Kolkata: Power ministry’s scheme for procuring 2.5 gigawatt of coal-firedpower for three years attracted lowest rate of Rs 4.41 per unit, a shade over the last auction rates of Rs 4.24 per unit. 

ICRA believes that completion of this second round of auctions for medium-term power purchase agreement (PPA) with higher discovered tariffs is positive for the independent power producers (IPPs).

Sabyasachi Majumdar, group head - corporate ratings, ICRA, said: “The tariff discovered is largely in line with cost of generation for a recently commissioned coal-based power project with capital costs between Rs 7.0 crore and Rs 7.5 crore per MW and availability of coal under long-term domestic linkage. The first scheme did not receive full subscription to the offered capacity of 2.5 GW, partly due to lower tariff along with absence of fixed charges and non-escalable tariffs.”

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However, Majumdar believes that the second scheme is favourable for developers which accounts for fixed charges and indexation for variable charges. In the second round of auction the entire 2.5 GW was subscribed, albeit at a slightly higher tariff. However, the two medium schemes only provide a partial relief, given that the capacity that will be tied-up under these schemes is 4.4 GW against the 15-16 GW operational coal-based capacity lacking adequate long-term PPAs.

As per terms of the second scheme, tariffs quoted by the bidders will have fixed and variable components, wherein the fixed tariff will remain constant for the contract period. The fixed tariff will be linked to plant availability and will be fully payable on achieving normative availability of 85 per cent.

Generators will be eligible for incentive at the rate of 50 per cent of the fixed charges for dispatch beyond 85 per cent. However, the generator will be liable to pay damages at the rate of 25 per cent of the fixed charges for shortfall in availability below the normative availability. Further, the winning bidders would remain exposed to variation in fuel costs to some extent, given that indexation for variable charges is only to the extent of 50 per cent of the wholesale price inflation.



The aggregator appointed by the government will sign power purchase agreements (PPAs) with the winning bidders and back to back power sale agreement (PSA) with state distribution utilities (discoms).

“From the discoms perspective, slightly higher tariff discovered in the second scheme is a negative development. Nonetheless, the quoted tariff in the second scheme is lower than the tariffs discovered in the DEEP portal (in the range of Rs. 4.5 – 6.0 per unit) for supply on a short-term basis under the various bids called by state discoms in recent months. In this context, the timely signing of PSAs by the aggregator with the state distribution utilities remains crucial”, Majumdar said