As solar would utilise only
6-8 hours of the transmission capacity, it would result in
higher landed cost for buying utility for same quantum of
power. As on date in India solar energy cost of generation
is approximately 30-40 per cent higher than conventional
power. Although this has come down drastically in last
couple of years. But it is still a challenge to commercially
generate and compete purely on electricity prices without
attributes and social impact cost. We are expecting grid
parity in next 3 years considering the improvement in
solar PV technology available today, downward trend
of PV solar cells as well as taking into account fossil
fuel price increase (both domestic and imported) for
conventional power.

The lack of
evacuation and
dedicated transmission
grid for effective
evacuation of
renewable
power has been
identified as a key
bottleneck in the
development of RE
sector in India.

As opined by Paula Mints, a global renewable energy


expert, The PV industry has successfully commoditized
its product and is now maturing business models
that will, hopefully, allow for more reasonable and
sustainable margins. The lease model is one that, in its
various iterations, is being pursued by solar firms as well
as investors. Third party ownership, however, is unlikely
to be a panacea for everything that ails and has
historically ailed the PV industry. Vertical integration
(typically, manufacturing owning a system business) will
also not ameliorate decades.
For large scale development of solar projects there is
requirement of Grid Connection, sufficient capacity in
Grid/Transmission (Green corridor) and Forecasting &
Scheduling. State of the art forecasting is an important
aspect of project planning and execution in the case of
RE power, owing to the infrequent and variable nature of
the resource.
Biggest challenges faced in Germany and Spain
having higher mix of renewable in the portfolio is
facing challenges due to uncertainty of scheduling and
despatching. Better forecasting tools can mitigate this
issue. Forecast has two main functions: (1) to inform
decision making related to the trade of electricity from
wind and solar plants, and (2) to facilitate scheduling
of power plants and the operation of the system in the
most effective and reliable manner. Inaccurate forecasts
may lead to poor scheduling which in turn can result in

a demand-supply mismatch forcing DISCOMs to resort


to UIs and to purchase expensive power to bridge the
gap. Some of the key measures that could be adopted
in this regard are:
Initiation of Integrated resource Planning (IRP) including
balancing and scheduling, grid management and
Demand Side Management (DSM), Introduction of
forecasting regimes and Strengthening of inter-state
transfer/trading of renewable power, especially from
surplus to deficit regions, including HVDC and smart
grids; renewables power should be exempted from
intra-state Open Access (OA) and other charges. Other
important issue is development of storage and hybrid
technologies.
Potential areas of renewable generation are presently
not connected strongly with the central grid. The lack of
evacuation and dedicated transmission grid for effective
evacuation of renewable power has been identified as
a key bottleneck in the development of RE sector in
India. In this regard, the Government of India has laid
out extensive plans for facilitating the flow of renewable
power into the national grid. The 'Green Energy Corridors'
project is aimed at synchronizing electricity produced
from renewable sources, such as solar and wind, with
conventional power stations in the grid. This initiative
presents a number of challenges in terms of demandsupply mismatch, frequency regulation and enhancing
co-operation between utilities.
JUNE 2015 | PTC INDIA LIMITED | 21

SOUTH ASIA
ENABLING A SUCCESSFUL
REGIONAL POWER MARKET

22 | PTCHRONICLE | JUNE 2015

Harish Saran
Executive Director
PTC India Limited

here has been existing regional co-operation between


India, Bhutan, Nepal and Bangladesh. Bhutan
exports around 1400 MW from existing Hydro projects
to different Indian Utilities through PTC India Limited.
India supplies power to Nepal through various existing
treaties as well as purely on commercial terms. Further
with the commissioning of 400 kV D/C transmission link
Baharampur(India) - Bheramara (Bangladesh), India is
supplying 500 MW power to Bangladesh.
With several generation and associated infrastructure
projects already in pipeline mainly from the point of
view of cross Border transaction of electricity, it was felt
necessary to put in place a robust techno- commercial
mechanism for seamless exchange of power in South
Asia. Giving a conclusive direction to this effort, a
SAARC Framework Agreement for Energy Cooperation
(Electricity) has already been finalized which is a crucial
step towards developing a SAARC Market for Electricity
(SAME) on a regional basis.

Following is detail of existing and proposed Inter connections


between India and Bangladesh:
Operational Inter
Connection
Interconnection :
Baharampur (India) Bheramara (Bangladesh)
400 kV D/c line
500 MW HVDC B/b stn at
Bheramara (Bangladesh)
Transfer Capacity :
500MW (upgradable to
1000 MW)
Commissioned: Oct, 2013

Interconnection 1:
Surjyamaninagar (India) - Comilla (North) & Comilla
(South) 400 kV D/C line (to be op. at 132kV)
Interconnection 2:
System Strengthening
India Side
400 KV Farakka- Behrampur D/C
Removal of LILO of Farakka-Jeerat S/C
LILO of above line at Sagardighi
LILO of Sagardighi-Subhasgram at Jeerat
Bangladesh Side
Bheramara-Ishurdi 230 KV D/C
500 MW HVDC back to back converter unit at
Bhermara

Transmission map for existing and proposed Interconnection

The key challenges for establishment of a successful


South Asian Power market as envisaged are:
1. Investment for creation of a robust physical
Infrastructure for seamless flow of electricity
2. Creating an orderly marketplace for all buyers and
sellers which would provide a fair, neutral, robust,
transparent and quick discovery process
3. Creating an inclusive marketplace through
deliberation of common regional energy cooperation
framework covering:
a. Inclusion of regional best practices
b.
Addressing
countries
c. Harmonized
conditions

issues

unique

to

techno-commercial

participating
terms

and

This paper discusses about various investments being


made for bolstering the existing electrical infrastructure
integrating South Asian power grid along with anticipated
issues for execution of these projects.
India-Bangladesh
It is expected that the electricity demand would be
38,700 MW in Bangladesh by the year 2030. The
aggregated investments for generation, transmission
and related facilities are found to be at Taka 4.8 trillion
(US$ 69.5 billion). The annual average of the investment
amounts to Tk 241 billion (US$ 3.5 billion).
JUNE 2015 | PTC INDIA LIMITED | 23

India-Bhutan
Currently, PTC is purchasing surplus power from the
following projects in Bhutan for onward supply to Indian
Utilities:
0Chukha (336 MW)
0Tala (1020 MW)
0Kurichhu (60 MW)

India- Nepal:

Total of 10825 MW new hydro plants under Bilateral &


JVs are expected to be added BY 2020 in Bhutan. Most
of them are export oriented. The details are as given
below.
S
No

Projects

Initial Capacity / Revised Capacity in MW

Start
Date FY

COD FY

Mode

Punatsangchhu - I

1,200

2009

2015

Bilateral (40:60)

Mangdechhu

720

2010

2017

Bilateral (30:70)

Punatsangchhu - II

990/1020

2010

2017

Bilateral (40:60)

Sunkosh Reservoir

4060/2585

2011

2020

Kuri-Gongri

1800/2640

2012

Amochhu Reservoir

620/540

2012

Kholongchhu

600

Chamkharchhu - I

670/770

The Current Installed Generation Capacity in Nepal is


770.9 MW of which 712.99 MW is through Hydroelectricity
and 766.4 MW is on-grid.
By 2018/2019 Nepal would be having around 2050
MW of Installed capacity. The detail of Operational &
Upcoming projects is given below:
Status

NEA

IPP

Under Operation (718 MW)

478MW

240 MW

Bilateral (40:60)

Under Construction

862 MW

358MW

2020

Bilateral (40:60)

PPA Concluded

IPP 502 MW

2018

Bilateral (40:60)

Large Projects in Pipeline

2012

2018

Joint Venture - SJVNL

2012

2018

Joint Venture - NHPC

3,900 MW (including Arun III, Upper


Karnali, Lower Arun, Tamakoshi III,
Upper Tamor, Upper Marshyangdi, etc.

Other Large projects

Karnali chisapani; Pancheshor; Koshi


etc

Wangchhu

600/570

2012

2019

Joint Venture - SJVNL

10

Bunakha Reservoir

180

2012

2020

Joint Venture - THDC

Total

10825

Following is detail of existing and proposed Inter


connections between India and Bhutan:
Operational Inter connection
Chukha Birpara 220kV 3 ckts
Kuruchu - Geylegphug(Bhutan)
Salakati (NER) 132 kV S/c
Tala Siliguri 400kV 2x D/c line
Under Implementation
1st of the 3000 MW HVDC terminal being
established at Alipurduar along with
6000 MW NER-NR/WR interconnector

Minimum of 5000 MW will be exported to India by the


year 2020. Further; the Hydro capacity by the end of
2030 is likely to be around 26500 MW. Assuming 8
to 10 Crore per MW, The total investment required is
82,672(15.27Billion USD) to 1, 03,340 Crore (19.09
Billion USD) is required.

Under Implementation
Interconnection (Bhutan Portion) :
Punatsangchu-I HEP (1200 MW)
Lhamoizingkha (Bhutan Border) 400 kV 2xD/c .
Interconnection (Indian Portion) :
Lhamoizingkha (Bhutan Border) Alipurduar
400kV D/c (Quad)
Jigmeling Alipurduar 400 kV D/c (quad)
line

Transmission map for existing and proposed Interconnection

Following is detail of existing and proposed Inter


connections between India and Nepal:
Presently, the Power is being exchanged and traded
mainly through 33kV and 132kV links along the IndoNepal border.
A Cross Border Transmission line between India & Nepal
is under construction with the details as given below:
Dhalkebar Muzaffarpur (400 kV DC)- Likely
commissioning by December 2015
Indian Portion :
Line length : 86.43 km; Estimated cost : Rs. 131.75
Crs. (USD 29.28 million)
Implementation by Cross Border Power Transmission
Company Pvt. Ltd. (CPTC) [IL&FS(38%),PGCIL
(26%), SJVNL (26%) and NEA (10% )]
Nepalese Portion :
Line length : 39 km ; Estimated cost : Rs. 127.54
Crs. (USD 28.34 million)
Implementation by Power Transmission Company
Nepal Ltd. (PTCN) [ NEA(50%), PGCIL (26%), FIs of
Nepal (14%), IL&FS (10%)]

