Gujarat government is likely to conduct a reverse auction to tie up long-term power purchase agreements (PPAs) for 3,000 MW power generation capacity in June, people aware of the development said.

“The tender has been called to adequately prepare the state for the upcoming surge in power demand in the next four-five years,” a senior official from the state’s power department told FE.

The power supply to the state will have to begin within 54 months of signing the PPA.

Power plants having captive mines or fuel supply linkages from Coal India mines are eligible to participate in the bidding. Additionally, bids would also be accepted under the tolling mechanism, where coal mines allotted to state-owned power plants can be transferred to private generating units. The lowest bidder would win PPAs.

Gujarat was the first state to invite tender under the tolling policy in August 2017 when the ceiling tariff was kept at `2.82/unit.

The long-term PPA (for 25 years) tender comes after a long lacuna amid a large section of the thermal electricity generation industry grappling with stress in the sector due to lack of enough power demand. Experts have pointed out that PPAs of about only 1.5 GW have been signed in the last four years across the country.

Currently, major distribution companies (discoms) have already tied up excessive long-term PPAs to meet their respective demand and most of them resort to short-term arrangements to address the temporary seasonal surge in demand. However, Crisil expects rapid urbanisation and rural electrification to raise residential power requirement, in turn increasing overall power demand at compound annual growth rate of 6.5-6.8% during FY19-FY23.

Union power minister RK Singh told FE earlier this year that the proposals in the upcoming tariff policy have provision where the regulator would assess if discoms have sufficient long-term and mid-term PPAs to meet their respective annual average demand.

Additionally, the provision of penalty for gratuitous loadsheddings in the tariff policy would also push discoms to have adequate PPAs tied up.

News Source: Financial Express