NEW DELHI: In a significant move, government plans to do away with variable cost as a criteria in bidding for new power projects where developers would be able to decide on the location and fuel for the plant.
The proposed change comes against the backdrop of acute shortages and higher prices of fuels hurting many power projects in the country.
Power projects are currently awarded broadly through two routes -- Case I and Case II. Under the Case I, developers have the choice to decide on location, fuel and technology to be used for the plant, while these parameters are fixed by the government for the Case II projects.
The government is now working on changes to the standard bidding norms for Case I projects.
"We had discussions with stakeholders including financial institutions regarding Case I bidding norms on June 11. We have finalised the document and the same is likely to be taken up by an Inter Ministerial Group (IMG) by end of this month," a Power Ministry official told PTI.
Among others, the IMG has representatives from Law Ministry and Planning Commission.
As per the proposal, new norms could have only the single bidding parameter of "fixed charge", that includes capital costs, in awarding Case I projects, the official added.
At present, such projects are awarded to developers through bidding after taking into account two key aspects -- non-escalable (fixed) and escalable (indexed) components. The escalable or variable costs are mostly related to fuel charges.
Developers who have won projects after quoting a levelised tariff that includes both fixed and variable costs. However, in many instances, the volatility in fuel prices impact the long term cost projections and hurt the viability of projects.
According to sources, experience has shown that it might not be feasible for power producers to have stable fuel costs for the entire period of the project.
"Fuel costs cannot be made basis for bidding and it has to be pass through to the procurers. Once made pass through, there should be certain efficiency parameters and safeguards are in place to ensure balance between the interests of power producers and procurers," the official noted.
The domestic power sector is going through rough times and efforts are on to clear the bottlenecks such as acute fuel scarcity.
India aims to add power generation capacity of about 88,000 MW in the current Five Year Plan (2012-17). The target is to take the country's total capacity to about 3,15,000 MW by the end of this period.