Tata Power faces low rates and red tape in selling 126 MW Dagachu Power in India

In what is yet another indicator of India’s uncertain energy market, Tata Power Trading Company (TPTC) is currently making losses in selling Dagachu project’s power in India.  The company is also facing red tape challenges in trying to sell its power on the Power Exchange of India Limited.

TPTC has signed a 15 year power purchase agreement with Dagachu project and is currently paying Nu 2.90 per unit to Dagachu. However, TPTC is selling the power to India at well below 2.90 due to low tariff rates in India. This was confirmed both by TPTC and Dagachu Hydro Power Corporation (DHPC).

DHPC CEO Thinley Dorji said, “According to the reports sent to us by TPTC they are making losses and are selling the power below 2.90 to various buyers.”

The CEO, however, made it clear that DHPC’s job was to only produce the power and deliver it till the border and it was then the responsibility of TPTC to sell the power. He said even if TPTC is making losses DHPC under the agreement will continue to get Nu 2.90 per unit with a 2 percent escalation every year.

While DHPC is legally mandated to get Nu 2.90 per unit it loses out because if TPTC can sell the power at rates above Nu 2.90 DHPC would get a significant share of the profits. If TPTC can sell the power anywhere between Nu 2.90 to Nu 3.20 per unit the entire additional amount will come to DHPC. For rates beyond 3.20 up to 3.50 the amount will go to TPTC. Finally for any rates above Nu 3.50 per unit the proceeds will be shared equally at 50:50.

A senior TPTC official based in the head office in Noida, India said that TPTC was making losses as the tariff rates in India have become very low.

He said that the rates were low both on the open market and also at India’s two energy exchange markets of Power Exchange of India Limited (PXIL) and Indian Energy Exchange (IEX).

The TPTC official said that tariff rates had become low mainly on account of the poor financial health of state level companies or Discoms that instead of buying power was resorting to load shedding. He said these discoms who are the biggest buyers of power are mainly facing huge losses. The official said there were issues around transmission losses and theft of power.

He also said that on other hand India’s power generation capacity had been increasing over the years. The situation is made worse by poor energy distribution infrastructure whereby power cannot reach areas that require it.

The TPTC official said that all of the above factors had pushed down tariff rates in India. He also pointed out that the share of hydropower in India’s power generation had come down to 16 percent.

The official predicted that for the next two years power tariff prices would continue to be low but he said that from 2018 onwards the prices would improve. He said that given Bhutan’s hydropower project the aim should be to get peaking power rates when power is at the peak demand than just normal rates.

This paper had earlier reported that the Indian Power Minister Piyush Goyal in a statement to the Indian Parliament on 30th April 2015 said that most parts of India has surplus power but that the states are not buying the power to supply to their residents.  Also data from India’s energy trading market for April 2015 show that power suppliers had outstripped power buyers.

In the last few months Dagachu power has been sold by TPTC to West Bengal, Mumbai and to Essar Steel in western India.

Druk Green Power Corporation holds 59% of the DHPC shares,  Tata Power  Company holds 26% and the National Pension and Provident Fund holds the remaining 15%.

Another headache facing TPTC is that though it has got permission to sell its power similar to Bhutan’s bilateral arrangement for Tala, Chukha and Kurichu it has not yet been allowed to trade power on India’s two energy exchange markets of PXIL and IEX.

After a petition from the TPTC the Central Electricity Regulatory Commission (CERC) on 11th September 2014 allowed TPTC to import power into Bhutan and sell it in India.  The CERC allowed the import and sale under an interim arrangement only for Dagachu given the absence of any clear rules and guidelines on the Indian side for import of such power.

In February 2015 the IEX filed a general petition with the CERC to allow it to engage in cross border transaction at its energy exchange with countries like Bhutan, Nepal and Bangladesh. The decision from the CERC on the issue is pending.

With TPTC already getting permission to import and sell the Dagachu power on 11th September 2014 it applied with the CERC to be allowed to sell the power at the Power Exchanges. This is because given the right conditions in the future Dagachu can get much higher rates for power at the Power Exchange then just selling to fixed buyers.

However, to TPTC’s surprise this move was opposed by the National Load Dispatch Center (NLDC) of India which is a fully owned subsidy of the Power Grid Corporation of India Limited an Indian government owned company.

The NLDC’s job is to ensure for optimum scheduling and despatch of electricity among the Regional Load Despatch Centers in India.

The NLDC submitted that bilateral trading of Dagachu power is already happening. It said there are issues of a creating an additional market for cross border trade, declaration of transfer capability, congestion management etc.

Interestingly NLDC in its counter petition said that at present only India and not its neighboring countries have Power Exchanges. It said when multiple sellers from Bhutan sell power at Power Exchanges in India, the discovery of the real price of power from Bhutan will happen in India.

The CERC decided to await future directions on the issue from the Ministry of Power and requested it to issue necessary guidance with regard to cross border trading in electricity through the Indian Power Exchange.

However, given the depressed energy markets in Indian even the rates at the Power Exchanges are below the 2.90 of Dagachu.

Dagachu is currently generating at around 90 MW capacity as it has not fully finished testing all its components after the gravel trap channel that had ruptured in October 2014 was fixed. Dagachu started generating power from March 2015.

 

 

 

About Tenzing Lamsang

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