Competitive Bidding in the Power Sector : Is It Working?


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Mr. V.P. Raja
Chairman, Maharashtra Electricity Regulatory Commission
at RPR 2012, 23-26 August, Goa, India

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Competitive Bidding in the Power Sector : Is It Working?

  1. 1. By Shri V. P. Raja, Chairman Maharashtra Electricity Regulatory Commission The Regulators’ and Policy Makers’ Retreat 2012 23-26 August, Goa24/8/2012
  2. 2. Background  Electricity Act 2003 emphasizes the promotion of competition in the sector through various provisions, such as delicensed generation, open access for T&D systems  All these provisions leading to the development of an open and competitive market in electricity24/8/2012
  3. 3. Electricity Act 2003: Provisions for Competitive Markets  Electricity Act, 2003 opens up the power sector for competition with the following provisions:  Delicensed captive generation  Encourages distributed generation  Open Access to transmission and distribution systems  Removal of exclusivity in Distribution License  Trading is recognized as a distinct activity  Mandatory Electricity Regulatory Commissions  Establishing an Appellate Tribunal for Electricity (APTEL) for dispute resolution24/8/2012
  4. 4. Provisions for Competitive Markets  Section 66 of the Act mandates the development of an electricity market & market institutions  Section 60 empowers the ERCs to issue such directions as it considers appropriate to a licensee or a generating company if the licensee or generating company enters into an agreement or abuses its dominant positions or enters into a combination which is likely to cause an adverse effect on competition in the electricity industry24/8/2012
  5. 5. Provisions for Competitive Markets Allows multiple generators to come up and compete Allows larger consumers to choose supplier Prescribes competitive procurement of power on long term Aims to create a National Market via compulsory open access Policy framework assures  reasonable and stable returns on investments  Well defined Regulatory mechanisms Makes governments responsible for providing power on demand24/8/2012
  6. 6. Why Competitive Bidding  Competitive procurement of electricity reduces the cost of power procurement for the discoms  It prevents the formation of buyer/seller cartels  End-consumer gets electricity at optimum price as 80- 85% of what consumers pay as tariff is power procurement cost24/8/2012
  7. 7. Why Competitive Bidding Efficient power procurement becomes important to ensure that:  Consumers get affordable power  Generation and transmission capacity owners and developers get attractive return on their investments  Discoms remain financially viable  Competitive tariffs ensure that operational and financial efficiencies are enhanced in a sector largely dominated by state-owned companies used to working on the cost-plus methodology24/8/2012
  8. 8. CERC Study Findings  The levelized prices discovered under the competitive bidding process are lower compared to levelized prices under cost plus methodology for 11 of the 14 projects examined  Sensitivity analysis also shows that levelized prices discovered under competitive bidding process would continue to be lower as compared to levelized prices arrived at under cost-plus methodology even after accounting for considerable variation in coal costs and coal cost escalation rates24/8/2012
  9. 9. CERC Study Findings Levelized Tariff (` CalculatedS. /kWh) as per levelized Tariff Project Size State DeveloperNo. Competitive under MOU Route Bidding (` /kWh) 1 Talwandi Sabo 3 x 660 MW Punjab/Case 2 Sterlite 2.8643 3.0428 2 Rajpura 2 X 660 MW Punjab/Case 2 L&T 2.89 3.4228 3 Kamalanga 3 X 350 MW Haryana, Case 1 PTC/GMR 2.54, Bus bar 2.57, Bus bar@ 4 Babandh 4 X 660MW Haryana, Case 1 LANCO 2.075, Bus bar 2.5159@ 5 Jhajjar 2 X 660 MW Haryana, Case 2 CLP Power 2.996 3.2502 6 Mandva 2 X 660 MW Maharashtra, Case 1 LANCO Mahanadi 2.70 2.9537 7 Tiroda Ph.1 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 2.642 2.91782 8 Chitrangi, Ph 1 3 X 660 MW MP, Case 1 Reliance 2.45 2.5126 9 Mahan 2 X 600 MW MP, Case 1 Essar 2.45 2.2593 10 Nandgaonpeth 2 X 660MW Maharashtra, Case1 India Bulls 3.26 3.2397 11 Tiroda Ph. 2 2 X 660 MW Maharashtra, Case 1 Adani Maharashtra 3.28 2.8190 12 Mahanadi 3 X 600 MW Gujarat KSK Energy 2.345 2.4513** 13 Pragraj 3 X 660MW UP, Case 2 JP Associates 3.02 3.4047 14 Sangam 2 X 660 MW UP, Case 2 JP Associates 2.97 3.241824/8/2012