24 | PTCHRONICLE | JUNE 2015

Transmission map for existing and proposed Interconnection

energy. With this, the thermal share is likely to go up


from 49% to 68% by 2032.
Following is detail of existing and proposed Inter
connections between India and Sri Lanka:
A transmission link between India & Sri Lanka of 400 kV,
127 km HVDC line with submarine cable is being set up
with a transfer capability of 500 MW with the details as
given below.
India (Madurai) Sri Lanka (Anuradhapura) HVDC
bipole line : 360 km
(Stage-I: 500 MW; Stage-II: 1000 MW)

India- Sri Lanka:


By 2032, the total installed capacity will be 6985 MW
of which 4600 MW capacity addition would be through
coal only and 714 MW from Nonconventional renewable

0 Indian Territory
: 130 km
0 Sea Route
: 120 km
0 Sri Lankan Territory : 110 km
0 Tentative cost
: Rs. 5000 Cr. (USD 867 Million)
0 Rs. 3300 Cr. (USD 645 Million) (Stage-I) & Rs. 1700
Cr. (USD 222 Million) (Stage-II)

Transmission map for existing and proposed Interconnection

JUNE 2015 | PTC INDIA LIMITED | 25

Summary of all the proposed/Existing High Voltage Cross


Border Interconnections

Following is the summary of all the proposed/Existing


High Voltage Cross Border Interconnections
S. No Countries

Interconnection Description

Capacity (MW)

Bhutan-India

Grid reinforcement to evacuate power from Punatsangchhu I & II

Reinforcement of 2100 MW

Nepal-India

Dhalkebar-Muzaffarpur 400 kV line

1000 MW

Sri Lanka-India

400 kV, 127 km HVDC line with submarine cablew

500 MW in the short term

Bangladesh-India

400 kV HVDC back to back synchronous link

500 MW

India-Pakistan

220 kV in the short term(could be upgraded to 400 kV later)

250-500 MW

The table below discusses the tentative cost for


these Cross border Transmission Interconnections
S.No

Interconnection

Description

Capacity (MW)

Cost (USD Million)

India-Bhutan

Grid reinforcement to evacuate power from


Punatsangchhu I & II

Total grid reinforcement of 2100 MW

140-160 (2020 estimate)

India-Nepal

Dhalkebar-Muzaffarpur 400 kV line

1000 MW

186 (2010 estimate) including internal transmission


upgrade

India-SriLanka

HVDC line with sub-sea cable

500 MW in the short term

USD 867 Million

India-Bangladesh

HVDV back to back asynchronous link

500 MW

192-250 million (2011 estimate)

India-Pakistan

220 kV in the short term, 400 kV in the long term

250-500 MW

50-150 million (2012 estimate)

CASA 1000 and IndiaPakistan interconnection

HVDC & 500 kV HVAC for CASA

1300 MW

Approx 1 billion (2011 estimate)

Issues and Risks in investment and financing of Power


projects, CBET infrastructures
Issues
0
0
0
0
0

Risk Profile
Viability of the Projects
Lenders concerns
Viability of the Power Sector
Source funding and financing options

Risks
0
0
0
0
0
0
0
0

Regulatory and country risks


Time overrun vis--vis Cost over run
Natural calamities
Geological risks
Hydrological uncertainty
Evacuation of power
Finding suitable buyer for sale of Power
Off-takers creditworthiness

26 | PTCHRONICLE | JUNE 2015

Issues to be addressed in the process of development


are investment capabilities, lack of market information,
viability of buyers, inadequacies in institutional
mechanism, environment and social concerns. Cross
border trading in electricity has technical considerations
as well as political and economic ones. Pricing should
be such that both sides benefit. For example, if one party
has a lot of inexpensive hydro power, during monsoon
seasons then it may benefit from selling it at lower price
to a neighbor rather than having the water spill. There is
necessity of larger perspective while planning, obviously
through integrated approach for the entire SAARC
(South Asian Association for Regional Cooperation)
region. Both Generation capacity and Transmission
interconnection capacity are to be enhanced. To be
adopted is common principle/ methodology for tariff
determination, operational protocol, security / reliability
and regulation. To be evolved also is the Contractual
Agreement that addresses principal obligations that are
equitable, risk sharing, issues related to financial and
payment commercial and legal, dispute resolution and
arbitration.

Energy
Efficiency
Services
PTC has been continuously making strides in the direction of Energy Efficiency
Management. PTC's engagement with Bureau of Energy Efficiency (BEE)
under Ministry of Power has been extended for a further period of 5 years
to undertake Energy efficiency projects and also to seize emerging
opportunities such as perform, achieve, and trade (PAT).

Prestigious Projects undertaken :


Presidential Estate
-





- AIIMS
- Safdarjung Hospital
- IGESIC (Rohini)
- Dr. Ram Manohar Lohia Hospital
- ESIC Hospital (Jhilmil)
- National Archives

MoU with Bureau of Energy


Efficiency & EESL
Conducting Investment Grade
Energy Audits & preparing DPRs
Implementing Energy Efficiency
solutions through ESCO model

PTC India Limited

2nd Floor, NBCC Tower, 15 Bhikaji Cama Place,


New Delhi - 110066
JUNE 2015 | PTC INDIA LIMITED | 27

MARKET
WATCH
Max. Price : 3.95

Min. Price : 1.29

Avg. Price : 2.79

Daily Prices - Indian Energy Exchange (IEX)

Weighted Average Prices (November 2014 - March 2015)

Bilateral prices remained higher than IEX and PXIL prices


(execept for month of August).
Max. Price : 3.26

Min. Price : 1.85

Avg. Price : 2.63

Daily Prices - Power Exchange India Limited (PXIL)

Total Volume Traded in Short Term vs Total Generation


(November 2014 - March 2015)

Total Short Term Contract Volume (November 2014 - March 2015)

Total Short Term Contract Volume (November 2014 - March 2015)

Source:
CERC Market Monitoring Report Indian Energy Exchange Power Exchange India Ltd.

PTC India Limited

28 | PTCHRONICLE | JUNE 2015

Top 5

Purchase

Top 5

Million Units (MUs)

Million Units (MUs)

MARKET TRADE

SPOT MARKET

Top 5

Sellers

The trading data corresponds to


purchase and sale made in the
month of March, 2015

Purchase

Top 5

Million Units (MUs)

Sellers

Million Units (MUs)

POWER TRADING MARKET SIZE


Bilateral Trade And Power Exchange Market

Year

Electricity
Transacted
through
Traders (BU)

Price of
Electricity
Transacted
through
Traders (Rs/
kWh)

2009-10

26.72

5.26

Size of
bilateral
Trader Market
(Rs Crore)

Electricity
Transacted
through
Power
Exchanges
(BU)

Price of
Electricity
Transacted
through
Power
Exchanges
(Rs/kWh)

Size of Power
Exchange
Market (Rs
Crore)

Total Size of
the bilateral
trader +
Power
Exchange
Market (Rs
Crore)

14055

7.19

4.96

3563

17617

2010-11

27.70

4.79

13268

15.52

3.47

5389

18657

2011-12

35.84

4.18

14979

15.54

3.57

5553

20532

2012-13

36.12

4.33

15624

23.54

3.67

8648

24272

2013-14

35.11

4.29

15061

30.67

2.90

8891

23952

JUNE 2015 | PTC INDIA LIMITED | 29

M a r k e t O u t l oo k

BILATERAL MARKET

POWER SUPP

All India Installed Capacity as on 31st March, 2015 (in MW)


Modewise Breakup
Ownership/
Sector

Thermal
Coal

Gas

Diesel

Total

Nuclear

Hydro

RES (MNRE)

Grand Total

State

58,101

6,974

603

65,678

27,482

1,919

95,079

Private

58,405

8,568

597

67,571

2,694

33,858

104,122

Central

48,130

7,520

55,650

5,780

11,091

72,521

Total

164,636

23,062

1,200

188,898

5,780

41,267

35,777

271,722

Installed Capacity ( Mar 2015)

30 | PTCHRONICLE | JUNE 2015

Renewable Grid Connected


Installed Capacity ( Mar 2015)

PLY POSITION
State Wise Power Supply Situation ( FY 2015)
Region

State/UT

Energy
Req. MUs

Energy
Availability,
MUs

Surplus
Deficit (-)%

Peak Demand
MWs

Peak Met,
MWs

Surplus/
Deficit (-)%

Northern

Chandigarh

1,616

1,616

367

367

Delhi

29,213

29,073

-0.5

6,006

5,925

-1.3

Haryana

46,615

46,432

-0.4

9,152

9,152

Himachal Pradesh

8,807

8,728

-0.9

1,422

1,422

Jammu & Kashmir

16,214

13,119

-19.1

2,554

2,043

-20

Punjab

48,457

47,972

-1

11,534

10,023

-13.1

Rajasthan

65,730

65,323

-0.6

10,642

10,642

Uttar Pradesh

103,249

87,132

-15.6

15,670

13,003

-17

Uttarakhand

12,445

12,072

-3

1,930

1,930

Chhattisgarh

21,210

20,940

-1.3

3,817

3,638

-4.7

Gujarat

96,235

96,211

13,603

13,499

-0.8

Madhya Pradesh

53,737

53,445

-0.5

9,755

9,717

-0.4

Maharashtra

135,217

133,397

-1.3

20,147

19,804

-1.7

Daman & Diu

2,047

2,047

301

301

DNH

5,339

5,337

714

714

Goa

3,932

3,895

-0.9

501

489

-2.4

Andhra Pradesh

59,174

56,289

-4.9

7,144

6,784

-5

Telangana

43,186

40,493

-6.2

7,884

6,755

-14.3

Karnataka

62,679

59,961

-4.3

10,001

9,549

-4.5

Kerala

22,411

22,079

-1.5

3,760

3,594

-4.4

Tamil Nadu

95,660

92,652

-3.1

13,663

13,498

-1.2

Puducherry

2,393

2,367

-1.1

389

348

-10.5

Lakshadweep

48

48

Bihar

19,013

18,479

-2.8

2,994

2,874

-4

DVC

18,121

17,628

-2.7

2,653

2,590

-2.4

Jharkhand

7,540

7,343

-2.6

1,075

1,055

-1.9

Odisha

26,067

25,638

-1.6

3,814

3,764

-1.3

West Bengal

46,157

45,909

-0.5

7,544

7,524

-0.3

Sikkim

396

396

83

83

Andaman- Nicobar

240

180

-25

40

32

-20

Arunachal Pradesh

677

610

-9.9

139

126

-9.4

Assam

8,555

7,926

-7.4

1,450

1,257

-13.3

Manipur

705

678

-3.8

150

146

-2.7

Meghalaya

1,936

1,634

-15.6

370

367

-0.8

Mizoram

453

425

-6.2

90

88

-2.2

Nagaland

689

661

-4.1

140

128

-8.6

Tripura

1,210

1,048

-13.4

310

266

-14.2

1,067,085

1,028,955

-3.6

148,166

141,160

-4.7

Western

Southern

Eastern Region

North- Eastern Region

All India

JUNE 2015 | PTC INDIA LIMITED | 31

PLANNING FOR GRID STABILITY: SOLAR PV

Vjay Bisht
Executive VP,
PTC India Financial Services Ltd.

