Competitive Bidding: A Rationale for Efficient Transmission Sector in India

July 15 2019

Sterlite Power

The National Tariff Policy, that was announced by the Ministry of Power back in January 2006, went on to become a landmark policy document andopened transmission sector for competition through private participation in developing transmission projects. This rendition in policy was aimed at ensuring affordability of electricity to consumers, attracting investments into the sector, promoting transparency, predictability and consistency in regulatory approaches and improving the supply quality.

 

Competitive Bidding has Unlocked Efficiency with Private Participation

Till date, the Ministry of Power has awarded over 50+ Inter State Transmission System (ISTS) projects. This accounts for nearly 45% of the projects developed since under tariff based competitive bidding (TBCB).Thisclearly establishes that the experience with competitive bidding has been a positive one. However, there are other aspectsalso that support the positive experience. Firstly, competitive bidding has led to discovery of tariffs that are on an average 30-40% lower than cost plus tariffs. If most of the projects were built under TBCB route, the amount of savings that would have been realised is colossal. Secondly, from carrying out surveys & routing using LIDAR, to designing, engineering and using aerial technology like drones and helicranes in construction, competitive bidding has led to innovation and adoption of technology in the right way. Moreover, the competition among the transmission players has driven down costs and boosted innovations and new technologies; resulting in on-schedule commissioning of projects. In a nutshell, participation of private players has unlocked efficiency by creating a fix to solve the three critical constraints associated with the industry, vis-à-vis time, space and capital.

Issues and Challenges Faced by Private Players in the Sector

Theissues and challenges faced by private transmission companies are majorly on areas of grant of forest clearances and access to right of way.

  • Forest Clearances - Transmission projects being linear in footprint and static in nature are exempt from the requirements of seeking environment clearances from Ministry of Environment, Forest and Climate Change (MoEF&CC). However, forest clearances are required if the transmission lines pass through forest areas. In such cases, delays are usually experienced as the file moves through multiple administrative levels, requiring repeated data submissions. These submissions also differ state-wise, as forest is a state subject. Streamlining of forest clearance process and adherence to prescribed timelines will significantly address the issue.
  • RoW Compensation Issues - The other challenge is getting right of way (RoW) and determination of compensation to be paid for the RoW. Except for the land footprint of the sub-station, no land needs to be acquired for developing a transmission line, unlike in other infrastructure projects like roads, power plants, mining etc. The land title remains with the land owner. For towers to be erected and transmission line paths to be set, the owner needs to provide right to access to the developer, for which he/she is compensated. To ease the RoW process and bring in clarity on the compensation to be paid the Ministry of Power, in 2015, had issued land compensation guidelines for the states to follow. Many states have adopted these guidelines, with few modifying the compensation requirements to suit their state requirements.However, many states are yet to adopt these for their states. Many of the administrative officers and key stakeholders in the RoW compensation chain are not aware of these guidelines and it gets increasingly difficult to seek access. Further, the rates at which the compensation needs to be paid are linked to the rates notified by the district administration which are not regularly updated and usually are lower than the prevailing rates. This results in land owners disagreeing on the compensations and related issues.
  • Standards & Regulations - The technical standards and regulations are at times very prescriptive and restrictive and do not permit deployment of new technologies and innovative solutions. The approval process is very long drawn and cumbersome. The standards and regulations should provide for design freedom to the developer with adequate check and balances. They should promote and enable unique solutions for difficult problems and not scuttle innovations.

Need for Proper Representation for Private Players in Government Created Committees

The governing document for the power sector is the Electricity Act 2003, which is a great act and has revolutionised the power sector. The Act prescribes certain critical functions to certain government companies and authorities. In the context of transmission, the designated entity is the Central Transmission Utility (CTU) which is responsible for planning and development of the transmission system inthe country. PGCIL is the CTU and as a central planner it carries out the planning function in consultation with CEA and other states and stakeholders. So far so good. However, when it comes to the development of transmission system, government has created various committees wherein the mode of development, cost-plus route or TBCB route, of the transmission system is decided. PGCIL as the CTU is a member of these committees and these committees have no private sector representative. PGCIL is also the developer of the transmission projects decided to be developed under cost-plus route and participates as a bidder in the projects that are decided to be built under TBCB route. Thus, there exists a severe case of conflict of interest and information asymmetry by PGCIL being both the planner, recommender and developer of these transmission projects. The conflict of issue should be addressed by the segregation of CTU-planning function from PGCIL - the developer or opening the committees to have adequate private representation.

Outlookfor the Sector

Transmission is a key infrastructure which is needed to meet the policy goals of 24x7 quality power and 175 GW of renewable energy (RE) by 2022. Given the climate change imperatives, the generation basket will see radical changes, with RE dominating the portfolio. The RE target of 500 GW by 2032 is being spoken about. Given the generation mix change, the demand profiles are also changing with tier 2 and tier 3 cities to see increased demand with rural India. To connect evolving demand centres with generating sources concentrated in few RE rich states, a robust inter-state transmission network is a necessity. Transmission network needs to be built to evacuate power from far-flung RE rich locations of Rajasthan, Gujarat and cold deserts of Leh- Ladakh and Lahaul-Spiti.

Government has also identified off-shore wind potential off the coast of Gujarat and Tamil Nadu, transmission system for whichneeds to be built. This willbring the power onshore andpenetrate transmission deeper into hinterland. Further, once the power is delivered to a state, it needs to be transmitted down to cities, towns and villages through the state transmission network, which needs to be expanded, strengthened and upgraded to handle all this power.

Development of inter-regional and cross-border networks across land and seas will follow and evolve national networks to international networks, wherein private players will play a critical role in financing and developing these networks.

Author:

Ved Mani Tiwari, CEO – Global Infrastructure, Sterlite Power

Disclaimer: The views and opinions expressed in this article are those of the author(s/) and do not necessarily reflect the official policy or position of Sterlite Power.