The Central Electricity Regulatory Commission (CERC) has pushed for mandatory tariff-based bidding in states for power projects’ allocation from January 2011. This, the regulator believes, would bring down the overall electricity tariff in the country. CERC is also working to bring in competition in the power market by ensuring open access to private generators in inter-state transmission. It is also encouraging development of new transmission lines so that private players can transfer power from their plants to anywhere in the country. The idea is to ensure the development of a vibrant short-term power market, which would act as an effective means for power-deficit states to meet their peak power shortfall.

However, there is also a risk that under pressure from ruling parties, state electricity boards (SEBs) might end up buying power from the free market at unreasonably high prices, leading to further deterioration in their financial health. The CERC looks determined to curb political interference in power trading. However, it has no plans to cap the price of power sold through short-term trade–an agreement for electricity sale up to one year.

CERC has no plans to formulate regulations to cap the price for electricity sold through short-term trade because prices are expected to moderate in the coming years as availability improves. However, it is constantly watching the market for any abnormal rise in electricity prices, as some states approach assembly polls next year, says the regulator.

There is no need for capping prices, as average prices of electricity sold under short-term trade this year is lower compared with the previous year,? CERC chairman Pramod Deo told FE.

Prices will moderate as more and more power comes into the market,? he explained.

The electricity sector regulator was earlier forced to cap prices for short-term electricity trade last September when prices increased from Rs 6.11 to Rs 14.50 a unit in a span of ten days. The regulator put a ceiling of Rs 8 a unit for sale of electricity through short-term deals. The cap was applicable for 45 days.

The regulator circulated a staff paper in 2008 for discussion on how prices of electricity in short-term should be restrained. But the central advisory committee did not favour capping prices on the concern that it could hurt private investors who need flexibility to sell power outside the power purchase agreement (PPA).

Significantly, the share of private players in power generation capacity addition is rising fast. For example, private projects accounted for 45% of the total capacity added during the financial year 2009-10.

With the share of private players going up in capacity addition, we have to look at the big picture,? the CERC chairman said.

When a private player enters into a PPA, he should also have the option to sell power through bilateral trade as a safeguard in case of default by a state electricity board. Capping the price will send a wrong signal,? he explained.

NTPC fuels its gas-based plants with naphtha because of a gas shortage. The cost of naphtha-generated power is much higher compared with coal-fired plants. If the price is capped, NTPC might not be able to run these plants.

Besides, many states with hydropower stations are selling free power in the market. This helps them reduce their subsidy burden. Anyway, it is an intra-state deal that falls outside CERC’s jurisdiction.

State electricity regulatory commissions have the mandate to put a cap on such deals, but they hardly ever take action.

Under these circumstances, if CERC were to put a cap on private power generators, it would amount to discrimination against them. That apart, some states demand additional power while allocating projects to private players for development. If the developer agrees to the state’s demand, it will have to make up for the loss by selling power in the free market.

?There has to be a national policy to deal with this,? the CERC chairman said.

For its part, CERC is trying to ensure open access to private generators so that they could sell their power wherever they want.

Powergrid recently came to CERC, saying it has got applications for evacuation of 178 gigawatt power from various

developers, but it does not know where they are going to sell the power. Nine transmission

corridors would be required for evacuation of power from these plants. Powergrid wanted to be assured that it would be allowed to recover its cost even if all the plants do not come up on time. ?We have allowed Powergrid to

build nine corridors after conducting a due diligence,? the regulator said.

Tariff bidding has been undertaken for allocation of three ultra mega transmission projects to attract private investment.

CERC wants more such projects identified because Powergrid cannot build all these projects,? Deo said. CERC has also notified new regulation to rationalise sharing of inter-state transmission charges. The new regulation is meant to tackle pan-caking of transmission charges. The new method is based on the actual flow of electricity. It has to be sensitive to distance and direction.

The regulator has supported the planned switchover to mandatory tariff-based bidding for allocation of power projects from January 2011 on the basis of preliminary findings of a study being undertaken by it. However, it has recommended exempting large-sized hydropower projects.

The regulator expects to complete the study in two months. The scope of the study is to examine how projects bid out through

the competition route fare on the tariff parameter vis-a-vis NTPC power plants.