CCEA relaxes 3-year tapering coal linkage policy...

 

The Cabinet Committee on Economic Affairs (CCEA) relaxed the coal tapering linkage policy thereby relaxing the coal supply to 9 power projects with investments worth about Rs 60,000 crore with capacity of 11,000 megawatt (MW).

These power projects which were initially proposed to benefit from this relaxation were -Essar Power’s Mahan,  Adani Power’s Tiroda project, Damodar Vally Corporation’s Mejia project, Gujarat State Electricity Board’s Ukai project and Mahagenco’s Parli project.

These power plants already have got their own captive coal supply blocks, but because of environmental clearances and other issues these power blocks could not be developed and hence they wanted the government to ensure that coal supplies to these power projects continue for a period of six years instead of three years which is a current norm as per the tapering coal linkage policy.

 

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Ujaas Energy to install 160 kW Solar system of NALCO's head Office in Odisha...

 

National Aluminum Company Ltd has selected Ujaas Energy Ltd for installation of a large grid interactive solar PV project of 160kw at its head office in Bhubaneswar in Odisha.

The project would be executed under the allocation from Solar Energy Corporation of India and would be synchronised with the grid. Once installed, the project would be the first of its kind in Bhubaneswar, which would be executed as per the recent guidelines of the Central Electricity Authority.

The project would provide enough electricity to cater the electricity requirement of Nalco office during day time when major consumption happens.

Vikalp Mundra, Joint Managing Director, Ujaas Energy Ltd said, “The project is very prestigious as it will start the trend of grid synchronised roof top solar PV in Odisha and will be a trend setter.” He added that the company is also executing large roof top solar PV projects of Rockwell Industries Ltd and Niloufer Hospitals in Hyderabad and some other leading PSUs in other cities.

Ujaas Energy Ltd has executed more than 65 MW of solar PV projects across the country.

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UP dials NTPC after Jaypee pulls plug on power project...

 

Almost seven years after bagging the project and following a series of hiccups in land acquisition, Jaypee Infratech has finally conveyed to the UP government its unwillingness to construct the 1,320-MW Karchana power project in Allahabad.

A desperate state government has now initiated talks with the central PSU, NTPC, to take over the project. According to sources in the state government, UP CM Akhilesh Yadav was scheduled to meet NTPC chairman and MD later in the day.

"The CM is meeting the CMD of NTPC, along with the principal secretary power, Sanjay Agarwal, to discuss the issue. The government has put the process on fast track and it is now almost certain that the project will go to the NTPC," a source said, adding that the CM had already asked senior officials of the power department to rope in other developers for Karchana power plant in case Jaypee was unwilling to construct the project.

"There could be two ways of going forward on this: One way is to go for a rebidding and the other is to invite a state entity such as NTPC or UP Rajya Vidyut Utpadan Nigam to develop it," said the official.

"For NTPC, this can be a boon as it already has a power plant Meja in the same vicinity," the official said, adding that the only bone of contention could be the power-sharing formula.

"While the state government will try to stick to its stand of getting 90% power from the project, the NTPC may stick to the Gadgil Formula," he said.

The state government, in October, asked the district administration to go ahead and hand over the land to the developer and ask them to start work on it as none of the owners (farmers) whose land had been acquired had come forward to give the compensation money and take back their land as directed by the high court.

Of the 518 hectares of land in possession of the district administration, small plots of about 50-odd hectares are still a bone of contention as these farmers were not ready to part with their lands.

Farmers of these plots have been holding protests on the site and have been holding up the project.

Referring to the delay in the project, the Jaypee group expressed its apprehension and said while on the one hand, it was not given total possession of the land, on the other hand, prices had shot up several times over the last seven years, making the project unviable at the old rates.

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How to power up the rooftop solar in Tamil Nadu...

 

Except the nice feeling, Dutchman Toine van Megen, an Indophile who has been living in this country for over 40 years, gets nothing for the electricity he pumps into the grid from his rooftop solar power plant.

If everyone could afford to be like the former executive of Suzlon and the co-Founder of Auroville Consulting, there would be a vibrant solar rooftop movement in the country.

Today, industries, educational institutions and commercial establishments such as shopping malls are putting up rooftop solar — for reasons as diverse as depreciation benefit, meeting renewable purchase obligations, and energy security.

However, very few home owners have taken to it, because domestic rooftop solar just does not pay.

The case of Tamil Nadu is illustrative. You can put up a 1 kW solar plant under the State’s capital subsidy scheme, or avail yourself of the State’s generation-based (tapering, six-year) incentive, or just not opt for any subsidy or incentive, which is the only option available if one wants to go in for more than 1 kW system.

