NOT FOR SALE

Quarterly Journal from PTC India Limited

April 2013

Budget
2013-14

fINANCING
RENEWABLE ENERGY

DISTRIBUTION
MANAGMENT

NEED OF THE HOUR

Focus on Improving Energy Mix

RECs : Way ahead

ELECTRICITY
PRICING IN MARKETS

TRANSMISSION
CONSTRAINTS

APRIL 2013 | PTC INDIA LIMITED | 1

2 | PTCHRONICLE | APRIL 2013

Editorial Team:
Lavjit Singh, Nirmita Singh, Anupum Vadehra, Varun Sethi,
S C Shukla
Editorial Address:
PTC India Ltd., 2nd Floor, NBCC Tower, 15, Bhikaji Cama Place,
New Delhi 110066
PTChronicle takes no responsibility in case of any unsolicited
photographs or material.
PTChronicle journal is the property of PTC India Ltd. No part
of this publication or any part of the contents thereof may be
reproduced, stored in a retrieval system, or transmitted in any
form without the written permission from PTC India Ltd.
Design & Printing by:
Colour Bar Communications, New Delhi
FOREWORD
From the
Chairman’s Desk
T he power sector in India is passing through an interesting
phase of reforms. The SEB debt restructuring, fuel
linkages, reform in off-take arrangements, and distribution
responsibility bill with greater emphasis on distribution
reforms all seem to be in the offing, and need to be
accelerated. The focus on implementing these is the key
to power sector growth.
The Union Budget has always been responsible for birth
of expectations in the minds of stakeholders. The leather
case carries the potion for growth of a particular sector, or
maybe an aberrant based on which the market witnesses a
shift in focus towards business objectives and operations.
This edition brings forth the key takeaways for the power
sector in this year’s union budget.
This edition also highlights the imperative to shift business
focus towards improving the energy mix of the country.
Investments in renewable energy need to be encouraged,
overcoming the slowdown of the RECs market.
Measures need to be implemented for improving power
supply situation, curbing the transmission constraints,
improving the financial management of power distribution
and enforcing renewable obligations. Reforms and
policies need to be advocated in favor of such measures
to strengthen the energy value chain.
This Sixth Edition of PTChronicle takes the opportunity to
present expert opinions and encourage discussions on
questions much relevant to the times of today. In addition
to other aspects, the power sector experts in this edition
have questioned the underutilization of power generation
capacity vis-à-vis demand. Is it really shortage of power or
it is just a figment of imagination?
We hope to continue having your support and request for
any feedbacks for further improvement.
Wishing our readers a valuable and informative read.
Deepak Amitabh
Chairman and Managing Director
PTC India Limited
APRIL 2013 | PTC INDIA LIMITED | 3
 C O N T E N T

UNION BUDGET 2013-14 6

KEY TAKEAWAYS FOR POWER SECTOR
Deepak Amitabh
Chairman & Managing Director, PTC Group

electricity Pricing
for Industries in India
Dr. Rajib Kumar Mishra
10
Executive Director, PTC India Limited

Market Watch 14
Corporate Development Team
PTC India Limited

Improving Power Supply

Sh. R. V Shahi
16
Former Secretary, Ministry of Power

Your feedback is valuable to us. Kindly share them at marketing@ptcindia.com

4 | PTCHRONICLE | APRIL 2013

Shortage of power or imagination?
Jayant Deo
20 POWER PARLANCE 37
Founder Member MERC
Advisor, PTC India Limited

The Power bites

Quarterly Sector Coverage
22 Credit rating of discoms 38

alternate RECs Market 28 Financial Management of

Varun Sethi & Lavjit Singh
PTC India Limited
Distribution of Power
Prof. (Dr.) Atmanand
40
Professor of Economics and Energy,
Management Development Institute,

Financing Renewable Energy 34 THE QUESTION OF

Dr. Pawan Singh
Director, PTC India Financial Services
Real Demand
Dr. Harish Ahuja
44
President (Strategy & Corporate Affairs)
Moser Baer Projects Private Ltd

All the contents of PTChronicle are only for general information and/or use. Such contents do not constitute advice and should not be relied upon
in making (or refraining from making) any decision. Any specific advice or replies to queries in any part of the journal is/are the personal opinion
of such experts/consultants/persons and are not subscribed to by PTC India. PTChronicle has employed due care and caution in compilation of
data for preparing this journal. The information or data of photographs have been compiled from various sources including newspapers, websites,
etc. PTChronicle does not guarantee the accuracy, adequacy or completeness of any data/information that was furnished by external reports and
is not responsible for any error or omission or for the results obtained from the use of such data/ information.

APRIL 2013 | PTC INDIA LIMITED | 5

Union Budget 2013-14
Key Takeaways for Power Sector

6 | PTCHRONICLE | APRIL 2013


Deepak Amitabh
Chairman & Managing Director, PTC Group
C onsidering the global turmoil, union budget
2013-14 was one of the most anticipated
budgets in the recent years. It was acknowledged
in the budget speech that global growth has
slowed down in 2012 from 2011 and that Indian
economy is not unaffected by what happens
outside. But it was also stated that “growth is a
necessary condition and we must unhesitatingly
embrace growth as the highest goal”. Social
sectors of the economy look at budget with hope
of more sops or waivers for inclusive development
but as rightly pointed out in the budget speech,
“without growth there will be neither development
nor inclusiveness”.
Much has been said about the inter-link of growth
of economy and energy, particularly power and I
will not harp on it again. Today the power sector
is reeling under various problems which are
duly acknowledged at the highest echelons of
government. The budget has tried to address few
of the major ones but has also left some issues
untouched.
Dwindling supply of domestic coal is one of the
biggest concerns in the sector today affecting
thousands of crores of investment. Realizing
this, the budget suggested that one of the ways
forward could be Public Private Partnership (PPP)
policy framework with Coal India Limited being
one of the partners. This could be a major boost
to domestic production as CIL alone perhaps
will not be able to ramp up mining capacity
immediately at pace with the demand. Private
CMD Speaks
UNION BUDGET REVIEW
investors, particularly foreign, can bring in the
much needed financial and technical muscle to
achieve required production targets. However,
more concrete measures are needed to be
announced by the government on this front.
Imported coal requirement is bound to increase
till production enhancement measures are taken
at home. The introduction of 2% customs duty
and doubling of Countervailing Duty (CVD) to 2%
will have some impact on imported coal price
and thus the power generated by this type of fuel.
On top of this, Railway budget also announced
increase in freight rates. Hence, it would be no
surprise if cost to generate electricity sees an The budget
upward trend for the next fiscal. E.g. NTPC has
calculated that increased freight charges will have
should have
an impact on cost of power by 5 paise per unit for provided
its plants i.e. more than INR 1300 crore impact on
incentives
a portfolio of 40000 MW at 75% PLF.
for use of
Finance Minister has also urged the state
governments to prepare the financial restructuring smart-grid
plans quickly, sign the MoU, and take advantage technologies
of the approved scheme for the financial
restructuring of discoms to restore the health of like smart
the power sector. The Scheme contains various metering
measures required to be taken by State DISCOMs
which help in
and state governments for achieving the financial
turnaround of the Discoms by restructuring their reduction of
debt with support through a Transitional Financial AT&C losses.
Mechanism by the Centre. We believe this is
directionally positive for the sector.
The budget also focused on projects stalled for
want of various regulatory approvals. Cabinet
Committee on Investment (CCI) has already been
formed to monitor investment proposals and guide
decision-making in order to remove bottlenecks
and quicken the pace of implementation. It is
commendable to note that the committee has
already taken decisions in respect of few projects
and will take up some more projects shortly.
Extension of sunset clause (section – 80IA) to
power projects by one more year which allows
APRIL 2013 | PTC INDIA LIMITED | 7
 income tax exemption is a welcome move. To
further boost the investment, a company investing
more than Rs. 100 crore in plant and machinery
has been allowed an investment allowance of
15% during the period 1.4.2013 to 31.3.2015 in
addition to the current rates of depreciation.
To promote clean energy, the budget has
reintroduced Generation Based Incentive (GBI)
for wind based projects and provided Rs. 800
crore to Ministry of New and Renewable Energy
for this purpose. To address high cost of non-
conventional power, government will now provide
low interest bearing funds from National Clean
Energy Fund (NCEF) to IREDA to on-lend to viable
Renewable Energy projects. It is also proposed to
support municipalities that will implement waste-
to-energy projects through different instruments
such as Viability Gap Funding (VGF), repayable
To boost grant and low cost capital.
funding into These are all progressive steps for the power
sector but more needs to be done for the
the sector,
investment that is already stuck up in various
Non-Banking plants. Decisions are required in this respect
Financial for mutual benefit of generators and procurers.
If the plants are not running or running at sub-
Institutions optimal PLF, it is the consumers who are ultimate
(NBFCs) may losers as they are not getting the power despite
all necessary infrastructure in place. In light of
be treated at
the experience so far, the process of competitive
par with the bidding in the country needs a review by apex
committee of experts.
banks.
There are also issues related to clarity of some
of the sections of Electricity Act. Section-11, for
example, is being invoked by States to disallow
Open Access (OA) to generators and consumers.
Such aspects affect the growth and opening of
power sector which is envisaged in the Act and
National Electricity Policy (NEP) and other policies
of the government.
To counter the shortage of fuel, some more
measures could have been adopted. Promotion
of Clean Coal Technologies and Underground
Coal Gasification are two such measures which
address fuel constraints as well as are nature
friendly. Inaccessible coal may be explored for
UCG. Heavy reliance on open-cast mines should
also be done away with and underground mines
should be encouraged. These mines will face
8 | PTCHRONICLE | APRIL 2013
lesser regulatory hurdles (environment, forest
clearances etc.). Finance Minister has assured
that “natural gas pricing policy will be reviewed
and uncertainties regarding pricing will be
removed” but the sector requires more clarity and
concrete steps on this.
The budget did not touch upon how to exploit huge
hydro potential of India particularly in the North-
eastern States like Sikkim and Arunachal Pradesh.
A project friendly taxation regime is required to
bring investment in this region. Considering the
requirements of neighboring countries, surplus
power may be exported to our neighbors as well.
This will go a long way in strengthening bilateral
relations and realizing the dream of South-East
Asian Electricity Market.
The budget should have provided incentives for
use of smart-grid technologies like smart metering
which help in reduction of AT&C losses. Use of
such technologies would improve technical and
commercial efficiency of discoms.
To boost funding into the sector, Non-Banking
Financial Institutions (NBFCs) may be treated at
par with the banks. Banks are allowed a certain
deduction under section 36(1) of the Income Tax
Act, in respect of provision for bad and doubtful
debts whereas no such deduction is available
to NBFCs. Also, Income Tax Act provides for
deduction of tax at source from payment of
interest. However, banking companies are exempt
and tax is not required to be deducted from
interest payments made to banking companies.
The budget was silent on this different treatment
to NBFCs and banks.
Overall, for power sector, the budget can be
termed as neutral. Intention has been shown to
address two most important issues – fuel security
(coal and gas) and financial condition of discoms
– but some issues are still waiting bold decisions
by the government.
APRIL 2013 | PTC INDIA LIMITED | 9
 Electricity Pricing
for Industries in India
I t is widely acknowledged that financial condition of State
discoms is one of the biggest issues facing the power
sector today. The accumulated losses of the state discoms
are estimated to be about Rs 1.9 lakh crore as on March
31, 2011 and Rs 2.46 lakh crore as on March 31, 2012. One
of the primary reasons for this is the gap between cost of
power purchased and revenue realized on sale of power
(which is even higher than Re. 1 in some cases). On top
of that, huge Aggregate Technical & Commercial (AT&C)
losses in some States are major contributors to the weak
financials of discoms.
A nightmarish question for any regulator is to arrive at the
right tariff for electricity in politically sensitive environment,
particularly for Industrial consumer, which can foster growth
of the power sector without hurting the off-takers or end
consumers? It is pertinent to mention that prices of coal
10 | PTCHRONICLE | APRIL 2013
Dr. Rajib Kumar Mishra
Executive Director, PTC India Limited
Parvesh Kumar Sharma
PTC India Limited
and gas - key inputs for power generation - are on the rise
in recent years. It is beyond doubt that electricity tariff has
to match the rising cost of inputs. Power Secretary P.Uma
Shankar has rightly pointed out “If the prices of inputs are
increasing, then (price) of output has to match that,”.
Faced with the acute crisis, at least about 20 state discoms
in recent times have announced power tariff hikes. Last
year, several states hiked power tariffs including Tamil
Nadu, which raised the electricity tariffs by 37 per cent
after nine years, Maharashtra by 10 per cent, Rajasthan 18
per cent and Delhi 26 per cent. But if we look closely at
these tariff hikes, the tariff for industrial consumers is hiked
much more steeply and frequently than the tariff of retail
or household consumers. This has resulted into industrial
tariffs being significantly higher than household ones.
Electricity is also a commodity, a unique one
though. Businesses in electricity should also follow
the common commodity market principles one
of which is that bulk purchase is cheaper in per
unit terms than retail purchase. Electricity markets
worldwide follow this principle. E.g. the table below
shows household and industrial tariffs in some of
the European countries. It is evident that household
tariff is higher by 23 to 100% of the industrial tariff
in that country.
India is perhaps, the only country among major
economies of the world where electricity tariff
for bulk purchase is higher than retail purchase.
Proponents of this policy may say that Indian
consumer is not capable of paying higher tariffs.
But what about the cost of electricity generated by
diesel generation sets which costs up to Rs. 18/
kWh sometimes. How are the consumers paying
for that power happily? Let’s look at what statistics
say about paying capacity of Indian consumers.
As per CRISIL report monthly per capita expenditure
(MPCE) has grown at about 10% per annum in the
five years ended FY10, whereas power tariffs grew
by only about 5% per annum. This was even as
per capita income grew by a little over 13% per
annum and consumer price inflation hovered in the
range of 9-10% per annum. These facts suggest
that the power tariff growth has lagged other items
and higher tariff growth is not likely to burden the
retail consumer. This abnormally low growth in
power tariff has caused Indian power tariffs to be
lower than those in other countries — even other
developing countries like Indonesia.
Domestic tariffs are higher than industrial tariffs
in most developed countries not just to follow
commodity market principles but also to be in
line with the fact that it costs more to supply to
households on a per unit basis as they consume a
much lower quantum of power than industrial users.
Conversely, developing countries like Indonesia,
Malaysia and South Africa choose to subsidize
retail consumers by keeping domestic tariffs lower
than those for other categories of power users.
Indian retail tariffs are lower than those prevailing
in developed countries by 8-10 cents/kWh, and
those in developing countries like Indonesia by
2-4 cents/kWh. Tariff, as a percentage of costs,
stands at about 74% in India as compared to 80-
90% in other developing countries and 115-120%
in developed countries. It is this gap that causes If we look
losses to build up in distribution utilities in India closely at
and threaten their financial viability. The artificial
these tariff
suppression of tariffs in spite of rising costs has
triggered a downward spiral of weakening utility hikes, the tariff
finances, and lowering their ability to both spend on for industrial
efficiency improvements or to present themselves
consumers is
as viable buyers of power.
CRISIL report has further pointed out that this leads hiked much
to a falling off of the efficiency improvement trend more steeply
and increasing need to effect costly short-term
purchases to meet their growing requirements, and frequently
which worsens their finances further. Clearly, cost- than the tariff
responsive tariffs alone can break the vicious
of retail or
cycle. And this is definitely not burdensome to the
consumer given that he is paying much more for household
all other household needs and that consumers in consumers.
other parts of India are already paying more.
Indian Industry has a grudge that even while
availing Open Access (OA), they are forced to pay
higher tariff compared to other nations due to high