hanks to the National Solar Power Mission, the solar


power capacity in the country is poised to increase
in a rapid way in the next 4 to 5 years from the present
installed capacity of around 3 GW. The new government
has scaled up the target for solar capacity. The revised
target is to achieve 100 GW of solar capacity by 2022 as
compared to the earlier target of 20 GW. Though the target
has been scaled many fold, how much would be actually
commissioned, keeping in view the Indian ground reality
would be difficult to guess as of now. The Indian ground
reality of topsy-turvy policies, state govt priorities, land
acquisition issues etc may lead to derailment of capacity
addition targets. Nevertheless, the decision of the new
government on not to act on the 'anti-dumping duty' (ADD)
recommendation of the previous govt has shown the new
govt's commitment and vision for solar power.
Had the decision of high ADD imposed, there would have
been severe setback to the capacity addition in solar.
Infact, till the clarity on ADD came, many developers had
kept their solar plans in abeyance as the projects which
were awarded to them after tough competitive bidding
would have become unviable with increase in the cost of
solar panels on account of increase in duty on imported
cells and modules. With the clarity on AAD, the developers
are back on their plans to complete their on-going projects
at the earliest and are also looking aggressively for new
bids. India can now look forward for rapid addition of solar
capacity in the grid.
Though there is clarity on the policy front, one technical
aspect which has the potential to derail the development of
renewables, including solar power, emerges from the infirm
(i.e. unpredictable) nature of the electricity from these
renewables. Except Bio mass/gas, 'Waste to Energy' (WTE)
and to some extent Solar Thermal with storage and 'Run-ofRiver' (RoR) Small Hydro power plants (SHP) with pondage,

32 | PTCHRONICLE | JUNE 2015

electricity from all other renewables viz. Solar Photo Voltaic


(PV), Wind, RoR SHP etc. is solely dependent upon the
vagaries of nature e.g. energy from solar PV is dependent
upon the presence of sun light, whereas energy from Wind
project is dependent on blowing of wind. Apart from the
infirm nature, the electricity from these renewable are also
prone to variability which means the electricity from these
renewable is non-controllable i.e. the power output would
be a non-steady output. For example, in case of solar PV,
the energy output is directly related to the intensity of sun
light termed as insolation higher the insolation, higher is
the output. Therefore, in case of solar PV electricity starts
flowing to the grid after some time past sunrise and ebbs
out some time before sunset- typical time of electricity
generation would be from 7-8 am to around 5-7 pm with
some variations in summers and winters. Further, the
electricity from solar PV typically follows a bell curve with
peak levels reaching in the afternoon from 11-12 am to 1-2
pm. The output is also susceptible to any shade on the
solar panels and therefore is negligible during rainy days.
For the stability of grid, it is pertinent that there is a balance
between the demand and supply of electricity at all point of
time. If the demand is more than the supply, the frequency
would dip and vice versa. In extreme case it may lead to
tripping of the entire grid unless load shedding is carried
out. Typically, the Indian grid has two peaks - one smaller
peak in the morning between 9 to 11 am, when the offices
and commercial establishment start functioning and a
higher peak in the evening between 7 to 9 pm when the
domestic & commercial lighting demand kicks in. The
demand reaches its lowest point some time in between 2
to 4 O'clock in the night. This has been general pattern
in the Indian grid, with slight variations from state to
state, depending upon industrial development and also
with variations in weather. For optimum, economical and
efficient operation of the grid, the peak demand should
be met by peaking power plants viz. gas power plants,
storage/pondage hydro power plants or pump storage
hydro power plants etc. The base power which is required
by the grid for nearly the entire 24 hrs should be met by
base power plants viz. coal based thermal power plants,
nuclear power plants and to some extent also by large
storage hydro power plants. The advantage of peak power
plants is that they can be quickly turned on/off, reduce/
increase output depending upon the requirements of the
grid and thus the operator has control over their operations.

The generation from renewables is entirely dependent on


the vagaries of nature and the operator has no control.
Therefore, under the renewable power policy, energy from
renewable sources is accorded 'must flow' status to the
grid and not to be backed down. Apart from environment
consideration, the policy of not to back down power from
renewables is also financial prudent as the power from
renewables have negligible variable cost. The danger to
the stability of the grid arises from the 'must flow' status
to these renewables, mainly solar pv and wind. If, at any
point of time the power demand and supply in the grid are
evenly matched and at the same time the share of infirm
power from renewables increases, then due to its 'must
flow' status, power from base power plants viz. coal based
would be required to back down in order to stabilize the
grid. This backing down can impact the base power plants
(read coal based) by increase in their cost of generation,
as the thermal power plants become less efficient on lower
'Plant Load Factor' (PLF). Variable Cost (VC) per unit and
Fixed Cost (FC) per unit, both would increase VC due
to lower efficiency and FC as the fixed cost would be
spread over lower units. This would ultimately increase the
cost of electricity to the consumers and would amount to
unintentional cross subsidising power from renewables.
Backing down of base power plants (if it happens) would
also point to insufficient management of the grid and lack
of adequate planning.
As of now, the installed capacity of solar PV in India is
around 3 GW, wind is at around 21 GW and SHP around
3.8 GW, together they account for ~ 28 GW which is ~
11% of the entire installed capacity of India of ~ 255 GW
( as on Nov 2014). It is however, pertinent to note that due
to low PLF (solar around 17-20% and wind around 20 to
26%) the energy contribution from these renewables to the
grid is proportionately less than their percentage share in
the installed capacity, at around 4 to 6% as against share
of 11% in the installed capacity. Presently there is not much
impact on the stability of the grid on account of infirm power
from renewables despite its 'must flow' status, though there
has been state specific operational issues in some states
due to lack of adequate planning. As has happened in the
state of Tamil Nadu, where due to inadequate evacuation
system in areas with concentration of wind farms, the
electricity from the wind farms could not be evacuated due
to congestion in the evacuation lines.
Target of adding 100 GW of solar by 2022, however, may
alter the present impact of renewables on the operation
of the grid. Add to it another 60 GW of planned addition
of wind power by 2022 and the scenario may change
completely. Though, the entire target may not fructify what with the Indian ground reality, but even if 60% to 70%
target of solar and wind is added to the grid it may add
additional renewable capacity of around 100 GW by 2022.
In the same period, the planned tentative capacity addition
of conventional power projects (mainly coal based & large
hydro) is roughly pegged at ~ 138 GW 38 GW in the

remaining period of 12th plan (2012-17) and 100 GW in


the 13th plan (2017-22). With the present installed capacity
of 255 GW, the total installed capacity by 2022 may touch
maximum ~ 493 GW (exist 255 + conventional planned
138 + solar & wind planned 100). This is with assumption
that the entire capex for conventional power projects would
be commissioned as planned. With some of the ageing
coal based plants getting de-rated/de-commissioned by
2022, the installed capacity could be considered around
~ 480 GW.
From the present installed capacity of ~ 28 GW, the
total capacity of renewables mainly representing infirm
power i.e. Solar PV, Wind & SHP would touch ~ 125 GW
(considering de-rating of some of the exiting capacity) by
2022, taking the present share of renewables of around
11% in the installed capacity to around 26% which would
correspond to around 12-13% in energy content. Such a
high percentage of infirm power in the grid with 'must flow'
status may not be prudent to operate the grid economically.

Though some of the power planners have been indicating


that the Indian grid can sustain infirm energy content of
upto 14-15%, the same is doubtful as the bulk of the infirm
'must flow' power would come to the grid at non-peak hours
solar during day time off peak and wind during night time
off peak. In comparison, the infirm power capacity (solar
& wind) in China presently amounts to ~ 109 GW, which
is only ~ 9% of the total installed capacity of ~ 1247 GW.
Some may argue that part capacity of the planned solar
addition would comprise small KW size roof top installations
which may not impact the grid, but one should not forget the
fact that most of the roof top solar installations would take
place in grid connected cities and would eventually replace
grid power or feed-in to the grid (due to net-metering
facility), depending upon the household consumption.
The end result would be the same i.e. roof top installations
would impact the grid the same way as large MW size land
based solar installations would impact. Only the off-grid
solar installation would not have any impact on the grid,
rather they would eliminate the need to stretch grid to far
off area not considered financially viable.

JUNE 2015 | PTC INDIA LIMITED | 33

Experience of solar ramp up in some of the European


countries is also worth taking into account. Germany which
has installed one of the largest solar power capacity of ~
38 GW, largely of PV, due to lucrative feed-in-tariff (FIT),
is suffering from the issues of grid stability. In the 3 year
period from 2010 to 2013 Germany added ~ 7 GW
of solar capacity every year but did not plan for storage
for sucking out the day time electricity from the solar pv.
As a result, to stabilise the grid during day time when
the solar pv starts pumping, Germany has to resort to
exporting power to the neighbouring countries at cheaper
rates. Though the combined share of solar & renewable
in Germany in capacity amount to around 30%, their
contribution in energy terms is only around 5%. Lately,
new capacities in solar has started going down due to
tightening of govt. policies reduction in FIT and limit on
the maximum installed capacity of solar utilities. In Spain,
which at one point of time was at the forefront of the solar
energy movement, the govt has gone one step ahead and
reduced the solar tariff from retrospective date. The reason
for such drastic steps were a growing deficit as the govt
did't pass to the consumers the high tariff being paid to the
solar power developers resulting in ballooning deficit that
needed emergent action in order not to derail the economy
of the country.
Notwithstanding, the debate on the capacity of Indian grid
to withstand the infirm energy/power content it would be
prudent to plan for sucking out the infirm 'must flow' power
from the grid during off peak hours by suitable storage
mechanism in order to utilise the same during peak hours.
Different storage mechanism available for storing bulk
electricity are :

