According to Gadgil formula, for any central power project, the home state gets 10% as preferential allocation, 15% is kept unallocated at the disposal of the Centre and the balance 75% is allocated to beneficiary states, including the home state, on the basis of their energy consumption and central plan allocation during the previous five years.
Thus, for any power project NTPC could offer upto 30% of power for any hosting state, where as ultra mega power projects being developed by Reliance Power (Sasan) and Tata Power (Mundra) have made higher allocation of 37.5% and 47.5%, respectively, to the home states.
NTPC has proposed a revision in the existing method so as to allocate more power to create a level playing field with private generators. It would help NTPC getting green field power projects from states. If the proposal is approved, NTPC can offer 45% of the power generated to the host state.
The states are demanding more power allocation in lieu of fuel linkage, land acquisition and water linkage etc. But, the big question is, should NTPC be allowed to offer more allocation to the host state of the power plants?
States are demanding more power quota so as to trade and earn huge revenue out of it. It is not that states want this power to mitigate any deficit situation of power. Trading of power could earn them above Rs 10 in peak demand seasons. Even when the host state needs power for its peak shortages, it resorts to load shedding and in the same time it sells power to other states at a higher rate so as to fill its revenue kitty. This happens in case of hilly states and states where hydel projects are situated. The allocated quota for the states is used for trading.
In my opinion, NTPC being a central government company should not do this so as to beg projects. It will definitely create an imbalance situation for different regions in India. Even state governments are accusing the central government for partiality in case of distribution of unallocated quotas of power from the central generating stations. Central govt. is being accused of providing more power to the state where its party is in power and neglects the other states.
If UMPP is taken into consideration or otherwise any such coal pit head projects, it is known that coal fields are basically situated in eastern states ( Jharkhand, Orissa,WB,Chhatisgarh etc) where the demand for power is comparatively low. If projects have to come up at the eastern states because of its proximity to coal fields, then the states having coal fields will have surplus power and the northern region will be power deficit as most of the demand comes from these states. It will create a situation where in the spot prices of power would move up in peaking time and it is bound to create regional imbalances .
At best NTPC should find options to enter into JVs with state generating companies so as to develop power plants in the state with equity participation from state and central utilities.
Power ministry is currently mulling over the idea to allow NTPC to offer more power to the host state. But, rather doing any good to the country, it would bring more harm to the central government. It is a fact that NTPC is well behind the private developers when it comes to UMPP projects, but NTPC should look inside and try to rectify the system which holds it back to offer good prices when it is having all advantages of expertise, experience and the backing of central governments at large.
What is your opinion on this issue, please contribute.
Thus, for any power project NTPC could offer upto 30% of power for any hosting state, where as ultra mega power projects being developed by Reliance Power (Sasan) and Tata Power (Mundra) have made higher allocation of 37.5% and 47.5%, respectively, to the home states.
NTPC has proposed a revision in the existing method so as to allocate more power to create a level playing field with private generators. It would help NTPC getting green field power projects from states. If the proposal is approved, NTPC can offer 45% of the power generated to the host state.
The states are demanding more power allocation in lieu of fuel linkage, land acquisition and water linkage etc. But, the big question is, should NTPC be allowed to offer more allocation to the host state of the power plants?
States are demanding more power quota so as to trade and earn huge revenue out of it. It is not that states want this power to mitigate any deficit situation of power. Trading of power could earn them above Rs 10 in peak demand seasons. Even when the host state needs power for its peak shortages, it resorts to load shedding and in the same time it sells power to other states at a higher rate so as to fill its revenue kitty. This happens in case of hilly states and states where hydel projects are situated. The allocated quota for the states is used for trading.
In my opinion, NTPC being a central government company should not do this so as to beg projects. It will definitely create an imbalance situation for different regions in India. Even state governments are accusing the central government for partiality in case of distribution of unallocated quotas of power from the central generating stations. Central govt. is being accused of providing more power to the state where its party is in power and neglects the other states.
If UMPP is taken into consideration or otherwise any such coal pit head projects, it is known that coal fields are basically situated in eastern states ( Jharkhand, Orissa,WB,Chhatisgarh etc) where the demand for power is comparatively low. If projects have to come up at the eastern states because of its proximity to coal fields, then the states having coal fields will have surplus power and the northern region will be power deficit as most of the demand comes from these states. It will create a situation where in the spot prices of power would move up in peaking time and it is bound to create regional imbalances .