Tariff in Euro/kWh
Country Household Tariff Higher by (%)
Households Industrial

Ireland 0.214 0.149 44

UK 0.168 0.138 22

Sweden 0.203 0.101 101

Finland 0.155 0.093 67

France 0.141 0.115 23

Germany 0.26 0.17 53

Poland 0.142 0.113 26

Portugal 0.199 0.14 42

Austria 0.198 0.13 52

Belgium 0.233 0.13 79

APRIL 2013 | PTC INDIA LIMITED | 11

 cross subsidy and wheeling charges. National
Electricity Policy lays down that the amount of
cross-subsidy surcharge and the additional
surcharge to be levied from consumers who are
permitted open access should not be so onerous
that it eliminates competition which is intended
to be fostered in generation and supply of power
directly to the consumers through open access.
A consumer who is permitted open access will have
to make payment to the generator, the transmission
licensee whose transmission systems are used,
distribution utility for the wheeling charges
and, in addition, the cross subsidy surcharge.
The computation of cross subsidy surcharge,
Indian Industry therefore, needs to be done in a manner that while
it compensates the distribution licensee, it does
has a grudge
not constrain introduction of competition through
that even open access. A consumer would avail of open
while availing access only if the payment of all the charges leads
to a benefit to him. While the interest of distribution
Open Access licensee needs to be protected it would be essential
(OA), they are that this provision of the Act, which requires the
open access to be introduced in a time-bound
forced to pay manner, is used to bring about competition in the
higher tariff larger interest of consumers.
compared to Accordingly, when open access is allowed the
surcharge for the purpose of sections 38, 39, 40
other nations
due to high
cross subsidy
and wheeling
High Interest
charges. Cost
Higher Expensive Revenue
Short Term
Purchases Gap
Dearth of Long Weak Financial
Term Supplies Profile
12 | PTCHRONICLE | APRIL 2013
and sub-section 2 of section 42 would be computed
as the difference between (i) the tariff applicable to
the relevant category of consumers and (ii) the cost
of the distribution licensee to supply electricity to
the consumers of the applicable class. In case of a
consumer opting for open access, the distribution
licensee could be in a position to discontinue
purchase of power at the margin in the merit order.
Accordingly, the cost of supply to the consumer for
this purpose may be computed as the aggregate
of (a) the weighted average of power purchase
costs (inclusive of fixed and variable charges) of
top 5% power at the margin, excluding liquid fuel
based generation, in the merit order approved by
the SERC adjusted for average loss compensation
of the relevant voltage level and (b) the distribution
charges determined on the principles as laid down
for intra-state transmission charges.
Surcharge formula: S = T – [ C (1+ L / 100) + D ]
Where S is the surcharge, T is the Tariff payable
by the relevant category of consumers; C is
the Weighted average cost of power purchase
of top 5% at the margin excluding liquid fuel
based generation and renewable power, D is
the Wheeling charge and L is the system Losses
for the applicable voltage level, expressed as a
percentage
High
Borrowing
Inadequate
Capex
Lower Tariff Higher Losses
Realization
The NTP has clearly recommended that the cross-
subsidy surcharge should be brought down
progressively and, as far as possible, at a linear
rate to a maximum of 20% of its opening level
by the year 2010-11. However till 2012-13 there
are several states where cross-subsidy is as
high as fifty percent higher of the average power
billing. Industrial consumers do complain that all
inefficiencies are being loaded on them through
cross subsidy. It is high time we understand and
acknowledge the spirit of the Electricity Act and
various Government policies in making a vibrant
power market in the country. Treating all types of
consumers at par and charging tariffs based on
cost of supply to the consumer would be the first
step in this direction.
Indian Industry has a grudge that even while
availing Open Access (OA), they are forced to pay
higher tariff compared to other nations due to high
cross subsidy and wheeling charges. National
Electricity Policy lays down that the amount of
cross-subsidy surcharge and the additional
surcharge to be levied from consumers who are
permitted open access should not be so onerous
that it eliminates competition which is intended
to be fostered in generation and supply of power
directly to the consumers through open access.
A consumer who is permitted open access will have
to make payment to the generator, the transmission
licensee whose transmission systems are used,
distribution utility for the wheeling charges
and, in addition, the cross subsidy surcharge.
The computation of cross subsidy surcharge,
therefore, needs to be done in a manner that while
it compensates the distribution licensee, it does
not constrain introduction of competition through
open access. A consumer would avail of open
access only if the payment of all the charges leads
to a benefit to him. While the interest of distribution
licensee needs to be protected it would be essential
that this provision of the Act, which requires the
open access to be introduced in a time-bound
manner, is used to bring about competition in the
larger interest of consumers.
Accordingly, when open access is allowed the
surcharge for the purpose of sections 38, 39, 40
and sub-section 2 of section 42 would be computed
as the difference between (i) the tariff applicable to
the relevant category of consumers and (ii) the cost
of the distribution licensee to supply electricity to
the consumers of the applicable class. In case of a
consumer opting for open access, the distribution
licensee could be in a position to discontinue
purchase of power at the margin in the merit order.
Accordingly, the cost of supply to the consumer for
this purpose may be computed as the aggregate
of (a) the weighted average of power purchase
costs (inclusive of fixed and variable charges) of
top 5% power at the margin, excluding liquid fuel
based generation, in the merit order approved by
the SERC adjusted for average loss compensation
of the relevant voltage level and (b) the distribution
charges determined on the principles as laid down
for intra-state transmission charges.
Surcharge formula: S = T – [ C (1+ L / 100) + D ]
Where S is the surcharge, T is the Tariff payable
by the relevant category of consumers; C is
the Weighted average cost of power purchase
of top 5% at the margin excluding liquid fuel
based generation and renewable power, D is
the Wheeling charge and L is the system Losses
for the applicable voltage level, expressed as a
percentage
The NTP has clearly recommended that the cross-
subsidy surcharge should be brought down
progressively and, as far as possible, at a linear
rate to a maximum of 20% of its opening level
by the year 2010-11. However till 2012-13 there
are several states where cross-subsidy is as
high as fifty percent higher of the average power
billing. Industrial consumers do complain that all
inefficiencies are being loaded on them through
cross subsidy. It is high time we understand and
acknowledge the spirit of the Electricity Act and
various Government policies in making a vibrant
power market in the country. Treating all types of
consumers at par and charging tariffs based on
cost of supply to the consumer would be the first
step in this direction
APRIL 2013 | PTC INDIA LIMITED | 13
 5 – Rs./Unit

MARKET
4.5
4
3.5
3

WATCH
2.5
2
1.5
1
0.5
5
0 4.5
January'13 February'13 March'13 4.5 4.31 4.29
Max. Price : 4.88 Min. Price : 2.23 Avg. Price : 3.30 4
3.52 3.57
Daily Prices - Indian Energy Exchange (IEX) 3.5 3.26
3.1
2.94
3
5
2.5 2.38
4.5 – Rs./Unit
2
4
December'12 January'13 February'13
3.5
IEX PXIL OTC
3
2.5
2 Weighted Average Prices (December'12-February'13)
1.5
• Price in power exchanges were below the average OTC
1
0.5
prices for all three months of December’12, January’13 and
0
February’13.
January'13 February'13 March'13
Max. Price : 4.73 Min. Price : 2.19 Avg. Price : 2.86 • OTC prices were higher than IEX and PXIL prices due to the
Daily Prices - Power Exchange India Limited (PXIL) premium for certainty in OTC contracts

• Short-term contract volume for December 2012 was

3500 Total Short Term Contract Volume (MUs)
2142.96 MUs, 1883.75 MUs in January 2013 and for 3149.27
3000
the month of February 2013, 3149.27 MUs.
2500 2142.96
• Out of the total volume for the period of December’12- 2000 1883.75

February’13, 64.84% (4653.12 MUs) was contracted 1500

above Rs. 4.00/kWh. 1000
500
• For the analyzed period, 69% contracts in December’12,
0
78% contracts in January’13 and 68% contracts in December'12 January'13 February'13

February’13 were all executed for duration of less than a

week. Total Short Term Contract Volume (December'12-February'13)

• The market has preferred shorter duration contracts of

December'12 January'13 February'13
lesser volumes for the period December’12-February’13 Exchange
Volume
Exchange
Volume

for meeting immediate requirements. 14% 11%

Exchange
Volume

• Over the period from December’12 – February’13, 430 17%

contracts have been executed. PTC has led the market

OTC Volume OTC Volume OTC Volume
by undertaking 292 contracts (54.6% of total market 86% 89% 83%

contracts).

