Private power developers urge govt to make changes in Case 1 bidding norms

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New Delhi | Published: July 24, 2015 12:45:18 AM

Even as the government gets ready to modify the norms for Case 2 bidding for power plants to make them more palatable to developers and lenders...

Even as the government gets ready to modify the norms for Case 2 bidding for power plants to make them more palatable to developers and lenders, private sector power companies have urged the power ministry to broaden the mandate of the committee and suggested that similar changes be incorporated in bidding norms for Case 1 power plants as well.

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.

The bidding norms for both types of coal-based power plants were revised in 2013 but with the failure of ultra mega power plants (UMPPs) to attract private developers to participate in the bidding, which was blamed squarely 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 Case 2 norms are also a part of Case 1 and hence must be rectified.

Under Case 1 norms, any developer that enters into a power purchase agreement (PPA) with a distribution company must have 20% of the contracted capacity as open capacity that can’t be tied up. Further, the open capacity cannot be operated with the coal provided under the linkage and the developer must source fuel from other source.

“This clause raises the cost for any plant as a developer needs to have a capacity of 1,000 MW for a PPA of 8,00 MW so as to maintain the mandated open capacity. Moreover, given the suppressed power rates in the merchant market, the developer would rather not operate this capacity on expensive fuel and prefer to load the fixed cost component of the tariff under the PPA, leading to a higher tariffs,” the Association of Power Producers (APP) said in a letter to the power ministry.

The developers also want the removal of pre-specified station heat rate (SHR) —a gauge of plant efficiency — for developers participating in the bidding process to go as it discourages more efficient machinery. Under the Case 1 norms, only those plants that have SHR of 2,350 Kcal/kWh can bid. This forces more efficient plants to operate at a lower efficiency to be eligible for participating in the bid.

The developers have argued that SHR be made a bidding criterion and not a limiting one, to encourage developers to use more efficient technology.

As FE reported earlier, the committee under Pratyush Sinha reviewing the Case 2 norms may recommend the removal of these clauses. The developers, in their plea to the government, have argued that these clauses be also modified under Case 1 norms.

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