Merchant power plants

12.07.08:


Govt. of India plans to add 10,000 MW through merchant plants:

The power ministry has sought private sector participation in setting up merchant power plants all over the country with aggregate capacity of around 10,000 MW. Power Finance Corporation Ltd, the nodal agency, has invited expressions of interest from potential developers for establishing merchant power plants of capacity up to 1,000 MW. These prospective entities will develop, own and operate these power plants with a capacity of at least 250 MW.

The merchant power plant initiative is the next major step being taken by the power ministry to meet the growing power demand in the country.

Unlike traditional utilities, Merchant Power Plants compete for customers and absorb the full market risk. There are no guarantees that they will have a minimum off-take of their output. They must respond to market needs. Typically the risk of a Merchant Power Plant is carried on the balance sheet of the promoter. Further, these plants don't need any prior sanction from regulatory commissions to fix electricity tariffs as in the case of mega projects. This also means that these projects are not entitled for benefits accruing to mega power projects.Merchant power plants can provide the additional generating reserves that India needs now and will need in the future. They are a modern, market-based answer – at least in part – to energy challenges faced by the country.

Merchant power plants are a product of the restructuring of the electricity industry. In the past, utilities owned their own generating facilities or contracted with an independent power producer (IPP) to buy electrical output on a long-term basis. Merchant power plants fill different niches in the market; some provide steady supplies to a power grid, while others fire up only when demand is highest and meet peak loads. Merchant power plants operating competitively help assure that power is produced with efficiency and supplied to locations where it is needed most.


Considering the redundancies that are being provided in the grid to promote open access in transmission and open access in distribution in coming years, it would be reasonable to expect that merchant power plants each of capacities of 1,000 MW and below could be accommodated for being able to access transmission availability for wheeling of power to customers which are generally not pre-determined. By the year 2012, it is expected that inter-regional transmission capacity in the National Grid would rise to about 37,000 MW. Besides, intra-transmission capacities are also being augmented with required redundancies to take care of such short-term needs of transmission of power across the country from one region to another and within the region. Merchant Power Plants would be expected to have dedicated lines upto the nearest regional/national grid system.

The Electricity Act 2003 mandates non-discriminatory open access in transmission to generating companies, distribution licensees and consumers and also open access in distribution for consumers with loads above 1 mw. These provisions regarding non-discriminatory open access in transmission and distribution will also facilitate the emergence of merchant power plants

The power ministry has assured coal linkages for these power plants and for plants in the range of 500-1,000 mw capacity. The ministry might even allot captive coal blocks.Merchant Power Plants.
(a) Linkage to the plant upto a capacity of 1,000 MW; and
(b) Captive coal block allotment for plants in the range of 500 – 1000 MW capacity.

Ministry of Power in consultation with Ministry of Coal has identified 15 Coal Blocks with estimated reserves of about 3.6 Billion tones for allocation to merchant and captive power plants through the screening committee route. Out of these blocks, coal blocks of aggregate reserves of about 2.4 Billion tonnes areexpected to be considered for merchant power plants. To ensure transparent and timely development of these projects the following principles would need to be adopted:


It would be essential that certain normative criteria are laid down for eligibility for coal block allotment, particularly to merchant plants. These criteria could relate to net worth of the parent company on whose balance sheet the merchant power plant is proposed to be set up, its internal resource generation and annual turn over. Some of the suggested financial parameters on the lines of the Ultra Mega Power Projects could be

1. Internal Resource Generation: Rs. 0.30 Crore per MW equivalent of coal Block capacity applied for, computed as five times the maximum internal resources generated during any of the last five years business operations;


2. Networth: Rs. 0.50 Crore per MW equivalent of coal Block capacity applied for. The above computation shall be derived from any of the past three years annual accounts.


3. Annual Turnover: Rs. 1.20 Crore per MW equivalent of coal Block capacity applied for. The above computation shall be derived from any of the past three years annual accounts.


The agencies being allotted the coal blocks, may also be required to put in place bank guarantee of a reasonable amount which should be liable to be encashed if important milestones for development of coal mines are not achieved. The amount should be adequate enough to discourage agencies which are not serious enough for development of coal mines and power projects.


The inter-mediate milestones may include not only in relation to development of coal mines, but also with reference to the power projects, such as award of EPC contracts, commencement of construction etc.

The Central Electricity Authority is the technical partner which will coordinate preparation of the brief feasibility reports.