Contributed by Coorporate Development Team

PTC India Limited

14 | PTCHRONICLE | APRIL 2013

 Total Volume Traded in Short Term vs Total Generation (MUs) Unscheduled Interchange contributed in Short Term Market (MUs)
(November'12 - January'13) (November'12 - January'13)

Top 5 Sellers Delhi Karnataka Jindal Power Gujarat DVC

Top 5 Buyers Madhya Pradesh Rajasthan Andhra Pradesh Tamil Nadu Maharashtra

• Lower prices in Power Exchange are attracting more buyers

• Banking transactions have decresead as Utilities are resorting

to exchanges for their immediate requirements

Percentage Contribution of Different Segments in Short Term (MUs)

Market (November'12-January'13)
(Excluding UI)

REC Price Trends 3500

Forearance Price = Rs. 3300 per REC

3000

2500
Weighted Avg. Price = Rs. 2053 per REC
2000

Floor Price = Rs. 1500 per REC

1500

1000

500

M a r k e t O u t l oo k
Oct’11 Jan’12 Apr’12 Jul’12O ct’12 Jan’13 Mar’13
Volume Details of RECs Traded (December'12 - March'13)
Non-Solar Renewable Energy Certificate(s) Price Trend (IEX)
• Solar RECs commenced trading from May 2012 with volumes growing slowly Forearance Price = Rs. 3300 per REC

and trading at prices around forbearance price of Rs. 13000 per REC..
• The supply side has exceeded demand side, causing slowdown in REC market.
Weighted Avg. Price = Rs. 2068 per REC

REC Inventory Summary - March 2013

Source:
CERC Market Monitoring Report ф Change wrt Last
Total No. of RECs
REC Registry India November'12 Inventory
Indian Energy Exchange Opening Balance 1936743 49.02%
Power Exchange India Ltd.
Issued 271240 -31.20%

Redeemed 431054 57.16%

Closing Balance 1776929 196.73%

Non-Solar Renewable Energy Certificate(s) Price Trend (PXIL)

APRIL 2013 | PTC INDIA LIMITED | 15

 Tackling a few urgent issues for
improving power supply
This article has been adapted from agenda notes given by Shri. R.V. Shahi and circulated
by CERC in the Central Advisory Committee Meeting held on 20 March, 2013

Sh. R. V Shahi
Former Secretary, Ministry of Power

Transmission constraints leading to underutilization
of power generation capacity
Experiences of last few months indicate that dispatches
from a number of power stations are invariably restricted
in view of inability of the transmission system to transmit
the required amount of power. Apart from other reasons,
some of the factors which are influencing this include
– (a) comparatively much larger generation capacity
added in last five years, (b) inadequacies in the Extra
High Voltage System including National Grid, (c) severe
inadequacies in the transmission system and sub-
transmission systems at the State level, (d) considering
the recent grid collapse, requirement of higher safety
margin thereby loading the systems in a manner that
restricts the amount of flow.
The problem is likely to become more acute because
of the ongoing power generation projects getting
operational in the next three to four years. In fact, it
would have already become more serious than it is, had
the fuel supply problem not been there and power plants
would have operated with higher capacity utilization.
Development of transmission system, of late, has been
requiring much longer gestations as compared to the
past in view of right of way and forest clearance problems.
There is an urgent need, therefore, to chalk out short,
medium, and long term action plans on following lines.
(a) Strengthening of the existing sub-stations and
transmission lines for which a country wide study
should be carried out.
(b) Response of State Utilities in the Regional Power
Committee needs to shift from a highly conservative
approach to a more positive one in favour of larger
capacities, and new systems on the assumption that
transmission needs to be ahead of power generation
capacity. State Regulators and State Discoms need
to come together on this approach.
(c) State level transmission and sub-transmissions
systems, in most cases, have become totally out of
tune and, therefore, are unable to cope with large
injection of power. Here again, the planning and
implementation has to be much ahead of the power
procurement they are planning. State Regulatory
Commissions have to proactively persuade, and
direct if required, the State Transmission and
Distribution Companies to adopt such a proactive
approach.

16 | PTCHRONICLE | APRIL 2013

(d) CEA, CTU, and POSOCO, in a coordinated way, have
to address not only the jurisdictions they are officially
entrusted with, but also provide the required guidance
to State level Utilities for short, medium, and long term
actions.
(e) It is true that the safe operation of Grid would require
sufficient capacity margin in the system. The recent
disturbance, however, has made all the concerned
agencies over cautious. The approach is not
questionable. But, the ideal redundancies would take
time to be built up. For consumers the choice is to wait,
or be prepared for some eventualities. It is a matter
how we communicate with the people at large on this
issue.
Paradox of massive load shedding in States and
gross under utilization of power generation capacity
We have around 2,15,000 MW of generation capacity.
An analysis of the utilization indicates that invariably
almost 40% of the capacity remain unutilized. At the
same time, we are also faced with a situation, in most
of the States, of massive load sheddings more in rural
areas, but also in large number of cases in urban areas.
If the country does not have the generation capacity, it
takes time to build up in such a highly capital intensive
industry. But, it is unfortunate that in spite of having
invested capital and developed power projects, we
are unable to reach power to consumers. Even more
paradoxical is the situation in many parts of rural India
– in fact, in many of the urban townships also – where
consumers pay for diesel generation at rates between
Rs. 15 to Rs. 20 Per Kwhr. but through distribution
companies which can buy power at much lower rates,
the additional cost is not supported. This is obviously
a regulatory issue and the riddle cannot be solved,
unless unconventional regulatory approach is applied.
The issue is not only one of consumers being made to
pay much higher rates, the issue is also of import of
crude at much higher costs by the Government.
Preparations for the ensuing summar months, when
the problems are likely to be even more acute, need to
be put in place right now. A few suggestions are given
below.
(a) Consumers group need to be made aware that there are
ways to reduce their financial burdens based on diesel
generation, that load sheddings could be substantially
reduced or eliminated, and a package could be worked
out to create a win-win situation.
(b) Consumers could be made aware of the Puna Model,
or different variations of the same Model under which
there could be an increase in the tariff, but the burden
would be much less than they would otherwise be faced
with, if they dependent on diesel based generation.
(c) Once a consensus gets developed in a town or
even within limited number of townships, increase in
generation could be facilitated on the basis of additional
import of coal requiring higher variable cost.
(d) This exercise needs to be scaled up to cover the entire
area of supply by recognizing that additional generation
based on additional quantity of coal/gas can be
brought into the system in a State provided Discoms
are allowed weighted average increase in tariff based
on additional cost of input power.
(e) Even for rural areas, the problem needs to disseminated
in a proper way that additional generation, leading
to better quality of supply, can be made possible by
conveying clearly that they need to pay more than they
are paying to Discoms, but several times less than they
are paying to the diesel generators.
Enforcement of Renewable Purchase Obligation (RPO)
Notifications of Renewable Purchase Obligations, by the
Regulatory Commissions are indeed laudable initiatives. It
is expected that the extent of RPO would progressively be
enhanced. However, an analysis indicates that there are a
lot of gaps in implementation. This has obviously affected
the REC Scheme, which again is a very commendable
initiative of the CERC.
It is observed that in the non solar space almost 20 lakh
REC’s are available for sale, but due to lack of demand
by the buyers who have the RPO obligation the REC’s are
not selling. As a result, the market has been trading at floor
price (Rs. 1500/REC or Rs. 1.5 Per Unit).
It is observed that only nine States have met their RPO
targets. As many as twelve States, mainly in Northern and
Eastern regions no action has been taken.
It is suggested that the issue is deliberated in the Forum
of Regulators to arrive at the course of action to enforce
compliance.
Provision of transmission capacity for day ahead market
Power Trading and Power Exchanges have been playing
important role in development of electricity market. The
initiative of Power Exchange, which is rather new for
Indian power sector – only four years old - has emerged
as a very transparent instrument of price discovery and
has helped, though in a limited way, development of
APRIL 2013 | PTC INDIA LIMITED | 17
 power market. Experience indicates that its contribution
would be enhanced in the overall interest of power market
development, and thus in the interest of consumers, if the
issue of transmission constraint is addressed.
Exchanges have been feeling that they get last priority in
securing transmission access. System operator contends
that obviously those who have booked Open Access
and paid for it should have higher priority. The position of
system operator is not unjustified. The position of Power
Exchanges, which do not wish to reserve transmission
capacity is obviously not fully tenable, though they do
have the practical problem of assessing the extent of
transmission capacity in advance for day ahead market.
Electricity Act and Electricity Policy both have highlighted
the need for Power Exchanges as important tools for power
market. We need to reconcile the differing assessments,
perceptions, and positions of the system operator as well
as the Power Exchanges. Suitable formulation is necessary
that if the objective of about 15% power to be traded
outside PPA is to be realized, Traders would have a role
as also the Power Exchange would contribute towards this
objective. There is considerable weight in the position of
the POSOCO that overriding priority for Power Exchanges,
disregarding the booking done by others on payment of
Open Access charges could be questionable. We need
to work out a formula under which Power Exchanges also
block certain amount of transmission capacity on the basis
of tentative assessment and pay for it, but we allow them
some flexibility considering the nature of challenge which is
associated with making such estimates. They could add
up the cost of such transmission charges in the transaction.
Utilisation of accumulated amount of Congestion
Revenue
The initiative of Power Exchanges has indeed made its
impact felt in the matter of day ahead transactions, and
more so, by way of emerging as a transparent mechanism
of price discovery. The Scheme has led to generation
of Congestion Revenue, which, over the years, has
18 | PTCHRONICLE | APRIL 2013
accumulated to about Rs. 1500 Crores. This issue had been
raised in one of the earlier meetings (about two years ago)
of the Advisory Committee. It is necessary that appropriate
approach is evolved for the utilization of this fund. A few
suggestions which could be examined and discussed are
as follows :
(a) Identification of such transmission constraints in which,
with rather marginal investments, quicker benefits (low
hanging fruits), could be realized. In so doing, the
requirement of an equitable sharing of benefits will
have to be kept in mind.
(b) Power market development initiatives are rather
new for Indian power sector. Their
full success will largely depend on
comprehensive understanding of
the issues by different stakeholders.
Capacity Building, therefore, appears
to be an important requirement for
the success of these initiatives and
schemes. Certain amount of this
fund could be earmarked for capacity
building. Details of modalities and
institutions which could be entrusted
with these tasks may need to be formulated.
(c) Distribution Reform has emerged, as it has always
been, a major challenge. Rationale and dissemination
of need for various reform measures could be another
area where part of the fund could be deployed.
(d) Forum of Regulators need to evolve consensus on
many issues. They have been doing so. But even
after about fifteen years we have a large number of
serious problems in the sector in which Regulators
have a major role, if not the entire role, to resolve them.
Institutional arrangement for capacity building for the
regulatory institutions is another area where part of the
fund could be allocated.
APRIL 2013 | PTC INDIA LIMITED | 19
 Shortage
of power
or imagination?

Jayant Deo
Founder Member MERC and Founder MD CEO of Indian Energy Exchange,
Advisor, PTC India Limited

