EXCLUSIVE | UMPPs are not history, to get assured coal linkage: Power Secy

A boy plays with a tyre in front of electric pylons installed at a power house in Kolkata February 21, 2013. India's Finance Minister Palaniappan Chidambaram will present one of the most highly anticipated budgets of recent years, a blueprint for austerity that forms the centrepiece of India's efforts to stave off a ratings downgrade. Investors will watch closely to see whether he will fulfil his promise of fiscal prudence. Picture taken February 21, 2013. REUTERS/Rupak De Chowdhuri (INDIA - Tags: BUSINESS ENERGY POLITICS) - RTR3EDNJ

The government is working on amending the ultra mega power project (UMPP) policy to ensure that project developers get assured coal-linkage from Coal India, according to power secretary Ajay Kumar Bhalla.

Bhalla told Moneycontrol in an interview that the government had not put the UMPP policy on the backburner and was instead preparing a policy to make it more stable and attractive for private developers to set up these projects.

“We are preparing the final documents for linkage-based UMPPs. We are working with Coal India for assured coal linkage UMPP. Cheyyur (in Tamil Nadu) and Bedabahal (Odisha) will come under that,” he told Moneycontrol.

UMPP policy, launched in 2006, was one of the most ambitious schemes of the erstwhile United Progressive Alliance government. It envisaged setting up five units of 800 MW each at a single location.

Most projects were based on domestic coal while a few were to be fed on imported fuel which at that time was cheaper than domestic coal. The projects had to be awarded to the company quoting the lowest tariff for 25 years. The plants then also had coal linkages but not from Coal India.

As the policy has remained since, the developer is allocated a mine for the captive use to fire the ultra mega plant. One would see no problem with this. But given the complexities surrounding mining in India – concerns over damage to environment, resistance to uprooting of local tribals and village population, unpredictable state laws that levied unforeseen cesses – it proved to be no easy task for private developers who got these projects, namely The Tata Power Company and Reliance Power.

The current government hasn’t awarded a single tender for setting up a UMPP in its nearly four years of existence.  It would be hoping to put all that behind by bringing in Coal India into play.

The Manmohan Singh government had selected 16 sites for such plants. It managed to award four projects -- one to Tata Power and three to Reliance Power – in the next five years. But as matters stand, only two such projects, one run by each of the two companies, are operating. Even the existing plants have had issues – all projects suffering from either lack of coal or overpriced coal that made cost recovery difficult.

Much of the focus of the current government has been on adding power capacity based on renewable sources – mostly solar. The government aims to have an installed renewable energy capacity of 175 GW by 2022. Of this, 100 GW is aimed at via solar, 60 GW from wind, 10 GW from bio energy and 5 GW from small hydro plans.

As part of its commitment to the Paris agreement on Climate Change, the Narendra Modi government has not targeted any fresh coal-based power capacity in its five years that end May next year. Not just UMPP but all coal-based power capacity that has come up in the last four years was planned under the previous UPA government.

2016-17 was the first time in India’s history that capacity additions in the renewable power sector exceeded that of conventional plants. Capacity addition from renewable energy sources came at 12.5 GW compared to 10.2 GW from conventional sources, reflecting the clear shift in the focus of the government towards renewable sources of power.

Significant coal- as well as gas-based capacity remains stranded even as the government completes four years in office in May. It has naturally led to assumptions that UMMPs -- not forgetting the fact that 4,000 MW capacity at a single plant is in itself huge and it is not easy to find buyers for that quantum of power -- may be relegated to history, an argument rebutted by Bhalla.

The government has been trying to bring the stranded power assets back into the system. At the end of December, there were 34 coal-based power projects that were stranded with a combined capacity of 40,130 MW, most of it in private sector.

Stranded projects are those where no power purchase agreements between the buyer and the generator has been signed nor is there any coal linkage and thus they haven’t been commercially commissioned. Some of these projects may be operational with the developing managing a little short-term supply of coal and selling some power in the market.

According to a Niti Aayog proposal, Power Finance Corporation and Rural Electrification Corporation along with other financial institutions should form a special purpose vehicle to take over these projects, something the two power sector lenders have been cold to.

“The power ministry will only be a facilitator. If the assets have to be taken over, bankers will form a joint venture and take over the asset within the Reserve Bank of India’s norms on restructuring. If going to National Company Law Tribunal is the solution, the case will go to NCLT. It has to be decided by the bankers,” the power secretary said.

On the much-delayed hydro power policy, Bhalla said there were a few issues that needed to be thrashed out. The draft note of the policy for consideration by the Cabinet has been ready for some time but elements like a 4 per cent interest subvention which need close scrutiny by the finance ministry are taking time, according to Bhalla.

“Further issues are being refined. Whether 4 per cent interest subvention helps or not, we need to study,” he said.

He said the hydro policy would also include norms on pump storage. “Pump storage needs extra investment. It can generate power at peak time to balance the grid,” Bhalla said.

Pump storage has hitherto been a neglected architecture for generating power. Experts believe India, currently generating negligible power from pump storage, has the capacity to generate 100,000 MW of such power. It is not a concept for generating power but storing power by moving water from a lower level to a higher level and thereby producing power from the static energy of the water stored at a height. It helps in maintaining grid stability.