Calculations (available on www.blonnet.com) show that the returns are 4.7 per cent with subsidies from both State and Central governments, 1 per cent with Tamil Nadu’s generation based incentive and minus-2.35 per cent without any subsidy or incentive.

Pay more

The situation looks better when electricity tariffs go up, but to counterweight that are a whole lot of assumptions — maintenance costs, generation, the uncertainty and the ‘cost’ of getting the subsidies. The only way to attract home owners to put up rooftop solar is to pay a remunerative feed-in tariff, which could taper over time, says Vivek Jayakumar, Executive Director, of the Pune-based Arbutus, a solar consultancy.

By Auroville Consulting’s calculations, an investor will get a 15 per cent return if he gets paid Rs 11.50 a unit. The expenditure would be defrayed by levying a small green cess — 1.08 per cent for the first five years, 1.94 per cent for the second block of five years and 0.26 per cent for the third.

At the highest domestic tariff, these translate to a rise of 6 paise per unit for the first five years, 11 for the second block and 1 for the third.

Do this, and you could have 15,000 MW of rooftop solar in the State in 15 years. And knowing that is a nice feeling.

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Study: Takeaways from CERC tariff norms...

 

The Central Electricity Regulatory Commission (CERC) has come out with a new set of draft tariff regulations for 2014-19. The regulations, when approved, would be applicable to all central sector power generating and transmission companies, and generators and transmission licensees proposing to sell power to more than one state or those involved in inter-state transmission.

 

We have seen a big thumbs down to the draft regulations by the investor community, manifested in dragging down of the share price of NTPC, the biggest power generator in the country, by almost 11.5% on the day the draft regulations were made public. Does this mean the new regulations are consumer friendly?

While promoting investment in the power sector forms a part of CERC’s mission, bringing about efficiency in the operations of the power generation and transmission companies and tariff rationalisation are equally important objectives of the commission. CERC’s tariff regulations have to take a balanced view about the concerns of the power generators, transmission companies and investor community on one hand and that of the consumers of electricity on the other. What is important is that the final regulations are based on the principle of transparency, techno-economic rigour and fairness so that neither consumers nor generators gain unduly at the expense of the other. Looking at the proposed regulations from this perspective, has CERC done a good job in protecting the interests of both the stakeholders?

Data from the Power Finance Corporation’s (PFC) report on the performance of the state power utilities for 2006-07 to 2011-12 shows that, at the aggregate national level, the cost of power purchase forms about 61-62% of the total expenditure of distribution companies (discoms) supplying power to ultimate consumers. Analysis of the data from PFC also shows that the power purchase costs of discoms have risen at a compounded annual rate of 16.42% between 2006-07 and 2011-12, when coal availability and hence higher coal cost was not much of a concern. Another set of data ranging over the past 10 years shows that the central sector power generating companies, the main entities coming under the purview of the proposed regulations, have been consistently meeting 41-42% of the power requirements of the discoms. In a sense, the proposed regulations will have over 24% impact on the tariffs that consumers would have to pay in a scenario where costs of power purchase as well as total discom expenditure has been rising at over 16% per annum compounded for the past 5-6 years. So, it is important that the regulations get it right from the consumers’ perspective.

From the consumers’ perspective, the most contentious provision in the proposed regulations, at least from the generator and investor community point of view, namely the rationalisation of the unjust tax arbitrage that the generating and transmission companies were perhaps unjustly enjoying, is a welcome step. Some analysts have estimated the withdrawal of tax arbitrage hit to companies like NTPC to be about R800 crore per year. With NTPC generating about 232 billion units in 2012-13, this will translate into consumers gaining a respite of about 3 paise per unit.
Another key change in the proposed regulations is linking generation incentives to plant load factor (PLF) or actual generation achieved rather than on plant availability, which is the case in existing regulations (2009-14). The proposed regulations prescribe that an incentive of R0.5/kWh would be available to generators if the normative PLF is achieved.

This is another fine example of the balanced approach of the proposed draft regulations. Under existing regulations, since the incentive is based on availability rather than actual PLF, generators still earn the incentive even though they do not actually generate or dispatch power. This clause in the existing regulations is becoming contentious. In recent times, due to non-availability of linkage coal, generators, in order to fulfil their PPA requirements, have been procuring coal from alternate sources such as e-auction or imports.