20 | PTCHRONICLE | APRIL
JANUARY
20132013
F or last two decades, “Power Shortage” is so
ingrained in Indian psyche that India refuses to
think rationally and continues to invest in capacity
addition without pausing for review of its action
and intended results.
The installed generation capacity has increased
to 214 giga watt in February 2013 from 174
giga watt in March 2010. The peak demand met
increased from 110 GW to 116 GW during the
same period of three years. In these three years
the installed capacity has increased by forty
thousand megawatt, but the increase in peak
demand met is only six thousand megawatt.
The graph shows that peak factor i.e. percentage
of installed capacity supporting peak demand
has declined from 64 to 54. Taking Rupees 5
crore as capex per megawatt capacity, India
spent Rupees 2, 00,000 crores to meet additional
demand of 6000 megawatt. This works out to
33 crore per incremental megawatt. Why India
is paying such huge price? This is without
considering investment for DG sets and Inverters
made by individual consumers, which is growing
considering reports of industries producing such
equipments.
It points to un-dispatched power partly due to gas
and coal shortage which in turn is caused by non-
remunerative tariffs and further points to absence
of competitive power markets. People are forced
to use DG set power at Rs.15 per kilowatt-
hour while gas and coal based thermal plants
which can supply at less than half this price with
expensive imported fuels, remain idle in absence
of freedom to buyers granted by Electricity Act
2003 of choosing supplier.
There is obviously something more than it meets
the eye. But CEA or any other authority is not
bringing out the explanation to justify such state
of affairs, which has cascading effect on the
Due to below cost recovery prices there is “bottled up” Capacity
cost to consumers, financial health of generating
companies and Distribution companies and to
investment climate as a whole.
Decreasing peak-factor with increasing generation
capacity-yet shortage continues.
Last week Dr. Hunt Allcot, who is applied
macroeconomist and Assistant Professor of
Economics, New York University, https://files.
nyu.edu/ha32/public/index.html discussed with
me on his project of effects of power cuts on
manufacturing firms in India. He had attached
graphs of power shortages (requirement-
availibility, percent) by state, as reported by CEA.
He was asking me as to make a sense of the
graphs if any.
During one and half hours our telephonic
discussion I found how painstakingly he is
analyzing data for 10,000 firms for a period of
18 years -1992 to 2010,obtained from Indian
Government and was discussing with experts
before finalizing statistical findings of his
exercise. In this connection he wanted more People are
names of experts from India, who could help in
getting more background information so as to forced to use
make economic sense of his analysis. I gave him DG set power
background information and told him about how
SMEs are worst hit compared to large firms that at Rs.15 per
too in different States. I also talked about declining
peak factor for 2010 to 2013. I requested him to kilowatt-hour
work out peak factor for 1992 to 2010 period from while gas and
CEA data.
Whenever I interacted with some economists in coal based
India from good academic Institutions I find that
thermal plants
power sector apparently does not attract them.
Some private sector econometric firms in India remain idle
with scholars from London School of Economics
and Delhi School of Economics with matured
and serious top level are interacting with me for
venturing into this sector.
It seems that lack of understanding
of macro-economics of dynamically
changing power sector, namely peaking
power, market based pricing of fuels
and non-responsive tariffs, lack of
market development and competition
are possible factors responsible for
sorry state of affairs. There is a need
for developing a think tank for following
macro-economic developments of the
sector and guiding decision makers with
integrated view. I am prepared to shoulder
any responsibility towards this cause.
For financial wellbeing of the country
power shortage needs to be removed
using holistic understanding and
imagination.
APRIL 2013 | PTC INDIA LIMITED | 21
The Power
Bites
Centre starts coal block allocation
under new policy
The government recently announced it had initiated a
process of coal block allocation under a new policy, nine
months after alleged irregularities in allocation created
a nationwide stir. The coal ministry has put 17 acreages
of the commodity, with combined geological reserves of
8.5 billion tonnes (bt), on the block. In the first round of
the bidding — under the Auction by Competitive Bidding
of Coal Mines Rules notified in February — 17 blocks will
be allocated to government companies. This includes 14
blocks with reserves of 8.2 bt for companies setting up
end-use plants in the power and steel sectors and three
blocks earmarked for allocation to mining companies.
The companies have been asked to apply by January 30.
Business Standard, 01 January, 2013
CCEA gives in principle nod to coal
price pooling
The Cabinet Committee on Economic Affairs approved in-
principle the averaging of prices of domestic and imported
coal to get a uniform feedstock price in the country, but
asked coal and power ministries to come back with
specifics of the proposal.
Indian Express, 06 February, 2013
The Power
22 | PTCHRONICLE | APRIL 2013
Coal min forms panel to devise
policy on PPP frame work
The government has constituted a panel to formulate a
policy on public-private partnership (PPP) framework with
Coal India Ltd (CIL) as one of the partners to increase coal
output.
The development comes close on the heels of finance
minister P. Chidambaram stating in his budget speech that
there was a need to devise such a policy to reduce the
country’s increasing dependence on imported coal.
Business Standard, 20 March, 2013
Coal India Railways join hands to
step up coal supply
Two of India's state-run enterprises- Coal India and
Raliways have pooled their strength to promise 55% rise
in output. Cash-rich Coal India will fund Rs 7,500 crore
investment that would allow resource-hit railways to set
up new rail lines to connect unexploited coal mines in
Chhattisgarh, Jharkhand and Odisha.
Economic Times, 02 February, 2013
Bites

Govt slaps 35% duty on Chinese
electrical gear
The government has imposed 35% safeguard duty on
electrical insulators imported from China, a move that
would help domestic players battle cheap shipments.The
safeguard duty on certain insulators would be for a period
of two years — 35% for the first year and 25% for the
subsequent year, according to the revenue department.
The move follows recommendations on the imposition
of the duty by the Directorate General of Safeguards
(Customs & Central Excise) in the wake of complaints
from domestic players against cheap Chinese imports
Financial Express, 02 January, 2013
Govt propose separate power supply
lines for farm consumers
The government proposes to lay separate power
distribution lines for agricultural consumers, an expensive
move that technocrats say is aimed at securing political
mileage ahead of the 2014 general elections. Only
Gujarat, where a new government was formed recently,
has separated electricity distribution lines for agricultural
and rural consumers.
Economic Times, 01, January, 2013
Single point power supply for
Haryana housing societies soon
The Haryana Power Department is set to usher in a new
power distribution regime for group housing societies,
residential colonies of employers and commercial-cum-
residential complexes of developers. They will now be
provided single-point bulk power supply by the electricity
department.
Now, group housing societies and employers’ complexes
would install a single electricity meter for power distribution
and individual consumers would have sub-meters. Group
housing societies and residential complexes would
install, operate and maintain all infrastructure required for
distribution of electricity within the premises.
Tribune, 29 January, 2013
Smart grid sector gets $434 m
venture capital funding
Subsequent to last year’s northern grid collapse, smart
grid in India has become a focal point for discussions in
the power sector.The recently released Mercom Capital
Group’s report on funding and mergers & acquisition
activity for the smart grid sector during 2012 reveals that
there was only one Indian transaction – the $183 million
acquisition of smart grid and automation solutions provider
ZIV Group by electrical transmission and distribution
equipment company Crompton Greaves. Mercom's report
shows that after a slow start, venture capital funding in
the smart grid sector globally came in at $434 million in
40 deals compared with $377 million in 50 deals in 2011.
Business Line Feb 4.
APRIL 2013 | PTC INDIA LIMITED | 23
The Power
Bites
First solar plant under national
mission Batch-II innaugurated
PR Fonroche today formally inaugurated its 5 MW solar
plant at Gajner near Bikaner (Rajasthan), which is a
part of a 20 MW project that the company won through
a competitive bidding process of the National Solar
Mission, Phase I Batch II. This is the first (of the 340 MW)
of the projects that are being put up under the Mission’s
Phase I Batch II. The solar power plant, which uses thin
film modules of the US company First Solar, expects to
produce 38 million units of electricity a year, or 1.9 million
units per MW of capacity. PR Fonroche won the project
bidding a tariff of Rs 9.1 per kWhr.
Business Line, 10 January, 2013

Diesel price hikes make solar power

attractive
Rising petroleum prices are expected to benefit renewable
energy solution providers as commercial establishments
that use diesel generator sets for their captive requirements
may find solar power attractive.
The city gas distribution (CGD) players too expect
commercial establishments to switch from diesel to piped
natural gas in the areas where power supply is unreliable.
Economic Times, 23 January, 2013

USTR drags India to WTO over CERC extends validity of RECs by

restrictions on US solar exports
The US has dragged India to World Trade Organisation
(WTO) challenging New Delhi''s restrictions on US solar
exports, in particular those provisions concerning domestic
content requirements in India''s national solar programme.
The US Trade Representative (USTR) in a statement
alleged that India''s programme appears to discriminate
against US solar equipment by requiring solar energy
producers to use Indian-manufactured solar cells and
modules and by offering subsidies to those developers for
using domestic equipment, instead of imports.
These forced localisation requirements of India''s national
solar programme restrict India''s market to US imports,
USTR said, adding that tackling these barriers is a top
priority of the Obama Administration.
MSN, 7 February, 2013
one year
In the trading session of December, 19 lakh RECs were
available, of which less than 3 lakh were traded. The
Central Electricity Regulatory Commission recently took
note of the “reluctance and/or apathy” on the part of the
electricity distribution companies to buy the RECs to meet
their renewable purchase obligations. The RECs have
a shelf life of 365 days from the date of issue and any
certificate not sold expires on the 366{+t}{+h} day.
Against this, the CERC has floated an idea of extending
the validity of RECs beyond one year and has put it up
for comments. This, the Commission believes, will give
the renewable power generators “sufficient time and
opportunity to trade the RECs at the power exchanges.”
Business Line, 20th Feb

24 | PTCHRONICLE | APRIL 2013

Green energy to get special lending
window at PSBs
The government is set to ask banks to carve out a special
window for lending to renewable energy projects.
While lending to the power sector has consistently
increased, there is preference to finance conventional
projects, resulting in a meager loan flow for the renewable
energy sector, sources privy to the discussions said.
According to latest data, bank loans to the power sector
added up to over Rs 4 lakh crore at the end of January
2013.
Banks have been reluctant to lend to renewable energy
projects given the higher risks involved and viability
concerns. Aggressive bidding under the Solar Mission
and lack of evacuation facilities in many states make
lending to the sector unviable. As a result, the government
is suggesting that lenders carve out a separate sectoral
exposure limit, which may be separate from the one on
power, or can be part of the exposure cap for the electricity
sector as a whole.
March 18 Times of India

APRIL 2013 | PTC INDIA LIMITED | 25

The Power
Bites
Power regulator expected to take a
call soon on increase in contracted
tariffs
India's power regulator is expected to take a call soon on
the demand for increase in contracted tariffs for plants with
a combined capacity of 15,000 mw, a development that is
likely to set the agenda for the other ailing companies in
the sector. The Central Electricity Regulatory Commission
(CERC) is expected to pass an order on the appeals of Tata
Power and Adani group soon, and start hearing next week
petitions by Reliance Power. While these producers are
seeking tariffs higher than the contracted Rs 1.20-2.96 per
unit, Essar and Shapoorji Pallonjigroups have threatened
to terminate their power supply pacts with Gujarat. State
utilities, on the other hand, are demanding enforcement
of contracts for cheap supplies over the next 25 years.
Economic Times, March 7, 2013
First geothermal power plant to come
up in Chhattisgarh
Chhattisgarh government has decided to establish the
first Geothermal Power Plant of the country in the newly
formed Balrampur district of the state. A memorandum
of understanding in this connection was signed here
yesterday between National Thermal Power Corporation
(NTPC) and Chhattisgarh Renewable Energy Development
Agency (CREDA). Geothermal generation refers to
harnessing of the geothermal energy or the vast reservoir
of heat stored in the earth’s inner core. NTPC has already
started exploratory and preparatory work in this area. It
has also started talks with ONGC and other international
organisations for drilling operation. t expects to start the
project activities within the next 24 months after finalisation
of Detailed Project Report (DPR)
Hindu Business Line, February 17, 2013

First geothermal power

plant to come up in
Chhattisgarh
Chhattisgarh government has decided
to establish the first Geothermal Power
Plant of the country in the newly formed
Balrampur district of the state. A
memorandum of understanding in this
connection was signed here yesterday
between National Thermal Power
Corporation (NTPC) and Chhattisgarh
Renewable Energy Development
Agency (CREDA). Geothermal
generation refers to harnessing of the
geothermal energy or the vast reservoir
of heat stored in the earth’s inner core.
NTPC has already started exploratory
and preparatory work in this area. It has
also started talks with ONGC and other
international organisations for drilling
operation. t expects to start the project
activities within the next 24 months after
finalisation of Detailed Project Report
(DPR)

Hindu Business Line, February 17, 2013

26 | PTCHRONICLE | APRIL 2013

CERC orders compensatory tariff for Adani Power
The Central Electricity Regulatory Commission (CERC) order on Wednesday granting ‘compensation package’ to Adani
Power for its Mundra power project has come as a whiff of fresh air for the ailing power sector and could act as a trend
setter for bringing out of the woods major power projects, including Tata Power’s Mundra ultra mega power project
(UMPP). In its order on a petition filed by Adani Power for its 1,980 MW power project last year, the power sector
regulator said: “In the present case, the escalation in price of imported coal on account of Indonesian regulation and
non-availability of adequate fuel linkage from state-run Coal India limited (CIL) for the project of the petitioner (Adani
Power) is a temporary phenomenon, and is likely to be stabilised after some time. Therefore, the petitioner needs to be
compensated for the intervening period with a compensation package over and above the tariffdiscovered through the
competitive bidding. The compensation package will be called compensatory tariff, and it could be variable in nature in
proportion with the hardship that the company is suffering on account of the unforeseen events,” it said.
The Hindu, April 4, 2013

Deadline for finalising SEB debt recast norms may be extended

The government is likely to extend the deadline for finalising guidelines for the R1.9-lakh-crore debt recast plan for the
ailing power distribution companies (discoms) to June 30. Although eight states, including Uttar Pradesh, Rajasthan,
Haryana, Punjab and Tamil Nadu, have expressed interest in tapping the R1.9-lakh-crore debt-restructuring lifeline
thrown by the Centre to the state electricity boards (SEBs), only Rajasthan has submitted its proposal so far. Moreover,
the state governments are required to take over half of their SEBs’ debts, which is not easy, given that they also have to
comply with their fiscal discipline targets.

