In proof that the bidding norms for procuring power from old thermal plants are flawed, Uttar Pradesh has been forced by potential suppliers to split risks associated with potential power purchase agreements (PPAs) more equitably between developers and buyers. The state’s tender to buy 3,800 MW of coal-based power — the biggest in the country in the last five years — would be issued under revised conditions.
Sources said the state government may scrap the PPA provision that a developer should earmark a fifth of the total capacity as open, meaning there can’t be long-term tie-ups with other buyers for this capacity outside the PPA and only spot market sales are allowed. The UP government, the sources said, may also relax the rider that companies need to source coal from elsewhere for running the untied capacity as coal linkages can’t be used for this purpose.
Power companies have long argued keeping a fifth of capacity untied is unviable under current circumstances, marked by a demand crunch rather than supply paucity. Developers tend to load the cost of keeping the open capacity into the PPA tariffs, further reducing buyers’ ability to lift power.
In the pre-bid conference held in the first week of January this year, private companies suggested to the state power company that bids based on the current Case 1 bidding document — prepared by then Planning Commission adviser Gajendra Haldia in 2013 — would lead to discovery of higher tariffs as disproportionate risks are borne by the developers.
“We are glad that the state power company has decided to make certain changes to the bidding document that would ultimately benefit the consumer with lower power tariffs,” a top executive at one of the qualified companies told FE on condition of anonymity. He added that the changes would have to be approved by the state regulatory commission and could take some time before final round of bidding can resume.
Last year, UP invited bids for 3,800 MW and completed the technical qualification round earlier this year. The total capacity has been divided into three categories — 2,800 MW for firms with linkage coal-based plants, 500 MW each for companies with imported coal-based plants and captive coal-based stations. The first round of bidding saw all the notable power companies including Adani Power, Lanco Power, Balco, Jindal Power, Rattan India, MB Power, GMR Chhattisgarh and Essar Power qualifying.
While the country saw rapid capacity addition, especially from private firms in the last decade, the bankrupt state-owned power distribution companies stopped buying power. The situation worsened between 2011 and 2014 with PPA tenders floated during the period being just 7,000 MW while stranded thermal capacity due to lack of buyers ballooned to nearly 25,000 MW.
The bidding norms for both types of coal-based power plants — Case 1 and Case 2 — were revised in 2013 but with the failure of ultra mega power plants to attract private developers to participate in the bidding, which was blamed on lopsided bid documents — prompted the government to appoint a committee mandated to recommend necessary changes. The private developers, however, argue that some of the issues private developers had with previous Case 2 norms are also a there with Case 1 bidding pattern and hence must be rectified. States currently use the existing model bid document but they are allowed to revise it once the regulator clears the changes.
Under Case 1, the developer chooses the plant location, fuel type and fuel source along with other relevant clearances for setting up a plant. Under Case 2 norms, the location, type of fuel and its source are determined and provided by the government, reducing the project risk to be borne by the developer.
An industry executive said that it was a prudent decision to mitigate excessive risk for developers even if the bidding process took longer to resume.