  10. 10. Competitive Bidding Guidelines:Objectives  Promote competitive procurement of electricity  Facilitate transparency and fairness in procurement processes:  Transparency ensured by Guidelines & Standard Bid Documents for tariff based bidding  Enhance standardization and reduce ambiguity and time for materialization of projects  Standardization of Bid documents, Bid submission and evaluation process, timeline for bidding process, tariff structure 1024/8/2012
  11. 11. Competitive Bidding Guidelines: Objectives  Provide flexibility to suppliers on internal operations while ensuring certainty on availability of power and tariffs for buyers  Tariff to be quoted upfront for life of plant and Regulator to adopt tariff arrived at through transparent bidding process as specified by the Guidelines  Developer has the flexibility to choose optimum unit configuration  Provides incentive to Developer to adopt innovative financial modelling and tax planning to ensure competitive tariff & return on investment 1124/8/2012
  12. 12. Competitive Bidding Guidelines24/8/2012
  13. 13. March 2009 Amendments  The National Electricity Policy stipulates that 15% of the new generating capacity can be sold outside the long term PPA  Hydro project tariffs to be determined by the ERCs, provided it has long term PPA for at least 60% of the total saleable design energy of the project  Sale of electricity outside long term PPA: Usually for less than 1 year  Under Case 2 bidding, in order to ensure timely commencement of supply of electricity and to convince the bidder of the irrevocable intension of the procurer, project preparatory activities must be completed on time by the procurer24/8/2012
  14. 14. Case 1 & Case 2 Bidding24/8/2012
  15. 15. Case 1 Bidding24/8/2012
  16. 16. Case 2 Bidding24/8/2012
  17. 17. UMPPs: Case 2 Bids  Pit Head coal based project at Sasan to Reliance Energy at evaluated levelised tariff of Rs 1.196/kWh – the lowest ever levelised tariff  Imported coal based project at Mundra to Tata Power at evaluated levelised tariff of Rs 2.26/kWh  Imported coal based project at Krishnapatnam to Reliance Energy at evaluated levelised tariff of Rs 2.332/kWh  Pit Head coal based project at Tilaiya to Reliance Energy at evaluated levelised tariff for Rs. 1.77/kWh24/8/2012
  18. 18. Case I Bids: Gujarat Case- I Gujarat 3000 MW (-20%/+30%) Capacity offered Levelised TariffS.No Bidders name (MW) Plant location (Rs./kWh)1 KSK Energy Ventures_Wardha 1010 Chhattisgarh 2.342 Shapoorji Pallonji 800 Gujarat 2.803 Essar Power Ltd. 800 Gujarat 2.804 Pipavav Energy Ltd. 500 Gujarat 3.185 TRN Energy Pvt. Ltd. 150 Chhattisgarh 3.286 PTC India Ltd 300 Chhattisgarh 3.507 OPG Power Gujarat Pvt. Ltd. 300 Gujarat 3.668 MB Power (Madhya Pradesh) Ltd. 170 Madhya Pradesh 3.709 Avantha Power & Infrastructure Ltd. 200 Madhya Pradesh 3.9410 Jindal India Thermal Power Ltd. 200 Orissa 4.36 Total offered capacity 4430 Weighted Average 3.02 Bid Capacity & Average Tariff 2610 Weighted Average 2.62  Bids received for 4430 MW as against requirement of 3000 MW  Levelised Tariff quoted by the bidders was in the range of Rs 2.34/kWh to Rs 4.35/kWh at Gujarat STU interface24/8/2012
  19. 19. Case I Bids: Karnataka Case- I Karnatka 2000 MW (+-20%) Capacity offered Levelised TariffS.No Bidders name (MW) Plant location (Rs./kWh)1 Monet Power (PTC) 150 Orissa 3.762 Thermal Power Tech (PTC) 430 Andhra Pradesh 3.773 Meenakshi Energy (PTC) 200 Andhra Pradesh 3.804 JSW Bellary 600 Karnataka 3.815 East Coast Energy (PTC) 400 Andhra Pradesh 3.896 NCC Power Projects (PTC) 400 Andhra Pradesh 3.897 JITPL 200 4.468 JSW Maharashtra 600 Maharashtra 5.30 Total offered capacity 2980 Weighted Average 4.17 Bid Capacity & Average Tariff 2000 Weighted Average 3.82  Bids received for 2980 MW as against requirement of 2000 MW  Levelised tariff quoted by the bidders was in the range of Rs 3.76/kWh to Rs 5.30/kWh at Karnataka STU interface 24/8/2012
