Despite low prices, short-term power deals find few takers

istribution companies reluctant to draw power due to financial problems and selective allowing of open access by states, prices have crashed to Rs 2.50 per unit from Rs 7 per unit at one time. Around five per cent power goes through this route, which has two exchanges. The market was introduced after the Electricity Act of 2003.

Data from state utilities and power exchanges show the number of short-term applications across the country to be 150 in this month, from 400 in December 2009. These applications are received by regional load despatch centres for scheduling of power.

The fall in demand is forcing power generators to sell embedded distribution companies only. Further, distribution companies are reluctant to buy power through traders or merchant power plants, despite their quoting lower rates.

Indian Energy Exchange (IEX) sources said: "There has been an improved power situation, largely due to better hydro generation and water availability. However, a large number of states are not willing to supply power to areas with high distribution losses. State utilities prefer load-shedding and demand cuts due to paucity of funds. More important, open access is not being granted by many states, particularly to industrial consumers, despite shedding load on these categories of consumers." IEX^'s daily turnover is 35,000 Mw-hours and sources saye prices have fallen to Rs 2.50 per unit.

Power Exchange India (PXI), whose daily turnover was 7,000 to 8,000 Mw-hours has a similar story. PXI sources said: "States are not fulfilling the universal service obligation as mandated by the Electricity Act, 2003. A large number prefer to shed load than to procure power. For example, Maharashtra continues to carry out daily load shedding to the tune of 4,000 Mw, despite the availability of power in the short-term market."

Maharashtra State Electricity Distribution Company (MahaVitaran) sources admitted to load shedding instead of procuring power from the short-term market.

D Radhakrishna, sector analyst, says the main reason for the crash in the short-term market is that utilities, which are prime buyers, are showing reluctance in buying costly power and selling the consumers at a rate fixed much lower.

"Actually, this trend is good, as it will avert ‘California Shockâ€^TM, in which there was bulk buying from traders at a high cost and retail consumers refused to pay . The recent tenders invited by Andhra Pradesh, Maharastra and Tamil Nadu for buying power for January on have also received astonishingly low rates of Rs 3.50 per unit. Some states have started arrangements under which they take power now and return it during the June-August months. It is risky as a good rainfall will boost hydel power, as experienced during the current year."

An analyst with a broking firm said: "The message is clear, that power trading must come to its real objective, that consumers will have a choice at a market-driven price and regulators must pave the way for industrial consumers or commercial consumers to opt for the external market at lower price. Issues like cross-subsidy and energy accounting need to be thrashed out."

Gas power projects via tariff-based bids soon

The government proposes to make it mandatory to award gas-based power projects on competitive tariff-based bids.This is aimed at making gas-based projects competitive vis-à-vis coal-run projects once the government ends cost-plus tariff regime in January 2011. Power developers have hailed the move.Beginning, January 5, 2011, all electricity distribution licensees will have to procure electricity based on tariff-based competitive bids. Power generators, private or public, will not be allowed to enter into power purchase agreements on cost-plus, regulator determined tariffs with state distribution companies.

"When cost plus regime makes way, gas-based project developers may find it difficult to sell electricity from their plants as gas is costlier than coal. Power from gas projects costs developers Rs 2 per unit as compared to about Rs 1.5 per unit from coal-fired projects," a power ministry official told media.

Power secretary Uma Shankar confirmed the development. "Once a developer sets up gas-based project, how does he sell power? Earlier they used to sign power purchase agreements with distribution companies. But now they will have to be competitive in pricing," he said.

If competitive bidding is introduced, gas projects will not be required to compete with coal-fired projects, he said. The power ministry is considering both case-I and case-II bidding procedures for determining tariff from gas-based projects.

Under case-I bidding, distribution utility invites tariff-based competitive bids for required capacity but does not play any role in procuring land, fuel and regulatory clearances. This is unlike case-II bidding -- followed for awarding ultra mega power projects, where government assumes the role of a facilitator.

Power ministry officials are likely to deliberate the issue with Central Electricity Authority (CEA) next week.

GMR Energy chief executive officer Raaj Kumar said, "Any kind of tariff-based bidding is welcome for consumers as well as developers. It also reduces risk exposure from fluctuations in gas price and currency. Typically, when gas price is at $ 6 per million metric standard cubic meters per day (mmscmd), power costs around Rs 2.2 per unit to developers as against coal based generation at Rs 1.2 per kWh."

Meanwhile, an official in Lanco Infratech also welcomed the move. The official said that in next five years only 60 mmscmd extra gas was likely to be available from domestic resources that could feed additional generation of about 8,000-mw. Presently, India's demand for natural gas is pegged at 170 mmsmcd of which 142 mmscmd is sourced from domestic fields and rest is imported.

