Neutral view: capacity reduction, pending framework rob the shine

Neutral view: capacity reduction, pending framework rob the shine

In the latest review of power sector capacity addition, the Central Electricity Authority (CEA) has revised the 11h Plan (2008-12) capacity addition target downwards to 75GW against 80GW earlier.

The revision in capacity addition has been due to slippages of 7.3GW of thermal projects and 5.2GW of hydro projects and addition of new thermal power projects, which were earlier expected for commissioning in the 12th Plan, given improved project progress.

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In the 11th Plan period, there has been a remarkable shift in terms of capacity addition in favour of the private sector. The contribution of the private sector now stands at 34% against 14% in August 2007. The Central sector’s share has come down from 51% to 36%, and of the state sector from 36% to 30%.

Adani Power Ltd is the largest private sector firm with likely capacity addition of 6.6GW. The other major firms include Lanco Infratech Ltd (3.3GW), Tata Power Co. Ltd (2.9GW), JSW Energy Ltd (2.9GW), Sterlite Energy Ltd (2.4GW), Reliance Power Ltd (1.9GW), Jaiprakash Hydro-Power Ltd (1.0GW), among others.

With new targets, the Central Electricity Regulatory Commission (CERC) has been working on regulations regarding medium- and long-term open access in inter-state transmission, a mechanism to improve grid discipline by regulating unscheduled interchange market. Also, there are tariff regulations for promotion of renewable energy and plans to evolve a framework for renewable energy certificate. CERC has also proposed to revise power trading margins from an absolute cap of Re0.04 per unit to a slab-based system linked to power realizations.

But there are issues that need government attention: CERC is aware of the memorandum of understandings signed by various state governments with power project developers, which provide either free power or specified quantum of capacity (25-37.5%) on CERC norms/CBT tariffs and variable cost.

Given the fact that most states cannot consume the entire power, home states will emerge as a large trading group. These are currently outside CERC’s purview.

Private developers are trying to participate in the competitive bidding process under Case-I Bidding. This process has been slow and, in many cases, state utilities have not been able to formulate clear bid papers, which has resulted in delayed decisions. This has also impacted financial closure for such projects.

But the commission reiterated its view to create free and open power trading market based on demand and supply dynamics. To develop a vibrant power trading market, CERC has come out with various mechanisms and regulations pertaining to unscheduled interchange mechanism, power exchanges, open access in inter-state and intra-state, National Transmission Tariff Framework etc. All state regulators have also taken a unanimous view to promote open access to consumers. Hence, with a capacity downgrade and pending framework, we remain neutral on the power sector.