Financial Express, April 4, 2013

APRIL 2013 | PTC INDIA LIMITED | 27

 RUN FOR THE CAUSE-
alternate RECs Market
Is bilateral trade of RECs the answer
to market slowdown?

28 | PTCHRONICLE | APRIL 2013

A quest for energy security, or an important role in
curbing global warming? An alarming reliance on
traditional sources of energy, or encouraging investments
in development and consumption of renewable energy?
Fluctuating oil prices, or lasting ignorance of renewable
potential in India? The primary reason for a risen focus on
developing renewable energy based market cannot be
accrued to a single line of thought but a ridge of factors.
India has the potential to sustain the most comprehensive
renewable energy market, and India has drawn policy
support mechanisms enabling achievement of economies
of scale and effective progress in the same.
There was a need for a legislation, for a stringent policy,
that had to be supported by a focused initiative, by a
sound framework that drives investments and parity in the
renewable energy market. There was a need to encourage
cost reduction in development of renewable projects.
There was a need to promote incentives to drive capital
investments. There remained an imperative to synchronize
State level policies and national objectives in order to
achieve national unison in developing a green market. A
bridge of knowledge was required to facilitate exchange
of technology and resources for strengthening of the
renewable business environment in the country.
The major legislation, the Electricity Act 2003 (EA), has
envisaged the development of a renewable energy
market in India and entailed a framework for license
free generation of electricity. The Act also rested the
responsibility of promotion of renewable energy with the
State Electricity Regulatory Commissions (SERCs), as the
generation of renewable energy is fairly decentralized in
both nature and form. According to the Electricity Act 2003,
it is the mandate of the SERCs to ensure that the electricity
mix in their respective states has a fixed percentage
of renewable energy, a mechanism now known as the
Renewable Purchase Obligation (RPO) introduced in the
National Tariff Policy 2005. However, the RPO mechanism
concentrated only on intra-state usage, and thus a State
absent of renewable energy potential did not have either
incentive for usage nor any mechanism existed allowing
inter-state sale of renewable energy. Thus, it was felt that
there is a need for an incentive mechanism, that results in
commercial benefits for RE generators and fulfillment of
RPOs by States deficient in renewable energy potential ,
thereby facilitating interstate RE transactions.
The National Action Plan for Climate Change (NAPCC)
announced by the Prime Minister of India in 2008
advocated the greater use of renewable energy. It aims
to produce 15% of the country’s electricity with renewable
energy sources by 2020. Through the Jawaharlal Nehru
National Solar Mission (JNNSM), promoted by NAPCC,
the Indian government aims to develop 20,000 MW of solar
REC Market
energy by 2022. Such targets could be met in effectively,
only through the presence of an incentive mechanism,
and in our case it is supposed to be the market-based
Renewable Energy Certificate (REC) mechanism.
The REC mechanism was introduced for effective
implementation of RPO obligations across all States by
overcoming the geographical impediments. The underlying
objective of this mechanism also included the promotion
of competition among competing RE technologies, and
reducing the costs for RE transactions. The outlook of
RE mechanism divides the RE power generated into
two distinct marketable entities – electricity that could
be sold to the distributor or any other consumer, and the
environmental benefit (or a green attribute) in the form of
REC, a tradable certificate.
The REC Mechanism
In order to spur investments in renewable energy
development and improve the efficiency of reaching
national targets, government introduced the Renewable
Energy Certificates in March 2011. The RE mechanism is
aimed at addressing the mismatch between availability of
RE resources in state and the requirement of the obligated
entities to meet the renewable purchase obligation (RPO).
Cost of electricity generation from renewable energy
sources is classified as cost of electricity generation
equivalent to conventional energy sources and the cost for
environmental attributes.
RE generators can either sell the renewable energy
generated at preferential tariff or sell electricity
generated and environmental attributes separately. The
environmental attributes is basically gained in the form of
an REC (Renewable Energy Certificate) and is issued to an
RE generator for injecting 1 MWh of electricity in the grid
from RE sources. At present, there are two categories of
RECs – Solar RECs (electricity generated based on solar
energy) and Non-Solar RECs (electricity generated based
on renewable energy other than solar). These RECs can
be exchanged only in the Central Electricity Regulatory
Commission (CERC) approved power exchanges – Indian
Energy Exchange and Power Exchange India Limited.
Any obligated entity can meet their RPOs by purchasing
RECs at power exchanges. Purchase of REC is deemed
as purchase of renewable energy for RPO compliance.
Facing the Challenges
The REC mechanism has been considered as a solution
to drive investment in renewable energy generation by
all stakeholders across the power sector. However, the
actual performance of the REC market has been far from a
realized potential and is threatening to weaken in the near
APRIL 2013 | PTC INDIA LIMITED | 29
 Does the
remaining
unsold 33% of
RECs indicate
a weakened
demand? No.
Renewable energy is sold to obligated entities through the grid, as established by the connection. The accounting
It is the lack of the RE produced by the generators is carried out by the SLDCs, the information of which is forwarded to the
national registry. If the generator chooses to sell their RE electricity through the REC route, the generator makes
of channels an application to the national registry, following which RECs are issued to the generator. Obligated entities failing
to meet their RPOs, could buy RECs over the power exchange for meeting the renewable purchase deficit in their
through which supply mix, which are redeemable at the national registry itself. The monitoring committee of each State receives a
compliance report, following which a quarterly report is submitted to respective SERC.
the demand
supply gap can
short future if drastic changes are not amended in On careful scanning of above data, one important
be narrowed. the REC trading market. issue comes out quite clearly that the percentage
The REC market is at the crossroad of uncertainty. of RECs redeemed has decreased by 85% from
There is a dying participation of renewable energy January 2012 to December 2012. Also, the market
generators, and not many are willing to accredit clearing price has decreased from Rs. 3051 per
their projects, but seek for conventional long term REC in January 2012 to minimum Rs. 1500 per
contracts. There exists a poor compliance by REC September 2012 onwards till present.
obligated entities (many reeling under the shade The REC mechanism, as a matter of fact, has
of ineffective penalty management by regulators) been able to bring renewable energy projects in
and continue to not fulfill their RPOs. Adding spice the market, and since the day of inception of this
to the issue are the State Electricity Boards bereft mechanism, 53,82,441 RECs have been issued
of financial prowess. The liquidity crisis of discoms till present. Yet, only 36,05,512 RECs have been
raises questions about their ability to meet RPO redeemed in the market – 67% of total inventory.
targets and participate in REC markets. Does the remaining unsold 33% of RECs indicate
Despite the good beginning shown by Power a weakened demand? No. It is the lack of channels
Exchanges – at present the only exclusive medium through which the demand supply gap can be
for REC trade - the momentum has been lost and narrowed. There is a dire need to strengthen the
majority of non-solar RECs issued are not being implementation of this mechanism and broader
traded even at floor prices. The following analysis market transactions for RECs to propel the
shows the trend of REC trading in the year 2012: demand.

30 | PTCHRONICLE | APRIL 2013

 Month, Opening REC REC REC Percentage of
Year Balance Issued Sold Unsold RECs Sold
Jan, 2012 109091 102348 171524 39915 81.12%
Feb, 2012 39915 200736 206188 34463 85.68%
Mar, 2012 34463 203819 199737 38545 83.82%
Apr, 2012 38545 122369 71226 89688 44.26%
May, 2012 89688 230697 168685 151700 52.65%
June, 2012 151700 259125 236827 173998 57.65%
Jul, 2012 173998 382712 158399 398311 28.45%
Aug, 2012 398311 474784 274272 598823 31.41%
Sep, 2012 598823 569567 265606 902784 22.73%
Oct, 2012 902784 621358 224491 1299651 14.73%
Nov, 2012 1299651 394088 133571 1560168 7.89%
Dec, 2012 1560168 383383 274852 1668699 14.14%
Jan, 2013 1663231 307544 195645 1775130 9.92%
Feb, 2013 1775130 316799 155186 1936743 7.41%
Mar, 2013 1936743 271240 431054 1776929 19.52%

A major objective for implementing REC mechanism
was to drive capital investments in RE business. Capital
investments can only pour in if an attractive price signal
is established for long term investments. But now with a
stronger supply side, and a blurred demand, the price
signals are hovering at floor prices (Rs. 1500 per REC)
since the September of 2012. And the future price signals
do not that look bright either.
The price signals need to improve, possible by an adjusted
demand, which is further possible by changes in the market
design. A market needs to be built for price signals to react
on its own. A market needs to be designed extending the
transactions of RECs beyond the limit of power exchanges.
A market needs to be implemented where bilateral trade
of RECs could be allowed. By encouraging participation
through bilateral trades, the REC market would perform to
its better potential than today.
And why not? The upcoming projects are facing challenges
in obtaining financial closure. A bilateral contract either
with a trader or an obligated entity, guarantees the sale
of RECs, promises the cash flow, increasing investment
confidence.
Presently, trading in RECs is only restricted to CERC
approved organized power exchange trading platforms.
This does not allow RE generators to securitize their
RECs in favor of lenders, which is a must if capital is to be
raised for newer projects. Also, in case an obligated entity
makes an excess purchase of RECs, the entity is presently
bounded and not allowed to transfer the ownership rights
to other entities. An effective enforcement of RPOs and
implementation of REC mechanism may prove futile if the
RE generator cannot securitize the revenues generated
through sale of RECs or the obligated entity cannot
associate with a RE generator for complying to fulfillment
of RPO in the long term. Something, which could only
be solved in the Indian context by introducing bilateral
arrangements.
Also, as RECs are to be traded exclusively only on Power
Exchanges, there is a lack in promotion of REC trade due
to absence of market competition. Taking the REC trade to
the Over-The-Counter (OTC) market platform will not only
result in enhancing the sale of RECs, but also foster the
dampening growth in renewable energy generation.
A prominent role is played by the regulators in the

APRIL 2013 | PTC INDIA LIMITED | 31

 implementation of this mechanism. Their role inadvertently
lies beyond rule making and transaction charge fixation,
and is responsible for training and capacity building of
the State level agencies and other facilitative mechanisms
for the implementation and monitoring of the detailed
procedures issued by the Central Agency.
The CERC has presently declared the price range, floor
prices and ceiling prices of Solar and Non-Solar RECs for
a period of five years, 2012-17.
Price (in Rs.)/REC Non Solar REC Solar REC
Floor Price 1500 9300
Ceiling Price 3400 13400
Though the regulators have attempted to address a
critical element of market design – pricing, by declaration
of the price range, it is however felt that there prevails an
uncertainty in how long these prices have to be set in terms
32 | PTCHRONICLE | APRIL 2013
of providing long term investor guidance, since setting long
term floor prices is a difficult exercise for policymakers to
perform, given lack of long term credible information on
the cost of technologies.
Another important challenge faced by the project
developers is that RECs are not able to prove itself as
a practical financial instrument that could be based for
equity or debt financing. This is mainly due to the long
term uncertainty associated with renewable projects to
be developed under the REC mechanism. The horizon of
uncertainty is linked to the established price signals in the
market, which is not market driven, but declared by the
policymakers based on mathematical assumptions.
The Way Forward
Recently, the market witnesses a welcomed initiative -
extending the validity of an REC from one year (365 days)
to two years (730 days). The decision came in place as
a desperate measure to protect the generators troubled
with an inventory of unsold RECs
valid only for one year, as they have
to rely on RECs for a significant
portion of their cash flows.
However, it is a high time to
formulate policies for a long term
solution and realize the need for
a secondary market or a tertiary
avenue for trading of RECs in
addition to the predominant
market linked to power exchanges.
Bilateral trading of RECs, and
maybe development of instruments
such as forward and futures, has
the potential to enhance the market
and price signals of RECs, lending
strength to REC as a financial
instrument for availing equity and
debt funds.
There could be much learned from
other regions, where secondary
markets for RECs have existed
successfully. In the United States,
RECs can be sold, traded or
bartered, and the owner of the
REC can claim to have purchased
renewable energy. An OTC market
has been established to provide
institutional investors with efficient,
high quality access to the growing
Renewable Energy Certificate
(REC) market. Many countries in
Europe allow trading of Green Certificates between signals, instilling confidence in investors. Bilateral
suppliers and producers over bilateral platform trade of RECs should be the run for the cause,
through traders, and suppliers have a monthly and efforts need to be made in implementing the
obligation to surrender certificates (virtually) to same before further slowdown of the REC market.
the regulators – as an example the RES Electricity Creating secondary markets by allowing OTC
Support Policy in Belgium advocates such policy. platform for REC trading would provide future
In some countries, it is also possible to bank RECs price certainty and reduce long term price risks
for one year – as an example, RECs issued in perceived with RECs. Introducing bilateral trades
2012/13 may be used for compliance in 2012/13 in REC trading would also make RECs bankable
or 2013/14, and such banked RECs could only be by creating stable markets, and limit the volatility
used to meet a maximum of 25% of obligations. of REC prices. One should also remember, that
And not just the REC mechanism, the Clean wheeling the motion for driving investments in
Development Mechanism (CDM) - a mechanism renewable energy is just not about economic
stimulating sustainable environment development prudence, but also an imperative for conservation
and emissions reductions, allows emission- of the environment and reduce our strong reliance
reduction projects in developing countries to earn on conventional fossil fuels.
certified emission reduction (CER) credits (each
equivalent to 1 tonne CO2). These CERs were
initially traded over energy exchanges, but forced
by the taut market dynamics, CERs began trading Varun Sethi & Lavjit Singh
over OTC platforms. Such secondary markets have PTC India Limited
flourished in Europe under the European Union’s
Emissions Trading Scheme (EU ETS), in US under
the Regional Greenhouse Gas Initiative (RGGI), in
Australia and New Zealand under AETS and NZ
ETS respectively. Though both REC and CDM
mechanisms vouch for the betterment of global
environment, they run parallel in the economic
sense. As an example, a renewable generator
developing project under the REC mechanism
cannot avail CDM benefits, and vice versa. And
even though the OTC markets have established
later to trading exchanges, OTC volumes in CERs
and RECs are continuously outweighing the
exchange volumes in these countries.
The learning from other regions could be
well implemented in India, by molding and
envisaging a rigid system supported by
legal and implementing procedures. Strict
enforcement of RPOs, the most voiced
concern in support of the market, needs
to be achieved. Incentivize States, issue in
economic interest, debate at highest judiciaries,
but enforcement should happen, a prime factor
for strengthening of the REC market.
Reasons need to be drawn and bulleted in bold
for considering REC as a financial instrument. The
perceived brevity of this mechanism should come
to an end and a longer commitment from States
and Centre should fall in place. The market should
move towards establishing longer term price

