Short-circuiting the free market

Thursday's cabinet decision approving amendments to the 'Mega Power Policy 2009', under which developers would now be required to tie up at least 65 per cent of the power generated from their projects through competitive bidding and supply the remaining 35 per cent to the host state under regulated tariffs, militates against the free electricity market envisaged in Centre's own National Electricity Policy.

Till now, 85 per cent power was to be tied up in long term PPAs through competitive bidding and 15 per cent could be left untied and sold in the short term market. Now, with the 65 per cent requiring to be tied up in long term PPAs through competitive bidding and the remaining 35 per cent to be supplied to the home state, there is no untied power that the developer would be able to supply to the short-term power market. Even though this dispensation has been termed a "one time" exercise limited to 15 projects, there are some inherent contradictions.

While the Centre's Tariff Policy of 2011 had made it mandatory for distribution companies to procure power through competitive bidding, through the new amendments, it has now been practically relaxed for a State wanting to buy power from a power plant located within its boundaries. The question then is why disallow other States from buying electricity at regulated tariffs, especially when the standard bidding documents (SBDs) for buying power through competitive bidding under the long term PPA route have some question marks about its efficacy?

Fundamentally, a power plant considered at par with any other factory producing goods. With the new amendments, it has been effectively decided that the state in which the power station is located can buy 35 per cent produce, independent of market rate. The principle could be extended to a factory producing other goods, be it a soft drink or basmati rice. What about the fundamental right to free trade or the concept of India as a single market? On the power exchange (PXs) during the last three years, the competition has been intense, the prices most competitive and its daily volume has tripled. Unlike commodity or stock exchanges, on the power exchanges, there is no speculative trading and settlement is on compulsory delivery. Yet for the purpose of mega power policy, it appears that sale through the PXs will not qualify as sale through competitive bidding.

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