The government is likely to launch a fresh round of auction of power purchase contracts while also allowing escalation and fixed charges to power companies in a bid to alleviate stress in the sector.

Ahead of polls and setting in of summer demand, the auctions will help stranded and underutilised power plants sign agreements with state distribution utilities for three years. There are 14,000-mw stranded and underutilised power units, of which close to 8,000-mw have coal supplies but no power purchase agreements. These include plants of companies like Sembcorp Energy India, SKS Ispat & Power, Lanco Infratech and Meenakshi Energy.

Recent tenders by discoms seeking short-term power supply have received high bids as generators expect coal shortage, higher demand for electricity from states due to summers and elections. Bids floated by state utilities of Chhattisgarh and Uttar Pradesh for supply in May – June received bids as high as Rs 5 per unit-Rs 6.5 per unit

The second round of PPA auctions is proposed to be in line with the pilot bids but with certain relaxations to the power generators. “The proposal is to align the scheme with the existing medium term power procurement agreements. This will address the developers’ concerns of fixed tariff for three years and the fixed costs issue,” said the official. The power and the coal ministries are also working on the recommendations of an empowered committee headed by Cabinet Secretary P K Sinha asking them to auction PPAs along with pre-determined coal supplies, the official said.

The government had in April last year kicked-off the pilot scheme for procurement of aggregate power of 2,500-mw on competitive basis for three years from commissioned projects without PPAs. PFC Consulting Limited acted as the nodal agency and PTC India was the PPA aggregator for the scheme.
 

The scheme assured minimum off-take of 55% of contracted capacity to the power plants but the tariff has been fixed for three years without any escalation. Also the fixed cost for the PPA auction has been kept at 1 paisa per unit.

In the first round of auctions, seven plants won 1900-mw power contracts. These include RKM Powergen, Jhabua Power Ltd, MB Power Ltd, SKS Power, Jindal India Thermal Power Ltd, IL&FS Energy and JP Nigrie. Electricity distribution companies of Telangana, Tamil Nadu, West Bengal, Bihar and Haryana have agreed to procure the power.

The scheme was kicked off to address the issues of stressed power assets. Lack of PPAs is one of the key reasons for stress in the power sector besides other factors such as promoters’ equity crunch, no coal supply, and regulatory and contractual issues. Electricity distribution companies have not called enough medium and longterm contracts in the last few years.