An inter-ministerial group (IMG) has decided to do away with the current single tariff for all future coal-fired power projects including projects based on captive fuel. In future, bidding and awarding of contracts will be done only on the basis of the ?capacity charge? ? that is, the tariff required by electricity generators to cover their capital costs, operation and maintenance (O&M) costs plus a profit margin.
The cost of the fuel will be passed on to buyers, based on certain norms like those pertaining to how much power will be generated from coal of different calorific values ? in the case of captive mines, the mining costs will be taken into account.
The new policy will be a big relief to power generators who were being asked to take a call on fuel costs over a 20-25 year horizon.
This will, however, not apply to existing projects that are in trouble ? Reliance Power?s Krishnapatnam and Tata Power?s Mundra ultra-mega power projects are both based on coal from Indonesia whose prices have more than doubled after the government there raised prices from $24 to $60 per tonne.
The IMG was constituted to review existing standard bidding guidelines for procurement of power by distribution companies. The capacity charge comprises of expenditure like interest on loans, depreciation, return on equity and interest on working capital, besides O&M costs. The O&M head is the only scalable component in the capacity charge and its escalation will be linked to a weighted average of the Wholesale Price Index and the Consumer Price Index, sources said.
The basic O&M cost, which typically accounts for 15-20% of the capacity charge, will be fixed by the Central Electricity Authority (CEA). Under the existing bidding guidelines, developers quote scalable and non-scalable components of the fixed cost (capacity charge) as well as the energy charge over the lifetime of the project. Once an appropriate discount rate is applied, a levelled tariff for the project is worked out.
In case Coal India is unable to supply the fuel it has promised, and the power producer is forced to buy coal from elsewhere, the IMG has come up with some solutions.
If the original buyer, say Firm A, does not wish to buy the power produced from the more expensive coal, the power producer (Firm B) can sell this in the open market. Firm A will now have to compensate Firm B for its capacity charge, but after taking into account the penalty that Coal India will pay Firm B for not being able to supply it coal (the penalty charge is to be decided by Coal India?s board later this week) as well as the money Firm B made from the open-market sales. If Firm B is able to sell in the market at a higher price, obviously Firm A will have to pay no compensation. The IMG has decided to insert provisions for pass-through of fuel costs. But station heat rate, a parameter used to measure efficiency of a plant to convert fuel into electricity, will be used to work out the payment for fuel costs. ?In case of projects which have already been allocated captive coal blocks but power capacity is yet to be tied up, the IMG has decided that the CERC (Central Electricity Regulatory Commission) will fix separate caps for capacity charges and mining costs. Based on that, a reverse bidding will be held to reach the lowest tariff,? an official said.
To assure power procurers continued supply of power in case of default by the original project developer, the IMG has decided that if lenders fail to find another company to run the plant in a specified period, the power-procuring state will have the right to take over the assets of the power project at a fixed percentage of a predetermined price. The panel has decided not to make any change in bidding guidelines for power projects based on imported coal or natural gas or hydro resources.