Tariff-based Competitive Bidding in the

Power Sector
Is it working or not?
Contents
Overview of Competitive Bidding in India

Concerns in Bidding Framework in Recent Times

Aspects to be Reviewed

Deloitte
2
Overview of Competitive
Bidding
3
Electricity Act 2003 de-licensed the generation sector
Private Power Policy of 1991
Under this policy CEA became pivotal
with its project appraisal role
CEAs function was to evaluate PPAs
entered into by SEBs, approve tariffs
and issue techno economic
clearances (TEC)
CEA approval was a huge bottle neck
for most of the projects

Electricity Act 2003
CEA approval for TEC for generation
projects was done away with but for
large hydro projects
Under EA 2003, as per Sec 82, setting
up of state regulatory commissions is
made mandatory and under Sec 86
(b), Commissions are given authority
to regulate power purchases
Section 63 of EA has revolutionized
power purchase procedures and
erstwhile MoU route with state
utilities is no longer valid as a means
of procurement

4
Guided by Section 63 of Electricity Act 2003, National Tariff Policy
mandates the utilities to procure power through competitive bidding route
Before 06 Jan 2006
Approval of PPA governed through
individual State Regulatory Acts, which
was on a cost plus basis and offered a
regulated return of only 14%
There was lack of clarity on the basis for
approval of PPA and the scope for
negotiations on almost every cost item
resulted in long drawn processes
After 06 Jan 2006
National Tariff Policy mandates that the
power procurement for future
requirements should be through a
transparent competitive bidding
mechanism
Process to be followed as per the
guidelines issued by the Central
Government
Competitive bidding mechanism allows
for the bidder to bid on a competitive
return basis and the process is
transparent and time bound
From 6
th
January 2011, all new public
sector projects also required to supply
through competitive bidding

5
Clause 5.1 of tariff policy Even for the Public
Sector projects, tariff of all new generation and
transmission projects should be decided on the
basis of competitive bidding after a period of
five years or when the Regulatory Commission is
satisfied that the situation is ripe to introduce
such competition.
Developers now have option to invest in mega power projects, facilitated
by Government, through a tariff based competitive bidding process
Power procurement under Case 2
Central Government/State Government
facilitates these projects and the
procurers are the state utilities
location, technology and fuel is
specified by the procurer
tariff (capacity and energy charges) for
25 years to be quoted in the bid
selection is based on lowest
levelized tariff

6
Project Fuel
Tariff
(Rs./kWh)
Winner
Sasan Captive 1.19 Reliance
Tilaiya Captive 1.77 Reliance
Mundra Imported 2.26 Tata
Krishnapatnam Imported 2.33 Reliance
Winning Bids for Ultra Mega Power Projects
Winning Bids for state sponsored Case 2 projects
Project State
Tariff
(Rs./kWh)
Winner
Jhajjar Haryana 2.996 CLP
Talwandi
sabo
Punjab 2.864 Sterlite
Bhaiyathan Chhattisgarh
0.81 (35%
merchant)
Indiabulls
Karchana UP 2.97 JaiPrakash
Bara UP 3.02 JaiPrakash
Bidders have bid higher for levelized fixed cost for
linkage projects (state specific risks/ transaction
costs being factored into higher FC)
Reliance, Lanco, Tata Power, Sterlite, CLP etc.
have all quoted FC in a narrow range on all other
Projects Key differentiator is Fuel Strategy!!!
Independent Power Plants can tie up their capacities under long term
PPAs through a transparent tariff based competitive bidding process
Power procurement under Case 1
State utilities are now mandated to
procure power through competitive
bidding process
quantum is to be approved by the
Commission and bid process must be
as per standard guidelines
tariff discovered to be adopted by
regulator, subject to overall
reasonableness
power can be sourced from any
developer
location, technology or fuel is
specified by the procurer
IPPs have an option to tie-up only part of
their capacity
7
Players participating in Case 1 bids
Developer Capacity bid*
Adani Power 8500
CLP 1150
Essar 4050
Indiabulls 1200
JSW Energy 1500
Lanco 1500
PTC + Players 2200
Reliance Power 5400
Tata 800
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
G
u
j
a
r
a
t
M
a
h
a
r
a
s
h
t
r
a
H
a
r
y
a
n
a
M
a
h
a
r
a
s
h
t
r
a
B
i
h
a
r
G
u
j
a
r
a
t
R
a
j
a
s
t
h
a
n
K
a
r
n
a
t
a
k
a
R
-
i
n
f
r
a
U
P
A
P
2007 2008 2008 2009 2010 2010 2010 2010 2011 2011 2011
* Same plant may have been offered in different bids
More Peaking Case 1 bids are expected in future
Traditional Case 1 bids were long term
bids for base load for 25 years

