ULTRA MEGA POWER PLANTS AND POLICY

BACKGROUND With India being a country of chronic power

deficits, the Government of India has planned to provide "power for all" by the end of the Eleventh Five-Year Plan (2007–2012).

This would entail the creation of an additional capacity of at least 100,000 MW by 2012

Ultra Mega Power projects, each with a capacity of 4000 MW or above, are being developed with the aim of bridging this gap

Launched by Ministry of Power in 2005-06

Central government has taken the initiative under tariff based competitive bidding route using super critical technology on BOO basis

Central Electricity Authority is the technical partner & Power finance corporation is the nodal agency

Separate SPVs were provided for each project to undertake project development activities including bid process management

In addition to Ultra Mega thermal power Projects, Ministry of Power is also taking steps for bringing up large Hydro Projects and large size Transmission Projects on the fast track

ROLE OF MINISTRY OF POWER

Ministry of Power to be facilitator for coordination with concerned Ministries/ agencies and State Government for ensuring:Coal block allotment for pithead projectsEnvironment/ forest clearancesFacilitate acquisition of landRequired support from State Govt. & its

agenciesTo facilitate proper payment security

mechanism with State Govt./ State utilities

CONCEPT Setting up of large projects of 4000 MW at a

single location: ensuring economies of scale Award of projects to developer through tariff

based competitive bidding : ensuring cheaper power

Utilization of super critical technology: ensuring higher efficiency and lower CO2 emissions

The first UMPP, developed by TATA Power at Mundra, Gujarat has been commissioned and contributes 4,000 MW in power to the northern grid.

Total number of UMPPs viewed are 16 ,out of which awarded are 4-

I. Sasan UMPP, Madhya Pradesh

II. Mundra UMPP, Gujarat

III. Krishnapatnam UMPP, Andhra Pradesh

IV. Tilaiya UMPP, Jharkhand

POLICIES FOR DEVELOPMENT OF UMPP

PROVISION OF ELECTRICITY ACT, 2003

Provides that regulatory commissions shall adopt the tariff if it is determined through transparent process of bidding accordance with guidelines issued by central government

Aims at moving away from cost plus approach for tariff determination & expected to encourage private sector investment

NATIONAL ELECTRICITY POLICY

Aim of this policy is to supply reliable & quality power of specified standard in an efficient manner & at reasonable rates

Policy recognizes that competition will bring significant benefits to consumers

Policy stipulates that all efforts will need to bring the power industry as early as possible in the overall interest of consumers

OBJECTIVES OF THE POLICY

Access to Electricity Available for all households in next five years.

Availability of Power Demand to be fully met by 2012.

Shortages to be overcome and spinning reserve to be available.

Per capita availability of electricity to be increased to over 1000 units by 2012.

Minimum lifeline consumption of 1 unit/ household/day as a merit good by year 2012.

Financial Turnaround and Commercial Viability of Electricity Sector.

ELECTRICITY TARIFF POLICY

Objective is to promote competition, efficiency in operations & improvement in quality of supply

To ensure availability of electricity to consumers at reasonable and competitive rates

Policy stipulates that all future requirement of power needs to be procured competitively by distribution licenses except in cases of expansion of existing projects

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GUIDING PRINCIPLES FOR COMPETITIVE BIDDING

Competitive bidding process should ensure

• Free fair and effective competition

• Transparency

• Simplicity and cost effectiveness of process

• Minimal burden on regulator and other stakeholders

• Flexibility to adapt to varying needs of power procurement according to the structure of the sector

The new guidelines should adequately build on GOI

guidelines issued earlier by incorporating new inputs from

EA 2003 and the Task Force report

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BIDDING PROCESS WOULD START WITH THE REGULATOR APPROVING THE DEMAND FORECAST FOR THE DISTRIBUTION COMPANIES

Demand forecast for short / medium / long term

Regulatory approval of forecast

Procurement process

Path 1

Using non-standard bid documents

Using standard bid documents

Path 2

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PROPOSED POWER PROCUREMENT BIDDING PROCESS IF STANDARD DOCUMENTS ARE USED

Key activities/Salient points

At each stage we may specify

minimum number of bids to proceed to

next stage

Requirement definition

Initiate RFQ

Shortlist bidders

RFP Bidding Evaluation of bids

Award of bid(s)

Post bid negotiations

• Specification of – Quantum– Timing– Duration

of contract

• Publish notice

• Issue RFQ

• Evaluate responses to RFQs

• Shortlist bidders

• For short term contracts bidders may be pre- qualified

• Issue RFP to selected bidders

• Conduct pre-bid conference

• Short listed bidders invited to submit bids

• Technical compliance must for any bid to be considered

• Determination of winner on bases of price bids

• Use of independent observer if necessary • RFQ/RFP process may be combined into

single step, especially for short term contracts

Regulator kept informed at all stages of the process

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PROPOSED POWER PROCUREMENT BIDDING PROCESS IN CASE OF DEVIATIONS FROM STANDARD BIDDING DOCUMENTS

• Any modifications suggested by bidders, or due to any other reasons to be approved by regulator – possibly over several rounds of iterations

