More power for the peak hours

Written by Santosh Tiwari | Updated: Nov 26 2013, 08:38am hrs
While the new bidding norms for power projects allowing pass-through of the additional fuel cost due to unexpected events are expected to infuse certainty in electricity tariffs, the power ministry is now working on a separate procurement framework for peaking power. This will help both the power producers, especially those having gas-based or hydel power plants, and the states and the consumers who are currently facing difficulties due to the power shortages during peak hours.

The peaking power bidding framework will allow the distribution companies to procure electricity at the agreed price for fixed time during the day for the agreed period, as specified in the power purchase agreement. According to the officials working on the guidelines, the framework will be put in place by the end of the year, and if it requires any policy change, that would be done.

The electricity demand during peak hours, termed peaking power, is about 10-11% of the total electricity consumption in a year at present on an all-India basis and this framework will allow handling of the shortages effectively, which are estimated at 10% across the countryit could go up to 12-20% by the end of the 12th five-year-plan (2012-17), if corrective steps are not taken.

The peaking power procurement framework in the making would provide for purchase agreements for a period between 1-5 years to meet requirements. Currently, a provision for extending such an agreement by 6 months has also been made part of it. The reason for keeping the tenure of peaking power purchase agreements short is the present volatility in fuel pricesthe power ministry has kept both fixed and variable charge components to take care of the uncertainties.

The peaking power procurement has also been categorised into 6-7 types, based on the fuel-type and sources, for different types of requirements. These options have been provided to the procurers, and depending on their need, they will be able to procure electricity from either one or more sources.

The new bidding framework is based on the suggestions made by the task force set up for this purpose, which was constituted last year. The contours of the framework have been devised keeping in mind the ground realities like different cities and states having different requirements of peaking power. There would be flexibility in signing the power procurement arrangements as per requirements. Gas-based and hydro power have been preferred here as the plants running on these two can start quickly as against coal-based power plants which take about 8 hours to start.

The move is also being seen as the one which will rationalise the gas allocation policy. Gas-based power stations are currently facing severe problems in the absence of adequate gas to run at full capacity. Power ministry officials say they will be good sources for meeting peaking power demands as they can run for, say, 4 hours with the gas that they can get viably. The tariff can be charged accordingly which will suit both the procurer and the producer. Apparently, when gas is not available to the gas-based power stations, utilising them profitably with 3-4 hours of running is a good idea.

Though it has been decided by the government that any additional gas production from FY14 onwards will be given to the power sector, this is unlikely to improve the current situation. This is because gas-based power projects in the country with 20,000 MW capacity, contributing about 9% of the total power production are currently running at less than one-fourth of their capability. And the new ones under construction have been stranded because of the scarce availability of gas. As against the estimated about 100 mmscmd requirement of the power sector, the availability is unlikely to be even 30 mmscmd. In this backdrop, tweaking the power purchase framework will help in optimal utilisation of these plants and ease the power shortage woes.

Another policy move to improve the fuel availability and power generation situation, being considered by the Planning Commission, is that of a coal-bank. The Planning Commission panel on coal-bank is expected to submit its report soon. Those who have coal blocks but are unable to put up the linked power plants can keep their coal in this bank which can be utilised by those needing coal for their plants. This coal can later be returned. When those who have contributed need their coal back, it will be given to them from the bank. The problem with this proposal, however, is there is not much of coal available to feed such a bank, making it a controversial as well as difficult proposal to implement. If the government is serious about improving coal supply scenario, the best option is to enhance participation of private companies in mining.