The coal from alternate sources being 2-3 times the linkage coal price, however, increases the generation cost that is sometimes unaffordable to the state utilities and they do not schedule the power from such generating assets. Under the present regulations, discoms have to pay the full incentive to the generator, although they may not actually be buying the power as the payment of incentive is linked to availability and not actual generation or PLF. By changing over from availability to PLF, discoms will not have to pay the incentive as long as they do not buy or schedule power to the extent of norms prescribed in the new proposed draft regulations, which safeguard the supply companies and its consumers from payment of incentive without buying or scheduling the generation beyond the prescribed norms. But this will result in generators losing part of earnings.

The extent of earning loss that may be suffered by a leading generator like NTPC could be in the region R140 crore per year per 1% loss in PLF below the prescribed norm if buyers (discoms) do not want to dispatch or schedule NTPC plants due to part of generation being done with costly imported or e-auction coal. The proposed regulations, however, have a provision which states that the generators can keep on generating as long as the weighted average price of coal, when mixed with coal from alternate sources, is not more than 30% the price of coal without considering alternate sources. Thus, generators can hope to meet the prescribed norm for PLF without having to worry whether or not the discoms will schedule their generation as long as the weighted average price of coal they use for generation is not 30% above the price of linkage coal. This provision does not completely safeguard the interest of the generators but is also not as one-sided as the provisions in the existing regulation, which put the entire burden on the consumers.

Other changes in the proposed regulations are with respect to operating norms such as station heat rate, auxiliary consumption and secondary fuel consumption. The norms have been further tightened, which is a positive step from the consumers’ point of view as it would lead to reduction of consumer tariffs. It is also a constructive step from the environmental point of view as tightened norms would lead to lesser GHG emissions, which is important from Indian perspective, as not only is power sector major contributor to CO2 emissions (40-42% of total), but per capita CO2 emissions in India, although way below world average per capita emissions, are rising at three times the world average over 8-9 years.

Another positive takeaway from the proposed draft regulations is providing higher return on equity (ROE) for hydro-generation projects as compared to thermal-generation projects. This is necessary to bring parity in the effective ROE rate between hydro and thermal power generation, as hydro projects, due to their long gestation period, need higher ROE to be on par with thermal plants in effective return terms.

Finally, it is well to remember that these regulations apply to existing plants and all the PPAs signed before January 5, 2011. Thereafter, tariff is to be determined by competitive bids. As more and more capacity gets added, the share of electricity procured on cost plus return basis will decline and the regulator’s role in tariff determination will be of less importance to investors.

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DERC ponders over discoms’ demand for new rates...

 

Aam Aadmi Party may have promised to slash power tariff in the city by 50% but Delhi Electricity Regulatory Commission (DERC) is considering the discoms' demand for new rates towards power purchase adjustment costs (PPAC) from January 1.

"We are studying the claims made by the discoms and verifying them. Depending on whether the discoms have incurred additional costs over what has been allowed to them, PPAC may or may not be given to them. We are hoping to pass an order by the end of the month," said a senior DERC official.

Private discoms BSES Rajdhani, BSES Yamuna and Tata Power Delhi have sought the hike as PPAC which will be charged from January to March 2014 and will cover the increased expenses incurred by the companies from July 1 to September 30, 2013.

Appellate Tribunal of Electricity has allowed PPAC to the discoms for the expenditure incurred in power purchase and increased generation costs over and above what has been allowed to them in the tariff.

BSES Rajdhani has sought a 3% hike, Tata Power Delhi a 2% hike and BSES Yamuna a 7% hike that DERC has already scaled down to 3%.

After the tribunal had asked all state regulatory commissions to implement the power purchase adjustment formula rather than just allowing the variable (fuel) cost, DERC introduced the provision of fuel adjustment from the tariff of 2012-13 and then changed it to overall power purchase during the latest tariff hike in July 2013.

In the 2013-14 tariff order issued in July, PPAC had been merged with the tariff for the last quarter. This is the first time that the discoms have sought the costs separately. "PPAC is given only when discoms incur additional costs not covered in tariff," said chairperson P D Sudhakar. A CERC proposal, if implemented, may reduce NTPC generation costs and discoms may not require PPAC in the next quarter, sources said. "We will know only when the proposal is finalized," said Sudhakar.

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Power Sector Yet to Get its Act Together...

 

Like any other year, this calendar year also did not bring any good cheer for the power sector.

Fuel linkages be it coal, gas or other sources were the factors that held back the sector growth. While power plants from AP to Maharashtra stalled production as promised gas linkages from power plants from AP to Maharashtra continued to reel under acute fuel shortage as Reliance Industries’ eastern offshore KG-D6 fields failed to supply required gas because of a sharp drop in gas production from those fields.

With six power plants shutting down in states including AP and Maharashtra, power generation to the tune of 3000 MW was affected as Reliance failed to supply gas.