Requirement definition

Prepare bidding documents

Initiate RFQ

Shortlist bidders

Seek regulatory approval

Iterations on development of bid documents

Regulatory clearance of forecast

A

RFP Bidding Evaluation of bids

Awards of bid

Post bid negotiations

ARegulator’s comments on process and go ahead

Even though active regulatory approval

needed in only certain stages, but the

regulator is always kept informed of all

developments

Regulatory approval if required

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IN THE RFQ STAGE, BIDDERS SHOULD BE SCREENED ON THE BASIS OF AN ARRAY OF METRICS

Financial metricsTechnical metrics Past record

To ensure supply contracts, in case of default

To minimise risk of delay/shortfall

To prevent frivolous/mischievous bidders

• To ensure supply contracts, in case of default Net worth

• Credit worthiness • Bank/other financial

guarantees

• For new plants – Past infrastructure

project execution– Resource raising

• For existing plants– Reliability – Performance in the

past• Tie ups with

transmission companies preferred

• Should be an organization of repute

• No default on previous contracts

• Net worth • Credit worthiness • Bank/other financial

guarantees• For long term contracts

trader should show the capability/history to source 70-80% of contract amount

• Tie ups with generators and transmission companies are preferred

• Source of power has to be specified

• Trader of repute • No default on past

contracts• Past litigation record • No conflict of interest

between other obligations and contract being bid

Limits to vary by duration of contract and amount of load contracted

To be suitably relaxed in initial stages for traders, as they would have no history of trading operations

For generators

For traders

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FOR MEDIUM/LONG TERM CONTRACTS, AT RFP STAGE, BIDS SHOULD BE SCREENED BASED ON NON PRICE EVALUATION PRIOR TO PRICE COMPARISONSElement for evaluation Details

• Financial guarantee covering supply default

• Different bidders could be capable of delivering power at different points in grid

• Most reliable/least bottlenecked point most preferable

• Relevant for time of day contracts, or for parts of long term contract

• Best fit to demand should get preference

• Bidder asking for least financial guarantee from buyer would be preferred

• Risk sharing mechanism in case of forced outages/unforeseen circumstances

Supplier’s guarantee

Delivery point

Delivery dates/period

Buyer’s guarantee

Force majeure /risk sharing

All these aspects need to be sufficiently detailed in the standard bid

documents and processes, to enable bids to be efficiently

and transparently

evaluated/ rejected on

technical merits

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BUYER SHOULD SPECIFY THE BID STRUCTURE IN DETAIL

Whether part bidding is allowed?

What is being bid for?

What is the tariff structure used?

• No part bidding• Part bidding allowed• Part bidding allowed in multiples of some pre-specified minimum bid unit (preferred option)

• Energy• Capacity• Percentage of load (varying)

• Single part tariff• Two part tariff with suitable indexation (preferred)

Elements of a bid

Illustrative examples

Element

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INTERNATIONAL PRECEDENTS OFFER SEVERAL USEFUL TIPS FOR FORMULATING THE COMPETITIVE GUIDELINES

Aspect International examplesReference document Issue date/number

Bidding for part of the contract

• RFP for Central Maine Power Company allows bidders to bid in multiples of 20% of total contract amount

• November 18, 2003; issued by Maine PUC

Use of Independent observer

• Independent observer was used for overseeing the process of RFP’s for Portland General Electric Company

• January 20, 2004; Interim report of independent observer

Use of discounting/ NPV calculations for evaluation

• Public service commission of Maryland approved use of single discounted average term price (DATP) for evaluation of bids in the phase II settlement proceedings

• Order no. 78710 Case no. 8908; Phase II September 2003

Pre-qualification of bidders to form a panel

• Rules of the Florida Public Service Commission on general purchasing procedures allow the prequalification of bidders to form a panel

• Ch.25-25 Sup no.194

Financial guarantees from bidders

• RFP for Central Maine Power Company required bidders to provide financial guarantees upto US$ 1.21 million/month and 1.50 million/month while bidding for service to 2 classes of consumers

• November 18, 2003; issued by Maine PUC

Bidding for percentage of load

• Rather than a fixed load (in MW/ MWh) the bid may be asked for the percentage of the utility’s load, so as to offload some risk to the suppliers

• EPSA guidebook for design implementation and monitoring of competitive power supply solicitations

Bidding for partial duration

• EPSA guidelines mention use of annuity based calculations while comparing bids for unequal (part) duration and choosing a lower overall bid portfolio

• EPSA guidebook for design implementation and monitoring of competitive power supply solicitations

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INTERNATIONAL BIDDING PROCESS - EXAMPLE

US long term bid process

• Posting of information publicly

• Request for Expressions of Interest (EoI)

• FERC qualification

• Credit application and financial information received

• Pre-bid conference

• Eligible bidders qualified and issued certification

• Request for detailed proposals from eligible bidders

• Price proposals received

• Bids evaluated

• Award of bids

• More rounds if previous rounds fail to meet objectives

• Iteration continues till satisfactory solution reached

• Retail prices published 6 months before start of contract

Receiving proposals

Process start

Receiving EOIs

Regulatory Validation

Bidder selection

Round 1

Revision/Round 2

Contract start

Steps

Timeline

Details

3½ months

15 days

15 days

15 days

2 months

9 months

Source: Allegheny power RFPs and RFQs