The government instructed electricity regulators to cap fixed costs for power plants using coal from recently auctioned blocks to ensure that companies don’t charge consumers unfairly despite winning the mines at low prices.
Power minister Piyush Goyal told Sumit Jha he believes the transmission sector will see more projects being bid out than awarded to PowerGrid. The government, he says, is launching a pilot to test a system of ‘brownouts’, which will eliminate blackouts. Excerpts:

The government’s advisory to cap fixed costs for future power purchase agreements (PPAs) has not only drawn the ire of developers, but also resulted in a confused reaction from state governments and a former CERC head.

We have not put any new condition. From the day we announced the coal auctions, we said loud and clear that reverse bidding is going to result in people bidding for lower coal costs, and that value must be passed on to the consumer. Some people have gone to court and, in their own averment, they said that “we had assumed that we will be able to load cost to the capacity charge”.

I shouldn’t be using the word ‘cheating’ to describe this as it would amount to casting aspersions, but who gave anybody the right to misuse the reverse bidding process, which is transparent in process and intention. The bidding process cannot be allowed to be nullified by surreptitious methods. So, I think they stand exposed. They bid with their eyes open and they had no business to make assumptions beyond what’s there in the bidding document.

The criticism is based on the fear that it would be subject to bureaucratic discretion given the open-ended advisory on capping fixed costs. The technical aspect also poses a problem since every power plant has a different associated fixed cost and capping could lead to arbitrariness.

I have full confidence in state electricity regulatory commissions (SERCs). They are competent to do what has been asked of them. The ministry and CERC can always help them in the exercise. They will take a pragmatic and fair approach, but any attempt to take away the benefit from the consumer will not be tolerated.

On paper, the coal auctions will generate over Rs 3 lakh crore in revenue for coal-bearing states, but most of this value is to be generated by companies that have struggled to make money and add value. Some of these infra companies have been stressed for a while. Is the scepticism around these companies’ ability to generate such revenue justified, especially in the face of such aggressive bidding?

A large part of the value, nearly Rs 2 lakh crore, is from the 17 coal blocks that are with the non-regulated sector (steel, iron, cement), which would have had to import coal for their requirement. Most of the rest of the amount — Rs 1.40 lakh crore — is coming from the state sector. The price of coal for them is only Rs 100/tonne. For private sector power developers, the amounts to be accrued to states over 30 years as revenue from coal are much smaller.

These companies are large conglomerates and they have to fulfil their commitment, otherwise there are severe penalties prescribed in the bidding document, including black-listing from future auctions.

As for transmission, the policy of awarding projects to PSUs on a nomination basis has hampered growth and somewhat burdened PowerGrid as well. Why haven’t we seen the same level of private sector participation in transmission as in generation?

PowerGrid has served the country splendidly. It is required to execute projects of national interest that need to be implemented faster. For example, projects in the northeast and corridor to south, which are needed urgently. Having said that, going forward, as much as possible, transmission projects will be bid out. PowerGrid will also compete and we will ensure a level playing field for everyone. I believe nearly all transmission projects, worth nearly Rs 1 lakh crore, will be bid out in coming days unless there are compelling reasons for doing otherwise.

There has been talks about an innovative solution in the distribution space that would eliminate blackouts.

We are looking at a solution called Uninterrupted Direct Current (UDC), whereby a parallel DC line will go into every home and compatible appliances can run even when there is load shedding or blackout. Instead of blackout, you would now have a brownout. When there is overload, this line will ensure that a fan and lights continue to work.

Even with reduced production, you ensure that these households get power, albeit reduced capacity, to run essential appliances. We are planning two pilots, one for 5,000 installations and another for 1 lakh households, at the cost of Rs 80 crore.

The third phase of coal block auctions has not started yet. Any timeline?

We don’t have any ready blocks. We are still assessing the demand-supply situation and the readiness of blocks in terms of environmental clearances and land acquisition. I believe whenever the auctions happen, they should be such that people could quickly move in and start mining. We don’t want a situation where someone puts in all the effort to win the bid and then gets stalled.

How far are you from implementing the idea of replacing old, inefficient thermal plants with Ultra Mega Power Plants (UMPPs)?

This is one of the ideas we are working on. We would be able kill many birds with one stone. For example, we would also be able to increase capacity manifold. We would be able to expand the plant close to the coal source so that costs remain low. The older sites would already have abundance of land and a water source. This is being planned separately from the other proposed UMPPs.

But the standard bidding norms for UMPPs were rejected by private players and the committee appointed to look into the possible changes has not finalised the norms yet.

Bankers had come to me, saying they had certain reservations in the financing of these projects. The committee will decide what the bidding document should read like.

While the government has got an enthusiastic response to its solar power target from utility-scale plants, the same commitment is absent when it comes to solar rooftop installations. Is a lacuna in the extant policy behind this?

There are many reasons why solar rooftop installations have taken off as well as utility-scale installations. We have to get net metering done in all states. The model needs to be tested a bit for its impact on utilities.

Simultaneously, Indian rooftops aren’t really made for such installations. homeowners are not always in a position to install rooftop solar PV panels. We are looking at changing the policy whereby aggregators like PTC can come into picture and install panels on rooftops on a bulk basis rather than on individual houses and buildings. We have a lot of work to do in that regard but our plans are on track.

Developers and industry watchers are confused as to whether there will be subsidy on such installations, or will there be interest subvention.

We have an open mind towards subsidies on rooftop installations. If it is required, we should be able to provide it.

The other option is to try innovative methods such as dollar financing to bring down costs. But, to be fair, rooftop and remote off-grid may require some upfront government support and we have a good amount of money in the national clean energy fund (NCEF), which can be used for this purpose.

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