  20. 20. Case I Bids: Maharashtra Case- I Maharashtra 2000 MW (-20%/+30%) Levelised Capacity Tariff S.No Bidders name offered (MW) Plant location (Rs./kWh) 1 GMR Emco 200 Maharashtra 2.88 2 India Bulls Power Ltd. (Amravati) 450 Maharashtra 3.27 3 India Bulls Power Ltd. (Amravati) 750 Maharashtra 3.27 4 Adani Power Maharashtra 1200 Maharashtra 3.28 5 Wardha Power Company Ltd. 675 Maharashtra 3.62 Total offered capacity 3275 Weighted Average 3.32 Bid Capacity & Average Tariff 2000 Weighted Average 3.23  Bids received for 3275 MW as against requirement of 2000 MW  Levelised tariff quoted by the bidders was in the range of Rs 2.88/kWh to Rs 3.62/kWh at Maharashtra STU interface8/31/2012
  21. 21. Recent RFPs in the Market8/31/2012
  22. 22. Section 62 & Section 63  Section 62 provides for determination of tariff through the MOU route  Section 63 says that the ERC “shall adopt the tariff” if it is determined by a transparent bidding process according to guidelines  Aptel ruled in 106 & 107 of 2009 that it is “purely” an ERC’s decision whether it approves a negotiated tariff or directs a licensee to procure power through compettitive bidding24/8/2012
  23. 23. Competitive Bidding - Issues  Association of Power Producers and Prayas in their recent presentation to Forum of Regulators have apprised the Forum about the emergent issues in competitive bidding:  Co-existence of cost plus regime with competitive bidding  Rebidding based on unconvincing grounds  Post bidding changes  Issues with the time period of 25 years and the uncertainty that it may bring to project developers, especially with respect to fuel costs & fuel availability8/31/2012
  24. 24. Competitive Bidding - Issues  State owned discoms seem reluctant to issue RFPs for power procurement  Many states have state owned gencos whose power they have to buy  As these state owned gencos have not been efficient in delivering contracted quantum of power, discoms have tended to buy more in the short term market  Data on power procured through bilateral trades Vs exchanges shows significantly higher volumes and prices for bilateral trades than for exchange traded power8/31/2012
  25. 25. Competitive Bidding - Issues Volume & Avg.Priceof Electricity Transacted through Traders and Power Exchanges 40 6 35 5 30 4 Price(Rs/KWh) 25 Volume (BUs) 20 3 15 2 10 1 5 0 0 2009-10 2010-11 2011-12 volume-traders 26.72 27.7 35.84 volume-Power Exch. 7.19 15.52 15.54 Price-traders 5.26 4.79 4.18 Price-Power Exch. 4.96 3.47 3.5724/8/2012
  26. 26. Competitive Bidding - Issues  In the recent years, many state governments have started to demand up to 50% of the power generated from a plant situated in their state should be allocated to them – example, Chhattisgarh, Orissa, in return for land, water, etc  Tamil Nadu has demanded that the entire power from phase 1 of the Kudankulam nuclear power plant (1000 MW) should be allocated to it24/8/2012
  27. 27. Competitive Bidding - Issues  NTPC – India’s biggest generator is still selling its power through the MOU route  With next scheduled plants coming up in three power hungry states – UP, Bihar and Tamil Nadu, the states are likely to up the ante on the allocation issue24/8/2012
  28. 28. Competitive Bidding - Issues  The 5 year exception granted to NTPC and other PSUs by MOP on competitive bidding 2006-2011 has been withdrawn from FY 14 onwards, through a new circular dated 5 Jan, 2011  All appeals by the PSUs have been rejected by MOP24/8/2012
  29. 29. Fuel Supply Issues  2 main issues in both domestic and imported coal  Uncertainty of pricing  Uncertainty of supply24/8/2012
  30. 30. Domestic Coal  CIL’s inability to fulfill targets  Project developers not getting coal on time or in contracted quantities  Project developers’ risk goes up as PLFs fall or forced use imported coal, raising generation costs – domestic coal is 45-70% cheaper than imported coal  Refusal to sign FSA with generators  Despite a Presidential directive, CIL is yet to sign FSAs with generators  CIL’s board is yet to approve fresh penalty clauses  Proposed penalty levels:24/8/2012
