‘RE costs may match conventional power costs in 2-3 years’ time’
Dr Rajiv K Mishra is the Executive Director of PTC India Ltd and looks after its Operations, Business Development and Advisory Services. In an interview to Upendra Singh, he discusses his company’s performance and prospects, and the ups and downs of the Indian renewable energy industry
Q: PTC is a pioneer in implementing the power trading concept in India and has successfully demonstrated its efficacy. How do you see the organisation living up to the high expectations and ever-evolving challenges?
PTC India Ltd. (PTC), the leading provider of power trading solutions in India, was established in the year 1999 as a Government of India initiated Public-Private Partnership, with a primary focus to get investments in the power sector. A unique aspect related to the emergence of PTC has been the association of well-established organisations in power generation, transmission and finance, as promoters namely NTPC, PGCIL, PFC and NHPC. PTC was set up to establish a power market and act as a credit mitigating agency for mega power projects through long term power purchase agreements and back-to-back power sale agreements to various state utilities which in turn was viewed to encourage private sector investment in power sector to enable quick capacity addition.
PTC pioneered the concept of power trading and for more than 10 years has continued to maintain the No. 1 position. It was only after the emergence of PTC and due to its resounding success, that the Electricity Act 2003 recognised power trading as a distinct licensed activity. PTC today is not just the leading power trader in the country, but also the co-promoter of 1st National Power Exchange in the country besides diversifying into the unique role of a Complete Energy Solutions Provider.
Q: Since the inception of PTC, how has the market behaved and how have the different challenges been tackled at different times?
Ever since the power market evolved in 2002-03 when the real business started PTC has introduced innovative products customised to Indian requirement. Subsequently after the Electricity Act 2003, trading has become a licensed activity and more than 50 trading licenses were issued by regulators in the country, however, PTC remained market leader. It has always played a major role in market development and nodal agency cross-border transactions. It is still the market leader and one of the few having trading business in the pan- India scenario. PTC is the only power trading company which has a net worth of more than Rs 2000 crore, against basic licensing requirement of only 50 crore. It gives necessary muscle and strength that a company requires for carrying out larger transactions.
Q: It is said that till the time restricted open access in states and the weak financial health of state utilities are tackled, the power sector will not witness any substantial growth. What is your opinion?
Yes, it is a problem not only for traders but a genuine problem for the entire power sector currently. At the end of the day, the revenue which is being collected from the distribution companies is vital for running the entire value chain. If these distributors are not in good financial health, it will impact not only power generators or transmission companies but also the traders as well. At this point of time, their overall revenue gap is calculated at Rs 82,000 crore. This has negatively impacted the investment sentiment in the sector as well in a big way. The last financial year, in particular, was not a good one for most of the power sector players in the country. With the huge gap between revenue and cost to supply in some of the state electricity boards such as UP, which are the largest buyers of power in the country, the trades has largely been impacted.
PTC was also affected due to this but we are slowly coming out of the situation and one of the defaulters Tamil Nadu has started paying for the outstanding amounts. UPPCL is also contemplating a major roadmap for coming out of this situation. We hope that things will be much better this financial year and power sector will improve largely.
Q: How does your platform help a captive power plant and an independent power producer (IPP) in making his business more secure, and what are the challenges they are facing right now?
When the mandate was given to the PTC in the year 1999, it was under two heads. First was to start power trading in the country; and the second was to promote the private investment in the power sector. Prior to this, only distribution companies were buying power and there was no other source for revenue generation other that than the off-take and consumption by distribution companies. So, with the evolvement of PTC, the investors got confidence, and post Electricity ACT 2003, the power sector witnessed huge investment in the power sector from private players. PTC played a major role in bringing investment in the power sector. We have long term power purchase agreements (PPAs) with more than 16,000 MW from IPPs comprising of conventional and renewable sources of energy. That gave a boost to the private investment and the confidence that the off take of power is possible other than distribution companies.
Talking about captive power plants, generally speaking it is not financially viable to set up smaller power unit in the manufacturing campus itself as it loses out on economy of scale front. Preferably larger units at a location where coal and other infrastructures are easily available are preferred location of Power Plants. However for specific cases it has worked well and PTC India has facilitated SEBs and other Industrial players to buy the surplus power from these captive units and supply to the consumers.
Q: The renewable energy sector is still in its nascent stages. How do you see the future market for renewable power in India’s energy mix?
