Merchant power plants (MPP) seem to be the flavor of the season for the central government, which is understandably concerned about the stubborn peak power shortages hampering the economy of the country. Utilizing open access provisions and rising inter-region transmission capacities, the government is looking to open market transactions to plug the enormous supply gap in the country. - While, at present, open market, short-term transactions are priced about 2.4 to 2.5 times the regulated power supplied from power plants backed by long term power purchase agreements (PPA), an increase in the number of MPPs is likely to bring prices down. It is estimated that 12,000 MW of fresh merchant capacity would be installed in the 12th Plan.
- To facilitate the development of such projects, the government has already earmarked 2.4 billion tonnes of coal reserves that will be allotted as needed. These dry fuel reserves are spread over the Rajmahal, Raniganj, Birbhum, North Karanpura, South Karanpura, Wardha valley, Mand Raigarh, IB River and Talcher coalfields.
- Present policy dictates that MPPs of 1000 MW+ capacity are to be granted coal linkage, while those of between 500 MW and 1000 MW will be assigned captive coal.
- Despite the higher risks associated with such power plants, developers are attracted to merchant projects due to the significantly higher return on investment. Typically, MPPs allow for a 20-40% return, as against the 15.5% available on regulated projects.
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