The country's natural gas production from home fields is expected to touch 151 mmscmd by 2011-12 and 186 mmscmd by 2012-13. Reliance Industries Ltd operated D6 block in KG basin is at present producing 55-60 mmscmd. The production is expected to touch only 80 mmscmd by 2012-13. Maharashtra State Power Generation Corporation, Torrent Power, GVK Power, GMR Energy, and Gujarat Powergen Energy Corporation are some of the companies that have submitted request for gas allocation for projects coming in the 3-4 years.

CEA, planning body for the power sector, has rece­ived over 104 applications fr­om government and private project developers seeking gas supply to fuel nearly 1,18,000-mw capacity. The projects would require gas supply of 570 mmscmd at 90 per cent plant load factor. All the projects are proposed to be operational in the 12th pl­an period starting 2013. Co­al and gas linkages to po­wer projects are based on re­c­o­mmendations made by CEA.

The government has decided to weed out non-serious private companies seeking gas for power projects with a stiff grading system in place. As per the proposal, only companies with firm land, water allocation, sound financial background and equipment sourcing contracts would be preferred for gas linkages.

Competitive tariffs may not affect power PSUs

The Ministry of Power's proposal to move out of cost-plus power purchase agreements to competitive tariff bidding for power projects from January may not have an adverse impact on public sector power generation companies in the medium term. Private companies on the other hand, have already proved their capability in competitive bidding in UMPPs, accepting lower return on equity on their projects.

For NTPC, the impact is neutral at least until end of 12 {+t} {+h} five year plan given that it intends to secure a good portion of its capacities through power purchase agreements (PPAs).

According to the NTPC's management, the company had signed cumulative PPAs of 62,000 MW as of September 2010 under regulated tariff mode and had plans of securing around 75,000 MW of power purchase agreements through regulated tariff route before the new regime takes effect. Therefore, the company is protected till end of 12 {+t} {+h} plan and the early part of 13 {+t} {+h} five year plan. With enough projects in hand, NTPC may also not choose to participate in competitive bidding and may choose to protect margins for a while.

As tariff-based bidding is market-determined, tariffs in such bidding are typically lower than cost-based bids. While this is positive for distribution companies, which have weak financials, power players do lose out on returns as has been the case with UMPPs.

However, using low cost power equipment and merchant operations to make up for lost returns on PPAs are some of the strategies that private players have implemented, to keep returns viable with lower tariffs.

In the case of regulated tariff projects, with majority of costs being passed-through, the incentive to save costs has also been low so far. With the regulated tariffs disallowed for future projects of players such as NTPC, Neyveli Lignite Corporation and Power Grid Corporation, these companies may be forced to improve efficiency and save costs to tackle lower returns. NTPC for its part is scouting for coal assets abroad to gain fuel security going forward.

If reports of the company closing in on Indonesian coal (said to be relatively inexpensive) transpires, it may aid the company to participate in competitive tariff bids.

Gujarat setting up 8,000-crore solar power park at Charanaka

Charanaka, a village nestled in a remote corner of Patan district in north Gujarat is destined to become the state's hub of solar power generation. Solar panels will be laid on close to 3,000 acres of land in this village , where the state government is going to set up a ' Gujarat Solar Park . at an investment of Rs 8,000 crore. The apex state utility, Gujarat Urja Vikas Nigam Ltd (GUVNL), is currently in the process of entering into long term power purchase with agreements with 80 solar power project investors to commission almost 1,000 MW of generation capacity. This capacity will help procure 1,700 million units of environment friendly electricity per annum.

Many of these 80 developers will set up their generation facilities ranging from 1-45 MW units at Gujarat Solar Park. In first phase, developers will commission 500 MW of generation capacity at the park. The Centre's National Solar Mission aims to install 1,000 MW of grid solar power by 2013, and 20,000 MW by 2022. Interestingly , Gujarat is the lone state which is in the process of inking power purchase agreements to procure 965 MW of solar power from 80 project developers to attract investments of Rs 15,000 crore in the next couple of years.

The state government has already acquired 2,500 acre of land for the park. It is expected to have basic infrastructure in place by December, just ahead of the Vibrant Gujarat Global Summit, 2011 (a state-sponsored biannual event for attracting investments in Gujarat).

The project is part of the Solar Power Policy-2009 , which proposes to encourage generation of green power. Parts of North Gujarat, Kutch and Saurashtra regions have been identified to have optimum solar power plant load factor.Charanaka in North Gujarat will be the first site to be developed.

