UMPP

Recent Regulations/Amendments in Indian Power Sector

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A transparent Regulatory Framework is required for making the sector viable for its growth as well as invoking investor confidence in the sector. To meet the growing expectations of the manufacturers, investors and consumers, CERC (Central Electricity Regulatory Commission) has amended key regulations and issued orders that can lead to the betterment of the power sector. Some of the amendments done by the regulator can be summarized as follows:

Compensatory tariffs Approved: In Feb’14 CERC allowed compensatory tariff hikes for the two major power sector players namely Tata Power’s Mundra UMPP and Adani’s 4620 MW Coal Based Power Plant located in Gujarat.
( http://www.cercind.gov.in/2013/Reports/COMREP_CGPL.pdf) In lieu of the change in regulations of Indonesian Mining (2011)http://www.indonesiamininglaw.com/tag/iup/, the two players objected of suffering high landed cost of coal and thereby leading to loss on the exchequer’s pocket. Since the tariff revision is effective from April 1, 2013, CERC has directed the concerned DISCOMs to reimburse Rs 3.29 billion to Tata Power and Rs 3.89 billion. Some of the state DISCOMs (Rajasthan,Punjab,Maharashtra) have challenged CERC’s order before the Appellate Tribunal for Electricity (APTEL).Reliance also filed the petition concerning its Tilaiya UMPP in Madhya Pradesh. Adani has been allocated Lohara Coal Block for its project which covered around 75% of the coal requirement for the project but that came under the scanner of Ministry of Environment and Forest thereby leading Adani to hunt for alternate sources for fuel. This ultimately led to escalation of its levelised tariff as defined in the PPA.

Tariff Regulations : In feb’14 CERC came with the new Tariff regulations 2014-19,http://www.cercind.gov.in/2014/regulation/reg21.pdf which put forward many changes leading to strong repulsion from the major players in the market:
o Incentives for players have been linked to Plant Load Factor(PLF) as compared to Plant availability factor(PAF) as described in the earlier regulations.
o The base RoE(The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested) has been fixed on 15.5 % but FGMO,www.srldc.org/var/ftp/FGMO/FGM%20IN%20SR.ppt has been critically linked with it leading to tough times for Generators.
o Provision of PAT(Perform, Achieve and Trade)http://www.performachievetrade.com/ has also been included in the guidelines issues.
o Heat rate norms have been made more stringent for existing as well as new power plants. The factor has been changed to 1.045 from 1.063 (Kcal/KwH)
o The normative annual PAF has been reduced to 83 % from 85 %.
Responding to CERC Tariff Regulations, NTPC moved to courts against CERC mentioning that the PLF based incentive could hit their profitability.

IEGC Amendment: In Jan’14, CERC issued an amendment to IEGC regulations 2010, further tightening the frequency band to 49.9 Hz – 50.05 Hz from the earlier range of 49.7 Hz -50.2 Hz.http://www.cercind.gov.in/2014/regulation/noti18.pdf In addition to sandwiching the frequency range, Grid integrations has also been pushed further with the inter-connectivity of Raichur-Sholapur transmission line. In context with the change in IEGC regulations, Penalty charges related to deviation mechanism of Unscheduled Interchange (UI) has also been revised.

Open Access Regulations: Apart from the changes concerning LTOA (Long Tern Open Access) and MTOA (Medium Term Open Access) in Interstate Transmission Regulations, 2008 , there have been proposed amendments regarding the connectivity of renewable energy projects of 5 MW – 50 MW capacity with the interactive grid.

Power System Development Fund,http://powermin.nic.in/whats_new/pdf/Operationalization_of_Power_System_Development_Fund_Jan2014.pdf : CERC issues PSDF regulations 2014 replacing the earlier PSDF regulations 2010 and intents to push the investments in the transmission sector. The fund will be maintained through a collection of Congestion charges, deviation settlement charges and reactive energy charges. Primarily the fund will be used for capacity building in the transmission sector including installation of shunt capacitors, series compensators, VAR compensators etc.