- Battery storage

- Pump storage hydro power plants

- Solar Thermal with storage

Battery Storage: The conventional bulk storage batteries


are not environment friendly and would also require
change every 3 to 4 years. Life cycle cost would be
higher and therefore suitable only for smaller capacity offgrid utilisation. Recently there has been advancement in
rechargeable bulk storage batteries wherein energy would
be stored in liquid eliminating solid state interactions in
conventional rechargeable batteries. The manufacturers
are claiming life of 10 to 15 years and even of 20 years.
However, they are very costly as of now and would add
around Rs. 12 to 14 in per unit of electricity and thus
financially prohibitive. Till this technology matures and the
cost comes down, it would not be financially viable for
large scale adoption.
Pump Storage Hydro Power Plants: Pump Storage
hydro power plants (PSHP) can be one of the technoeconomic viable solutions for storing bulk excess infirm
power. Though it would consume around 25 to 30% of the
power to be stored, it would still be cost effective. However,
a number of PSHP are already commissioned in India and
34 | PTCHRONICLE | JUNE 2015

a study would be required whether their full advantage as


pump storage plants are being reaped or not. Further, as the
existing PSHPs in India are combination of conventional (or
natural) hydro power plants and pump storage, pure pump
storage hydro plants can be planned to utilise the excess
infirm power being fed in the grid. In pure PSHP, there is no
need for natural gradient in a river, water can be pumped
from a river or a water body to a water reservoir planned at
a higher altitude in nearby hills by utilising electricity during
off-peak hours. During peaks hours the water stored at
higher altitude can be utilised for generating electricity.
Such pure PSHP of smaller capacities in the range of ~ 100
to 200 MW can be located nearer to the cluster location of
Solar or wind farms in order to avoid transmission losses.
As the implementation period for PSHPs is very high as
compared to other power projects, the action plan for such
storage should start immediately.
Solar Thermal with Storage: Till date, solar thermal
power plants were not being looked as financially viable
proposition in India due to various reasons ranging from
technical to high cost. For the same capacity, as compared
to 'solar pv' the 'solar thermal' requires more land and are
costly. Solar pv are modular and therefore can be set up
in discrete units at the same location as compared to solar
thermal which requires construction of the entire plant
capacity in one go. Implementation period for solar pv
ranges between 6 to 9 months for a medium size plant
whereas it takes 28 to 36 months for a solar thermal to
be commissioned. Solar thermal requires a minimum
threshold capacity of ~ 50 MW for Indian condition,
to be viable as compared to solar pv where even a one
KW capacity plant can be viable. Solar thermal requires
boiler and turbine to generate electricity and thus issues
of O&M are similar to coal based thermal power plants as
compared to simplicity of O&M in solar pv. Availability of
water is another issue, as most of the ideal locations for
solar plants thermal or pv are water scare areas. Solar
pv doesn't require much water apart from cleaning of the
panels, which is not the case with solar thermal which is
heavily dependent on water for steam generation/cooling
purpose which is akin to coal based thermal power plants.
Despite many disadvantage vis--vis solar pv, solar
thermal plants can be designed with storage which means
that the excess electricity generated during off-peak can
be stored and used during peak hours. Though the capital
cost of solar thermal with storage would be higher but the
life cycle cost would still be cheaper than other options for
bulk storage of electricity. With increased focus on infirm
renewables in India specially on solar pv, solar thermal with
storage option definitely requires a serious look.

JUNE 2015 | PTC INDIA LIMITED | 35

SHORT TERM BILATERAL


MARKET-CHALLENGES AND
OPPORTUNITIES
A chain is no stronger than its weakest link- Eliyahu Goldratt

Mohd. Zeyauddin
AVP,
PTC India Limited

have also joined the bad bandwagon. There is no corridor


available for flow of power from Western region (The region
comprising of highest merchant generation) to Northern
region (High Demand Region). Whereas very little power flow
took place from North-Eastern/ Eastern region to Northern
region during winters due to difficulties in simultaneous
power flow within NR system. One remarkable observation
during the congestion period was the availability of corridor
for day ahead/contingency transaction on continuous
basis from WR and ER to Northern region while no corridor
was available on firm basis which may be a manifestation
of conservative approach of the system operator.
Tables below illustrate the corridor positions for flow of
power on various Inter regional links:
Table-1 Transfer Capability on Inter regional links in MW *

ith the de-licensing of Generation sector, the growth


in generation capacity addition had been whopping
159% between 10th and 11th plan. Whereas, other links
of this chain seemed not too geared up to support the
galloping horse i.e. Generation. Domestic coal production
grew at the rate of 6.5%, the transmission Infrastructure
moved ahead with a snail pace and worst of all, the last
link i.e. Distribution had been totally out of sync.
Electricity Act 2003 brought a paradigm shift in the power
sector with the De-licensing of Generation, recognizing
Trading as a distinct activity, unbundling of SEBs for better
efficiency and bringing the provision of non-discriminatory
Open Access. But the question is- Was it enough for
creating a successful power market?
Power Trading has been a subject of discussion right
from the very first day of its existence. There have been
several impediments for the growth of power trading in
Indian Power Sector. Bottlenecks being experienced for
power trading are low creditworthiness of the distribution
utilities, open access restrictions, non-availability of fuel,
transmission congestion etc.

Table-2 NRLDC simultaneous import data STOA (in MW

Table-3 ER-SR Corridor availability STOA (in MW)

We will analyze such factors one by one which are


collectively pulling back the growth of short term power
trading.
Coal- Power plants of around 14,000 MW already
commissioned by March 2015 and another about 16,000
MW of capacity expected to come up by 2017 still do not
have any assured power off-take arrangement or coal
supply. As a resultant to federal decision to allow only
15% of captive coal usage for merchant trading and nonavailability of linkage coal, merchant trading would take
place mainly on e-auction or imported coal. Again coal
ministry has reduced the quantum of e-auction by 50%
which would take away another roughly 25-30 million tons
of coal from merchant based generation.
Availability of Transmission corridor- Adding to the
chronic woe of transmission corridor congestion from NEW
Grid to Southern region, other crucial regional interlinks
36 | PTCHRONICLE | JUNE 2015

The perceived reason for such a shortfall may be


attributable to the prevailing CERC's regulation to allow
system strengthening (fresh investment) on the basis
of application for Long Term open access. Further, the
planning of transmission system is carried out with
inherent margins built-up in transmission system to take
care of flexibility required for transfer of 15% of unallocated
capacity. Current regulation provides for free of cost
connectivity to ISTS, lending to a tendency of piggy riding
on the existing network. In addition, even if a generator
seeks LTA, he still has to stand in the queue for MTOA and

STOA and pays again for such scheduling of power and


makes double payment. As very few long term tenders are
getting finalized, newly added capacities are getting sold
on STOA, hence putting pressure on existing transmission
infrastructure.
Poor health of Distribution companies- The sorrow
plight of the DISCOMs is known to everyone who is directly
or indirectly related to the power sector. Huge debt of
distribution utilities is creating a wider gap between the
various development aspects of the Power sector. IPPs
and various other GENCOs are not ready to wait for the
overdue payments from the DISCOMs. Moreover Traders
hardly have option to discontinue the supply, once a
contract is finalized. Power trading is undergoing through
a phase when power is being supplied without any
adequate payment security mechanism, without a choice
to terminate a contract, in case of a payment default. As
per the Standard bidding guideline for procurement of
power, there is a provision of Letter of credit to be provided
by the utility whereas the bidder has to provide Contract
Performance Guarantee to the utility. Many utilities
have made modifications to the document as per their
convenience. The utilities follow the practice of asking the
prospective bidders to furnish the bid bond and contract
performance guarantee, whereas, they are unwilling to
extend any payment security.
In a regime, when the trading margin is capped at meager
4 or 7 Paise/kWh, trading is facing a risk that the Working
capital of traders exceeds total capitalization.

Short Term Market performance


After enough deliberation on difficulties for short term power
trading, let's have a look at how the short term market has
performed lately.
Table below depicts the performance of Short term Market
for the last 3 years

Volume of electricity transacted through power exchanges


witnessed a sharp increase of about 30% over 201213 volume. On the other hand, the volume of electricity
transacted through trading licensees witnessed decrease
of 2.8% despite overall increase in Short term volumes.
In terms of prices, the average price for bilateral market
is mainly on account of higher tariffs in Southern Region
power market. Because of the tendency of remaining front
runner in securing the available resources, Southern region
states mostly tie up the available power on bilateral basis
also resulting into a smaller power exchange market size.
The lower prices on power exchanges may not reflect

the stabilized operation of Power exchanges but may be


a reflection of distress sale by the sellers in Day Ahead
market just to sustain their operations (Added capacity
being a sunk cost) due to a shrinking bilateral market.

Short Term Market for Open Access Consumers


In the power market community, Open Access consumers
and sale of power to Industrial consumers is a much
talked about subject. Despite of a power hungry Indian
Industrial community, this market segment is still to see
the real light of the day. The only silver line in the cloud
is that in both power exchanges, Open Access industrial
consumers bought 18.07 BU of electricity, which formed
60.20% of the total day ahead volume transacted in the
power exchanges during 2013-14 despite of high to very
high Cross subsidy surcharge liability on these customers,
thanks to remarkably low prices on the Exchanges.
So the question is why bilateral Open Access market is
not achieving similar kind of success. One visible reason is
higher tariffs asked by the sellers for scheduling of power
in advance making it unviable vis--vis power supply from
DISCOMs after factoring the Cross subsidy surcharges
and other intrinsic risks of scheduling power through Open
Access. Other underlying reason is the instability of grid
and lack of flexibility available to the Industrial consumer
to immediately switch to an alternate supplier, in case of a
generation outage (The consumer even has to surrender
his Power Exchange NOC to switch to bilateral mode). I will
cite one such example of bilateral open access transaction
in which a North-East based PTC's consumer was being
supplied power from a CTU connected generator in
Western region. On one fine day, Western regional load
dispatch center revised the schedule during real time
forcing the consumer to shut down their continuous
operation hence incurring heavy losses. A power
exchange being a pooled market somehow also provides
immunity to these buyers from generation outages or any
region specific grid issue. However, it is felt that sourcing
of power through firm contracts is the only long term and
enduring solution provided the existing challenges of
Cross Subsidy Surcharges and scheduling are done away
with. For an uninterrupted supply of power, it is essential
that an identified spinning reserve for catering to Industrial
consumers is established to plug unscheduled disruptions
like generator outage. In addition, the Industrial consumers
should also be provided the flexibility to simultaneously
participate on Power exchanges, a facility not available to
them for implausible reasons.