APRIL 2013 | PTC INDIA LIMITED | 33

 Financing Renewable
Energy

O ne of the biggest challenges

Dr. Pawan Singh
Director - Finance
PTC India Financial Services
for India is to meet the growing
energy requirement. On one side this
has to be met out of large thermal
power plants & large hydro plants
and on the other side from renewable
energy which includes Biomass,
small hydro power, wind and solar
projects. Few years back renewable
used to occupy only 2% of total India’s
energy generation capacity but today
renewable energy contribution to total
installed generation capacity of about
12%.
In the 12th Five year plan renewable
energy has to occupy a larger space
in total energy produced. The total
resource requirement under 12th plan
for the renewable sector is envisaged
at Rs. 1,35,000 Crore. The break up
would be biomass Rs. 10,500 Crore,
Small Hydro Rs 8000 Crore , Wind Rs
67,200 Crore and Solar Power project
Rs. 49,400 Crore. In addition there
huge opportunity of funding green
transmission corridors.
Renewable energy is capital intensive
and each segment of renewable
energy has its own challenges and
problems. Since technology in many
of these projects is fast evolving there
is considerable perceived risk in the
renewable projects.
At present there could be several
options of renewable energy financing
available in the country that is financing
through banks, specialized institutions
like IREDA, Infrastructure Finance
Company’s like PTC India Financial
Services (PFS), IDFC and L&T Infra
all providing medium to long term
financing to these projects. Apart from
the above ECB lines are available.
Many of the multi lateral institutions like

34 | PTCHRONICLE | APRIL 2013

DEG, IFC, Proparco, JBIC, ADB have also shown
their considerable interest in financing green
power in India.
One major challenge in financing in renewable
is the funding of asset liability. The renewable
power projects have shorter gestation period and
therefore can lead to quick disbursement of funds
and help financing agencies to improved asset to
disbursement ratio but they have long payback
period similar to that of conventional power plants.
Normally they don’t have big ticket investment,
vis-à-vis large power producers & they don’t have
advantage of scale which is normally available to
conventional power projects.
In case of Solar which has only a single part tariff
the cost per MW of power which is generally
much higher that of conventional power plants.
As a consequence the high cost of the plant and
low CUF factors there is a high tariff. In solar
power projects, most of the cost is on account
of financial cost and the success and viability of
solar projects in India would entirely depend upon
reducing the financing cost of the solar projects
and increasing the financing period so that there
is staggered cash flow. At present the financing
is generally available for 8-10 years which leads
to higher cash out flows and consequently to
higher tariff. Moreover because of high cost of
solar power and other renewable sources, many
states are shying to meet the renewable power
purchaser’s obligations. If a longer tenor loans
are available the tariffs can be reduced, perhaps
that could Interest state discoms and other power
purchasers to meet the Renewable Purchase
Obligations (RPS).
As far as the Indian Banks are concerned they
have exposure limit only for power sector and
there is no separate exposure limit for renewable
energy sector. Recently there has been some
proposal to some limit for renewable in overall
banks limit but this change would not keep much
banks which have already reached the exposure
limits; for power sector this sub-limit may not
serve that kind of purpose. Also lending to
renewable sector is not covered as part of priority
sector lending which needs to be revised. It
would be desirable to bring that renewable sector
under priority sector ambit. There could not be
any discipline on renewable not having priority
sector as sustainability having importance part of
economic development.
There is a huge amount of External Commercial
Borrowing (ECB) resource which is available.
International dedicated funds are there to
finance the Green energy which needs to be
brought to India. Many of these Funds are not
able to take exposure in India because of their
worry of non payment of revenue by power
purchasers on account of poor financial health
of Indian distribution companies. They have huge
concerns on escrowability & large outstanding
position of the receivables and discoms. ECB are
cheap funds and come with much longer tenor
and therefore there is need to attract this capital
in India through appropriate policy and regulatory
framework.
Power trading companies like NVVN, PTC can
play a nodal agency taking the payment risk
mechanism of the Discoms and bundling the
conventional power with the renewable power.
Perhaps the same payment security mechanism
can be provided to these companies which are
normally available to central companies like
NTPC, NHPC, and PGCIL which supply power,
transmission corridor to state power discoms.
Till the lenders gain confidence, payment default
could be diverted from plan funds of States.

S.No. Renewable Energy Technology Installed Capacity* Potential (MW)

1 Biomass power 1,242.6 8,000

2 Wind power 18,321.1 +100,000**

3 Small hydropower(up to 25 MW) 3,464.6 15,000

4 Cogeneration bagasse 2,199 5,000

5 Waste to energy 93.7 2,700

6 Solar power 1,047.2 Abundant

Source: MNRE *AS on 30 November 2012

**CWET had intially estimated 48 GW; recently with new Class-II machines the potential is increased to 100 GW; recent study by Lawrence Berkeley National Laboratory
(LBNL - USDoE) reassessed wind potential in India at 3,000 GW.

APRIL 2013 | PTC INDIA LIMITED | 35

 Solar Utility PV vs Landed Cost of Power (LCP) at Grid - (33 KV Voltage level)
Solar Utility Power - Band
The success of renewable energy in India depends
on the tariff being viable and attractive In India. In
wind energy some of the states have done very
well in Maharashtra solar energy in Gujarat. As
both states follow a clear policy on renewables.
It may be seen from allow that the Renewable
space in India offers huge investment
opportunities. With regard to solar it may be
seen figure – 2 that the gap between landed
cost of power and solar utility P.V. has narrowed
considerably. If the sector manages to get long
term cheap funds, the solar power can be sold
at grid parity. It may also be worth mentioning
that India has abundant potential for solar power.
The financing cost impacts renewable in way
that is no way impacts any other sources of
conventional energy, including biomass. There is
need to allow many of the funds such as PF’s trust
insurance companies and pension funds to invest
in renewable space. These funds’s have longer
maturity and therefore can match the debt service
profile of the renewable assets. There is also a
need for setting up direct funds for exclusively for
renewable investments, separate incentives need
to be provided for the same.
To start with, we may allow these funds to
mandatorily invest 2-3% of their in incremental
investment in renewable space. It would lead to
a surge of growth in renewable sector. This would
not only help in meeting the funding requirement
of the sector but also in getting grid parity tariff for
the sector.
The REC is good for the development of solar
markets and provides good financing options.
However, there is no certainty on REC’s after
2017. With solar prices falling below the REC
36 | PTCHRONICLE | APRIL 2013
LCD- Grid (at Ex-bus ) -Band
prices, lack of enforceability and there are of its
doubts continuation beyond 2017. This makes
many lenders reluctant to take REC for calculation
of debt service coverage ratio (DSCR) and
calculations of I.R.R. of projects. Success and
growth of any sector investing large investment
principally depends on this policy clarity.
The viability gap financing is one alternative which
MNRE is proposing for development of solar
sector. However upfront subsidies and grants,
do provide sops but generally don’t help markets
to grow. It would be best to ask market to pay,
and not tax payer to subscribe. The telecom
sector success has primarily led to development
of market mechanism and rationalized tariff
structure. It would also be wonderful to tackle
other implementation bottlenecks, like land,
evacuation system elimination of payment delay
in the sector for project developers.
Except JNNSM where payment is secured
through letter of credit the states are reluctant
to offer LC’s in favor of renewable PPAs coupled
with the huge delay in payment of by same states
i.e. Tamil Nadu where payments have been
delayed by 8-12 months lead to high revenue risk
of renewable projects.
Therefore it would be difficult to imagine
renewable sector performing well in isolation.
It’s performance is inter-locked with overall
performance of Power Sector. Therefore
financial position of discom’s and it’s viability
implementation of open access privatization,
franchise market would be necessary not only for
growth of renewable but also for Power sector in
India as a whole.
POWER The government must gradually
raise energy prices because coal,
petroleum products and natural gas
rates in the country are well below
international levels.
Economic Times, 07 January, 2013

PARLANCE Dr. Manmohan Singh

Hon’ble Prime
Minister of India

I will move a note for the

consideration of a high-powered
ministerial group to change priority
of allocation of the fuel as well as
pooled pricing of imported and
domestic gas
Financial Express, 21 March, 2013

Shri Veerappa Moily

Minister of Petroleum &
Natural Gas

One is to take the bitter pill

of raising the power tariffs,
which is not in the hands of the
central government alone as it
is a state government initiative
and responsibility in our federal
setup.
Indian Express, 28 January, 2013

Shri Jyotiraditya Scindia

Hon’ble Union Minister of
State (Independent Charge),
Ministry of Power

Deadline for finalising SEB debt

recast norms may be extended
Financial Express, 04 April, 2013

Shri P Uma Shankar

Secretary, Ministry of Power

APRIL 2013 | PTC INDIA LIMITED | 37

 State Distribution Utilities
First Annual Integrated Rating 2013
T he ranking and rating of Discoms is an innovative way to gauge the performance and efficiency level
of utilities for benchmarking and relative assessment. Minister of State (I/C) for Power, Sh. Jyotiraditya
M. Scindia has taken a bold initiative to start this process of annual integrated rating of Discoms by MOP.
He opined that distribution sector is a vital link in the power sector value chain as it is the interface with
the end consumers and responsible for generating revenue to sustain the entire value chain of this sector.
Therefore, financial health of Distribution sector is of utmost importance. The overall performance of state
distribution utilities has been a matter of concern due to various factors. It is essential that distribution
sector makes significant strides in improving its financial health while providing quality supply to consumers.
Concerted efforts by all stakeholders are necessary to achieve the same. Integrated Rating would facilitate
realistic assessment of performance of distribution utilities and would enable them to weigh their strength
and weakness and then chart a path for improvements wherever required. The rating methodology factors
in the important role of the State Government and the Regulator in making the environment congenial and
conducive for the effective performance of the Distribution Companies. I am sure the rating exercise will also
help Banks/FIs adopt a uniform approach while funding needs of different utilities. Besides, integrated rating
methodology aims at stimulating and improving performance of state distribution utilities. The parameters
with their benchmarks used in the methodology will serve as guidelines for the utilities to compare themselves
and to set targets to improve and sustain their performance.

