In the last few months, a number of questions have been raised regarding the tenders issued by SECI for procuring renewable energy or storage capacity.
In the case of a large-sized solar power tender process, questions were raised on suppliers going to States and reducing the competitively discovered tariffs. In another recent case, CERC refused to adopt the tariff for battery storage capacity which was to be used by grid operator for ancillary services.
Tens of gigawatt of awarded capacity is awaiting signing of power supply agreements with distribution utilities. It is being argued that these developments have increased uncertainty for the RE investors in India.
Is SECI alone to blame for all of this? Not really. Neither I intend to comment on the issues related to these individual tenders.
Mid-course corrections
The need of the hour is to analyse the underlying reasons for these developments and make mid-course systemic corrections so that India stays on track to achieve 500 GW non-fossil capacity. Tariff based competitive bidding mechanism was launched by Electricity Act in 2003. Though it was strongly opposed by the developers and a few State governments who were in favour of continuing with the perks of the MoU route, this mode of tariff discovery has emerged as one of the biggest reforms in power sector for promoting competition, transparency and significantly lower tariffs.
Bidding guidelines
It will be relevant to look at the certain key features of the bidding guidelines originally issued by the Centre in 2006. These were called as the guidelines for procurement of power by the distribution licensees.
At the most, bid process was permitted to be carried out by authorised representative of the licensees. Prior approval of SERC was envisaged on the quantum of power to be procured. There was emphasis on preparatory activities in order to convince the bidders about the irrevocable intention of the procurer. An evaluation committee with one expert external member was given the right to reject all price bids if the rates quoted are not aligned to the prevailing market prices. There were clear timelines for various intermediate activities.
Where have we deviated from this framework? SECI has been asked to float tender for very unconventional procurement where solar manufacturing commitment has been bundled with solar capacity. In one State, large quantities of thermal power and RE power have been clubbed in one tender where questions have been raised on limited competition.
Benchmarking the tariffs in such cases is not feasible. The concept of intermediary procurer has been introduced. Agencies like SECI and other REIAs have been given targets for bidding every year without any linkage with requirements authorised by the distribution licensees.
CERC has refused to adopt the tariff of 1000 MWH battery storage because PSA has been delayed and the prices have since declined significantly. It is also noteworthy that evaluation committee is being constituted with very junior functionaries whereas the same for UMPP had a number of State power secretaries as its members.
The lessons
There are several learnings. First, competitive procurement in advance by intermediaries like SECI can not be the substitute for work by the Ministries concerned with States to generate demand for such procurement on the basis of which tenders ought to be floated. Some additional quantum can be procured in anticipation.
Second, the packaging unconventional requirements is not recommended as it limits competition and also raises doubts on reasonability on the tariffs discovered. Such projects should be structured separately through VGF or PLI.
Third, the procurers or their authorised representatives should ensure preparatory steps before the bidding so that undue delays are better avoided. This was ensured by the Ministry of Power in case of UMPPs.
Fourth, regulators have to take a supportive and development-oriented stance while adopting the tariffs.
Notwithstanding the legal interpretation of the regulatory powers, it will be highly damaging to the investment climate if regulators start routinely going into the reasonableness of the discovered tariffs. This task primarily pertains to the evaluation committee which needs to be constituted with credible experts as members. Particularly, in case of new technologies such as batteries or off-shore wind, prices are sure to follow a declining trajectory and if regulators start rejecting tariffs on the ground that tariff have decreased in the last six months, it will be impossible to invite any new investments.
The law mandates CERC to even advise the government on promotion of investment in electricity industry.
The writer is former Union Power Secretary of India and currently Director with The Lantau Group
