The government’s pilot scheme to reduce power generation cost has cumulatively saved `63 crore in the first three weeks of its implementation. The pilot scheme, titled security constrained economic despatch (SCED), currently involves 28 power plants whose tariffs are decided on ‘cost-plus’ basis (no competitive bidding) by the Central Electricity Regulatory Commission (CERC) under Section 62 of the Electricity Act. While most participating plants in the pilot belong to state-run NTPC, few private power units such as Reliance Power’s Sasan unit and Tata Power’s Mundra station are also part of the scheme.
The cost savings made from this process are to be shared between the distribution companies (discoms) and generation companies, but the proportions have not been decided yet. The average potential savings per day from the pilot system was estimated to be Rs 2.4 crore/day.
The SCED pilot project has been put in action after the power ministry, in August 2018, allowed power generation firms to supply less expensive power from their preferred plants to discoms, even if power purchase agreements (PPAs) are linked to other (more expensive) plants. By removing the PPA hurdle, power generators are allowed to supply power from plants where fuel costs (variable cost) are lower. Though the weighted average variable cost comes to Rs 1.89/unit, the lowest cost can be Rs 1.12/unit and the highest can go up to Rs 8.15/unit.
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While placing requisition for electricity, each discom generally follows a ‘merit-order’ (plant with lowest variable-cost gets top priority) from its own portfolio of contracts. However, under the prevalent system capacities of cheaper power stations remain unutilised while relatively costlier stations are despatched because discoms cannot schedule power from power plants with which it did not have contractual arrangement.