Renewable energy has created a lot of interest in the country and has become a major area of interest for us too; particularly in solar we have big plans. Although Renewable Purchase Obligation (RPO) has to play the role of a major growth driver, it has its own potential for replacing the conventional sources. Among the states that have to follow RPO norms, some have tied up with the NTPC Vidyut Vyapar Nigam Limited (NVVN) for solar obligations and a few are taking up their own competitive bidding. The competitive bidding route is complicated and has not lived up to its expectations. Even if they successfully complete the bidding process, they mostly land in an undesirable situation that is the extremes of the price band quoted by non-serious players. For example, in NVVN, the discovered price median is around Rs 8.95 for solar power, whereas some of the states who have done competitive bidding, have even received bids at around Rs 7. It is quite difficult for states to arrive at a benchmark price as the purpose is to develop credible solar capacity. At the end of the day it has to be something which will come on ground and which should supply the solar obligation to the state. It is not that you are getting the cheapest of solar power only on paper. The real objective is that the project gets commissioned and can deliver electricity.
PTC plays a critical role by ensuring that only good, reliable and strong players with strong track records for commissioning of projects are screened and PPAs with firm commitments are allowed to enter. After ensuring this, we propose to the utilities with the assurance of timely delivery of projects. Utilities get the real benefit and the objective of right pricing and timely delivery is ensured.
Q: With renewable power being termed as infirm, what are the main challenges faced by the power trading companies in scheduling power from the renewable energy sites?
Within the last few years, renewable energy has grown, and now the connectivity which was at 33kV or 11kV level has gone up to 132kV. If plant size is 100MW to 200 MW it is desirable to connect to CTU. Connectivity at 132kV or 220kV level would be a key to the success of solar projects.
The second major issue would be of scheduling renewables. For example, in Tamil Nadu, around 3000MW of wind power is connected to the grid, and if some day you have excellent generation, but no scheduling it and all the generated energy is flowing into the grid, it can create some kind of imbalance in your system. So there is a clear guideline from regulatory commissions saying that plus-minus 30 per cent scheduling has to be there. However, it is still taking time in getting it implemented. Technically, it is viable to schedule plus-minus 30 per cent with accurate predictions and deployment of software tools, but still few wind generators have incorporated this for scheduling as firm power. We hope that in the next couple of years it would be implemented and major renewable energy (RE) sources will be scheduled in the grid.
Q: What should be the criteria for scheduling of power from renewable energy sources in the country?
I would say that some limit for off grid and grid-connected renewable power should be fixed to streamline the process. We can take a thumb rule of around 10MW. A source with less than 10MW should be considered for off-grid, not requiring scheduling, and should be localized for captive / internal consumption. Anything above this limit should be connected to the grid and scheduled. We need to keep a target initially such as 20 per cent in the first year, and subsequently we need to increase towards scheduling of firm power. India has set a target of 20,000MW of solar power by 2022 and around 45,000 MW from other renewable energy sources. It is in fact a huge capacity as compared to what we have today. We need to upgrade ourselves to accurately anticipate and schedule the power from renewable as we can’t leave such a huge capacity as infirm power.
Q: Today renewable energy in India constitutes about 12 per cent of the total energy mix and is expected to grow in the near future. Are the trading companies and transmission agencies ready to grab the opportunity?
This 12 per cent is the installed capacity but when we consider the amount of actual power generated, it comes to around 3-4 per cent with a PLF (Plan Load Factor) around 16-20 per cent. However, the biggest positive with the renewable energy is that power could be generated without worries about fuel price escalation issues. This is Nature’s gift that goes on and on for years without getting exhausted like the conventional fuels. It is a sustainable long-term solution for power needs, but at the same the initial CAPEX (capital expenditure) requirement is huge. No doubt, it is an opportunity, but an expensive opportunity at this point in time.
Another concern is about the availability of energy on RTC basis. As renewables are generating only about one-fourth of the energy with peak output during certain times of the day, the transmission companies are little apprehensive about using their infrastructure throughout the day, and therefore, it can be an expensive proposition for the wheeling. For a unit that is being wheeled through the transmission lines for a 132kV grid-connected solar power plant, the actual utilisation is around one-fourth or one-fifth of the conventional power. Actually when electricity is delivered to the consumer, it is the cost per unit that matters, not whether it is from solar or coal.
At the delivery point, the energy cost from renewable energy sources has to compete with conventional power. The challenge is that we should encourage the use of renewable energy as it is a sustainable form of energy, but at the same time power economics don’t favour RE at this point in time. However, with prices of renewable technology coming down fast, we expect that in the next 2-3 years, the cost of renewable power would be at par with conventional power.