Briefly explain the concept of IPP & CPP and discuss challenges faced by them?

Name Roll No.Pooja Awate 2013D01Jasjeet Gill 2013D02Sandeep Kumar 2013D03Swaroop Das Chowdhury 2013D04

In 1989 said the “requests from the electricity sector of developing countries added up to $100 billion per year. In response, only about $20 billion was available from multilateral sources, leaving a gap of about $80 billion.”

Hence, it was suggested that the only possible source of funds was the private sector and, in view of the fact that the Indian capital market did not appear to be able to make a significant contribution, that the foreign private sector should be welcomed.

Central government was trying to find conventional source for funding power projects, which was believed to have reached its limit as far as funding was concerned. The Indian electricity sector had virtually no surpluses to make available for investment.

• Government of India released “Private Power Policy”.

• The economic crisis faced by India

• Provided an opportunity for unshackling the economy by de-licensing a number of sectors.

• Opening up of infrastructure sectors.

In 1990

In 1991

By August 1995 • 189 offers were received to set up private power generating projects of over 75,000 MW, at an investment of more than Rs. 2,76,000 crores.

However, as the gestation period for large power projects is long.

October 1995 • Interested industries can meet their own power (25MW) demand by pooling resources together.

• Such alternative was called “Captive Power Plants”.

Because of many problems faced during implementation of projectIn 2003 • ELECTRICITY ACT, 2003 was implemented.

Glimpse of Electricity sector in India

• The electricity sector in India had an installed capacity of 205.34 Gigawatt (GW) as of June 2012, the world's fifth largest. (source: CEA)

• Captive power plants contribute : approx 12%

Mckinsey Report (2008)India's demand for electricity may cross 300 GW, earlier than most estimates

• India's manufacturing sector is likely to grow faster.

• Domestic demand will increase more rapidly

• About 125,000 villages are likely to get connected to India's electricity grid

• Currently blackouts and load shedding artificially suppresses demand; this demand will be sought as revenue potential by power distribution companies

• A demand of 300GW will require about 400 GW of installed capacity.

As per

Gaps• Base load requirement was 861,591 (MU) against

availability of 788,355 MU, a 8.5% deficit.

• peak loads, the demand was for 122 GW against availability of 110 GW, a 9.8% shortfall

• Dec’11 :1/3 of India's rural population and 6% urban lacked electricity

• include new project management and execution

• ensuring availability of fuel quantities and qualities

• Initiative to develop large coal and natural gas resources

• Effective land acquisition, environmental clearances at state and central government level

• training of skilled manpower to prevent talent shortages for operating latest technology plants

• Improved efficiency, reliability and quality

Need

An Independent Power Producer is …

• Not a public electric utility, • Owns and /or operates facilities to generate electric power for sale to a utility,

central government buyer and end users. • Privately-held facilities, such as rural solar or wind energy producers• non-energy industrial concerns generating electric power for on-site use and

who may also be capable of feeding excess energy into the distribution or transmission grid system

Reform electricity sector by participation of private sector and to bring in competition Electricity act enacted in 2003.

Generation has been delicensed and captive generation freely permitted(clause (b) of section 73)

Removal of FDI limits on generating and capital equipment manufacturing companies - 100% equity participation is permitted.

10% of the power supplied has to be generated using renewable and non-conventional sources of energy.

De-licensing distribution in rural areas; licensing regime for in urban areas.Captive Generation is free from controls. Open access to Captive generating plants

subject to availability of transmission facility. (Section 9)

ELECTRICITY ACT, 2003

Why IPP?• Governments are turning to the private sector for power generation.

• IPPs are attractive option because they are supposed to facilitate investment

• Allows the private sector to operate without the need for lengthy regulation

• IPPs are heralded as the start of further liberalisation and subsequent privatisation of electricity.

• IPPs to sell power to the State Electricity Boards (SEBs) at a unit price adjusted for cost of capital and exchange rate risks

• Most visibly involved effort by - Cogentrix and Enron Corporation.

StatusProjects commissioned :22Projects under construction :15. Techno economic clearance given by CEA : 55 Projects awarded through MOU/LOI/ International bidding : 26.

All this adds up to 140,000 MW ; Target : 2,00,000 MW.

Initiatives :-A mega power projects policy for setting up low tariff projectsNew Hydel Policy and Electricity Law, which identify transmission as a separate

identity

ELECTRICITY ACT, 2003

Captive Power Plant

As per

Captive generating plant is defined under Section 2 (8).

“It is a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any cooperative society or association of persons for generating electricity primarily for use of members of such cooperative society or association.”

