2016-07-29 / Regulatory & Industry Trends
New initiative for the wind industry to heighten competition
India’s power sector is one of the most diversified and it is currently undergoing significant change. Occupying the fourth position in wind power installed capacity globally, India has envisaged a target of 175 GW of power generation through renewables by 2022. Of this, 60 GW is dedicated to wind power. In order to expedite the process, the government has announced a scheme of setting up 1000 MW of Central Transmission Utility (CTU) connected wind power projects through the bidding route.The framework allows non-windy states to fulfill their non-solar RPO obligations. Solar Energy Corporation of India (SECI) would serve as the nodal agency, responsible for organizing, implementation and monitoring the performance of the directives.
At Hero Future Energies, we welcome this step by the government and look forward to work in sync with the proposed guidelines. In the meanwhile, the Ministry is also inviting discussions on the draft guidelines for implementation of the scheme.
Selection of bidder narrowly defined
Among other things, one of the clause on selection, which suggests that under any circumstances, the bidder will not be allowed to quote more than the feed-in tariff for the wind power declared by the respective SERC of the state in which the bidder proposes to install the project. We believe that this clause could be eliminated as the procurer has the last right to accept or reject the prices in a tender. Moreover, in certain states like Madhya Pradesh wind power producers have legally challenged feed-in tariffs, while in others the feed-in tariffs are too low to draw interest from investors. The central bidding programs in case of wind should also be done against CERC declared tariffs, as followed in solar.
Bidding criterion should not only be restricted to tariffs, but evacuation infrastructure, land availability at specific geographies. Some state regulators have been keeping the wind tariff artificially low, those are likely to lag behind under the current draft guidelines.
Drawing parallels with solar bidding process, we felt that there is no need to reinvent the wheel, similar guidelines can be followed in wind. The benchmark on turnover should be done away with, as SECI solar tenders does not consider this as a criterion, hence it is discriminatory to implement it for wind generators. Many new entrants, with international wind/solar portfolio do not have a three years operation period to bring forth turnover statistics. In my views, turnover of a company is not a true indicator of its financial strength. In place of turnover, considering the net worth is much more appropriate and the same can be considered as an indicator of financial strength. Similar indicator is also used in the solar bids in India and in the solar tenders conducted by NTPC.
Technical & operational knowhow of trader is critical
For the sale of power generated, trading company (TC) which is selected on the basis of expression of interest or bids, will sign a power purchase agreement (PPA) with the bidder. It is proposed under the directives that the TC will be entitled to charge a trading margin as mutually agreed between the parties or as decided by the Central Electricity Regulatory Commission (CERC). The selection of the trader ought to be on predefined financial and technical criterion that takes care of payment risk and operational strength to handle multiple generators and manage open access.
Leeway in open access required
In case, a wind project developer is required to use the transmission system of State Transmission Utility (STU) to bring wind power at CTU point, he may do so as per regulations prescribed by the respective State Electricity Regulatory Commission in this regard. SECI should specify the open access charges in each state where the CTU has identified substations for evacuating wind power. Any change in open access charges, should be allowed as pass through under the PPA. This is because open access charges vary from state to state. An annexure illustrating the same in the RFS document will help the generators to exactly calculate the open access charges.
Deviation settlement mechanism
Further, the clause specifies that wind power developers (WPDs) are responsible for scheduling and deviation settlement mechanism (DSM) charges as per CERC/SERC regulations as applicable and all liabilities related to LTA and connectivity. We feel that in case the wind power plant is connected to STU and wheeling power to CTU sub station, the deviation settlement charges should be calculated based on methodology specified by the respective state commission. In the absence of such methodology or in case no inputs are provided in this direction, the methodology specified by CERC shall be considered for both intra state and interstate sale. Forecasting and scheduling is followed by deviation settlement. Many state commissions are yet to notify regulations and even existing regulations lack clarity in deviation settlement for simultaneous inter and intra state sale. There needs to be more clarity on this clause.
Financial closure and commissioning of projects
The existing guidelines also require the project developer to report the financial closure of the project within six months from the date of signing the PPA. Submission of the transmission / connectivity agreement with the STU/ CTU before commissioning of the project would be a judicious choice by the developer. Also, the commissioning of the projects within 15 months from the date of execution of PPA, rather than letter of award is a prudent alternative.
The Ministry needs to carefully evaluate all the recommendations to expedite the proposed scheme and come with solutions that will helps us leapfrog towards the concerted goal of achieving the asserted targets.
Contributed by Sunil Jain, CEO & ED, Hero Future Energies