Merchant plants to hike capacity by 10,000 Mw

The government plans to "facilitate" setting up of around 24 merchant power plants over the next 3-4 years. The plants, with a total capacity of 10,000 Mw, will be allowed to sell power at market rates, unlike other plants which sell at prices decided by regulators.

The power ministry has issued guidelines for setting up these plants, for which captive coal blocks will be allotted. "We are identifying about two dozen sites, mainly in states with coal reserves," Power Secretary RV Shahi said.

The promoters of merchant plants will not enter into long-term contracts with buyers through power purchase agreements (PPAs). Instead, the tariff they charge will depend on demand and supply. Also, the risks of merchant power plants are carried on the balance sheet of the promoters, unlike conventional utilities.

The government has asked the Power Finance Corporation (PFC) to identify sites for the plants and prepare project reports. According to a PFC official, the sites have been broadly identified but their feasibility will be assessed by consultants. Initially, the merchant plants will be thermal.

The power ministry, which is looking at merchant power plants to provide the huge generating capacity that the country requires in the near future, plans to give incentives in lieu of the high risks that the promoters face.

Experts say that financial institutions will be keen to fund these plants considering the success of ultra mega power projects.

According to sources, prominent players like Reliance Energy and the NTPC have shown interest in developing merchant power plants.

Ministry sources said large merchant power plants with a capacity of 500-1,000 Mw would be provided coal linkages and captive coal blocks.

The power ministry, in consultation with the ministry of coal, has identified 15 coal blocks with estimated reserves of about 3.6 billion tonnes for this. Out of these, coal blocks of aggregate reserves of around 2.4 billion tonnes are expected to be considered for merchant power plants.