The Telegraph
Friday , September 7 , 2012
Since 1st March, 1999
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Power gets a shock

New Delhi, Sept. 6: The government may cancel coal block allotments to private power firms that have been reaping rich rewards by selling power to state distribution companies at Rs 4-19 a unit against an average generation cost of Rs 2-2.50 a unit.

The government has written a letter to private power firms to go in for competitive bidding with state electricity boards for long-term supply agreements instead of profiteering on electricity shortages by selling at exorbitant rates through power trading exchanges.

“As coal blocks were given for the power sector, developers must participate in bids for procurement of power by distribution companies according to bidding guidelines of the ministry of power and offer benefits of government allotted coal blocks to consumers,” a letter written by the coal ministry to private power producers said.

Private plants can sell any “surplus” power generated at their units through trading exchanges only after they have met their long-term supply pacts. Instead they tend to sell all the power through exchanges to get a better price.

However, ultra mega power projects, which are also mostly privately owned, go in for long-term pacts through a bidding process at much lower rates.

The huge difference in the price quoted by UMPPs and other private plants (both have captive coal mines) has stumped officials.

Price of electricity sold by private power plants through trading exchanges such as the IEX have ranged between Rs 4-19 a unit measured in kilo watt hour (kWh), while electricity sold by UMPPs through bidding have been in the range of Rs 1.19 to Rs 1.77 per kWh.

Even after accounting for efficiencies of scale, top officials said the prices could not be so different. Analysts estimate that the cost of captive coal per unit of electricity is about 60 paise and for coal bought from Coal India, the rate is about a rupee.

Coal India has recently been virtually forced by the government to offer long-term fuel supply agreements at fixed prices to private energy companies. Besides a fixed rate, CIL had to agree to a hefty penalty for shortfall in supply.

Even without the assured fuel supply from CIL, officials estimate that the cost of power generation should be in the range of Rs 2-2.50 a unit.

Officials said Reliance Power, which has contracted to sell electricity from its Sasan mega power plant at Rs 1.19 a unit, has promised to supply power from its 4,000MW Chitrangi plant, which uses “surplus” coal from Sasan, at Rs 2.45 and Rs 3.80 a unit to Madhya Pradesh and Uttar Pradesh state electricity boards.

In contrast, between November 2011 and February 2012, peak time open market tariff has been between Rs 5.5 and Rs 12 a unit. Encouraged by this, even in direct sale contracts, private firms are quoting higher prices, officials said.

“Merchant power is a high-risk market and power rates will remain on the higher side till demand-supply issues as well as coal shortages are addressed,” said Arvind Mahajan, energy analyst with KPMG.