According to the state Power ministry, large parts of the state have solar insolation of 5.8-6 .0kWh per metre square per day. Insolation is a measure of solar radiation energy received on a given surface area in a given time.

The chosen site of Charanka has an insolation of 5.9kWh per metre square per day, said a state government official. Developers have already started work at the site as the government intends to showcase the site to the participants of the Vibrant summit, said a state government official.

CERC planning to introduce capacity trading

The central electricity regulatory commission (CERC) is thinking of introducing some innovative, power exchange-based electricity trading instruments that would deepen the short-term electricity market and encourage investment in merchant power generation capacity. The regulator is also mulling a move towards capacity trading to reduce the incidents of low grid frequency and improve the quality of power supply.

For example, the CERC is planning to introduce instruments like shorter bidding time block for day-ahead trading at power exchanges that would overcome the problem of transmission network congestion and make it easier for buyers to forecast their electricity demand.

Now buyers and sellers submit bids for an hourly block that match with the system operator's scheduling period for physical delivery, as prescribed in the Indian Electricity Grid Code. "If congestion develops in the transmission network even for 15 minutes during an hour, the operator has no option but to reject the delivery schedule. That means traded power cannot be delivered for a full hour even though congestion is just for 15 minutes", CERC chairman Pramod Deo said.

If bids are submitted for a 15-minute block instead of an hour, the system operator can deliver power for 45 minutes, if not possible for an hour. In other words, the new bidding time-frame would be more dynamic and promote power trading.

The short-term power market in the country has proved a catalyst in attracting private investment in electricity generation. It has also helped improve the quality of power supply and grid management. Annual volumes of power traded through short-term contracts have been in the range of 4% of the total electricity generation in recent years. However, this share is stagnating now.

Bidding for day-ahead trading of electricity through power exchanges is done in the morning. The CERC now plans to introduce an evening session as well. "This is meant to address the issue of opportunity loss due to uncleared and unmatched volume on power exchanges in the morning day-ahead market. The evening session would provide a mechanism to clear the uncleared orders in the morning session and help utilities balance their demand supply portfolios for the next day. The opportunity loss of power trading due to uncleared orders is quite high. It is even bigger than the volume lost due to congestion of transmission network," Deo told FE.

Power exchanges have a full bouquet of very short-term products like intra-day or contingency contracts, day ahead contracts and week ahead contracts. Now the CERC is planning to introduce longer-tenure products like month-ahead and six-month to one-year contracts. "These will be non-transferable specific delivery contracts. Such contracts will help distribution companies to procure for a longer period. For example, a month-ahead contract would allow distribution companies to buy power for the full month of December in the beginning of November," the regulator said.

However, contacts with tenure longer than 11 days are governed by Forward Contract Regulation Act (FCRA). To avoid any jurisdictional overlap with the Forward Market Commission, the CERC has advised the central government to carve out such instruments under section 27 of the FCRA. If contracts are meant for physical delivery of power and not future trading, they can be launched by exchanges under the exclusive jurisdiction of CERC.

The regulatory authority is already publishing a three-month electricity market forward curve that would provide price signals to buyers.

"We firmly believe that there has to be a harmonious development of the short -term power market, and both power exchanges and licensed traders have specific roles to play. While exchanges would provide standardised contracts, licensed traders can offer customised contracts," Deo said.

Currently, only generated power is traded. But now the CERC wants to usher in trading of power capacity. Under the model mooted by the regulator, load despatch centres will buy large generation capacity from plants which can ramp up generation at a short notice and feed power to the grid in the event of falling frequency during the peak hours.

National and regional load despatch centres will pay to generators for keeping their merchant capacity on standby. The cost will be recoverable from consumers as quality power charge. Gas and hydro power power plants are the most reliable sources for meeting peak power requirement as generation from them can be easily ramped up.

Capacity trading is already in place in Europe and America where power markets are well developed. However, this is yet to become a reality in India. Financing power plants with 100% merchant power plants is still supposed to be risky in India given that power supply from them is not tied up.

However, the scenario would radically change when the CERC moves forward on capacity trading. Since gas-based power plants can be easily started and shut down as per convenience, capacity addition in gas-fired merchant power generation is likely to get a major boost from capacity trading.

Tata Power to add 100-150 MW wind power capacity per year

Ratan Tata-led Tata Power aims to have at least a 25 per cent of its power generation or around 8,000 MW from clean sources by 2017 and will invest around Rs 5,000 crore in wind-energy alone, a top company official said. "We have set ourselves a target to achieve 25 per cent of our total generation from clean sources by 2017. These will comprise wind, solar, hydro, geo-thermal and gas. In wind-power alone, we will be investing around Rs 5,000 crore," Tata Power's executive director-strategy & business development, Banmali Agrawala, said in Mumbai.