Similarly thermal power plants that are dependent on coal had minimal coal stocks throughout 2013 with most of them reporting 60-70 per cent plant load factor.

CIL despite interventions from the Prime Minister’s office failed to honour the FSAs made with different power plants. Following PMO intervention 157 of the 173 supply pacts were signed.

As far as generation capacity addition is concerned the overall conventional capacity addition has been about 50 GW against a target of 62 GW in this plan period.

The peak and energy deficits are down to 10.6% and 8.5%, respectively. The country aims to add over 100 GW in the 12th Plan, half of  which is to come from private  sector.

The silver lining however was government inviting bids for two ultra mega power plants, one each in Odisha and Tamil Nadu. To be built at an estimated cost of `25,000 crore each these plants could help ease India’s power deficit problems.

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Damodar Valley Corporation power project stares at dead end...

 

Damodar Valley Corporation (DVC) was one of Jawaharlal Nehru's 'temples of modern India'. But decades of conflict with beneficiary state governments and mismanagement have turned the eastern powerhouse into a 'temple of doom', presiding over a financial dead end.

In a confidential report to the power ministry, Arup Roy Choudhury, chairman of India's biggest generation company NTPC, said the government should either give the company a complete makeover or consider pulling the plug. Roy Choudhury was last month given additional charge of DVC.

"A total paradigm shift is required if DVC has to survive," Roy Choudhury said, putting four posers: Does the original philosophy behind forming DVC still hold good? Should DVC give up the activities that are in conflict with state government's role? Should DVC become just a generator and distributor only for bulk power? Is it a good time to reverse the 1943 initiative and wind up DVC?

DVC was set up under a special Act with the aim of controlling the wild and erratic Damodar flowing through West Bengal and Jharkhand. The two states are stakeholders along with the central government.

"When DVC was formed, probably the Centre-state and state-to-state dynamics were totally different. Today, the main stakeholders for whose benefit it was created do not feel that DVC is working for their benefit... Somehow, today it (DVC) is stepping on each others' toes and not synergizing with any beneficiary," Roy Choudhury said in a telling commentary on the company.

No wonder, the states have stopped acting as stakeholders. But Roy Choudhury also blamed the management, which went for expansion without observing the golden rule of first securing land, water, environmental clearance, coal linkage and power purchase arrangements. As a result, most of the projects are stuck.

Such carelessly planned expansion and lack of corporate vision have put DVC in dire straits: Arrears of Rs 6,880 crore, mostly from Jharkhand; negative cash flow of Rs 110 crore per month; IDC (interest during construction) liability rising to Rs 2,941 crore on account of delays and no recovery of even fixed costs of 1,100 mw in the absence of power purchase agreements.

The future too appears grim. New plants have an average tariff of Rs 4.5 per unit, which would make it tough for them to get merit order — a queue in which plants with lower marginal cost are called to switch on first for meeting demand.

Roy Choudhury also found fault with the mining foray, saying the coal tariff agreed with the mine operator had been vitiated in the absence of contractual safeguards due to changes in the coal pricing policy.

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Analysis: Indian Power sector sees return of investors...

 

The Piramal Group led by Ajay Piramal is scouting for investment opportunities in the Indian power sector, in a move that is as much an indication of the intentions of a conglomerate with money to invest as it is of growing investor interest in the business.

“The Piramal Group is looking at investment options and is evaluating opportunities. It has the resources and the appetite,” said a Mumbai-based power sector analyst who spoke on condition of anonymity.

A Piramal Group spokesperson, in an emailed response, said: “We evaluate opportunities across sectors including conventional power,” and added: “As a matter of business policy, we do not comment on specific opportunities.”

The power sector analyst cited above said several transactions were in play and cited investments made or interest evinced by foreign entities such as JPMorgan Chase and Co.’s asset management unit, Sembcorp Industries Ltd of Singapore and France’s GDF Suez SA, among others.
JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diliigent Power Pvt. Ltd in May 2013; Nagarjuna Construction Co. Ltd has been reported to be in talks with Sembcorp to sell a stake in a power plant; and Meenakshi Energy and Infrastructure Holdings Pvt. Ltd has agreed to sell a 74% stake in a 1,000 megawatts (MW) coal-fired power project to GDF Suez.

The debt-laden Jaypee Group is close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA.

The analyst explained that reasonable valuations have played a part in reviving investor interest in the power sector, as has the rupee’s depreciation, which has sweetened such deals for foreign buyers. The rupee has depreciated 11% against the dollar this year, making Indian assets cheaper for foreign buyers to acquire.