Conclusion
Amidst all these challenges, Short market is still eying a
revival. Thanks to the federal outlook of bringing widespread
changes to the regulatory framework like Separation of
Carriage and Content, Introduction of General Network
Access (GNA), Ideation of a Green Corridor, etc. At this
juncture, we just have to patiently watch how this plan is
converted to a reality.
JUNE 2015 | PTC INDIA LIMITED | 37

COAL MINES AUCTIONS:


NEED FOR TANGIBLE
SUCCESS

Arpit Agarwal
Manager,
PTC India Limited

he Supreme Court of India through its judgment in


August 2014, read with its order in September 2014,
cancelled allotment of 204 Coal Mines in India allotted
during 1993 to 2010 and concluded that allotment was
arbitrary and illegal. Four operating Mines allotted under
the applicable law were excluded from the purview of the
verdict. However, diversion of coal has been disallowed
from such mines. Subsequently, Government, through the
President of India, promulgated The Coal Mines (Special
Provisions) Ordinance, 2014 in October 2014 to provide the
framework for auction/allotment of Coal Mines and to insert
provisions to allow coal mining for commercial purposes.
Further, Government notified the Coal Mines (Special
Provisions) Rules, 2014 framed under the provisions of the
Ordinance. Subsequently, Government issued the tender
document for auction process. Reverse Bidding model for
regulated sectors like power and Forward Bidding model for
non-regulated sectors like steel & cement was adopted.In
reverse bidding, bidders are to initially quote a discount on
Coal India notified prices for variable tariff determination
and further an additional premium or forward price payable
to the state government, with zero loading on variable tariff.
Government has really done a commendable job by
taking quick decisions to ensure recovery of economic
loss caused by cancellation of mines. In the first round
of auction process 13 mines were put under auction for
Regulated Sector out of total 43 mines for auction. As on
the third week of March 2015, bidding results are highly
mesmerizing as all auctioned mines in power have been
won at an additional premium. In accordance with the
Coal Ordinance, Central Government is responsible

38 | PTCHRONICLE | JUNE 2015

for collection of auction proceeds and transfers it to the


respective State Government where auctioned coal mine is
located. Various state governments i.e. Madhya Pradesh,
Jharkhand, Orissa, West Bengal, Chhattisgarh etc. are
expected to earn close to Rs. 2,000 Crs revenue, annually
for 25 to 30 years with provisions of escalation, from mines
auctioned to power and about Rs. 4,000 Crs annually from
mines auctioned to non-regulated sector. Hence, Mines
allotment by auction process claims great financial benefits
for states. The analysis in this article limited to auctioned
mines only in power.
Claimed benefits must be realized constantly in the next
three decades to demonstrate the real rather perceived
success of auction process. The factors which will decide
the real success are (a) Coal mines are commissioned
and fuel the end use project (b) Power from such projects
reaches to the consumer at zero or estimated variable
tariff (c) state governments receive estimated premium for
25 to 30 years (d) a, b and c milestones gets completed
without any major legal or other complications. Though,
at this stage, it is inappropriate to comment or predict the
future of the auctioned mines, however, similar and past
experiences needs to be interpolated in order to avoid past
mistakes and to relook whether learning is enhanced. One
similar experience faced by all concerns is the competitive
bidding regime, 8 years back.
In year 2007, Competitive Bidding provisions for
procurement of power under Tariff Policy 2005 made to
prevail over the preferential award of PPAs. Primarily,
leaving apart reason for change, present change in mine
allocation process from preferential award to Mines
Auction is very much comparable with change in power
procurement regime in 2007. Basic principles, common
in both process changes, are efficiency improvement
and innovation, transparency in (allotment/ procurement)
process and advantage of competition to consumers.
During year 2007 to 2014, 4 UMPPs cumulating to 15880

MW power, other Case-2 projects cumulating to 10,440


MW power and 30,000 MW power under Case-1 bidding
have been successfully awarded with overwhelming
commercial results. Initial trend of results in the auction of
Coal Mines are very similar to those results in Competitive
Bidding (Case-1 and Case-2). Just like forward price or
additional premium quoted in Mines Auction has surprised
all concerns in many ways, tariffs quoted in Competitive
Bidding including UMPPs surprised all concerns in the
similar manner. The success of Competitive Bidding
resulted Statutory Advice by CERC to the Government in
June 2010 not to extend the deadline of cost plus tariff
approach for utilities. Advice was based on comparison
of tariff discovered in Competitive Bidding and cost plus
approach. This is similar to the current considerations
regarding auction of coal linkages rather than giving them
free. In Competitive Bidding 'Efficient and Innovative Private
Sector' bidders are ready to take several risks related to
project development and consumer was expected to be
the biggest beneficiary. Such readiness of private sector is
quite visible in the present Mines Auction and consumer is
once again claimed to be the largest beneficiary of reverse
bidding. It seems like the famous idiom 'History Repeats
Itself' becoming true but in different form.
As of now, out of about 56,000 MW contracted under
competitive bidding, almost all projects (running or
under construction) are seeking tariff revisions, either by
litigation or by request to the procurer, due to financial
viability and other reasons. The first captive coal based
UMPP, awarded at so called 'low tariff', approved for
compensation under 'change in law' by Central Regulator
vide Order in February 2015 read with earlier orders. Many
such cases are waiting for similar relaxations in various
courts of law. Under normative parameters merely 10
paisa/unit increase in tariff of competitive bidding projects
would result in an additional burden of about Rs. 4,000 Crs
annually on concerned states and consumers. So, once
upon, the surprises and fascination are now being seen
as a discomfort by all concerns in less than 7 years. For
whatever reasons, valid or invalid, the ultimate objective
of giving competitive advantage to consumer is no more
claimed sacrosanct as either one or both of tariff and
availability of power is being questioned. In other words,
the perceived competitive advantage to the consumers
proved jinx. Two of the major reasons leading to current
situation are (a) risks taken beyond the Risk Appetite and
(b) ignoring commercial principles. Some other reasons
are also claimed in few cases that unviable bids were either
intended just to get the award with the intention of future
tariff manipulations or increasing business valuations to
fetch maximum returns on equity from public and investors.

investment of Rs. 3.5 lakh Crs have either turned into


non-performing assets or where promoters have delayed
paying the installments, putting at stake the future of loans
worth close to Rs 55,000 Crs that have been disbursed.
This amount does not include the exposure of other FIs
and NBFCs. So, primary sufferers are either lenders who
are sitting on probable restructured debts and NPAs
or consumer who is yet to receive its right to power at
reasonable cost. Equity investors, having investments upto
15% to 30% of project cost, are also financially distressed,
though comparably less than lenders. Some of them have
already recovered their benefit by selling equity at higher
valuations.
We need to utilize this learning and must not allow past
of Competitive Bidding to repeat in the future of Mines
Auction. Private sector always follows the basic commercial
principle of 'output profit' vs 'input cost'. The current bids
received in the Mines Auction are such that bidders are
ready to supply power not only at zero fuel cost but also
paying somewhere between Rs. 0.30 to Rs. 0.60 per unit of
electricity supplied on normative parameter of 3500 KCal/
Kg of calorific value and 2300 KCal/kWh of heat rate. So,
if a 1320 MW power plant consumes coal of auctioned
mine and runs at normative availability of 85%, it would
effectively be paying close to Rs. 300 Crs to Rs. 600 Crs
annually to the government and also taking the burden of
operating cost of coal mine. At 30% equity and Rs. 5 Cr/
MW of capital cost, 1320 MW project would effectively be
earning just about Rs. 300 Crs at 15% RoE annually which
means either merely fixed cost recovery with zero profit or
loss leading to financial distress in projects.
Distress scenario for all auctioned mines and end use
projects is not wise assumption. Better assumption would
be that bidders have taken risks with the expectations of
making an even deal in future and have also identified profit
sources. Government is not supposed to establish financial
viability of the bids received in an auction or bidding, but is
responsible to ensure that the end result of such bidding

The successful developers were also able to arrange debt


funds of 70% to 85% of project cost based on PPAs for
so called 'Pipeline Projects' signed under Competitive
Bidding. Banks have recently prepared a list of 74 large
infrastructure projects including power envisaged a total
JUNE 2015 | PTC INDIA LIMITED | 39

meets the objective of entire process i.e. (a) financial


benefits should not remain merely on paper (b) States get
power, and not litigation, generated from auctioned coal
mines and supply to consumers at reasonable tariff (c)
Since mortgage is allowed on auctioned mines, lender
should not suffer by probable bad debts in future against
nonproductive assets of unexplored mines. In short, future
of Mines Auction should not carry risks of non-adherence
to bid parameters, suffering of lenders and investors, and
legal hurdles as the case with Competitive Bidding. Such
avoidance can be made possible by recognizing certain
facts.
Just like humans, infrastructure projects also have basic
needs for survival. 'Fuel Resource' for a commissioned
project is like 'Water Resource' for a human being. When
both resources are in abundance nobody bothers, but as
scarce resource both are able to create severe distress not
only individually but also economically. Let us consider a
scenario of water scarcity and authority decides to auction
it. Outcome is certainly one. Depending on location of
water reserves and individuals, few among riches would
get it while others will have a dead end. Such situation is
not sustainable. Similarly, no project should face a dead
end due to fuel unavailability. Someone may argue that
developers took their own business risks on fuel front
when started project just like human being born without the
guarantee of water availability by any authority. However,
this argument does not change the fact that a minimum
lifeline resource is essential to avoid dead end. Another
fact is when scarcity increases with time, this leads to
abnormal increase in the value of scarce resource. If
auction of coal mines were done 10 years back then,
perhaps, results might not be so much startling as they are
today. In case of vice versa i.e. auction 10 years later, much
better results than today. In short, allotment of unexplored
scare resource and fixation of price in long term may
lead to dead end. In the optimistic scenario, domestic
coal shortage of 192 MMT (source: MoP) is expected by
FY 2016-17 to be met either by import or other means.
According to the New Coal Distribution Policy (Amended
in July 2013), projects commissioned by March 2015
would get phased commitment from 65% to 75% of coal
requirement at Normative Availability. An equal curtailment
is one way of ensuring no concerned faces dead end and
also a better way of dealing with coal shortages.
However, this argument does not change the fact that a
minimum lifeline resource is essential to avoid dead end.
Another fact is when scarcity increases with time, this leads
to abnormal increase in the value of scarce resource. If
auction of coal mines were done 10 years back then,
perhaps, results might not be so much startling as they are
today. In case of vice versa i.e. auction 10 years later, much
better results than today. In short, allotment of unexplored
scare resource and fixation of price in long term may
lead to dead end. In the optimistic scenario, domestic
coal shortage of 192 MMT (source: MoP) is expected by

40 | PTCHRONICLE | JUNE 2015

FY 2016-17 to be met either by import or other means.


