NTPC and PowerGrid on signing spree for new projects - Power PSUs race to beat Jan 5 phase-out of bidding via MoU route

State-owned NTPC Ltd and Power Grid Corporation (PGCIL) — two of the country's largest power utilities — have more or less insulated themselves against private sector competition for new projects, at least for a better part of the next 10 years.

With the impending January 5 cut-off for a phase-out of the MoU (memorandum of understanding) route for bagging generation projects, NTPC, which has a capacity of 33,000 MW currently, has already signed pacts with distribution utilities across the country for supplying a total of 85,000 MW of power in the coming years.

Of this, deals for well over 20,000 MW were signed in just two months — November and December — industry sources said. This ensures that the company is booked for well beyond 2017, by when the power major is targeting a capacity of 75,000 MW on the ground.

With the new bidding regime set to apply to the transmission sector as well, PowerGrid is pushing to sign pacts with private developers before the January 5 deadline. The utility has also been working on signing transmission agreements for the two Ultra Mega Power Projects (UMPPs) that are slated to come up in Orissa and Chhattisgarh, even though both projects are still to get environmental clearances.

Earlier this year, PowerGrid had signed up long-term transmission pacts for nine proposed high-capacity transmission corridors for wheeling power from a set of private projects coming up in the eastern and southern States. The move, entailing investments of about Rs 58,000 crore, has ensured that PowerGrid's order book position is more than comfortable for the next several years.

Both NTPC and PowerGrid have been apprehensive about the transition to the new regime, where utilities have to shift to a tariff-based competitive bidding norm for bagging projects. This is especially in light of aggressive bidding by private players in a handfull of projects that have been handed out so far.

“The aggressive signing of pacts in the last two months means that NTPC should be secure till 2020, even if it does not bag a single project under the new competitive bidding format,” a Government official involved in the exercise said.

While for NTPC, the hurry to sign up power purchase agreements makes perfect commercial sense, analysts said that it was baffling that the state-owned distribution utilities were willing to reciprocate in equal measure. This is despite the proposed tariff-based bidding format promising better electricity tariffs for the consumers.

Under the new tariff-based competitive bidding regime, the developer that offers the lowest average electricity prices gets to set up the project. The move, which is expected to drive down electricity tariffs (or the cost per unit of power) at the consumer level and make the award of projects more transparent, effectively disallows developers of both generation and transmission projects to enter into MoUs with the distribution utilities for selling electricity post January 5.