Tariff-based bidding for power procurement: Overview of bidding mechanism

As per the norms issued by the central government, with respect to Case-I tariff bidding for power procurement, the power procuring state or private distribution companies (DISCOM) call for price quotes for the required quantum of electricity, irrespective of its source of fuel or location. On the other hand, under Case-II bidding, the procurer usually obtains power from the plants located in the same state, and possibly executed by the winning bidder after the auction process. The distinguishing features of the two bidding systems are as under:

Under Case-I, the DISCOMs float tenders, based on the Standard Bidding Document (SBD) specified by the union power ministry, for long-term purchase of power. The bidders, namely, generating companies, traders, etc., are technically evaluated on parameters like the availability of more than 50% of land needed for the plant, fuel tie-up for entire plant capacity in case of domestic coal, water approvals and environment clearance. The bidders also have to meet the financial criteria specified by the concerned DISCOM and can bid to supply power (in MW) corresponding to net worth. 

 --For Case-II, the procurer identifies and acquires the land required for the generation project, obtains environment clearances, ties up water and then hands over the project to the qualified bidder quoting the lowest tariff. In this case, the fuel is arranged either by the procurer or the bidder. In most cases, the  home state offers to purchase the entire quantum of power from a plant, while in some cases, the state allows the developer to sell a part of the capacity on its own.   

 Bidders, under Case-I, have the option to quote either fixed tariffs for the entire tenure of 25 years for the plant or may opt for an escalable tariff. In this case, the bidder has to only quote the first year tariff, while the escalation rate provided by the Central Electricity Regulatory Commission (CERC) is applied to obtain subsequent prices.

 --On the other hand, under Case-II, a bidder can quote either fixed or variable charges, which depend on whether the required fuel is provided by the procurer or arranged by the bidder:

 In case the fuel is provided by the procurer

 Variable charges will be paid corresponding to the scheduled generation of the generator, as per the following formula: 

 Variable Charges = Net quoted heat rate x scheduled generation x weighted average price of the fuel / average gross calorific value of the fuel 

 In case the fuel is arranged by the bidder or a coal block is allotted to the bidder

 A bidder can either quote the variable charges in Rs/kWh for each year for the tenure of the PPA or can quote only the base year variable charge in Rs /kWh.