PoC Tariff Regulations : In Feb’14 CERC issued a draft amendment regarding the sharing of Inter-state transmission charges and losses regulations, which incorporated the PoC methodology of determining the cost and losses to be shared by the users of the ISTS(Inter State Transmission System)

RE Tariff regulations: In Mar’14 the first amendment to the Terms and Conditions for Tariff determination from RE sources regulations were approved by CERC,http://www.cercind.gov.in/2014/whatsnew/SO354.pdf. The amendment aimed to address various issues faced by biomass plants.

NPEX Plan Shelved : In April’14, CERC passed an order withdrawing its permission for setting up the National Power Exchange (NPEX) http://www.pfcindia.com/Content/National_Power_Exchange_Limited.aspx .Promoters of the Exchange i.e NTPC,NHPC,PFC and TCS voluntarily applied for the closure of the exchange.

In the new future, further key orders are expected that will ultimately (perhaps) helps the revival of the sector.

Competitive Bidding- “Not so Competitive”?

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As per Ministry of Power,about 25000 MW of capacity from private players is expected to come up in 13th plan which is a kind of paradox as per current scenario.State DISCOMs are reluctant and skeptical to issue bids,preferring to load shedding and buying from short term power market owing to low rates(CERC’s Short term power market Report :http://www.cercind.gov.in/2013/market_monitoring/MMC_Report_1213.pdf).Moreover fuel sourcing issues related to Coal,gas(Gas Pricing issues and recommendations https://knowpowernews.wordpress.com/2013/03/24/rangrajan-committee-report-on-natural-gas-pricing-and-its-repercussions-on-sector/) have emerged as a road block to the competitive bidding route.
In April 2003,CERC has somehow tried to end the stalemate and allowed TATA & ADANI to go for “Compensatory Tariff hike” but somehow the procuring states are not ready for the same(http://articles.economictimes.indiatimes.com/2013-10-09/news/42864252_1_mundra-project-tariff-hike-tata-power).
Reports of Compensatory Tariff Hike related to ADANI & TATA can be read here :
http://www.cercind.gov.in/2013/Reports/COMREP_%20APL.pdf
http://www.cercind.gov.in/2013/Reports/COMREP_CGPL.pdf

Current Scenario:
Over 52 GW of the projects have been awarded through competitive bidding route (Case 1 and Case 2 Route) http://www.powermin.nic.in/whats_new/competitive_guidelines.htm . No new Power Purchase Agreement has been signed under the purview of Case 2 Bidding since L & T’s 1320 MW plant in Rajpura(Punjab).
Earlier the bid invitation process at Odisha as well as Chattisgarh could not be completed but as per recent notification,Fresh Rfq will be invited for Odisha UMPP http://www.cmie.com/kommon/bin/sr.php?kall=wclrdhtm&nvdt=20130906125251890&nvpc=099000000000&nvtype=TIDINGS

Refer PFC(Power Finance Corporation) for detailed RFP as well as RFQ http://www.pfcindia.com/Content/UltraMegaPower.aspx
In June 2012, bids were invited by UPPCL on behalf of 4 DISCOMs to procure power starting from 2016-17 for 25 years. Developers are not placing aggressive bids due to changed market scenario as fuel supply sourcing issues as well as pricing risks have uprooted in recent times.According to UPPCL bid results, the average tariff quoted was hovering around Rs 5-6/unit.
Key Developments:
-In a move to promote competitive bidding for inclusive growth for the Indian power sector, CERC has adjudicated on ADANI case for requesting a tariff hike.The regulator realised that due to rise in Indonesian coal prices(due to change in regulations), it is quite viable to manage at the same tariff cost.
-Another major development that took place in the recent times was approval of mechanism to pass on the imported coal fuel price “http://www.domain-b.com/economy/general/20130621_consumers.html”. CIL need to sign FSA (Fuel Supply Agreement),according to which shortfall of the coal will be met through imported route on cost plus basis. Meanwhile after several rounds of discussion,MoP finally released SBD for case 2 Projects in September 2013 http://powermin.nic.in/whats_new/pdf/overview_of_the_draft_model.pdf Detailed RFQ as well as RFP can be referred here :
http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/RFQ_MPPA19092013.pdf
http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/RFP_MPPA19092013.pdf