The company, which presently has a little over 200 MW of wind capacity, plans to give a strong thrust to wind-energy as "it is the most commercially viable and established form of renewable energy," he said.

The company is presently in the process of rolling-out 150 MW and an additional 750-800 MW will be added at the rate of around 100-150 MW annually through to 2017.

It costs around Rs six crore for generating 1 MW of wind-power presently, Agrawala said.

In solar, the company aims to have 300-400 MW capacity by 2017. The first steps will be taken by end-this year with the commissioning of a 3 MW plant at Mulshi in Maharashtra, he said.

Tata Power is also all set to sign a Power Purchase Agreement (PPA) with the Gujarat Government for a 25 MW plant to be commissioned by end-2011.

"This plant will be set up in Mithapur on land owned by Tata Chemicals and we hope to sign the PPA by end-this month," Agrawala said.

In geo-thermal, Tata Power is already engaged in a 240 MW project in Indonesia in a joint venture with Origin of Australia, which it plans to commission in five-years.

Tata Power and Origin hold a 47.5 per cent stake each with the balance held by a local company.

"We are eyeing another 600-700 MW in Indonesia and also other markets with a good geo-thermal potential by 2017. Apart from Indonesia which lends itself to geo-thermal, we feel there is a great potential in Africa and we plan to scout for assets there as well," Agrawala said.

It costs around $3.5 million to generate 1 MW of power (geo-thermal) and while Agrawala would not give any investment figure, going by the above, it could entail a total investment of between Rs 8,500-9,000 crore for the 600-700 MW.

"We would like to work with our partner, Origin, not only in Indonesia but also in other markets as well," he said.

For gas-based power, Tata Power has applied for gas allocation, he said, adding that the company possesses the expertise in this field and has also zeroed-in on potential sites.

"We are presently fine-tuning our plans here," he said.

Pricing of gas is still an issue and there needs to be a greater clarity on policies. Once these issues are sorted out, we will go full-steam ahead on gas," Agrawala said.

On hydro, in which the Tata Group has been present for nearly a century, the company is contemplating bidding for a clutch of projects in Himachal Pradesh, Tata Power's Executive Director-Operations, S Padmanabhan, said.

Tata Power, which now has a capacity of 447 MW in hydro, is presently engaged in constructing a 114 MW plant in Bhutan in a joint venture with the Bhutanese Government. It is also developing an 800 MW plant in Nepal in a joint venture with Norway's SN Power .

Mumbai - Hitech power theft by Bhandup-based industrialist unearthed

Power thieves in the city have started using high-end technology to cut down bills making it difficult for the Maharashtra State Electricity Distribution Company (MSEDCL) to pin the blame on culprits. In a recent case of meter tampering caught at the Bhandup industrial area, a factory owner was arrested for allegedly switching off the electricity meter with an advanced remote control, and stealing 30,000 electricity units that cost Rs 2.71 lakh.

The accused, Vishwas Kadam, owner of Vishwas Enterprises in Bhandup East has been charged under the Electricity Act (2003), which makes stealing power or meter tampering a crime. An FIR was lodged against him on November 12 at Kalyan police station and he has been billed for his illegal unit consumption.

A meter is tampered with so it calculates a low power reading, leading to a lower electricity bill. But it has to be physically tampered with, at least in the old analog meters. But Vishwas Kadam, owner of Vishwas Enterprises in Bhandup East, used something called a high frequency jammer to rig the digital meter in his factory.

"We have a meter reading instrument (MRI) wherein a meter can store six months of data within its memory which can be retrieved later from the device. We discovered that the power supply for the factory was being shown switched off despite the power being supplied to it from our systems," said an MSEDC official.

Officials say that what also raised their suspicion was when they first paid a regular visit to check the meters in late August. "We found the meter switched off and thought that it might have a technical defect.

We removed it and replaced it with a new meter on September 8 and sent the older one to the manufacturing company. But the company told us that the meter was in good shape. They then suggested the possible use of some sort of a remote device," an official said.

Three officials made a second visit on November 12 and the new meter was again found switched off. "While we were retrieving the data, the owner arrived and the meter automatically switched on. That confirmed our suspicion that he was using a high frequency jammer," said the official. Kadam used to switch off the meter using the remote every fortnight for four to five days and then again switch it on.

Officials, however, say that they haven't yet found the remote and Kadam has not admitted to using one. The only evidence they have are records showing the meter being switched off and the number of units consumed that have gone unrecorded in the meter. "He will obviously not part with the remote," the official said.