Andhra Pradesh powers ahead; bidders secure remunerative tariff rates

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New Delhi | June 26, 2015 1:44 AM

Signalling a revival of investor interest in the power sector amid reduced uncertainties over fuel linkages, bidders for the supply of 2,400 MW of electricity to Andhra Pradesh...

up power tariff hikeThe overall tariff discovered right now is on the lower side, something that would enhance the viability of the PPAs and benefit the buyers in Andhra Pradesh. (Reuters)

Signalling a revival of investor interest in the power sector amid reduced uncertainties over fuel linkages, bidders for the supply of 2,400 MW of electricity to Andhra Pradesh’s distribution companies under long-term power purchase agreements (PPAs) haven’t got bogged down by competition and have instead secured remunerative tariff rates.

Although the weighted average tariff of R4.57 per unit for the first year of the 25-year PPAs quoted by the top five bidders under the newly designed Case 1 mechanism was among the lowest in the last five years, it included a record-high fixed-cost component of 73%, implying the risk lies with  the buyers and the end  consumers rather than with the developers.

In the past, fixed costs have never been more than two-fifths of the tariff discovered under bidding, except in the first instance of revised Case 1 bidding where the Kerala electricity board got offers for supply of 450 MW in November last year for an average tariff of R4.10 a unit, with fixed cost making up 72% of it.

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The power companies that have managed to secure contracts for supply of power to the Andhra discoms are East Coast Power — promoted by Power Trading Corporation, among others — NCC Infra, Jindal India Thermal, Hindustan Power Projects, Essar Power and Adani Power. Among these firms, the entire capacity on offer has been tied up (see table).

The tariff discovered is for the first year of supply and will be revised annually as per an index linked to inflation, depreciation and debt mitigation developed by the Central Electricity Regulatory Commission. While the higher share of fixed costs in the tariff gives the developers considerable comfort, consumers would need to worry only if fuel and other variable costs rise exorbitantly, said analysts, adding that there was only slim chances of that given the efforts to boost coal production.

The shortlisted power companies would start supplying power to the state from December 2016 but the transmission congestion faced by the southern states is likely to be a major worry for firms based in central India. “Congestion in transmission is an issue that neither the buyer nor the seller can mitigate. However, we will apply for medium-term open access if transmission capacity remains constrained. We also hope that developers with long-term PPAs will be given priority in allocation of transmission corridor,” said Ravi Arya, president (thermal), Hindustan Power Projects.

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The higher capacity charges would of course come to the aid of the developers in case of transmission bottlenecks. At the same time, the overall tariff discovered right now is on the lower side, something that would enhance the viability of the PPAs and benefit the buyers. “The tariff discovered in the bids seem to show that its a buyers’ market,” Arya said. Hindustan Power Projects secured a 25-year contract for 374 MW, which it will supply from the 600 MW second unit of the Annupur thermal plant in Madhya Pradesh.

As per the new CERC formula for Case I bidding, 25-30% of the escalation component of the tariff (annual fixed cost) is linked to the wholesale and consumer price indices. The remaining 75-80% will have a digression curve to factor in depreciation, interest on loans, etc.

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