NEW DELHI: The government is formulating a novel scheme to revive stressed power assets by inviting competitive bids from them to supply electricity for five years – a move that will give state utilities cheaper electricity and help stranded plants start operation and start repaying debt.
The proposal is the government’s biggest plan to help 34 stressed plants with a capacity of 40,000 megawatts. Former power minister Piyush Goyal had told Parliament that the combined debt of the projects is Rs 1.77 lakh crore. A senior government official told ET that the power ministry is considering pooling electricity demand of various states and call tariff-based bids. The contracts will be passed on to the states later, he said.
The proposal aims to help idling power projects tie up medium-term contracts. The states can replace their existing costlier power arrangements through the proposal, he said.
“The power ministry proposes to begin with procurement of 2,000 mw of power as trial. The procurement on behalf of the ministry can be done by Power Finance Corp or Power Trading Corp. We will continue the procurement if the pilot is successful,” the official told ET on condition of anonymity.
Guidelines for the scheme are likely to be issued in a month, he said. The proposal also seeks to comfort state-owned discoms by waiving fixed cost payment when they do not offtake power from such plants.
The proposed scheme will remove contractual requirement for the buyer to pay a fixed cost to the power plant even if no power is purchased.
Through this the government plans to encourage state power distribution companies to float tenders seeking electricity supply and sign new PPAs, which in turn will help the stranded power stations get fuel supply from Coal India.
The proposal, however, will mandate the state distribution companies to offtake a minimum capacity of electricity from the plants, a senior government official said.
Electricity distribution companies have not called long-term contracts in the last few years.
Industry experts cite low demand, subdued spot power prices and falling prices of renewable energy as the reasons for lack of PPAs, but the government says the electricity demand has been growing at a healthy rate.
The power ministry has said electricity generation grew by 8.66% in May this year and 7.06% during Apr-May 2017. The power ministry said Indian power sector is faced with a problem of oversupply as the country added 42% of the installed generation capacity in 2014 in the last three years.
The major reasons for stress in the power sector are non-availability of regular fuel supply arrangements, lack of power purchase agreements, promoter’s equity crunch, and regulatory and contractual issues.
ET View: Reform The Power Sector
The plan makes ample sense in the policy-challenged power sector characterised by dodgy state utility finances and high distribution losses. But in tandem, we need to mandate regular disclosure of utility bottom lines. Utility results need to be published on a quarterly basis. The aim ought to be to list the better performing state power utilities sooner rather than later. The powers that be need to put paid to reckless populism. We need to levy reasonable user charges in the vexed power sector, and provide targeted subventions via biometric Aadhaar cards.