According to the New Coal Distribution Policy (Amended
in July 2013), projects commissioned by March 2015
would get phased commitment from 65% to 75% of coal
requirement at Normative Availability. An equal curtailment
is one way of ensuring no concerned faces dead end and
also a better way of dealing with coal shortages.
The idea here is not to suggest that Coal should be
distributed at a price less than its right value. It would be
an evil idea and will only help few to earn windfall profits.
We must utilize the past learning that power sector is full
of uncertainties due to its specific requirements. Long
term commitments of 30 years were possible when every
uncertainty allowed under cost plus regime with inbuilt
flexibilities. 30 years commitments without any flexibility
will actually lead to imbalance or may cause economic
instability by derailing the ultimate objective of Power to
consumer at reasonable tariff. In case of coal auction,
at different point of time there may be huge variation in
the right value of coal. Such value has direct correlation
with (a) tariff determination by regulatory commissions (b)
paying capacity of utilities and consumers (c) variation
in short term power sale prices. The additional premium
quoted by developers for getting a mine may just be only
a gross financial benefit to the government. Net benefit
would actually be only after factoring in the increase in
cost of power generated from the auctioned coal mine and
procured by State.
The current mines auction is carrying the risk that in future,
say after five years, it may be discovered that mines were
not allotted at right value i.e. either at cheap additional
premium or at financially unviable prices. Such situation
must be avoided. The objective should be benefit to all or a
win-win situation for all stakeholders i.e. procurer discoms,
generators and consumers. There are three ways to ensure
securing tangible benefits and determine right value at a
given point of time: (a) Regulated commercial sale of coal
by MDOs under monitoring by Government (b) Opening
up Section 62 of the Electricity Act 2003 and provide coal
linkages to generators sell power under Section-62 (c)
Simplify approval process for mines and projects as well
to reduce gestation period and early commissioning. First,
appointment of MDO will ensure that allottees do not sit on
unexplored mines when commissioned projects facing coal
shortages. Government role may be to ensure developing
infrastructure for coal transportation, determining market
price of coal on monthly or quarterly basis and monitoring
coal supply by MDOs. Projects buying coal from MDOs may
be allowed merchant sale with sharing of profits with the
government. Second, opening Section 62 would actually
benefit sates and consumers by ensuring power supply
at reasonable tariff. Third, approvals simplification would
ensure creating conducive environment and investment in
the sector.
The first two are policy level decisions and requires less time
for implementation. The third requires better governance

and long term planning. The advantage of Mines Auction


and allotment to private sector is assurance of fuel supply
with self-dependency and reducing government monopoly.
In the previous (cancelled) process of allotment of mines,
private sector was claimed to be the largest beneficiary
earning windfall gains by selling power in short term
generated from coal allotted free of cost. Though, only 21%
of allotted mines (46 out of 218) considered operational by
March 2015. The approach of windfall gains to private with
zero sharing with government who is the actual owner of
the national resource (coal) by law was a loss to the public
exchequer. Had there been a policy framework that power
generated from captive mines would be sold only under
Section 62, it might have been perceived as a benefit to the
procurer state and consumers and raised less concerns.
However, this was perhaps could not be considered due
to Tariff Policy provisions implemented in 2007 related to
Competitive Bidding. Under the current process of Mines
Auction, there are certain provisions regarding transfer of
coal to Coal India at fixed cost say Rs. 100/Ton linked with
long/medium term power sale. Long term sale is currently
depending upon timing of tender issuance and beyond the
developer's control. Transfer of coal at unviable cost may
lead to dead end or legal hurdles. Hence, any of the one
policy decision - either short term sale allowed more than
15% or opening up Section 62 would ensure interests of all
concerned are protected.
One major issue, remain suppressed, was why people
were sitting on 79% of undeveloped and unutilized mines
allotted between 1993 and 2010 and what did they gain
from this? For some, private sector may be smart enough to
extract maximum gain from undeveloped mines. However,
one undermine fact is that Many coal mines could not be
developed due to delay either in the statutory clearances
of end use project or of coal mine itself. Private sector has
been putting lots of efforts to develop projects without
enjoying the inclined approach of authorities as may
have towards state utilities. The National Electricity Policy
recognizes electricity as one of the key drivers for rapid
economic growth and poverty alleviation. It emphasizes
private sector participation in all segments of power sector.
Private sector contribution has significantly grown from
18% (28 GW out of 157 GW installed) to 36% (93.3 GW
out of 259 GW installed) of total installed capacity in the
span of just 5 years from 2010 to 2015. Such contribution
is one of the major factors in reducing the energy deficit
from 12.2% in 2010 to 3.8% in 2015 and facilitating the
economic growth in the country. As per CEA, about 84.5
GW thermal projects are at various stages of development
and about 55% i.e. 46.3 GW is being developed by Private
Sector only. About 4 Lakh Crs have already been spent on
those under construction projects and out of this about Rs.
2.4 Lakh Crs spent on private sector projects. A conducive
environment would ensure that investment of debt and
equity investors are secured and consumer gets his right
to power at reasonable cost.
JUNE 2015 | PTC INDIA LIMITED | 41

RETAIL ELECTRICITY
MARKETUK EXPERIENCE

Sneh Daheriya
AVP,
PTC India Limited

ndian power sector is moving towards giving choice


and good quality services to the consumers at an
affordable price and the government through the Electricity
Act Amendment; is in the process of creating a policy
framework for the same. To gain more insights in the much
awaited amendment in the Electricity Act 2003, which
provides for competition in the retail supply segment; we
endeavor to understand and learn from the international
experience for such reforms.
Internationally, the competitive retail supply model has
been implemented in a full-fledged manner in the United
Kingdom, Norway, Finland, Spain, New Zealand, few
States of Australia and California. The United Kingdom
is considered as the one of the most successfully
implemented models of competition in the retail electricity
supply. The reforms process in UK started in late 1980s, and
saw several transformations before retail competition was
finally made available to end consumers at the household
level. Hence to understand the challenges faced during the
transition phase and how they were resolved may be useful
to us. Prominent difference between India and UK is that
in India; we have electricity, a separate market than gas
whereas in UK, electricity and gas supply markets are dealt
with together and have single regulator - Office of Gas and
Electricity Markets (OFGEM).
UK Electricity sector prior to the Reforms
Prior to electricity sector reforms, UK electricity sector had
vertically integrated Generation and Transmission. The
state-owned Central Electricity Generating Board (CEGB)
used to look after generation and transmission of power,
and regional area board to distribute and supply power to
various geographical areas.
Restructuring of the power sector in UK
Restructuring and privatization of the electricity sector in UK
commenced with the notification of The Electricity Act 1989
which provided for privatization, introduction of competitive
markets, and a system of independent regulation. In 1990,
42 | PTCHRONICLE | JUNE 2015

all coal-fired and oil-fired generating were allocated to


two new companies, National Power and PowerGen. The
vertically integrated CEGB was split into three generating
companies named National Power, Powergen and Nuclear
Electric and one transmission company - National Grid
Company (NGC). Regional area boards were replaced
with 12 Regional Electricity Companies (RECs) and the
local distribution systems were transferred to the RECs.
Later on, the government also sold off all 12 RECs.
The Electricity Pool was set up to facilitate a competitive
bidding process and also acted as a clearinghouse
between generators and wholesale consumers of electricity.
The NGC operated the Pool and administered the Pools
settlement system. The Electricity Pool was often subjected
to regulatory interventions to control monopolistic behavior,
such as price manipulation by generators by withdrawing
plant from the market at key times and lack of competition
in price setting.
Review of Electricity Trading Arrangements (RETA) was
launched by OFGEM in 1998 to set up a new wholesale
market mechanism to replace the Pool to fix major
weaknesses in pool trading arrangements. OFGEM
introduced another system of trading named New
Electricity Trading Arrangements (NETA). NETA adopted
trading arrangements similar to those in traditional
commodity markets. It was based on bilateral trading
between generators, suppliers, traders and customers
through forwards and futures market and short-term power
exchanges over a scale of time ranging from intra-day
day to several years ahead. As of 2005, NETA changed
its name to the British Electricity Trading Transmission
Arrangements (BETTA), and expanding to become the
single Great Britain electricity market of England, Wales
and Scotland.
The Utilities Act 2000 abolished the existing distribution/
retail licenses, and introduced a license, allowing all
suppliers to supply customers nationwide. The Act also
made a provision for separating supply and distribution
activities. Any company holding an electricity supply license
could now sell electricity, and all customers became free
to choose their own supplier. Certain price controls were
introduced in the electricity supply sector at privatization.
These price controls were applicable for those consumer
categories who could not yet take advantage of the
competitive market, owing to phased introduction of retail
competition.
To eliminate conflict of interest, the Act provided that a
distribution network operator could no longer sell electricity
as a retail supplier. The rationale being that allowing
distribution companies to remain in retail sale may adversely
affect market competition as distribution companies may
discriminate between their own consumers and those
taking supply from competitors, or they may subsidize
their own retail customers by using the wire tariff to crosssubsidize them.