Section 9 (1) further stipulates that

“A person may construct, maintain or operate a captive generating plant and dedicate transmission lines. It also provides that supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company.”

Section 42 (2) states that

“Surcharge (for meeting the requirements of cross-subsidy) on wheeling charge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use.”

Provisions for Captive Power Plants in Electricity Rules 2005-

These rules state that no power plant shall qualify as a 'captive generating plant' under section 9 read with clause (8) of section 2 of the Act unless it satisfies the following conditions.

a) 26% of the ownership is held by the captive user and the user has to consume a minimum of 51 % of the aggregate electricity generated

b) In case of association of persons, the captive users shall hold not less than 26% of the ownership of the plant in aggregate and such captive users shall consume not less than 51% of the electricity generated, determined on an annual basis, in proportion to their shares in ownership of the power plant within a variation not exceeding 10%.

c) In case of a generating station owned by a company formed as special purpose vehicle for such generating station, a unit or units of such generating station identified for captive use and not the entire generating station should have 26% of the proportionate equity out of the total equity of the company related to the generating unit(s) identified as captive plants.

% mentioned above if not maintained, the entire electricity generated shall be treated as if it is a supply of electricity by a generating company.

ScenarioAs per 2008

Installed Captive Generation Capacity - March 31, 2008

Fuel Capacity (MW)

Steam 11763.99

Diesel 8647.92

Gas 4209.23

RES 304.75

Hydro 60.50

Total 24986.39

There are 2,759 industrial units having captive generation plants with an installed capacity of 1 MW and above. The total capacity of captive power plants, at the end of 2007-08 has grown to 24,986.39 MW has registered an annual growth of 11.87% from 22335.04 MW in March 31, 2007.

the electricity sector in India had an installed capacity of 229.251GW, the world's fifth largest in which

Captive power plants generate an additional 34.444 GW.

As of October 2013,

Captive power, if harnessed optimally can play a significant role in tiding over the prevalent power crisis situation in the country with the average all India peak deficit mounting to nearly 15% during 2006-07.

The total installed capacity of captive power plants having 1 MW and above capacity was 22335 MW as on March 31, 2007.

The energy produced by captive generating units of 1 MW and above is about 81799.75 MU in the year 2006-07.

The Plant load factor of various Captive Power Plants (CPPs) is as below:

Role of Captive Power in Tiding over the Power Crisis

Installed Capacity and PLF of Captive Plants

Item 2003-04 2004-05 2005-06

Installed Capacity 18740 MW 19103 MW 19484.62 MW

Generation 68173 MU 71582 MU 74131 MU

Average PLF 41.5% 42.8% 43.44%

The various issues and concerns of the captive power producers which need to be effectively addressed are as under:

a) Many states have their own policies, generally not encouraging captive power, despite shortage of power.

b) Most state government policies are leading to :i. Artificially boosting cost of captive power to bring it close to cost of SEBs power in the form of excessive minimum

demand charge for grid support.

ii. Eroding competitive strength of industry. Some state governments are imposing Entry Tax @ 1% to 16% on HFO and also high rates of sales tax.

iii. Uneconomical wheeling charges & losses being charged to the HT industry over and above complicated procedures for granting permission for wheeling power.

iv. Uneconomical purchase rates of surplus capacity from CPPs.

v. Selling power to another state or directly to another consumer is made difficult through inflated charges.

vi. High rates of electricity duty on generation from captive power plants (CPP) imposed by states.

Main Concern

Issues related to CPP:

•There are many points that become very important in the current turmoil for CPP. Approximately 70 per cent of CPP generation and 50 per cent of installed CPP capacity use coal as fuel and face extreme pressure from the government and independent power producers for coal availability.

•Many state governments are charging higher taxes and duties from CPP, though the national policies clearly and very specifically define such actions as invidious.

•The New Coal Distribution Policy(NCDP) clearly defines equitable distribution of this nationalized resource to all coal consumers at reasonable and equitable price. However in last 6-7 years, coal supplies and linkages are delayed and denied to CPP while facilitating coal linkages to IPP and Utilities.

Issues related to CPP: (contd.)

•Unlike petroleum products, no subsidy is provided by government on coal.

•Other issues that are troubling industry are related to quality of coal and huge shortages in dispatches from CIL subsidiaries. It is common to get 25-10 per cent lower quality than declared GCV band.

•This situation of idle freight and shortages in supplies has worsened with railway constantly increasing carrying capacity reaching to CC+8, i.e. 8 tonnes more than safe design capacity and reducing loading tolerance to just 1 tonne while loading has to be done with eye estimation.

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