Reverse auction for short term power procurement to benefit discoms by 4-5 paise per unit; negative for gencos with merchant exposure: ICRA

In ICRA’s view, the Implementation of e-bidding with reverse auction for short term power procurement would benefit the discoms and their end consumers. Procurement through such mode would result in a competitive price discovery in a more transparent manner. “ICRA expects average traded bilateral price levels on all India basis to moderate by about 50-60 paise/unit, which implies a decline by about 13% over the prevailing bilateral traded price level”, says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.

The Ministry of Power, Government of India has recently notified amended guidelines for procurement of power by distribution utilities (or the discoms) on short term basis (for a period of up to one year) through a competitive bidding route. Effective from April 1, 2016, such procurement by the discoms shall be on an electronic platform based reverse auction system.

Under assumption of cost-plus tariffs for discoms and a 10.5% share of short-term traded power (based on trends in the last 5-6 years) in the total procurement mix , this is estimated to provide a relief in the average retail supply tariff by about 4-5 paise per unit (or 0.8%) for end consumers of discoms on all India basis. For discoms with relatively higher dependence on short term power (especially discoms in southern India) the benefit could be even higher, says ICRA in the release.

“While the reverse auction based procurement of short term power is beneficial for discoms, in our view it is a negative for power generation capacity which sell a substantial part of their output through bilateral short term PPA contracts. This is primarily because of our expectation of moderation in bilateral tariff”, Mr. Majumdar further adds.

The share of short-term based power transactions in the overall electricity generation in the country has been in the range of 10-11% over the past 5-6 years. In terms of mix of short-term traded power, bilateral route based traded power continued to have the highest share in the range of 52-53% followed by power exchange transactions (29%) and remaining accounted by deviation settlement. The higher share of bilateral based transactions can be attributed to the certainty of supply and tariff rates for the discoms.