Implementation of Retail Competition in Phased Manner


The supply market was opened up to competition in three
phases, starting from April 1990 and till May 1999. The
retail side of the market was divided into franchise and
non-franchise customers. Non franchise customers were
given the option of choosing their supplier from any of
the 12 RECs or from the pool or from retailers. Suppliers
buy electricity from the wholesale market or directly from
generators and arrange for it to be delivered to the end
consumers.
Phase-I (1 MW and above):
With effect from 1st April 1990, customers with peak
loads of more than 1 MW (about 45% of the non-domestic
market and 26% of total sales) were allowed to choose
their supplier. At this stage, separation between distribution
and retail services was not mandatory.
There were two types of supply licenses.
i. The local monopoly distribution company needed a firsttier supply license
ii. Other companies, generating companies, traders, or
distribution companies from other locations needed a
second-tier supply license
Phase-II (100 KW and above):
From April 1994, the open market was extended to
consumers having 100 kW and above demand. With time,
more and more consumers opted for competitive supply.
As per the OFGEM estimates, in 1999-2000, customers
accounting for nearly 80% of the output in the 1 MW market
chose to take their supply from a company other than their
local Public Electricity Suppliers (as compared with 43% in
1990- 91). Similarly, by 1999-2000 customers accounting
for 67% of the output in the 100 kW to 1 MW market chose
to take their supply from a company other than their local
Public Electricity Suppliers.
Phase-III (All loads):
In September 1998, competition was introduced for
supply of electricity to domestic market (below 100
kW). By September 2001, 38% of domestic electricity
customers had switched supplier one or more times since
the introduction of competition. After an initial increase
in the numbers of licensed electricity suppliers operating
in the electricity supply market, there was an increase in
merger and acquisition activity suggesting a trend toward
consolidation of the electricity supply market due to falling
prices and relentless competition.There are various types
of Supply Licenses in UK at present, e.g. those for supply
to Domestic premises, Non Domestic premises, Green
Deal arrangements, etc. and supply licence applicants can
even apply for specific premises/areas in which they are
willing to supply electricity.

after capital and operating costs while limiting the amounts


that customers can be charged. Price controls are set for
5-year periods. To give an indicative idea of what comprises
a typical electricity consumer's bill, out of a total consumer
bill, wholesale costs account for ~37% and VAT & other
costs account for ~44%, leaving a gross margin of 19%
on the bill for the retail supplier. As compared to this gross
margin, operating costs are ~10%, leaving a net margin of
~9% for the retail supplier on supplying to this consumer.
The net margin has been steadily increasing in the last few
years. The new model is considered successful as ~72%
of consumers have switched their gas and/or electricity
supplier during the last few years. However, the domestic
consumers are still resistant to opt for alternate supplier.
Reasons for this have been attributed to the high search
cost, high switching costs, misleading tactics by retail
supplier firms and due to pure decision error by consumers
as a consequence of the complex market environment.
UK Govt has planned for installation of smart meters to
all households by 2020, wherein consumers with smart
meters will be offered an in-home display (IHD) that lets
them see how much energy they are using and what it will
cost. This will let them have more control over their energy
use and help them save energy and money.
The UK experience is highly inspiring for a nation
considering segregating electricity wire and retail supply
businesses, and introducing retail competition. The phased
model of rolling out retail competition is necessary in order
to allow the market, so far having limited competition under
the control of a regulator, to evolve to competition-based
price setting at a retail level.
Reduction in retail electricity prices observed in the UK
happened due to various reasons that complemented the
benefits from retail competition such as wholesale market
reforms and discovery of alternative source of energy (gas).
In the post reform period, the role of the regulator remains
important in monitoring the market behavior of competitive
rivals and ensuring that the market remains free and
impartial, which makes it possible for consumers to benefit
from the potential gains from a competitive market.

Value to Consumers
The regulator OFGEM administers a price control regime
that ensures that efficient distributors can earn a fair return
JUNE 2015 | PTC INDIA LIMITED | 43

STRENGTHENING OF REGULATORS A
MUST FOR MARKET EVOLUTION
Manan Thaper
Senior Manager, Price Waterhouse Coopers

n the mid-1990s, when the government felt the need


to reform the ailing electricity sector, the establishment
of regulatory bodies was seen as the first step towards
reforming the sector and creating the distance between
the government and the utilities which were predominantly
state owned. The sprit behind the creation of these
regulatory bodies was to regulate the functioning of the
utilities, create a competitive, transparent and consumer
friendly environment and address key issues pertaining to
cost reflective tariffs, consumer protection, quality etc.

generate cross subsidies for subsidized categories. The


creation of regulatory assets or uncovered gaps leads to
cost under-recovery;

As we approach to the end of two decades in the span


of Indian Power Sector since the institution of Electricity
Regulatory Commissions (ERCs), it is critical to analyse
the effectiveness of regulators and contemplate on the
agenda for future of ERCs. Ever since inception, the ERCs
have made significant contributions in the power sector's
evolution. The Central ERC and the ERCs in some of
the progressive States have set benchmarks for others
to emulate and better. While there has been substantial
progress in the development of regulations and standards/
codes, implementation has remained an area of concern,
resulting in an inconsistent regulatory environment. Some
of the challenges in this direction have been:

In many ERCs, annual tariff filing becomes ritualistic to


balance costs and revenue with complete disregard for
quality and other important issues;

Continued Governmental Intervention:


State government interference is evident in setting budgets,
regulatory interventions and tariff revisions;
Absence of Cost Reflective Tariff:
Some consumer categories are charged high tariff to

44 | PTCHRONICLE | JUNE 2015

Staffing & Capacity Issues:


There has been government interference in ERC staffing.
Also, the regulatory bodies are skeletal in nature, lacking
staff and adequate skill sets;
Lack of Basic System for Monitoring Performance,
Quality and Compliance:

Pick And Choose of Regulatory and Statutory


Provisions:
Though evolving, the existing regulatory and statutory
provisions provide ample space to every stakeholder
for equitable development. But, the concerned state
governments and utilities have been sometimes selective
in choosing the provisions benefitting them including
imposition of Section 11, complying to Renewable
Purchase Obligations (RPO), optimal power procurement,
and computation of cross subsidy etc.
Lack of imposition of strict measures:
Some ERCs have been observed to follow strict stand
against the performance of state utilities for the regulated
trajectory of reduction of losses. But, no significant
measure has been taken by regulators against the state

utilities for their non-compliance of regulated RPO and


non-proliferation of Open Access etc. Such measures
curtail sector growth as well as also deter private sector
participation;
Non Utilization of Power System Development Fund
(PSDF):
PSDF is a pool of revenue accumulated resulting from
transmission congestion, which needs to be utilized
for system improvements in the sector as directed by
the CERC, primarily, for improvements in transmission
infrastructure. The government has already approved the
note for utilization of PSDF, but any progressive measure in
this regard is yet to be seen;
Barriers to Open Access (OA):
The Act and subsequent regulations have required the
State regulators to introduce OA in a phased manner and
utilities to make all necessary arrangements for technical
feasibility and commercial settlement of OA transactions.
But, its implementation in a true sense is still a distant
dream as OA is being actually allowed by only a limited
number of states due to lackluster approach toward this
aspect and hindrance posed by state utilities.
Inconsistent and Ineffective regulatory interventions across
different states have impacted the commercial viability of
the utilities and limited their ability to provide quality power
to consumers. The Shunglu Committee also listed multiple
factors responsible for sector's ill including non-revision
of tariff for many years, mounting power purchase costs,
interest burden due to working capital inadequacies,
disallowance of legitimate costs, increasing cross subsidies
and non-enforcement of performance regulations.
The need of the hour is to revamp the regulatory system
in the country by bringing in fundamental changes in the
selection and staffing of Commission, conduct of business
and performance measurements of ERCs, so as to
make the ERCs more accountable. Strengthening sector
regulators and making them more autonomous might help

in witnessing prudent & unbiased steps and measures


for the promotion & development of sector as a whole.
Additionally, creation of an Independent body to appraise
the performance of the regulators can be the right way
forward.
With the new amendments to the Electricity Act' 2003
Amendment Bill, 2014, the sector shall have to handle
carriage and content (wire and supply) business separately
which would bring into picture multiple stakeholders (both
private and public) operating in a synchronous manner.
This would require a proactive regulatory mechanism to
understand and assess the implementation issues and
provide for pragmatic and proactive regulatory regime
in the country. In view of this, the government may feel
the need of an independent body to appraise the ERCs.
Assessing the regulatory effectiveness is also relevant in
the light of the new additions (Section 109A) in the Act,
which emphasizes on the need to have performance
review of ERCs by an independent committee.
While the creation of an independent body to appraise
ERCs may be the right way forward, it needs to a well
thought out institution in terms of its objectives, jurisdictions,
functions etc. Some issues that need greater debate would
be- Who should constitute the body? where does this body
reside? What more this body can do apart from monitoring
progress and benchmarking, given the country's federal
structure and the fact that power is on concurrent list and
market is up for evolution? Is there a parallel to this idea in
other emerging markets?
Given the sector metrics reflecting 25% (approximately 0.3
billion) of population without electricity access, per capita
electricity consumption of 917 units (approx. a one-fourth of
the global average), high AT&C losses, distressed financial
condition of the utilities and unavailability of quality and
reliable power to consumers, the regulatory system needs
serious repositioning enabling it to provide a panacea to all
the sector stakeholders and be better prepared next level
of market evolution.

JUNE 2015 | PTC INDIA LIMITED | 45

APPLICATION OF
ARBITRATION CLAUSE
IN POWER PURCHASE
AGREEMENTS

R D Gupta,

Ex Director Commercial, NTPC and Ex Member, UPERC

All power purchase agreements provide for arbitration


clause for resolving the disputes between generator &
licensee. However let us examine various provisions of
electricity Act 2003Section 174 of the Electricity Act states:
Section 174. Act to have overriding effect:- Save
otherwise provided in section 173, the provision of this
Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in
force or in any instrument having effect by virtue of any law
other than this Act.
Further Section 173 states:
173. Inconsistency in laws:- Nothing contained in this Act
or any rule or regulation made thereunder or any instrument
having effect by virtue of this Act, rule or regulation shall
have effect in so far as it is inconsistent with any other
provisions of the Consumer Protection Act, 1986 (68 of
1986) or the Atomic Energy Act, 1962 (33 or 1962) or the
Railways Act, 1989 (24 of 1989).
From joint reading of these provisions indicates that
the Electricity Act 2003 will prevail over all other laws or
instruments except Consumer Protection Act, Atomic
Energy Act or the Railways Act. In other words, except for
these three acts, the act of 2003 will prevail over all other
laws and instruments.
Further section 86 of the act provides functions of the state
commission & Section 86(1) f, states,
86(1) f - adjudicate upon the disputes between the
licensees & generating companees and to refer any
dispute for arbitration
Combined reading of section 173, Section 174 and section
86(1)f, clearly indicates that the dispute between licensees
& generating co. can only be adjudicated upon by the state
commission either itself or by an arbitratior to whom the
commission refers the dispute.
Further Section 158 states:
158. Arbitration:- Where any matter is, by or under this Act,
directed to be determined by arbitration, the matter shall,
unless it is otherwise expressly provided in the license of
licensee, be determined by such person or persons as
the Appropriate Commission may nominate in that behalf
on the application of either party; but in all other respects
the arbitration shall be subject to the provisions of the
Arbitration and Conciliation Act, 1996 (26 of 1996).
Based on the provisions of Electricity Act 2003 & provisions
of Arbitration & Conciliation Act 1996, Supreme Court in
case of appeal (civil) 1940 of 2008
Where Gujrat Urja Vikas Nigam Ltd & v/s Essar Power Ltd
were parties, decided on 13/3/2008 that dispute between
licensees & generating companies are to be resolved either
by the state commission itself or by arbitrator nominated
by it.

