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ULTRA MEGA POWER

PLANTS AND POLICY


BACKGROUND
With India being a country of chronic power
deficits, the Government of India has planned to
provide "power for all" by the end of
the Eleventh Five-Year Plan (20072012).
This would entail the creation of an additional
capacity of at least 100,000 MW by 2012
Ultra Mega Power projects, each with a capacity
of 4000 MW or above, are being developed with
the aim of bridging this gap
Launched by Ministry of Power in 2005-06


Central government has taken the initiative
under tariff based competitive bidding route
using super critical technology on BOO basis
Central Electricity Authority is the technical
partner & Power finance corporation is the nodal
agency
Separate SPVs were provided for each project to
undertake project development activities
including bid process management
In addition to Ultra Mega thermal power
Projects, Ministry of Power is also taking steps
for bringing up large Hydro Projects and large
size Transmission Projects on the fast track


ROLE OF MINISTRY OF
POWER
Ministry of Power to be facilitator for
coordination with concerned Ministries/ agencies
and State Government for ensuring:
Coal block allotment for pithead projects
Environment/ forest clearances
Facilitate acquisition of land
Required support from State Govt. & its
agencies
To facilitate proper payment security
mechanism with State Govt./ State utilities


CONCEPT
Setting up of large projects of 4000 MW at a
single location: ensuring economies of scale
Award of projects to developer through tariff
based competitive bidding : ensuring cheaper
power
Utilization of super critical technology: ensuring
higher efficiency and lower CO
2
emissions


The first UMPP, developed by TATA Power at
Mundra, Gujarat has been commissioned and
contributes 4,000 MW in power to the northern
grid.
Total number of UMPPs viewed are 16 ,out of
which awarded are 4-
I. Sasan UMPP, Madhya Pradesh
II. Mundra UMPP, Gujarat
III. Krishnapatnam UMPP, Andhra Pradesh
IV. Tilaiya UMPP, Jharkhand
POLICIES FOR
DEVELOPMENT OF UMPP
PROVISION OF ELECTRICITY ACT,
2003
Provides that regulatory commissions shall
adopt the tariff if it is determined through
transparent process of bidding accordance with
guidelines issued by central government
Aims at moving away from cost plus approach
for tariff determination & expected to encourage
private sector investment
NATIONAL ELECTRICITY POLICY

Aim of this policy is to supply reliable & quality
power of specified standard in an efficient
manner & at reasonable rates
Policy recognizes that competition will bring
significant benefits to consumers
Policy stipulates that all efforts will need to
bring the power industry as early as possible in
the overall interest of consumers
OBJECTIVES OF THE POLICY

Access to Electricity Available for all households in
next five years.
Availability of Power Demand to be fully met by
2012.
Shortages to be overcome and spinning reserve to
be available.
Per capita availability of electricity to be increased
to over 1000 units by 2012.
Minimum lifeline consumption of 1 unit/
household/day as a merit good by year 2012.
Financial Turnaround and Commercial Viability of
Electricity Sector.

ELECTRICITY TARIFF POLICY
Objective is to promote competition, efficiency
in operations & improvement in quality of
supply
To ensure availability of electricity to consumers
at reasonable and competitive rates
Policy stipulates that all future requirement of
power needs to be procured competitively by
distribution licenses except in cases of expansion
of existing projects
11
GUIDING PRINCIPLES FOR COMPETITIVE BIDDING
Competitive bidding process should ensure

Free fair and effective competition
Transparency
Simplicity and cost effectiveness of process
Minimal burden on regulator and other stakeholders
Flexibility to adapt to varying needs of power procurement according
to the structure of the sector
The new guidelines should
adequately build on GOI guidelines
issued earlier by incorporating new
inputs from EA 2003 and the Task
Force report
12
BIDDING PROCESS WOULD START WITH THE
REGULATOR APPROVING THE DEMAND
FORECAST FOR THE DISTRIBUTION COMPANIES
Demand forecast for
short / medium /
long term
Regulatory
approval of
forecast
Procurement
process
Path 1
Using non-standard
bid documents
Using standard
bid documents
Path 2
13
PROPOSED POWER PROCUREMENT BIDDING PROCESS
IF STANDARD DOCUMENTS ARE USED
Key activities/Salient points
At each stage we may
specify minimum
number of bids to
proceed to next stage
Requirement
definition
Initiate RFQ
Shortlist
bidders
RFP Bidding
Evaluation
of bids
Award
of bid(s)
Post bid
negotiations
Specification
of
Quantum
Timing
Duration of
contract
Publish
notice
Issue RFQ
Evaluate
responses
to RFQs
Shortlist
bidders
For short
term
contracts
bidders may
be pre-
qualified
Issue RFP
to selected
bidders
Conduct
pre-bid
conference