At best NTPC should find options to enter into JVs with state generating companies so as to develop power plants in the state with equity participation from state and central utilities.
Power ministry is currently mulling over the idea to allow NTPC to offer more power to the host state. But, rather doing any good to the country, it would bring more harm to the central government. It is a fact that NTPC is well behind the private developers when it comes to UMPP projects, but NTPC should look inside and try to rectify the system which holds it back to offer good prices when it is having all advantages of expertise, experience and the backing of central governments at large.
What is your opinion on this issue, please contribute.
Posts
Your observations are true and your recommendations sound convincing looking at the immediate near term scenario in the country. But at the same time I would like to bring your attention to couple of other topics of importance.
ReplyDelete• India today has an installed capacity of 145GW and plans to add another 78GW in the XIth plan period, which I feel we could conservatively estimate to add 60GW in this period.
• Vision 2025 / Integrated Energy Policy highlights a requirement of 750GW by 2031-32. All this, points towards the way going in the future.
• Now a back drop of the past clearly highlights power sector to be predominantly a state subject with the share of Central and State Generation Stations while there had been vary little interest from the private sector except for Tata Power, Reliance Energy (BSES), CESC & Torrent Power (AES).
• But the recent times, especially after the 2003 New Electricity Act, all this has changed with a huge surge of private players in the sector.
• A lot of this could be attributed to the core demand recognised and the attractive earnings potential in the sector, but the fact remains is that the nature of these private players entry in the sector clearly highlights their interest towards high earnings short term focus business of Merchant Capacity, IPP or Wind Power Stations (fiscal incentives).
• Surge of these players would only imbalance the overall stages of evolution for this sector and result in huge uneconomical capacity over the long term. The current size of Public Sector Generation Utilities like NTPC and NHPC would and need to be used properly for bringing about this desired balance to the system.
• The strategy I feel would be to strengthen these players, to promote robust capacity expansion (so as to avoid a drastic fall in market share of these players which had been the back bone of the generation system of the country).
• Another strategy would be to provide regulated entry for these companies in the trading system of the country as this would not only provide volume to this nascent power trading market but also keep away fly-by-night operators to take undue advantage of the current demand-supply mismatch.
• Promote indirect dilution of government stake in these companies through promoting listing of subsidiaries and diversification ventures to raise private equity and listing. This would facilitate accomplishment of two primary objectives for any sector development;
1. Provide increased investment opportunity for the investor community to choose from, avoiding un-healthy players to take opportunity of increased investor interest and destroying the available funds into un-productive infrastructure assets.
2. Strengthen the financial books of these companies taking opportunity of the strong investor interest in the country’s energy sector and reduce dependence on budgetary support for new ventures of diversification.
Guess this discussion could get really lengthy with lot of areas of the sector still in early stages of evolution. It was really interesting you read through your blog and would love to keep in touch with you in future. Kindly forward me with your co-ordinates on the e-mail given below. I am hereby sending you my brief profile.
About Me:
I am a B.Sc. (Chemistry), and completed my MBA in finance. Since my post graduation has been working in the Equity Research and has long experience in the Energy Sector (Oil & Gas and Power Sector). Keen interest in the economics of energy and always try to relate economics with scientific innovation to deduce evolving trends for an industry. Highly optimistic that at times I feel myself to be a dreamer. I am confident of the current evolving trends in the regulatory structure of the Indian Energy Sector would be the backbone of vibrant India any one could ever imagine.
Mobile: +91 22 99301 38475
Email: mans_research@yahoo.com
mansingh.deshmukh@money-matters.in
Dear Manas,
ReplyDeletenice thoughts..I had attended a lot of seminars and conferences in the power sector but ur ideas are no doubt unique and different.I am not against robust addition of power capacity by govt utilities but the way they want it to achieve.No doubt, NTPC is the largest player in generation and to catch up with it, the private players have to do a lot of ground work.We have to find an alternative solution where in we can develop power but in an equitable and economical way so as to achieve the dream of power for all.
Though we very well know that private players have short term business focus but the fact is that they will anyhow add some MWs to the country which we need badly right now.Our average and peak energy deficit is constantly growing up.We have to tackle the problems with an integrated view ( that is addressing all the segments of the power sector generation,transmission and distribution).Lets hope, we move in the right direction.Hope, u will contribute in future as well.