The real cost of power

DAMMING THE TEESTA - 3

What is the real cost of power being produced in Sikkim? This is the question that power purchasing corporations and retail consumers would like to know about the Teesta projects.

The costs of power will be higher for consumers given the kind of agreements that Sikkim is signing. Take, for instance, the agreement on Teesta III, the largest project under implementation.

According to the deal signed with Teesta Urja Ltd, the consortium developing the project, the 1,200 Mw project will give 12 per cent free power to the government for the first 15 years.

Thereafter, the government's share will go up to 15 per cent till the end of the BOOT (build, own, operate and transfer) contract which is for 35 years.

Prayas, the Pune-based energy research organisation, says tariffs will increase quite sharply because of the free power deal.

However, Teesta Urja managing director Y N Apparao says its tariff is still competitive.

He told Business Standard that it has entered into a long-term agreement with the Power Trading Corporation (PTC), one of the consortium members, to provide power at a levelised tariff of Rs 2.25 a unit for 35 years. PTC will be supplying the power to the four northern states of Punjab, Haryana, Uttar Pradesh and Rajasthan.

The costs of the project have a bearing on the tariffs and a quick analysis shows wide variations in the costs of the Teesta projects. The public sector National Hydroelectric Power Corporation (NHPC) which is expected to commission its 510-Mw Teesta V by May 2008 is unwilling to state what its tariff will be. But sources said it is expected to be in the region of Rs 2.15 a unit.

According to the latest figures with the Central Electricity Authority, NHPC's costs for Teesta V have risen to Rs 2,527. This works out to a cost of just below Rs 5 crore per Mw. Teesta III, too, is in the same range, but the costs of the 500-Mw Teesta VI, promoted by the Hyderabad-based Lanco Group, are significantly higher at Rs 6.57 per Mw (CEA gives the project costs at Rs 3,283 crore).

In fact, Lanco's proposal to sell power at a tentative Rs 2.32 to Maharashtra ran into rough weather at the regulatory committee hearings because there was no clarity on either the capital costs or tariff rates.

An underlying problem, according to power analysts, is the lack of reliable hydrological data which is resulting in uneconomical hydropower projects in the Northeast and the Himalayan regions. This means that hydropower plants are not designed for optimum capacity. This also results in calculations on supply going awry.

The CEA's preliminary observations on Teesta VI find that the project would operate at full capacity only during the three monsoon months, prompting experts to say that Lanco project should not be qualified as a peaking power plant. Besides, power generation from Teesta VI would be totally dependent on outflows of NHPC's Teesta V.

The lack of robust hydrological data encourages state governments and promoters to put out optimistic (or unrealistic) assumptions about generation.

The risk, says Girish Sant of Prayas, is amplified because there is no economic incentive in the current hydro power policy for 'optimum' design for dams and hydropower projects.