Some of the Key points being highlighted in SBD are:
-Bidding will be done on single parameter i.e “capacity charge” (comprises of RoE(Return on Equity,Interest on Loan Capital,Depreciation,Interest on Working Capital, Operation & Maintenance cost ,Cost of secondary fuel,special allowances in case of R & M of a thermal power plant).
-The basic building of SBD is adopting DBFOT Model(Design,Build,Finance,Operate and Transfer)which says the power plants will be transferred to contracting DISCOMs after the completion of the project life.
– Fuel charge will be a pass through component and it will be reflected in the distribution tariff as quoted.
-Incentive will be provided to the developers on improving the Station Heat Rate(The Station Heat Rate of a conventional fossil-fueled power plant is a measure of how efficiently it converts the chemical energy contained in the fuel into electrical energy,usually expressed in Kcal/KWh).
-Land acquisition will be procured by the utility as the concessionaire may face difficulty for getting the land at the aforesaid location.

Future Scenario
With the finalisation of the revised SBD for Case 1,more states will initiate the process of issuing RFPs thereby giving the clarity on SBD.Provisions related to tariff revision and acceptance of Long Term power procurement as compared to short term would also drive states to procure more power.Changing sector dynamics of policies and regulations is a positive sign for the sector and thus making India a more competitive one.

UMPPs(Ultra Mega Power Projects) – Tangled things!!

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Ultra Mega Power Projects(UMPPs- http://en.wikipedia.org/wiki/Ultra_Mega_Power_Projects) ,launched in 2006 has been facing critical issues like fuel availability,escalation in fuel prices,delay in clearances.During the time of signing of PPAs by these UMPPs, developers were unaware of the fact that the fuel prices could escalate by 10-15%.Power developers are seeking a revision of PPAs to allow pass through of coal costs.TATA power has taken the foremost step relating to imported coal price issue in front of CERC (http://cercind.gov.in/2012/rop/Record%20of%20Proceeding%20in%20159%20of%202012%20CGPL%20.pdf)

Projects Awarded till date..
As of now, PFC(Power Finance Corporation) being the nodal agency has awarded 4 UMPPs – Sasan UMPP in Madhya Pradesh( Reliance Power),Tilaiya UMPP in Jharkhand(R Power),Krishnapatnam UMPP in Andhra Pradesh and MUndra UMPP in Gujarat (TATA Power). Mundra and Krishnapatnam is based on Imported Coal from Indonesia whereas Sasan and Tilaiya have been allotted coal blocks.Tariffs were highly competitive striking an average figure of Rs 1.88/unit.

UMPPs awarded (http://saiindia.gov.in/english/home/Our_Products/Audit_report/Government_Wise/union_audit/recent_reports/union_performance/2012_2013/commercial/Report_No_6/Annexures.pdf)
1. Sasan Power Limited, Sasan UMPP, Madhya Pradesh – Rs 1.196/unit
2. Coastal Gujarat Power Limited, Mundra UMPP, Gujarat – Rs 2.264/unit
3. Coastal Andhra Power Ltd., Krishnapatnam UMPP, Andhra Pradesh – Rs 2.33/unit
4. Jharkhand Integrated Power Ltd., Tilaiya UMPP, Jharkhand – Rs 1.770/unit

