India: Reverse Auction Method likely to benefit Private Power Utilities

Post cancellation of coal blocks, the central government has decided to apply reverse auction method, which directly provides advantage to private power producers.

Central government has decided to provide captive coal blocks through reverse auction method. The blocks will be allotted to the private companies those are ready to provide electricity at low prices.

Power consumers, who purchase electricity from private utilities, are expected to get benefit of per unit cost optimality from reverse auction method. The inter-ministerial committee had decided that Centre should not try to maximize its revenues from the blocks reserve for power sector. While, the government is yet to decide allotment method for government utilities.

Earlier, the government planned to use CIL’s price as a benchmark to decide current NPV (Net Present value) of coal blocks. Private sector captive miners such as CESC would transfer the fuel at CIL’s price, while, state utilities would usually procure fuel at 19.5% discount to CIL’s price.

Government to generate Profit from Other Sectors

IMC has suggested to generate maximum revenues rest of power sector such as Steel, Cement & Sponge iron that operates in the open market. The committee has also recommended to set a benchmark price, which will be double to the CIL’s price. This price calculation method can make mines value high and very expensive to procure. India’s private power producers have been played a wide role in total electricity generation of the country and contributes around 33% in total production.

Sector-wise India’s Installed Capacity (MW) as on 31 Oct, 2014

India’s electricity sector consumes about 72% of coal produced in the country. India has consumed about 487.9 MnT coal in FY14. Total power production and coal consumption in power plants has been increased rapidly from a decade.