38 | PTCHRONICLE | APRIL 2013

 Utility Wise Grades as published by Ministry of Power

S. No. Name of Utility Rating Agency

Grade

1. Dakshin Gujarat Vij Company Limited ICRA A+

2. Uttar Gujarat Vij Company Limited ICRA A+
3. Madhya Gujarat Vij Company Limited ICRA A+
4. Paschim Gujarat Vij Company Limited ICRA A+
5. West Bengal State Electricity Distribution Co. Ltd. ICRA A
6. Maharashtra State Electricity Distribution Co. Ltd. ICRA A
7. Bangalore Electricity Supply Company Limited ICRA B+
8. Mangalore Electricity Supply Company Limited ICRA B+
9. Southern Power Distribution Company of AP Limited CARE B+
10. Eastern Power Distribution Company of AP Limited CARE B+
11. Hubli Electricity Supply Company Limited ICRA B+
12. Kerala State Electricity Board CARE B+
13. Central Power Distribution Company of AP Limited CARE B+
14. Himachal Pradesh State Electricity Board Limited CARE B+
15. Gulbarga Electricity Supply Company Limited ICRA B+
16. Chhattisgarh State Power Distribution Company Ltd. CARE B+
17. Punjab State Power Corporation Limited ICRA B+
18. Northern Power Distribution Company of AP Limited CARE B
19. Assam Power Distribution Company Limited ICRA B
20. Chamundeshwari Electricity Supply Corporation Ltd. ICRA B
21. Uttar Haryana Bijli Vitran Nigam Limited CARE B
22. Tamil Nadu Generation and Distribution Corporation Ltd. ICRA B
23. Dakshin Haryana Bijli Vitran Nigam Limited CARE B
24. MP Pashchim Kshetra Vidyut Vitaran Company Ltd. CARE B
25. MP Poorv Kshetra Vidyut Vitaran Company Limited CARE B
26. Bihar State Power Holding Company Limited ICRA B
27. MP Madhya Kshetra Vidyut Vitran Company Limited CARE B
28. Tripura State Electricity Corporation Limited CARE C+
29. Uttarakhand Power Corporation Limited CARE C+
30. Jaipur Vidyut Vitran Nigam Limited CARE C+
31. Jodhpur Vidyut Vitran Nigam Limited CARE C+
32. Ajmer Vidyut Vitran Nigam Limited CARE C+
33. Meghalaya Energy Corporation Limited CARE C+
34. Jharkhand State Electricity Board CARE C+
35. Purvanchal Vidyut Vitaran Nigam Limited ICRA C+
36. Paschimanchal Vidyut Vitaran Nigam Limited ICRA C
37. Dakshinanchal Vidyut Vitran Nigam Limited ICRA C
38. Kanpur Electricity Supply Company Limited ICRA C
39. Madhyanchal Vidyut Vitran Nigam Limited ICRA C

Grading Scale and Grades

Score Distribution Grade No. of Utilities Grading Definition
Between 80 & 100 A+ 4 Very high Operational and
Financial performance capability
Between 65 & 80 A 2 High Operational and
Financial performance capability
Between 50 & 65 B+ 11 Moderate Operational and
Financial performance capability
Between 35 & 50 B 10 Below average Operational and
Financial performance capability
Between 20 & 35 C+ 8 Low Operational and
Financial performance capability
Between 0 & 20 C 4 Very low Operational and
Financial performance capability

APRIL 2013 | PTC INDIA LIMITED | 39

 Financial Management of
Distribution of Power
Prof. (Dr.) Atmanand
Professor of Economics and Energy,
Management Development Institute,
40 | PTCHRONICLE | APRIL 2013
T he Electricity Act aims at
Efficiency through competition
and fair play through transparent
policy and effective regulation in
order to achieve the ultimate goal of
“power for all”. The major provisions
of the Act include, de-licensing of
generation and captive generation;
de-licensing of rural areas stand
alone generation and distribution;
stringent provisions for prevention
and elimination of theft of electricity;
the provisions for reorganization,
unbundling of SEBs.
Distribution of power is the key to
power sector reform. Distribution
of power is the most challenging
task. It is the important part of
the entire power chain where the
power supply interacts with the
final consumer and revenues are
generated in the power system.
The demand for electrical energy is
ever increasing. Today over 21% of
the total electrical energy generated
in India is lost in transmission (4-
6%) and distribution (15-18%).
The electrical power deficit in the
country is currently about 18%. Nearly half of
what is produced is getting lost. The loss may
be due to technical problems or theft or through
inefficient billing and collection. Such high level
of loss is unsustainable. Clearly, reduction
in distribution losses can reduce this deficit
significantly.
Electricity Distribution Companies (DISCOMs)
are in poor financial health today and have
low economic viability. As per the PFC report
on performance of state power utilities, the
aggregate book losses which was Rs 7819
crores in the year 2005-06 increased to Rs
22,941 crores in the year 2008-09 and the
losses (without subsidies) which was Rs 20,586
crores in the year 2005-06 increased to Rs
52,623 crores in the year 2008-09. The three
important reasons for deteriorating financial
health of the DISCOMs are inadequacy of tariff,
non-receipt of timely subsidies and high AT&C
losses. Current retail prices of electricity do not
cover the actual average costs of supply. As per
PFC report 2009-10, the gap between average
cost of supply and averaged revenue realized
has been rising over the years. In a period of
just three years from 2006-07 to 2008-09, their
cost of supplies went up 24 per cent, while the
average revenues increased by a lower margin
of 17 per cent. This has widened the gap — the
cost of supplies was 17 per cent higher than the
revenue realization in 2008-09 compared to 10
per cent in 2006-07. Since the cost of supplies
accounts for around 70 to 80 per cent of a power
distribution company’s total cost of operations,
the losses have mounted and according to the
latest estimate for 2009-10 total accumulated
losses of power distribution firms in the states
have crossed Rs 1.06 lakh crore, more than
doubling from Rs 39,444 crore in 2004-05. So,
merely converting these losses into bonds may
help the DISCOMs start on a clean slate, but to
make the impact of the move a little more durable,
it is necessary that the Centre and the States
agree on a set of additional corrective measures
to prevent further losses from accumulating.
While AT&C losses have seen improvement when
compared to 36.64% in year 2002-03 to 27.15%
in year 2009-10. The responsibility of reduction
of losses in the distribution network lies with the
State Governments and the Power Departments/
Utilities. According to M/s Mercados Report on
The primary
“Study on Specific Aspects of the Power Sector
for Impact on State Finances” submitted to the
reasons for
Thirteenth Finance Commission, the projected commercial
losses at constant nominal tariffs and without losses are
considering the subsidies have been worked
operational
out as Rs.1, 16,089 crores for the year 2014-15.
The primary reasons for commercial losses are inefficiency,
operational inefficiency, leading to high AT&C leading to high
losses, inadequate revision of tariff to cover
AT&C losses,
cost of supply, pilferage/theft of power and non-
disbursement of subsidy by State Governments
inadequate
to utilities, and technical losses are overloaded revision of
networks, inadequate neutralization of reactive tariff to cover
power by capacitors, load imbalances in 3
cost of supply,
phase supply etc. This may be eliminated by
improving metering efficiency, proper energy pilferage/
accounting & auditing and improved billing & theft of power
collection efficiency. Fixing of accountability and non-
of the personnel / feeder managers may help
considerably in reduction of AT&C loss.
disbursement
Various utilities have made several attempts
of subsidy
to reduce AT&C loss. Punjab was reported by State
to have used low-cost techniques to reduce Governments
loss. The utility reduced loss significantly by
to utilities,
putting the meter outside the premise or in the
poles outside the premise. Delhi has also used and technical
various technical interventions which have led losses are
to significant reduction of distribution losses in overloaded
the state. The measures adopted include: (i)
replacing and revamping old equipment – Ring
networks,
Main Unit’s (RMU’s) installation; (ii) improvement inadequate
in system reliability by regular maintenance of neutralization
feeders and transformers / creating N-1 network
of reactive
redundancy; (III) LT ABC, HVDS and system
augmentation for meeting growth requirements; power by
(iv) remote LT load shedding in high loss areas; capacitors,
(v) GSM based switching of street lighting; (vi) load
automation / installation of SCADA for operating
and controlling entire power system network at
imbalances in
66 kV, 33kV and 11kV; (vii) GIS mapping; and (viii) 3 phase supply
automated grids for speedy resolution of faults,
etc. These initiatives have been undertaken as
pilots in some selected areas.
APRIL 2013 | PTC INDIA LIMITED | 41
 The experience of West Bengal has also been impressive.
Measures have been taken for loss reduction with
minimal investment and minimum impact on tariff. This
involved installation of shunt capacitors, load balancing
and rationalization of 11 kV feeders, use of AB cable,
installation of smaller capacity DTs, DT phase balancing,
etc. Business process re-engineering was undertaken for
carrying out at systemic reforms.
The Gujarat model of loss reduction also relied on
technological – macro level as well as micro level –
interventions. The Jyoti Gram Yojana (JGY) was launched
in the state as an effort for ‘Load Management and
Regulation of Agricultural Consumption’. Three phase
quality power supply for 24 hours was made available to
all the villages and all suburbs attached to the villages
of Gujarat for non-agricultural activities while ensuring
improved quality power supply to agriculture. This
resulted in bringing about reduction in distribution loss.
Rajasthan introduced FRP (Feeder Renovation Program)
by supplying single phase level for domestic consumers
for 24 hours and 30% level for agriculture sector for
defined number of hours (8-10 hours)
Theft of electricity is the biggest menace in the commercial
loss component of AT&C loss and should be tackled
sternly and with actions having a deterrent effect. In fact
going by the experience of the utilities, it was evident that
AT&C loss reduction from an initial high base line level,
astronomical amount of investments are not required.
With the initiative of the Government of India and of the
States, the Accelerated Power Development & Reform
Programme (APDRP) was launched in 2001, for the
strengthening of Transmission and Distribution network
and reduction in AT&C losses. The main objective of
the programme was to bring Aggregate Technical &
Commercial (AT&C) losses below 15% in five years in
urban and in high-density areas. The programme, along
with other initiatives of the Government of India and of the
States, has led to reduction in the overall AT&C loss from
38.86% in 2001-02 to 34.54% in 2005-06. The commercial
loss of the State Power Utilities reduced significantly during
this period from Rs. 29,331 crore to Rs. 19,546 crore. The
loss as percentage of turnover was reduced from 33% in
2000-01 to 16.60% in 2005-06. The APDRP programme
has been restructured by the Government of India, in
order that reliable and verifiable baseline data of revenue
and energy in APDRP Project areas is attained over an
IT platform and that AT& C loss reduction is achieved on
42 | PTCHRONICLE | APRIL 2013
a sustained basis. The Restructured APDRP (R-APDRP)
was launched by the Ministry of Power, Government
of India in July 2008 as a central sector scheme for XI
plan. The scheme comprises of two parts-Part A & Part B.
Part-A of the scheme being dedicated to establishment
of IT enabled system for achieving reliable & verifiable
baseline data system in all towns with population greater
than 30,000 as per 2001 census (10,000 for Special
Category Status). Installation of SCADA/DMS for towns
with population greater than 4 lakhs & annual input energy
greater than 350MU is also envisaged under Part-A. 100%
loan is provided under R-APDRP for Part-A projects &
shall be converted to grant on completion and verification
of same by Third Party independent evaluating agencies
(TPIEA) being appointed by the Ministry of Power. The
Ministry of Power, Government of India has earmarked Rs.
10,000 crores for R-APDRP Part-A and Rs 40,000 crores
as loan for R-APDRP Part-B. Of this, up to Rs 20,000crore
would be converted to grant depending on the extent to
which utilities reduce AT&C losses in project areas. As
on 30th November 2010, a loan amount of Rs 2,606.16
crores has been disbursed by the Ministry under Part A
and Part B of the programme.
The two very important indicators such as ‘reduction in
AT&C losses (%)’ and ‘cost recovery (%)’ should be
actively pursued for achieving improved and sustainable
operational and financial performance of the DISCOMs.
The reduction in AT&C losses shall help in monitoring
effectiveness of various measures to be adopted by the
Government to have an impact on quality and quantity of
power supply. The cost recovery will show how many utilities
have been able to recover their costs. The states must ask
the power utilities to regularly file petitions for tariff revision
before the electricity regulatory commissions. There are
many states where the chief minister would discourage
such tariff revision petitions purely for political gains. If
necessary, the state electricity regulatory commissions
should be adequately empowered to penalize distribution
companies that refuse to file for tariff revisions. A more
fundamental problem lies in the DISCOMs’ revenue
realization from the agriculture sector. Almost a fifth of
their revenues come from farmers and these tariffs are
heavily subsidized. The balance sheets of DISCOMs will
make a difference only when the state governments make
the bold move of increasing revenue realization from the
agriculture sector. Turnaround of power industry will greatly
depend on how we succeed in financial management of
distribution of power.
 Energy
Efficiency
Services
PTC has been continuously making strides in the direction of Energy Efficiency
Management. PTC's engagement with Bureau of Energy Efficiency (BEE)
under Ministry of Power has been extended for a further period of 5 years
to undertake Energy efficiency projects and also to seize emerging
opportunities such as perform, achieve, and trade (PAT).