Gujarat and Haryana have called for fuel
based bids or restricting bids on non-
escalable basis

There have been many short term bids
and some medium term bids.

Recently, some utilities have called for
peaking medium term bids, but have not
got any participation.

There is a gradual shift to tie up for
peaking loads as base loads are expected
to be met by UMPP and state and central
additions.
State Type Capacity
Maharashtra LT Base 4000
Gujarat LT Base 6000
Haryana LT Base 2000
Bihar LT Base 1500
Rajasthan LT Base 1000
Karnataka LT Base 2000
Torrent Power MT Base 150
R-infra LT Base 1500
R-infra MT Base 450
R-infra MT Peak 450
UP LT Base 5000
AP LT Base 2500
AP MT Base 700
Tata Power MT Base 200
Tata Power MT Peak 150
8
Solar Generation - CERC Tariff Vs Bid Tariff
17.91
15.39
15.39
12.16
8.77
11.48
0
4
8
12
16
20
SPV Batch-I SPV Batch-II ST
R
s
.

P
e
r

U
n
i
t

CERC Tariff Avg. Bid Tariff
32 %
reduction
43%
reduction
25 %
reduction
Concerns with Bidding Process
Case 2 Bidding
Domestic Coal Based Projects Captive Mine-based
Coal reserve estimations were inadequate in all cases bid out
As a result, infeasible / substantially larger coal mines allocated than
required for Power Project, leading to allegations of misuse and profiteering

Linkage Based Projects
Coal supply has varied significantly from assumptions at the stage of bidding
Often ACQ is only at 50-60% of capacity, balance having to be procured from
other sources

Imported Coal Based Projects
Major regulatory changes in countries of import not recognised

11
Case 1 Bidding
Linkage based Projects
Earlier formulation did not permit blending not aligned to current realities!
Current formulation permits blending only as a fixed proportion
this is a risk inappropriate for Sellers to bear
Wide post-bid variations in fuel supply conditions for a Power Project makes
a firm energy price bid impractical in current times

12
In all cases, including UMPPs, the Central Government distances itself after
projects are bid out.

Are State Utilities capable of effective post-award monitoring?
Weak monitoring will lead to private sector resorting to managing the
environment post project awards.
Reverse Bidding in Solar
Are underlying factors driving price reductions (from Batch 1 to Batch 2)
sustainable?
Global oversupply in PV modules (particularly in thin-films), was a
major contributor
Solar Projects still unable to get non-recourse finance

Is competitive bidding the right strategy for emerging technologies?
Is it a wise strategy for solar thermal ?
What happened to the demonstration projects under JNNSM?
Does excessive focus on tariffs hold the danger of early failures, which
could result in stakeholders confidence being set back by a few years ?

13
Aspects to be Reviewed
Way forward
1. Nothing wrong with basic framework of Competitive Bidding u/s 63.
Only modifications required to make implications of fuel side
contractual defaults by a Govt. Supplier (viz, CIL) to be passed-thru
2. Competitive Bidding in the Power Sector should not be confused with
Licensing.
The role of the Public Sector is crucial in both Case-2 and Case-1
projects.
Inadequately prepared projects will invariably create information
asymmetries & competitive distortion.
3. Technologies which are not fully commercial require public sector to
take a lead in on-field demonstration
Uncertainties are too many to create true competition
Need for high Technical Qual Req while selecting the Private Partner
Focus on successful on-field demonstration first before expecting
competitive tariffs.


15
Thank You
16