Business Standard

Cheaper power?

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Business Standard New Delhi
After tripping badly on the Sasan 4,000 Mw "ultra mega" power project, when the credentials of the successful bidder were found to be different from what had been stated in the bid documents submitted, the government deserves to be congratulated on having got itself out of the mess, even if after an unseemly delay. Getting Reliance Energy to lower its bid price, especially after it became the lowest bidder once Lanco's bid was declared null and void, may have helped persuade Lanco that it had no hope of winning any battle it launches in court. That Lanco's bid bond of Rs 120 crore was not fully forfeited, points to the fact that politics still matters""the company has good political connections.
 
The notable feature of the project is its promise of power for as little as Rs 1.20 per unit. Unfortunately, this does not mean dramatically cheaper power across the country, though there are signs that costs and efficiencies are improving. Sasan itself has some special advantages: the project is based at the pithead of some of the best mines the country has, the government has helped procure land, and the zero customs duty on imports also helps reduce costs. Estimates of how much this has helped are in the range of 20-30 paise per unit of power. Most other new coal-based plants promise power at around Rs 1.80-1.90 per unit if given captive coal mines, and the cost rises to the region of Rs 2.30 without captive mines.
 
Since it is impossible to replicate the Sasan conditions beyond the other ultra-mega power projects that have been planned, the promise of cheaper power will be limited""the average generating cost across the country's 130,000 MW capacity (including hydel and nuclear power) is about Rs 1.70 per unit (the cost of delivered power is more than a rupee higher because of transmission and distribution costs). Still, it is interesting that Reliance Industries' thinking on captive power generation, using its own gas, is based on capital cost per Mw of capacity at Rs 2.50 crore, significantly lower than past assumptions of Rs 3.50 crore per Mw.
 
For power costs to come down across the system, other operational efficiencies have to improve. The aggregate technical and commercial loss (AT&C), at countrywide level, remains at around 35 per cent (indeed, this rose marginally in 2005-06), despite several years of reform. Reducing this to no lower than 25 per cent (which used to be the system norm three decades back) will lower the delivered cost per unit by more than all the capital cost savings assumed in projects like Sasan, but will take some doing. After five years of privatisation, and large subsidies in between, the three power distribution companies in Delhi have been able to reduce their ATC losses from over 50 per cent to 33 per cent. Taking action against defaulters was difficult enough in Delhi, and doing so in the larger states, especially the relatively lawless parts of UP and Bihar (the two states that top the charts in terms of electricity losses), will be more difficult. With serious private sector entry into the power sector on the cards, these system-wide issues need to be pursued with determination.

 

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First Published: Aug 01 2007 | 12:00 AM IST

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