State Mulls Threshold Limit for Transmission Projects Under Competitive Bidding Route

The UERC draft notification proposes a threshold limit of ₹500 million for new transmission projects to be developed through the tariff-based competitive bidding process

July 19, 2021


The Uttarakhand Electricity Regulatory Commission (UERC) has issued a consultation paper to determine the threshold limit to develop an intra-state transmission system through tariff-based competitive bidding.

The deadline for submitting comments and suggestions is August 12, 2021.

According to the consultation paper, the transmission system requires adequate and timely investments coupled with efficient and coordinated action to develop a robust and integrated power system.

The Commission seeks comments and suggestions from various stakeholders to determine the threshold limit above which the transmission project will be executed through a  tariff-based competitive bidding process in terms of standard bidding guidelines notified by the Ministry of Power from time to time.

In March, the Ministry of Power (MoP) had issued a notification that the adoption of tariff-based competitive bidding to develop intrastate transmission systems can effectively reduce the burden on the state governments. It would also lead to reduced tariffs leading to consumers’ benefits.

The matter was discussed in a meeting, and it was decided to request the state governments to adopt tariff-based competitive bidding to develop intrastate transmission systems.

Uttarakhand’s transmission network

Power Transmission Corporation of Uttaranchal (PTCUL) is the distribution company in Uttarakhand with a transmission network comprising transmission lines and substations at 400 kV, 220 kV, and 132 kV. PTCUL owns and operates 43 substations – four at the 400 kV level, eight at 220 kV, and 31 at 132 kV.

Of the total line length of 2,889 circuit km, 60% operates at the 132 kV level, 26% at 220 kV, and the remaining at the 400 kV level. The utility’s line length has increased by 53% from 1,889 circuit km in FY 2004-05 to 2,889 circuit km in FY 2018-19. The transformer capacity has increased drastically and recorded 8,383 MVA at the end of FY 2018-19.

PTCUL has commissioned projects of around ₹2 billion (~$26.76 million) between financial year (FY) 2019-20 and FY 2020-21 and plans to commission transmission projects of approximately ₹7.5 billion (~$100.3 million) soon.

According to the draft notification, the analysis of the ongoing projects has revealed that projects are of various dimensions, nature, and cost, ranging from project programs of less than ₹100 million (~$1.33 million) for augmentation of the existing substation to project cost of more than ₹1 billion (~$13.38 million) for laying new double-circuit line.

Determining the threshold limit

According to the Tariff Policy, 2016, the state electricity regulatory commissions (SERCs) must determine the threshold limit for projects above which the project would be executed through a competitive bidding route.

However, to date, only a few SERCs like Punjab – ₹500 million (~$6.68 million), Bihar – ₹1 billion (~$13.37 million), and Rajasthan – ₹1 billion (~$13.37 million) have determined the threshold limits for projects to be executed through tariff-based competitive bidding, while others are still in the process to determine the same.

According to the draft notification, it is imperative to consider the cost of programs that the state transmission licensee has executed in the past and those currently executed to determine the reasonable threshold limit. Adopting this approach will consider the state-specific issues.

However, while considering the projects for threshold determination, programs that pertain to minor augmentation works or line-in-line-out works need not be considered as these projects are marginal and cannot be considered for threshold determination.

As per the standard bidding guidelines, the only reference to the capital expenditure concerns the qualification criteria. To qualify, a bidder must have executed projects amounting to a minimum of ₹5 billion (~$66.86 million) in the last five years. For a project to qualify to meet the above requirement, the minimum capital cost of the project should be ₹700 million (~$9.3 million).

However, according to the National Committee on Transmission, programs must either be executed under tariff-based competitive bidding mode or through a regulated tariff mechanism. According to the Committee, the project should neither be too small as it will not attract competitive tariffs nor too big as it will leave only a few selected big developers to qualify, thus curtailing competition.

The draft notification has observed that the competitive bidding route resulted in reduced tariffs ranging from 20% to 56% with regards to cost-plus tariff.

The notification further notes the findings of the Confederation of Indian Industries in its report titled ‘New Age Power Systems for 21st Century India: Challenges, Solutions, and Opportunities’.

The report is based on an analysis of 101 transmission projects (including 58 projects under regulated tariff mechanism and 43 tariff-based competitive bidding projects), which shows that tariff-based competitive bidding projects typically offer around 30% lower tariffs than the same project awarded on a regulated tariff mechanism.

Another inherent benefit of the tariff-based competitive bidding mode of development is that it encourages private sector participation, lowering government finances. It also facilitates risk-sharing with private players, adoption of innovative technology with private participation, etc.

According to the draft notification, it is proposed that the threshold limit be kept at ₹500 million (~$6.69 million) for new transmission projects to be developed through the tariff-based competitive bidding process. Meanwhile, the notification also proposes that if the projects are above the specified threshold limit but are of strategic and national importance, such projects may be allowed under the regulated tariff mechanism by the Commission after the DISCOM files an application.

In August last year, the Haryana Electricity Regulatory Commission (HERC) invited comments and suggestions from power sector stakeholders on its paper proposing the introduction of competitive bidding for power transmission projects.

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