• Prestigious Projects undertaken : • MoU with Bureau of Energy

- Presidential Estate Efficiency
- AIIMS
- Safdarjung Hospital • Conducting Investment Grade
- IGESIC (Rohini) Energy Audits & preparing DPRs
- Dr. Ram Manohar Lohia Hospital
- ESIC Hospital (Jhilmil)
• Implementing Energy Efficiency
- National Archives solutions through ESCO model

PTC India Limited

2nd Floor, NBCC Tower, 15 Bhikaji Cama Place,
New Delhi - 110066
APRIL 2013 | PTC INDIA LIMITED | 43
 The Question of
Real Demand
competition in generation and supply segments of power
sector while keeping transmission and distribution under
regulation.
So far, the efforts of central & State Governments
and various regulatory commissions are laudable on
unbundling the state boards & setting up the regulatory
commission . However a lot is still to be achieved
especially on tariff reforms and creating a healthy demand
side by allowing non discriminatory open access.
Dr. Harish Ahuja
President (Strategy & Corporate Affairs) Are we on right track on Power reforms ?
Moser Baer Projects Private Ltd
It has to be soon acknowledged by policy makers in this
country that simply adopting the power

T he recent credit ratings of state discoms by ICRA &

CARE under the aegis of MOP is a welcome step at
least in acknowledging & presenting true condition of
reform model of developed countries like unbundling of
electricity board, putting in place single buyer & selective
competition through First price sealed bid auction (FPSB)
monopolistic discoms. Though for industry, generators,
would not work in existing situation. One need to appreciate
investors, banks such dismal condition of discoms had
that in the OECD and developed countries, power reforms
never been a secret, however these ratings would make
were introduced during 1980-90s, only when sufficient
any real impact only if state governments & SERCs also
investment in power sector had been made and there
acknowledge ratings as their own performance score
was surplus capacity. Thereafter policy makers were
card on managing distribution business. Consequently
seriously thinking on how to generate enough competition
it offers them an opportunity to evaluate their own actions
for optimal utilization of existing surplus capacity so that
while distributing subsidies, fixing tariffs or enforcing
tariff reduces and benefits of competition reach to end
performance standards & RPO/SPOs. Unfortunately
consumers.
ensuing elections both at assembly & later for Lok sabha
make it a wishful thinking. The very act of Punjab & MP In most of the Indian states tariff’s are still much less than
government by not accepting discoms bailout package the cost of supply. The primary objective of power sector
which inter alia stipulate for annual revision of tariff & reform in India has been to at-least firstly bring tariff
prudence in subsidy disbursement validates this stand. equal to the cost of supply by putting in place the suitable
regulatory practices. Next, attract sufficient investment
IPPs especially coal based project developers are
in the capacity building. During the initial 6 reform years
exhibiting symptoms of chronic ailment. All experts are
from 2003-2010 EA act allowed enabling environments
prescribing similar medicine to cure the disease i.e.
to encourage cost plus regulations for building sufficient
resolve fuel supply issues & improve discom financial
capacity both from state & IPPs. In addition, tariff based
health. To a great extent there prescription would prove to
competitive bidding was introduced to attract enough
be right in short term but panacea to root cause ultimately
suppliers to bring competition for entry into market. In
lie in calibrating & rebalancing the supply & demand side
parallel on the buyer side, open access was planned with
forces within the Indian power market.
defined mile stones (starting from 5 MW to 1 MW).The
Creating Competition motive was to move gradually from Monopoly (vertically
The hall mark of Electricity Act, 2003 is introduction of integrated market) to MBMS retail competition level (multi

44 | PTCHRONICLE | APRIL 2013

buyer, multi supplier). Please see figure below.
As depicted in figure above during power market transition,
the monopolistic behavior of distribution companies
(vertically integrated) can be effectively addressed only
by giving initially choice to bulk consumers ( whole sale
competition) & later to retail customers (retail competition
) to choose their own supplier. The very presence of open
access in the act is to encourage competition by opening
up buyer side.
In India, the competition was surely introduced but that
for supply of energy in year 2008 to single buyer (Govt
utilities) without having achieved the adequate capacity
that too without building robust buyers side.
To attract the long term investments in capacity markets,
recovery of average cost of supply is must for which
cost plus regulations was a right option. Instead due to
precondition of single part bid & aggressive bidding of
few over enthusiastic domestic investors during UMPP
bids, this crucial difference between energy & capacity
based pricing never caught attention of experts. On
retro inspection, it is now evident that the very objective
of early case II bids for discovering true market price of
electricity was fundamentally a flawed one. Instead seeing
the capacity constraints & lack of vibrant buyer side, cost
plus regulations should have been continued for some
more time to build the capacity.
The eagerness of policy makers to push competition on
supply side would have been a right step provided they
would have exhibited same enthusiasm while opening up
buyer side. Unfortunately it never happened since SERC
and state Government did not follow the open access path
in letter & spirit as strictly laid under Electricity act 2003.
Is Discom a strong buyer ?
Powerful customers in an industry can capture more value
by forcing down prices, demanding better quality or more
service (thereby driving up costs), and generally playing
industry participants off against one another, all at the
expense of industry profitability. Intutively, when we see
the power industry all this attributes of a strong customer
are distinctly visible in state Discoms. The bargaining
power of the Discos is “Strong” on account of the fact that
they have control over the demand (case 1/ 2 bids), being
largest buyer of product, higher access to information,
high no. of suppliers (including IPPs) etc. The strange
part is that state discoms has not earned this attributes
owing to performance or competence but purely based
upon monopolistic nature & state protection. EA 2003
though prescribes for staged open access to gradually
reduce extreme bargaining power enjoyed by monopoly
discoms but state Governments & SERCs has so far been
able to safeguard discom’s turf.
Caught between strong suppliers (coal India) & strong
buyers (state discoms), all IPPs who are anticipating to
supply the electricity to such powerful customers have to
prepare themselves for foregoing even reasonable returns
in coming years unless more buyers show up.
Where is the real demand side?
An efficient & competitive electricity market would
work provided there is liquidity in term of volumes and

Reform Progress on Buyer side - NOT GOOD Norway

Sweden
Level of Power Sector Opened to Competition

Power Market Model Transitioning Singapore

PJM
Victoria
State
Retail (AUS) Level of Market Liberalization
Bangladesh Argentina UK
Bulgaria Brazil
China Moldova MBMS
Cote d'Ivoire Peru Retail
India Philippines Competition
Whole Morocco
sale Pakistan MBMS
Tanzania Wholesale
Vietnam Competition
Gabon
iti on
Genco
South Africa
Tajikistan
Single
p e t
Buyer IPP m
Co
entry
g
Vertically
e a sin
r
Inc
Integrated
None
Low
None High

APRIL 2013 | PTC INDIA LIMITED | 45

 players. In India we can clearly see that on supply side
we have buoyant action owing to increased private sector
participation in generation. However on the demand side,
on account of artificial entry barriers, buyers are still not
in plenty and remained confined mainly to 73 discoms (
includes 40 state dicscoms out of which only 11 are NOT in
red) & few large captive generators/industrial consumers.
In spite of repeated efforts of Central government &
CERC, there are serious issues on opening up of bulk &
retail side of consumers.
It is actually inequitable on part of statutory authorities
to enforce full scale competition while permitting power
developers (IPPs) to reach the buyers. On the contrary
when it comes to opening up the buyer side (Industrial
& commercial consumers) to reach alternative suppliers
(other than local Discom) for promoting competitive
market, all conservative methods are applied to kill the
competition i.e. imposing high cross subsidy charge,
transmission constraints, additional surcharges, high
standby supply, no USO etc. Therefore the real demand
side (high end residential, commercial & industry
customers) have been fortified by monopoly discoms.
In addition, the poor paying capacity of discoms &
regulatory freedom on USO is also leading to low demand.
The fairness & justice call for balancing the act to have
competition on both sides.
Coal supply linked with competitive tariff based LT – How
realistic is this?
In such a scenario of distorted markets where only buyer
(Discom) are not keen to come out with enough case
1 bid to serve their consumers owing to poor financial
condition & no USO. The very directive of MOP to link coal
linkages & mega status for power projects strictly with
85% capacity tie up again based on competitive tariff
based bidding is far from ground reality.
This very policy has created a scary situation for IPPs &
investors since there is no visibility of long term case 1
bid in last 2 years & does not look likely at least in next 12
months due to ensuing assembly & parliament election.
The situation would be glaring since many large IPP
projects in absence of non tied capacity would virtually
not be able to secure coal in spite of their plant ready &
willing to sell at reasonable price.
There would be a situation now that additional capacity
would be lying idle not for want Of real power demand
or for coal supply but for want of competitive tariff based
PPAs u/s 63 due to bankrupt but otherwise strong & only
buyer (discom).
This is a clear case of poor governance where state
government & SERCs have avoided adhering to law of
46 | PTCHRONICLE | APRIL 2013
land on open access & USO for safeguarding Discom’s
monopolistic forte. On the other side the very IPPs who
expressed faith in open door policy defined under law
& started building power plants are now realizing the
adverse impact on its bottom line in absence of vibrant
& healthy buyer side. This has lead to an epidemic like
situation where the first casualty are IPPs, later industries,
banks, exporters and last blow is visible upon country’s
GDP.
Linking coal with competitive tariff based bidding based
LT PPA under this skewed market conditions is surely not
a far-sighted policy initiative. True market architecture
encourages the long term, medium term & day ahead
contracts uniformly based on the need of buyers, sellers
& systems operations and does not discriminate or favor
LT contract under diktat of prejudiced policies.
Conclusion
Considering the fact that the Coal and power sale are
interrelated and integral links of the similar “power
value chain”, thus the impact on one, i.e. coal or power
procurement, would invariably affect the other. Further,
once the end use of linkage coal is defined and till the time
tariff of end product (electricity) is being determined under
EA 2003 i.e. both u/s 62 & 63. There should be no explicit
condition to tie up power only under section 63 especially
when real demand in spite of unserved being kept away
from market by monopoly buyer under the disguise of
inefficiency, artificial barriers & state protection.
A robust, vibrant and liquid power market need efficient
supply & demand side where sufficient no of buyers &
sellers are tying up power based on economics & needs
and not based on ad hoc policies insisting adherence
only from generator’s side.
The monopolistic behavior of distribution companies can
be effectively addressed only by immediately separating
the wire (monopoly segment) & content (competitive
segment) and than giving option/choice to bulk consumers
& retail customers to choose their own suppliers.
Liberalized electricity markets allows consumers to
become active participants in the market who has right to
shift supplier, thereby encouraging competition for better
services and increased innovation.
Unfortunately instead of addressing the real issue on
flawed market structure, govt. believes bailing discoms
out again may resolve the very problem. Often, the heavy
steroids dose may pump up the energy level of weak
runner to win the short race. However for winning long
race, real strength does come from focus, preference,
practice & following right means. Sooner we realize it
better would be our chances to succeed in ongoing (but
reaching nowhere) electricity reforms.
PTC India Limited was incorporated in 1999 as a
Government of India initiative by the Ministry of Power.
The major objective of PTC was to introduce power trading
in India and encourage investments by facilitating market
based transactions.

With an experience of more than 13 years, PTC India has

spearheaded the industry introducing products and services
for the development of the sector.

PTChronicle, the quarterly journal from PTC India Limited,

aims to draw the Indian Power Sector closer to the people by
discussing answers to questions relevant to the power sector
today.

We request the readers to send their valuable feedbacks,

and suggest any issue, or measures, that we may be able to
address in the forthcoming July Edition of PTChronicle.

Your suggestions are welcomed at marketing@ptcindia.com

Dear Readers,
Thank you for the kind response. We hope we continue receiving your
valuable feedback at marketing@ptcindia.com.

PTC India Limited

2nd Floor, NBCC Tower, 15 Bhikaji Cama Place, New Delhi - 110066 APRIL 2013 | PTC INDIA LIMITED | 47
48 | PTCHRONICLE | APRIL 2013