New tariff regime will electrify power sector
December 31st, 2010

The transition to a new regime, under which power projects will be awarded to prospective developers offering the most competitive tariffs, is the most anticipated change in the power sector as we move into the year 2011.

The step is expected to usher in greater competition and eventually translate into lower electricity bills for the end-consumer. The year could also see some progress on the awarding of at least a couple of new Ultra Mega Power Projects (UMPPs) proposed in Orissa and Chhattisgarh, especially those which have been stuck through the current year for want of clearance.

The slack progress on the issue of distribution reforms, including the issue of distribution utilities lowering losses, is expected to remain an area of concern in the coming future. Analysts, however, envisage increased funds flows into the generation business in the coming year. The projection is broadly in line with the trend in inflows seen during the current year into the power sector, whose share has risen to around 8 per cent of total foreign direct investment this year, from around 5 per cent last year, according to PricewaterhouseCoopers estimates.


The private sector, which is already beginning to flex its muscle in terms of the projects that have been bagged by it in the last couple of years, could see a bigger role going forward. Private sector players such as Reliance Power and Tata Power, which have emerged successful in the handful of generation projects awarded through the competitive bidding route, could consolidate on their experience so far. A bevy of private sector capacity is already coming up in various parts of the country, including in Tamil Nadu, Karnataka, Andhra Pradesh, Orissa, Chhattisgarh, Jharkhand and Himachal Pradesh. Going forward, it is expected that these private players would add more that 60 per cent of the incremental capacity of around 75,000 envisaged during the next five years or so.


During 2010, fuel was increasingly becoming another limitation in the wake of a severe domestic coal shortage. Most generation utilities, led by power major NTPC Ltd, are said to be better placed in 2011 in terms of having a coal import strategy in place. This includes tying-up supplies through firm contracts abroad or picking up stakes in mines in countries such as Indonesia, Australia, South Africa and Indonesia. Besides, increased gas availability is expected to boost generation from projects using gas as feedstock.


The development of the short-term power market, involving contracts spanning less than a year, has proved to be very useful by providing alternative to over drawing from the grid and reducing peaking shortages. At present, the size of the short term market is about 3 per cent of the total generation in the country, of which trading on the two operational Power Exchanges accounts for a significant chunk. This is expected to shoot up to upwards of 5-7 per cent in the coming years.


With progress picking up on solar power schemes, the coming year could see greater inroads being made by ‘green’ electrification projects. The Government has already selected 37 companies to develop new solar projects late this year, as the country moves forward with an ambitious plan that seeks to significantly scale up production from near zero to 20 Gigawatts by 2022.


It is likely to be a tough road ahead for future hydro projects, especially in the wake of some high-profile projects facing the axe following protests from environmental activists. These include NTPC’s 600-MW Loharinag Pala hydro-power project in Uttarakhand, where work was in advanced stages. On August 20, a Group of Ministers (GoM) had scrapped the hydel project on the Bhagirathi river, citing religious and environmental concerns.

Two other hydel projects proposed by the Uttarakhand Government on the Bhagirathi River – the 480-MW Pala Maneria and 381-MW Bhairon Ghati plants – have already been scrapped by the GoM. Projects in Himachal Pradesh are reported to be facing opposition from local environmental activists.

Source – Business Line

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