46 | PTCHRONICLE | JUNE 2015

Section 11 of Arbitration and Conciliation Act 1996


has no application in such matters. Section 86 (1) f,
having a special provision will override the general
provision in S-11 of 1996 Act. However section
86 (1) f of the electricity Act is only restricted to
authority which is to adjudicale or arbitrate between
licensees and generating companies
Procedural & other matters related to such
proceeding will be governed by the 1996 act
unless there is conflicting provision in 2003 act.
Legal experts have different view on this decision
and want more clarity either by a judicial
pronouncement where the issue is looked in to
totality or by a legislative amendment mainly on
following grounds:
Intent of the legislature was not to discourage
arbitration.
Arbitration is expeditious and beneficial to the
parties

All standard documents


related to
bidding,standered PPA etc provide for arbitration
clause.

Where dispute is not technical in nature and


purely contractual in nature may br referred to
arbitration.
I beg to differ on following grounds:
All PPA'S are approved by the regulator.
Electricity is specialized subject and dispute is
better appreciated by regulatory Commission.
Further, only S11 of Arbitration Act 1996 has
been taken away and given to Regulatory
Commission to nominate arbitrator if so desired
by them,otherwise all procedure of Arbitration
Act 1996 will apply
The arbitration is an alternative dispute resolution
mechanism & was intended to provide faster
resolution of dispute. However in practice the
process has become tardy & dispute resolution is
taking longer time & increase cost.
Further, most of the awards of arbitrators are
challenged in courts. And in most of the cases,
challenged in lower courts and remain pending for
long. The section 34 of Arbitration & Conciliation
Act provides for setting aside arbitral award and
generally the opposite party takes recourse to S 34 (b ) II if the arbitral award is in conflict with the
public policy.
In case of dispute resolution by the regulatory
commission, the same is appealable in APTEL and
finally in Supreme Court and is generally faster.
JUNE 2015 | PTC INDIA LIMITED | 47

POLICY INSTRUMENTS
FOR RENEWABLE
ENERGY: EFFICACY
ANALYSIS

Sapan Thapar
Fellow, TERI &
Adjunct Faculty, TERI University

he renewable energy sector is being promoted in India


and across many other countries by way of policy
enablers. However, with limited funds and competing
demands, a debate has been going on to judge the
efficacy of various schemes in terms their market impact.
In this regard, an analysis has been undertaken on the
two important schemes - staggered payment (GBI type)
and upfront subsidy payment (VGF type) to enable policy
makers design more efficient programs. As per the
analysis, the upfront payment mechanism reduces the
cost of capital and frees up promoter equity for further
investment, whereas, the staggered payment encourages
the promoter towards generation optimization and limits
the strain on government exchequer. Innovative options
like mixing of these kinds of subsidies, risk based support
and concept of revolving quasi equity have been explored
in the article below aiming at effective utilization of scarce
monetary resources.
Introduction
Renewable energy projects utilizes locally available naturally
resources to generate clean energy. They enhance energy
security and facilitate modular & decentralized formats of
energy for meeting lifeline energy needs. Being capital
intensive and associated with lower generation levels, the
renewable energy projects require promotional efforts to
make them competitive with conventional energy based
projects.

48 | PTCHRONICLE | JUNE 2015

The Government of India has been promoting this sector


by way of several policy enablers, including pro-active
policies and regulations, preferential tariffs, fiscal &
financial incentives (income tax holiday, duty exemptions,
grants/ subsidies, accelerated depreciation etc.) and RPO.
As a result, there has been a tremendous growth in the
deployment of renewable energy based projects across
the country.
However, with limited public funds and competing
demands, a debate has been going on to judge the efficacy
of various schemes/ incentives in terms of budgetary
support and their market impact. An example in this case
is the generation based incentive (GBI) scheme and the
viability gap funding (VGF) scheme, both of which have
their own share of success & challenges.
In this regard, an analysis has been undertaken on the
aforementioned schemes to enable the policy makers
develop effective programs and policies to accelerate the
growth of renewable energy sector in India.
Subject of Research
With an objective to study the effectiveness in terms of
money utilization and market development, an analytical
comparison has been undertaken on the two types of
support mechanisms in vogueI. Staggered Payment made upon actual generation of
clean power (quarterly/ annual mode) like the GBI

scheme prevalent in the wind sector

Staggered Payment (GBI):

II. Upfront payment to a renewable project like grants


provided to biomass & hydro energy projects and the
VGF scheme for solar sector
For the sake of simplicity, it has been assumed that GBI
is being paid to a one MW project @ 50 paisa / kWh for a
period of 10 years. The subsidy to be paid on an upfront
basis shall be also of similar amount (calculated on an NPV
basis).
The following values have been considered for tariff
computation (similar to values used by CERC)
Parameter

Unit

Value

Project Cost

Rs Lakhs/ MW

650

Debt

Rs Lakhs/ MW

455 (70%)

Equity

Rs Lakhs/ MW

195 (30%)

Cost of Debt

13

Cost of Equity

17

Discount Factor

12

Annual Depreciation

5.83

CUF

21

O&M Charges

% of project cost

1.62

Annual Escalation in O&M

Project Life

Years

25

Using the parameters listed in the table above, the tariff


comes out @ Rs 6.18 per kWh. Taking GBI incentive @ 50
paisa / kWh for a 1 MW project (generating a PLF of 21%
and assuming a discount rate of 12%), the total outgo for a
ten year duration in terms of NPV (net present value basis)
shall be Rs 52 lakhs. The incentives shall result in increase
in returns to the investor by about 8% (per unit incentive of
50 paisa on a tariff of Rs 6.18).
The impact on the exchequer shall also be limited, making it
easy to earmark funds for other equally important activities.
A 1000 MW scheme can be rolled out with mere allocation
of Rs 92 crores in the first year (taking the annual outgo @
Rs 9.2 lakhs for a 1 MW project).
However, there can be issues on fund disbursement as the
agency involved in project monitoring & subsidy disbursal
upon verifying power generation would be taking certain
per cent as handling charges. As such, the effective outgo
from the government would be higher. The fund handling
charges (usually taken @ 2% of total funds) for a 1000
MW programme shall be about Rs 2 crores on an annual
basis. Further, as the wind resources vary from region
to region (different CUF levels), there can be issues with
regard to higher incentives for projects located in better
wind regime areas. Even with a defined cap on incentives
(both annual and total), higher generation by a project shall
lead to better realization (in NPV terms). For example, a
JUNE 2015 | PTC INDIA LIMITED | 49

project generating 23% CUF shall get an additional benefit


of Rs 7.5 lakhs per MW in comparison to a wind project
generating 20% CUF (in terms of NPV).

case of underperformance by the project below a certain


threshold (calculated annually).

Moreover, this mechanism, wherein, payment is made


only after generation of green energy, encourages better
operation (and maintenance) of the plant as the incentives
are tagged to generation. This was one of the probable
issues for withdrawal of the accelerated depreciation
scheme (absorbed in the initial years of project
commissioning), which has been subsequently reinstated.
Upfront Subsidy (VGF)
As enunciated above, the equivalent upfront subsidy for a
1 MW project generating a CUF of 21% availing GBI (@ 50
paisa / kWh) would be Rs 52 lakhs, taking a discount rate
of 12%.
The upfront subsidy (in form of VGF) can be considered as
a zero-cost equity (promoter contribution) in the project.
Taking a project cost of Rs 650 lakhs per MW (the project
cost of both wind energy & solar energy based projects
is around Rs 600 lakhs per MW as per draft CERC tariff
order for FY 15-16), the upfront support shall bring it down
by almost 8%. This shall help in reducing the promoter's
equity contribution by a staggering 25% (with debt equity
norms of 70:30, the equity shall reduce from Rs 195 lakhs
to Rs 143 lakhs). This shall lead to a multiplier impact as the
spared equity can be ploughed back into setting up more
renewable ventures. As such, for every 1 MW project, there
can be an additional spin-off capacity of 250 kW (25%).
As the cost of equity is substantially higher than the cost of
debt (especially in developing countries like India having
competing needs of funds), the other noticeable impact
of these zero cost funds (as a part of promoter equity)
would be lowering of the weighted average cost of capital
(WACC). For a project with debt cost of 13% and equity
cost of 17%, WACC shall reduce from 14.2% to 12.8% (135
basis points reduction) due to availability of the upfront
subsidy. This shall improve the returns on investment for
an investor, or, can help towards reduction in the tariff. The
reduction in levelized cost of energy generation on account
of considering this upfront subsidy (zero cost equity) shall
be about 8% (50 paisa reduction from Rs 6.18/ kWh to Rs
5.69/ kWh). This shall make the renewable power attractive
/ economical for utilities to procure. Moreover, being
a onetime payment, the expenses on account of fund
disbursal (handling charges) shall be substantially lower
than the previous case.
However, as the subsidy pay-out is on upfront basis,
the project managers may not be motivated to generate
optimally throughout the life of the project (renewable
projects like solar and wind are associated with a long
operating life, estimated at 20 years).
This can be partly offset by incorporating appropriate
clauses in the power purchase agreement (PPA) like
penalties/ deductions from tariff payment (by utilities) in
50 | PTCHRONICLE | JUNE 2015

Another way to increase the impact & efficacy of


government support/ grant can be provision of the upfront
subsidy in form of low cost debt (kind of quasi-equity). This
shall facilitate a reduction in cost of funds - availability of
10% of project cost (considered as quasi equity) at 5 per
cent rate of interest reduces the WACC by around 120
basis points. This can be a kind of revolving fund, which
can be ploughed back in the sector for supporting new
cleantech ventures, creating a kind of virtuous cycle.
Way Forward
These innovative mechanisms can be discussed in larger
stakeholder's forums to enable design & development of
appropriate & efficient policies for promoting a particular
set of renewable energy technology (ies), with optimum
utilization of public funds.
After incorporating relevant comments, a particular
support mechanism can be launched on a pilot basis
for experimentation to gauge its efficacy with regard to
utilization of funds in terms of market development, before
rolling it out across the country.
The suggested interventions shall support rapid
acceleration of the renewable energy installations in India
in line with its ambitious targets and ensure sustainable
growth of the country.

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The major objective of PTC was to introduce power trading
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