Short listed
bidders
invited to
submit bids
Technical
compliance
must for any
bid to be
considered
Determination
of winner on
bases of price
bids
Use of
independent
observer if
necessary
RFQ/RFP process may be combined into single
step, especially for short term contracts
Regulator kept informed at all stages of the
process
14
PROPOSED POWER PROCUREMENT BIDDING PROCESS IN CASE
OF DEVIATIONS FROM STANDARD BIDDING DOCUMENTS
Any modifications
suggested by bidders, or
due to any other reasons to
be approved by regulator
possibly over several
rounds of iterations
Requirement
definition
Prepare
bidding
documents
Initiate RFQ
Shortlist
bidders
Seek regulatory
approval
Iterations on
development of
bid documents
Regulatory
clearance of
forecast
A
RFP Bidding
Evaluation
of bids
Awards of
bid
Post bid
negotiations
A
Regulators comments
on process and go
ahead
Even though active
regulatory approval
needed in only certain
stages, but the regulator is
always kept informed of
all developments
Regulatory
approval if
required
15
IN THE RFQ STAGE, BIDDERS SHOULD BE SCREENED ON THE
BASIS OF AN ARRAY OF METRICS
Financial metrics Technical metrics Past record
To ensure supply
contracts, in case of
default
To minimise risk of
delay/shortfall
To prevent
frivolous/mischievous
bidders
To ensure supply
contracts, in case of
default Net worth
Credit worthiness
Bank/other financial
guarantees
For new plants
Past infrastructure
project execution
Resource raising
For existing plants
Reliability
Performance in the past
Tie ups with transmission
companies preferred
Should be an organization
of repute
No default on previous
contracts
Net worth
Credit worthiness
Bank/other financial
guarantees
For long term contracts
trader should show the
capability/history to source
70-80% of contract
amount
Tie ups with generators
and transmission
companies are preferred
Source of power has to be
specified
Trader of repute
No default on past
contracts
Past litigation record
No conflict of interest
between other obligations
and contract being bid
Limits to vary by duration of
contract and amount of load
contracted
To be suitably relaxed in initial stages for
traders, as they would have no history of
trading operations
For
generators
For traders
16
FOR MEDIUM/LONG TERM CONTRACTS, AT RFP STAGE, BIDS
SHOULD BE SCREENED BASED ON NON PRICE EVALUATION PRIOR
TO PRICE COMPARISONS
Element for
evaluation
Details
Financial guarantee covering supply default
Different bidders could be capable of delivering power at
different points in grid
Most reliable/least bottlenecked point most preferable
Relevant for time of day contracts, or for parts of long term
contract
Best fit to demand should get preference
Bidder asking for least financial guarantee from buyer would be
preferred
Risk sharing mechanism in case of forced outages/unforeseen
circumstances
Suppliers
guarantee
Delivery point
Delivery
dates/period
Buyers
guarantee
Force majeure
/risk sharing
All these aspects
need to be
sufficiently
detailed in the
standard bid
documents and
processes, to
enable bids to be
efficiently and
transparently
evaluated/ rejected
on technical merits
17
BUYER SHOULD SPECIFY THE BID STRUCTURE IN DETAIL
Whether part
bidding is allowed?
What is being bid
for?
What is the tariff
structure used?
No part bidding
Part bidding allowed
Part bidding allowed in multiples
of some pre-specified minimum
bid unit (preferred option)
Energy
Capacity
Percentage of load (varying)
Single part tariff
Two part tariff with suitable
indexation (preferred)
Elements
of a bid
Illustrative
examples
Element
18
INTERNATIONAL PRECEDENTS OFFER SEVERAL USEFUL TIPS FOR
FORMULATING THE COMPETITIVE GUIDELINES
Aspect International examples
Reference document
Issue date/number
Bidding for part of the
contract
RFP for Central Maine Power Company allows
bidders to bid in multiples of 20% of total contract
amount
November 18, 2003;
issued by Maine PUC
Use of Independent
observer
Independent observer was used for overseeing
the process of RFPs for Portland General
Electric Company
January 20, 2004; Interim
report of independent
observer
Use of discounting/
NPV calculations for
evaluation
Public service commission of Maryland approved
use of single discounted average term price
(DATP) for evaluation of bids in the phase II
settlement proceedings
Order no. 78710 Case no.
8908; Phase II September
2003
Pre-qualification of
bidders to form a
panel
Rules of the Florida Public Service Commission
on general purchasing procedures allow the
prequalification of bidders to form a panel
Ch.25-25 Sup no.194
Financial guarantees
from bidders
RFP for Central Maine Power Company required
bidders to provide financial guarantees upto US$
1.21 million/month and 1.50 million/month while
bidding for service to 2 classes of consumers
November 18, 2003;
issued by Maine PUC
Bidding for percentage
of load
Rather than a fixed load (in MW/ MWh) the bid
may be asked for the percentage of the utilitys
load, so as to offload some risk to the suppliers
EPSA guidebook for design
implementation and
monitoring of competitive
power supply solicitations
Bidding for partial
duration
EPSA guidelines mention use of annuity based
calculations while comparing bids for unequal
(part) duration and choosing a lower overall bid
portfolio
EPSA guidebook for design
implementation and
monitoring of competitive
power supply solicitations
19
INTERNATIONAL BIDDING PROCESS - EXAMPLE
US long term bid process
Posting of
information
publicly
Request for
Expressions of
Interest (EoI)
FERC
qualification
Credit
application
and
financial
information
received
Pre-bid
conference
Eligible
bidders
qualified and
issued
certification
Request for
detailed
proposals
from eligible
bidders
Price
proposals
received
Bids
evaluated
Award of
bids
More
rounds if
previous
rounds fail
to meet
objectives
Iteration
continues till
satisfactory
solution
reached
Retail prices
published 6
months before
start of
contract
Receiving
proposals
Process
start
Receiving
EOIs
Regulatory
Validation
Bidder
selection
Round 1
Revision/
Round 2
Contract
start
Steps
Timeline
Details
3 months 15 days 15 days 15 days 2 months 9 months
Source: Allegheny power RFPs and RFQs