The recently concluded fiscal year 2024 (FY24: April 1, 2023 to March 31, 2024) was very eventful for the interstate transmission system (ISTS) market, especially considering schemes bid out under the tariff-based competitive bidding (TBCB) mechanism.
It is reliably learnt that the Union ministry of new & renewable energy (MNRE) is planning to do away with the process of e-reverse auctions (e-RA) for renewable energy projects – mainly wind and solar.
The rationale behind this proposed move is to remove the unhealthy competition that the bidding process potentially witnesses, due to the e-RA element.
In a typical solar or wind project that is awarded through the competitive bidding mechanism, bidders submit their price bids and are ranked in terms of the tariffs quoted. This gives rise to the L1 bidder – the one with the most competitive bid – followed by the succeeding L2, L3, etc. In the context of tariff-based bidding, the L1 bidder is the one quoting the lowest tariff at which he is willing to sell power generated from the project under bidding.
Once the initial price bid submission is completed, bidders undergo the e-RA round where every bidder is given a chance to match the L1 bid. It is here that aggressive bidding by all bidders, including the L1 bidder, kicks in. The price bids after the e-RA process, due to the fierce competition, undergo a dramatic shift.
The final winner (after the e-RA process) could be any of the bidders, not necessarily the L1 bidder, and the winning tariff could be way below the L1 bidder’s quote.
Such aggressive bidding, where tariffs could border on non-viability, might suit the power procurement agency. However, the potential situation of bidders offering “rock-bottom” quotes simply with the objective of winning a project is not in universal interest. Time and cost overruns, which are ingrained in any project, can result in a situation where the developer simply cannot honour the tariffs committed. If this happens, the entire downstream value chain gets adversely impacted.
E-reverse auctions are part of any power procurement drive, including power transmission projects that are awarded under the tariff-based competitive bidding (TBCB) route. Unrealistic aggression witnessed in the e-RA stage may result in established bidders staying away from the bidding process, even after submission of their initial price bids. It is roughly estimated that final bids (post e-RA) are 20 per cent lower than the L1 bid.
All said, the e-RA process is aimed at bringing tariffs to the lowest level possible. There is nothing wrong or unacceptable in this philosophy. However, any effort made to keep the final bids within the realms of viability, is always welcome.
Scrapping the e-RA routine is also not a bad idea. Bidders are well aware of the competitiveness and would yet work out their price bids keeping in mind project-specific factors. Such well-derived price bids, one can assume, would be viable as they are not the result of unrealistic last-minute aggression.
(The author of this article, Venugopal Pillai, is Editor, T&D India, and may be contacted on venugopal.pillai@tndindia.com. Views are personal.)
In the first week of August, Power Grid Corporation of India Ltd (PGCIL) announced that it commissioned its first-ever intrastate project in the TBCB (tariff-based competitive bidding) route. The project in question was the Jawaharpur-Firozabad transmission schemes in Uttar Pradesh.
Just last week, the government announced that the newly-formed Central Transmission Utility of India Ltd (CTUIL) will start operations from April 1, 2021.
Very recently, Power Grid Corporation of India Ltd (PGCIL) won three transmission projects under the tariff-based competitive bidding (TBCB) mechanism.
In a significant development, Securities & Exchanges Board of India (SEBI) very recently granted the certificate of registration to “Powergrid Infrastructure Investment Trust”, an infrastructure investment trust (InvIT) sponsored by Power Grid Corporation of India Ltd. (PGCIL)
The Union power minister has reportedly cautioned seven states—Karnataka, Maharashtra, Andhra Pradesh, Telangana, Madhya Pradesh, Rajasthan and Tamil Nadu—that renewable energy developers could drag discoms of these states to the National Company Law Tribunal (NCLT) over the non-payment of dues. It is learnt that these seven states together owe around Rs.5,300 crore to RE developers, and that the total outstanding of RE developers, pan India, is around Rs.8,200 crore.
Earlier this month, Power Grid Corporation of India (PGCIL) debuted in the intrastate power transmission space by winning a concession in Uttar Pradesh, under the tariff-based competitive bidding route. The Central utility clinched the transmission scheme associated with the upcoming 2×660-mw Jawaharpur power generation project in Uttar Pradesh.