  31. 31. Domestic Coal  CIL is also considering introducing a mechanism to pool the prices of imported coal with domestic supplies  CIL has sought technical advice from CEA on the feasibility of a pooling mechanism as most plants can handle only up to 15% imported coal mix  Such a pricing system would work only if all domestic consumers accept the resulting higher price  CIL board has yet to decide on final draft of standard FSA24/8/2012
  32. 32. Domestic Coal  CIL’s independent directors have objected to severe penalties for non-performance.  NTPC has refused sign FSAs until the penalty clause is made stiffer24/8/2012
  33. 33. Imported Coal  Imported coal  Indonesian coal prices have gone up significantly since that government’s decision to link export prices of coal with international benchmarks  The escalation of fuel cost will continue to be governed by CERC regulations in force Two UMPPs, Tata Power’s Mundra and Reliance Energy’s Krishnapatnam projects are in trouble on account of the Indonesian government’s decision to raise coal export prices24/8/2012
  34. 34. Natural Gas  KG D6 production is falling – is expected to be down to 65% of the target  Affects power plants proposing to use KG D6 gas  1st priority to fertilizer sector; then power  RGPPL was to get gas allocation on par with the fertilizer sector (up to 90% of the allocation) but the order has been held back after other power producers protested. Current production in the range of 1000 MW  Reliance Energy’s Samalkot power plant based on KG D6 gas is practically shelved24/8/2012
  35. 35. Update on UMPPs  Of the 4 awarded UMPPs, 2 were imported coal based – Mundra (Tata Power) and Krishnapatnam (Reliance)  Mundra - 2 units of 800 MW have been commissioned as of date, well behind schedule  Tata Power filed a case in CERC for revisiting the levellised tariff of Rs 2.34/kWh.  Subsequently, Tata Power moved the ATE and has now moved the Supreme Court seeking tariff revision citing force majeure  Krishnapatnam – according to media reports, Reliance has stopped land acquisition.8/31/2012
  36. 36. Other PPAs in trouble - Adani-GUVNL  According to the PPA signed by Adani Power and GUVNL in 2007, the company was to supply GUVNL 1,000 MW for 25 years at a levelised tariff of Rs 2.35 a unit.  Adani sought termination of the PPA in November 2008 claiming difficulties in obtaining coal (from Gujarat Mineral Development Corporation Ltd). It also cited the rise in the prices of imported coal from Indonesia.  GUVNL moved GERC which refused to terminate the PPA  Adani Power moved the ATE which also ruled in GUVNL’s favour last year.  Following this, Adani approached the Supreme Court and the case has been admitted.8/31/2012
  37. 37. Some Other PPAs in trouble – Tiroda  Tiroda TPS in Maharashtra (Adani Power)  To supply 1320 MW to MSEDCL @Rs.2.64 levellised tariff, fuel sourced from Lohara coal block with a performance guarantee of Rs 99 crore. But was denied MOEF clearance since it was in buffer zone of the Tadoba tiger sanctuary and was given tapering linkage in lieu of Lohara.  Adani claimed force majeure and asked for tariff revision/return of performance guarantee but not revoking of the PPA  Adani Power had already obtained additional coal linkage from WCL and SCCL meeting entire capacity of 1980 MW, which together with the tapering linkage is enough for the full 1980 MW  Case is subjudice8/31/2012
  38. 38. Recent Directives on CompetitiveBidding  MOP has asked the MOC to direct all the entities being allocated coal blocks by the government to sell power through competitive bidding, failing which their allocation could be cancelled.  The Ministry has suggested a similar tariff-based bidding condition for those already allotted coal blocks for power sector IPPs  MOC has directed that projects that don not have a long term PPA in place will not get a coal linkage8/31/2012
  39. 39. Conclusion Competitive bidding is one of the ways to introduce transparency and accountability in the sector Present glitches are part of the learning curve Competition will bring in optimisation of resources, bring in operational and other efficiencies and ultimately, lead to greater customer satisfaction24/8/20128/31/2012
  40. 40. 24/8/2012
  41. 41. THANK YOU24/8/2012