New policy likely to ease pressure on merchant power tariffs  

January 4, 2010

The Cabinet note for allowing the Indian government’s discretionary power quota being pooled into open access has been floated. Industry experts believe that the new policy could help ease fluctuating merchant power tariffs.

“It will free sufficient amount of capacity for the merchant market. I think that will also help in stabilising the tariffs in the merchant market to a reasonable level. Today, there is too much of fluctuation, it (the tariff) has also come down to as low as Re1 per unit. There is a lot of fluctuation and uncertainty. This (the policy) will surely have a stabilising effect,” said Raaj Kumar, chief executive for energy sector, GMR Energy Ltd.

On Monday, market price for merchant power fluctuated from Rs99.70 per megawatt hour (MWh) to Rs3,350 per MWh.

However, some analysts are still in the wait-and-watch mode over the policy. “There still needs to be certain clarity on the proposed law. More clarity is required on the new capacities and new plants that are being spoken about. If it is new plants, then the power would take another five years to be made available,” said an analyst from a leading brokerage.

Based on the inputs available at the moment on the proposed policy, the law will allow 25% of the government’s discretionary quota for open-access customers. The power ministry has discretion of using 15% of the output from federal generating stations.

The proposal also speaks about allowing State-run power producer NTPC Ltd to sell 50% from the government’s (up to) 50% unallocated quota in new plants to open-access customers. The existing power projects of NTPC would also be allowed to sell 25% of the government allocation.

“Open access is a requirement for all of us, if it comes out as a policy it will come out for all of us and not only for the central stations,” Mr Kumar further added.

When asked whether NTPC’s additional capacity in the merchant power segment would mean overcapacity in the merchant power segment, he added, “No, ultimately, the capacity remains the same.”

— Amritha Pillay