For PGCIL, which specializes in interregional and even cross-border transmission lines, winning an intrastate project assumes significance. When the TBCB mechanism was launched in January 2011, the initial projects were all of interregional lines—crucial components of the National Grid. It is only in recent years that state governments started using the TBCB mechanism for intrastate lines. However, this culture did not spread widely with only few states like Uttar Pradesh, Haryana, Rajasthan and a few others, deciding to adopt this modality.
Coming back to the concession won by PGCIL, the project special purpose vehicle is “Jawaharpur Firozabad Transmission Ltd,” which was incorporated on August 20, 2018, as a wholly-owned subsidiary of REC Transmission Projects Company Ltd. This SPV has now been transferred to PGCILwho will develop the project on build, own, operate, maintain (BOOM) basis under a 35-year concession period.
The transmission scheme comprises of three broad elements:
The project will also include some more LILOs and a 132kV double-circuit line connecting the upcoming Firozabad substation to Narkhi.
UP takes the lead: It is worth observing that Uttar Pradesh has formalized three intrastate power transmission projects this year. This is a very commendable achievement considering that there was hardly any movement in other states in the intrastate TBCB power transmission space.
Of the three projects that UP formalized this year, one project (the Jawaharpur scheme discussed above) has gone to PGCIL and two have been bagged by Adani Power. In June this year, Adani Transmission Ltd (ATL) clinched the Ghatampur power transmission project under the tariff-based competitive bidding route, marking its first presence in Uttar Pradesh.
The transmission project involves around 900 ckm of transmission lines at 765kV and 400kV levels. Some major 765kV lines include Ghatampur-Agra, Agra-Greater Noida and Ghatampur-Hapur.
Incidentally, the Ghatampur project saw very aggressive bidding at the RfP stage with PGCIL being the only other contender in the race when the project ultimately went to Adani Group.
Very recently, Adani won the transmission scheme involving evacuation infrastructure for the upcoming 2×660-mw Obra-C thermal power project of state government utility Uttar Pradesh Vidyut Utpadan Nigam Ltd (UPVUNL).
Uttar Pradesh is seen to be very aggressive in recent years, in all aspects of the power value chain—generation, transmission and distribution. The northern state is gearing up to meet growing demand from both the industrial and household sector. Under the nationwide household electrification scheme “Saubhagya”, over 68 lakh households have been electrified since October 2017. This represents nearly 30 per cent of the 231 lakh households that have been electrified since the launch of Saubhagya.
UP is doing well to expedite its power generation projects and also step up household electrification. Its effort in accelerating the creating of power transmission infrastructure is a step in the right direction.
The author of this article, Venugopal Pillai, is Editor, T&D India, may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
When it comes to path-breaking reforms in the power sector, one aspect that readily comes to mind is the tariff-based competitive bidding (TBCB) mechanism. Right from conventional power generation to power transmission and now to renewable energy like solar and wind, the TBCB philosophy has resulted in a drastic reduction in power tariffs, which has been in the ultimate interest of the consumer.
When it comes to interregional transmission lines, Power Grid Corporation of India was always the sole implementing agency. Matters changed in January 2011 with the advent of the TBCB mechanism. PGCIL now had to compete with other contenders and the project was awarded on the basis of tariff quoted. This has resulted in overall efficiency—lower capital costs, faster gestation period, faster returns on investment and of course, lower tariff for the ultimate consumer.
However, there are instances where PGCIL is awarded a project directly when the power ministry feels, for a variety of reasons, that the project is not amenable to the TBCB mechanism. This could happen if the project involves too much technical complexity or needs to be completed within a compressed time schedule. What is beginning to be a cause for concern is that there are growing instances of such projects being awarded to PGCIL, under what is called the regulated tariff mechanism (RTM). Under this mode, the tariff is fixed upfront. This tariff is not discovered through a bidding process but negotiated. Invariably, this tariff ends up being higher than what would have been the case if TBCB were employed.
The Empowered Committee on Power Transmission, now known as the “National Committee on Transmission” is the authority that decides, among other things, the modalities of building power transmission systems, based on recommendations of the regional standing committees. NCT is chaired by the Chairman of Central Electricity Authority (CEA) and its membership includes officials of CEA, the Union power ministry, Niti Aayog and two independent power experts. What is intriguing is that one PGCIL official is also a part of the committee. Furthermore, of the two power experts, one is a retired official of PGCIL, in the current composition of NCT.