Mundra UMPP was first to commence its operations with commissioning of 3 x 800 MW units in 2012 and last unit was synchronized in Jan 2013 which were quite ahead of their schedule. CGPL (Coastal Gujarat Power Ltd.) -TATA’s wholly owned subsidiary(SPV) has been incurring losses due to change in the regulatory framework in Indonesia’s coal regime(http://news.mitraismining.com/pages/IndonesianMiningRegulation.aspx)
In July 2012,TATA Power sought a tariff hike in lieu of change in coal prices as DISCOMs refused to revise the PPA terms.In its tariff petition of TATA,it has stated that hike in Indonesia coal prices will lead to rise in generation cost by Re 0.67- Re 0.70/Unit,thereby denting the cash flow statements of TATA Power.Inspite of this deadlock of tariff,TATA Power continue its operations of Mundra while R Power stalled work at the Krishnapatnam UMPP.R-Power held that the operations could start only after the revision of Standard Bidding Documents signed with DISCOMs.Delhi High Court has suspended the petition filed by R Power and thus they have plans to approach CERC.

On the other hand,Sasan UMPP has made the steady progress. The first 660 MW unit is expected to commission by 2012-13.In Jan 2013,465 kV switchyard was commissioned in order to provided initial start up power.R Power has plans to commission the remaining units with a time interval of 3-4 months.As far as Coal production is concerned from Moher and Mpher Almohri,its much ahead of the targeted time frame. R Power is also struggling with legal hurdles w.r.t ambiguity of coal usage.Company was asked to stop production in the aforesaid coal blocks in lieu of R Power’s linking the Coal Scam by CAG.

R Power’s third UMPP Tilaiya has faced many delays due to challenges in obtaining forest clearances and land acquisition. As of Nov 2013,Stage II forest clearance has been awarded thereby keeping the project in limbo.

Progress Report of UMPPs released by CEA can be found at : http://cea.nic.in/reports/articles/thermal/umpp.pdf

Future Scenario!!
The Power Ministry has identified additional 12 sites to set up UMPPs in different states and these are:
UMPPs in Process:
1.Chhattisgarh Surguja Power Ltd., Chhattisgarh UMPP , District Surguja
2.Orissa Integrated Power Ltd., Orissa UMPP, District Sundargarh
3.Coastal Tamil Nadu Power Ltd., Cheyyur UMPP, Tamil Nadu , District Kanchipuram
4.Tatiya Andhra Mega Power Ltd., Andhra Pradesh 2nd UMPP, District Prakasam
5.Deoghar Mega Power Ltd, Jharkhand 2nd UMP, Disrtict Deoghar
6.Sakhigopal Integrated Power Co. Ltd., Orissa 1st Additional UMPP, District Bhadrak
7.Ghogarpalli Integrated Power Co. Ltd., Orissa 2nd Additional UMPP, District Kalahandi
8.Coastal Maharashtra Mega Power Ltd. Maharashtra UMPP, District Sindhudurg
9.Coastal Karnataka Power Ltd., Karnataka UMPP
10.Bihar UMPP
11.2nd UMPP in Tamil Nadu
12.2nd UMPP in Gujarat

Progress on the bidding process of only 2 UMPPs (Sarguja-CHattisgarh and Bedabahal-Odisha) have stalled as the coal block areas have been classified as No- Go areas. by MoEF. Despite the elimination of problem of Go/No Go areas ,the bad omen of clearances still pending with Sarguja UMPP.Bedabahal UMPP re invited pre qualification bids as it has been awarded green signal as far as MoEF is concerned.
MoP has finalized a new set of SBDs for UMPPs but the approval is still awaited from EGoM.The ministry has proposed separate rounds for Coal linkage and Captive coal blocks. Moreover,the bidding of UMPP will be based on first year tariff rather than 25 year levellised tariff.(http://www.powermin.nic.in/whats_new/pdf/Guideline_for_determination_of_tariff_and_SBD_for_case_1.pdf)
Earlier, in Oct 2012 CERC had suggested revising UMPPs on BOO Model rather than DBFOT Model. Moreover,there was a proposal to supply 100% of the coal to the power plants fulfilling the shortage through coal import.
Thus in the light of various issues,the development if UMPPs have been questioned by power plant developers.There is a need to build flexibility within the PPA structure to deal with uncertainties in a manner that is quantifiable for the prospective investors.

References : PFC India,UMPP,Wikipedia,Powerline Magazine