New UMPPs must source equipment locally, rules cabinet

Those bidding for ultra-mega power projects will now have to source equipment from domestic manufacturers. They will also have to offer the most competitive rates based on overall plant efficiency.

This was decided by an empowered group of ministers (eGoM) headed by defence minister A K Antony, which gave its go-ahead for the latest standard bidding documents.

The move to make it mandatory to source equipment from domestic manufacturers is bound to help companies such as state-owned Bharat Heavy Electricals Ltd (BHEL), Larsen & Toubro and Bharat Forge-Alstom, all of which are suffering from lack of fresh orders.

Minister for heavy industries and public enterprises Praful Patel has been asking the government to make it mandatory for UMPPs to source equipment locally. The two UMPPs commissioned so far - Tata Power at Mundra and Reliance Power at Sasan - use imported equipment.

The EGoM also decided that any increase in the fuel cost would be passed on to the consumer.

The only operational UMPP, of Tata Power at Mundra, has been reporting losses because of an increase in the prices of imported coal.

Reliance Power has approached the Central Electricity Regulatory Commission for a hike in tariff for power from its Sasan project.

The new standard bidding documents would be applicable for projects where the fuel source is determined in advance, known as case-II. This would facilitate award of two UMPPs of 4,000 MW each in Tamil Nadu and Odisha.

''There are many clauses that would be fruitful (to power developers), such as pass through of fuel cost,'' said Jyotiraditya M Scindia, minister of state for power.

The government has introduced several changes in the new bidding norms, such as a single parameter for competition, or 'capacity charge.'

In other words, this is moving away from the current levelised tariff structure that was a combination of efficiency and fuel cost. Now, there will be a single bid on capacity charge, which means fixed cost for every unit of electricity generated.

In the earlier model, a bidder had to give nearly 54 price quotes spread over 25 years - separate bids for capacity and fuel cost, among others. Since the fuel cost has been made pass-through now, there will be no quotes for it.

The capacity charge has now been linked to depreciation and loan repayment as well as the inflation index.

The UMPPs will have to sell at least 80 per cent of the electricity produced on long-term agreement to distribution companies, and retain the balance for merchant sales.