The presence of PGCIL in the NCT is questionable. How can PGCIL be part of a committee that decides on matters where PGCIL is a potential beneficiary? This point has generated substantial debate, and quite justifiably so.
In the first meeting of NCT that was held on July 27, 2018 and whose minutes were recently made public, an overwhelming number of projects were awarded to PGCIL under the RTM philosophy. This allotment may be fair but as long as PGCIL is part of NCT, there will always be a lurking element of bias.
Whatever militates against the TBCB mechanism ultimately works against the competitive spirit in the power sector. The TBCB philosophy, and nothing else, has brought unprecedented efficiency in the power sector; every effort must be made to uphold and support it.
The author of this article, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be reached at venugopal.pillai@tndindia.com
One option by which PGCIL could meaningfully engage in intrastate projects is through joint ventures with state power utilities, at least for specific projects.
Very recenty, there was a news report that Kerala State Electricity Board was seeking the involvement of Power Grid Corporation of India (PGCIL) in the southern state’s ambitious “Transgrid-2.0” project. The Rs.10,000-crore project envisages substantial upgrade to its power transmission network, and that too, with a conscious adoption of modern technology.
It is well known that even if almost all the erstwhile state electricity boards have been split into separate entities for generation, transmission and distribution, most of them still lack the technical expertise or the financial prowess to deal with complexities in their intrastate transmission networks. This is exactly why drawing upon PGCIL’s competency could be harnessed advantageously.
Special Cases
In some deserving cases, PGCIL is carrying out intrastate power transmission upgrade, thanks to extreme conditions that the state government-utilities would find difficult to contend with. For instance, PGCIL is implementing a project worth over Rs.5,000 crore to improve transmission network in topographically-challenging northeastern India, touching all northeastern states except Arunachal Pradesh. However, in Arunachal Pradesh and Sikkim alone, PGCIL has been entrusted with a Rs.4,700-crore project to improve transmission and distribution infrastructure. In Jammu & Kashmir also, PGCIL is involved in a Rs.1,800-project to connect the isolated Leh-Kargil area to the northern grid with a 220kV line. In these cases, PGCIL is playing the role of a “consultant” and has received the mandate from the Central government.
The real problem lies with states that are not “special” like the northeastern ones or Jammu & Kashmir, nor at the other extreme, are fully equipped to deal with their power transmission network.
TBCB might not work
State power utilities of course have the option of using the tariff-based competitive bidding mechanism that can bring in enterprise and investment, in a competitive environment. However, not many states of them have pursued this option aggressively although there are honourable exceptions like Haryana, Uttar Pradesh, Rajasthan, Haryana, etc. All said, the extent to which TBCB has percolated into intrastate projects, at the national level, is still shallow. Even if states float projects on the TBCB mechanism, PGCIL is free to bid just as it has successfully done in interregional lines. In such a case, states stand a potential chance to get PGCIL’s involvement. But the point is: Would PGCIL be excited enough to proactively participate in micro-level intrastate projects?
The JV option
One option by which PGCIL could meaningful engage in intrastate projects is through joint ventures with state power utilities, at least for specific projects. It has done so with Bihar, resulting in the formation of Bihar Grid Company Ltd, a 50:50 joint venture. PGCIL was engaged in similar talks with Odisha but the proposal did not take shape, ostensibly due to insufficient propulsion by the state government.
State governments must draw upon the rich technical and managerial experience of PGCIL and actively consider the joint venture route. To start with, JVs could be formed for specific but complex projects. Quite admittedly, formation of joint ventures would involve extended discussions and procedural formalities. The JV with Bihar, for instance, was formed in 2013 and has had its share of teething troubles. But once again, state governments would do well to realize that roping PGCIL has a JV partner is well worth the effort. For PGCIL too, an equity stake would mean closer bonding with the project, perhaps much more than it would in the capacity of a consultant.
(Photo: RTS Power Corporation)
(This article’s author, Venugopal Pillai, is Editor, T&D India. Views expressed here are personal. The author may be contacted on venugopal.pillai@tndindia.com)