To be sure, valuations have become reasonable because many Indian promoters are looking for investors (if not to sell out altogether). Their problems include the domestic economic slowdown, high borrowing costs, delays in land acquisition and environmental clearances, and fuel shortages.
The Piramal Group itself is flush with funds after a 2010 deal in which it sold its pharmaceutical business to US drug maker Abbot Laboratories for Rs.17,000 crore.

Piramal Capital, which has a structured investments business unit, has invested Rs.550 crore in Navayuga Road Projects Pvt. Ltd, the road development arm of Navayuga Engineering Co. Ltd, and another Rs.500 crore in infrastructure company Green Infra Ltd. Piramal Capital picked up about a 10% stake in the Chennai-based vehicle loan company Shriram Transport Finance Co. Ltd for Rs.1,652 crore in May.

Analysts and experts say the evidence on hand does suggest a return of investor interest in the power business.

“There are some transactions that are happening. There are distressed assets; with valuations being depressed, it make sense,” former power secretary Anil Razdan said. “For the sector to fully recover, more financial closures need to be done for which the fuel issues need to be resolved. The projects need to run on full capacity to earn revenue.”

Power plants have been operating below production capacity because of fuel shortages. Things seems to be improving with the utilities tying up fuel supply agreements for 157 units totalling 71,000MW till November.

“Also, with the elections approaching, the demand for power will go up and to that extent there will be more power procurement by the state governments with state resources being deployed for the same,” Razdan added.

Indeed, trading in electricity saw a spike as the five states of Madhya Pradesh, Rajasthan, Chhattisgarh, Delhi and Mizoram, fearful of political backlash, bought additional power to avoid outages (and consequent voter outrage) in the November-December state assembly elections.

“We have to also keep in mind the fact that these asset sales are happening in projects that are operational or will soon start commercial operation. This mitigates the risk of land acquisition, approvals, clearances and project development. This appeals to foreign investors,” the power sector analyst mentioned in the first instance said.

Sambitosh Mohapatra, an executive director at PricewaterhouseCoopers Pvt. Ltd, said: “India is witnessing a revival of interest in investments, especially of international operators and investors from the Middle East, Europe and Japan, especially in the areas of renewables, conventional power generation (with advanced construction stage or operational) and electrical equipment.”

“It’s on the back of a positive outlook on the changing contours of the economy and expectations of improved governance. It also marks a phase of consolidation with the entry of large strategic operators bringing in synergies buying out small local players more interested in the EPC (engineering, procurement and construction) play,” Mohapatra added.

India’s ambitious bailout plan for state government-owned distribution companies announced in September last year is also expected to help improve the finances of state electricity boards and hence their ability to procure power.

“The scheme has been successfully implemented in Tamil Nadu, UP (Uttar Pradesh), Rajasthan and Haryana. FRPs (financial restructuring plans) have also been finalized for the states of Bihar, Jharkhand and Andhra Pradesh. Rationalization of tariffs has already been carried out by 24 SERCs (state electricity regulatory commissions)/JERCs (joint electricity regulatory commissions),” the power ministry said in a statement on Monday.

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The sun, a school and a farewell to power cuts in Tamil Nadu...

 

Students and teachers of Ramaratnam Nursery and Primary School in Mylapore have not had to bear the brunt of power cuts for almost one year, all thanks to the solar power plant installed on the roof of the building.

The school housed in the Madras Sanskrit College has installed an ‘On Grid’ type solar plant in which electricity produced during the day is directly converted into AC power and distributed to the electricity grid of Tangedco. S. Harish, CEO, Future Renewable Energy Infrastructure Private Limited, said under the ‘on grid’ system, the solar power produced could not be stored like the ‘off grid’ system, where it could be stored in a battery. The former was suggested to the school authorities because the school functions during day time. Also, the ‘on grid’ system is 30 per cent cheaper than the ‘off grid’ system.

The 7 Kilo Watt (KW) solar power plant, including the inverter, cost Rs. seven lakh (including the subsidy of Rs. 2 lakh) with the school likely to recover the investment within seven years, Mr. Harish added. The solar power plant has not only helped the school authorities deal with power cuts, but has also brought down power consumption by 30-40 per cent.

Subramaniam, manager of the school, said the institution, which used to previously consume an average of 2,500 units in two months managed to save around 1,000 units after the plant was installed.

B. Madhavan, a trustee of the school, said the solar plant was installed mainly to ensure students’ comfort. He said by going solar, the school was also able to fulfil its social responsibility.

Going by the success of the solar power plant installed in the school, the trustees of the Madras Sanskrit College have proposed to install an off-grid system on its premises.

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