Friday, October 29, 2010

Politics of power allocation from Central Generating Stations

Planning Commission amenable to even higher share for home states
The state-run, NTPC, seems to have found a great ally in the Planning Commission (PC), which has asked the Ministry of Power (MoP) to be flexible when it comes to allocating the home-state share of power to states that host central generating stations (CGS).
  • Against the MoP's proposal of allowing a maximum of 50% of power to be allocated from new stations to their respective home states, the PC has asked the ministry to be open to the allocation of up to 75% of power, if needed, to facilitate development activities.
  • Further, the PC has also asked the ministry to allow the sale of 10% of power via open access, in line with the stipulations of the Electricity Act, 2003.
  • The power ministry has, however, taken the view that if such a large quantum of power is allotted to the home state, not much would be left for the neighboring states, detrimental to the overall infratsructure development of the country.Further, decisions regarding open access may only be taken once the second Task Force on operationalization submits its report.
New policy likely to benefit only resource-rich states, says Department of Economic Affairs
The Department of Economic Affairs (DEA) has strongly objected to the power ministry's move to enhance the share of power from the central generating stations (CGS) to their respective home states, from the existing 10%, to 50%, asserting that this will only accentuate inter-regional social and economic disparities in the country and create a biased model of development.
  • The DEA is of the view that the proposed dispensation will create a situation where the states that are affluent with raw materials, like coal and natural gas, will benefit disproportionately from capacity addition in the power sector.
  • This will result in the availability of adequate power for consumption within those states, while leaving others to face power shortages.
  • Moreover, any surplus power will be sold to the grid at an exorbitantly high prices, thereby increasing the price of electricity for deficit states, claims the DEA.
May also impact merchant power capacity, fears DEA
The Department of Economic Affairs (DEA) has also criticized the MoP`s proposal of higher power allocation to the home states on the ground that this would severely impact the installation of merchant power capacity.
  • The DEA has asserted that allowing such enhanced shares to states via long term power purchase agreements will create allegedly unhealthy competition between the public and private sector power generating companies, with the latter likely to offer even higher shares of power to the concerned states, in a bid to obtain an edge over their government counterparts.
  • This will not only reduce the quantum of power available for merchant sale, but also eat-up the demand for short-term power in the open market, asserts the DEA.
DEA comes up with its own formula
Not entirely convinced with the power ministry's methodology proposed for allocation of power from new central generating stations (CGS), the Department of Economic Affairs (DEA) has come up with a its own formula, which it claims will promote open access, as well as incentivize state governments to assist in setting up of such power stations within their territories. The DEA has called for moderate enhancement to the home state's share, while providing for additional allocation of power to the home state and other states of the region on the basis of a performance index, depicting the progress made by the states in operationalizing open access.
  • This formula calls for distribution of power in the following order:
  • Government of India (GoI)
    • Fixed:10%; variable: 5%.
  • Home state
    • Fixed: 30%; variable: 5%.
  • States in the region (including home state)
    • Fixed: 40%; variable: 10%.
  • The following stipulations would apply for arriving at the variable share of power:
    • The variable component would be made available depending on progress achieved in operationalizing open access, for which an index could be developed by the MoP.
    • The quantum of power reserved under the variable component with the GoI would be used to promote open access in other states of the country, besides the home state and the states in the region.
    • The unallocated component of the power available under the variable component with the home state and other states in the region, would be available to the GoI for being allocated under the variable component available with them.
    • The unallocated power, available with the GoI under the variable component, which has not been able to be utilized for operationalizing and promoting open access, may be sold through the power exchanges and the proceeds thereof shared amongst the GoI, home state and the states in the region as per a pre-defined formula.

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