MBED-ding uncertainty? Actual savings from proposed MBED scheme may not be worth the governance shake-up it requires

The whole fastened price of a plant is borne by the facility purchasers (discoms) in a sure ratio.

By Somit Dasgupta

The federal government proposes to introduce some elementary modifications in how energy can be dispatched from numerous producing vegetation on the grounds that it could scale back price of energy buy. This mannequin known as the market-based financial dispatch (MBED), and it has been estimated {that a} saving of about Rs 12,000 crore yearly is feasible although, within the course of, a whole overhaul of the system can be required when it comes to modifications in laws, formulation of procedures, and many others. The scheme is proposed to be applied from April 2022 on a pilot foundation, involving solely NTPC vegetation to start with. At current, public suggestions on the scheme has been sought.

In India, on the subject of technology tariff, now we have what is named the two-part tariff. The primary is the fastened price which needs to be paid by the facility purchaser no matter whether or not the plant generates or not, and the opposite is the variable price, which is a operate of the quantum of technology. The generator is paid its full fastened price provided that it is able to generate 85% or extra of its capability.

For something lower than 85%, there’s a graded fee. The whole fastened price of a plant is borne by the facility purchasers (discoms) in a sure ratio. If a 1,000 MW generator, has energy buy agreements (PPAs) with three discoms of 500 MW, 300 MW and 200 MW, the entire fastened price can be apportioned amongst the three within the ratio of 5:3:2.

Along with this, the variable price that may be payable by every discom would rely on the quantum of energy looked for (additionally known as as ‘scheduled’) by them. Each the fastened price and variable price for are decided by the electrical energy regulatory commissions except the plant has been arrange within the bidding route.

Each state has two units of turbines, its personal turbines and inter-state producing stations (ISGSs) within the area (just like the NTPC) the place it has a share. States often first draw energy from their very own stations and, for the steadiness demand, they ‘schedule’ from the ISGSs even if the ISGSs could also be cheaper on the entire. How a lot energy a discom can schedule from ISGSs relies upon upon the PPAs signed by them. As issues are right now, if a specific discom doesn’t search energy from a sure plant, for no matter motive, this plant won’t be able to promote its energy to some other discom, for the straightforward motive that the fastened price is being paid by the unique discom. So, it’s fairly potential {that a} cheaper plant could stay idle for part of its capability whereas a costlier plant could run at its full capability—clearly an inefficient mode.

Beneath the MBED scheme, each the discoms and the turbines will submit value bids (variable price solely) for the following day and a market-clearing value (MCP) can be decided. Solely these vegetation that had submitted bids lower than the MCP can be allowed to inject energy to the grid. The discoms will, nonetheless, proceed to pay the fastened price to all turbines as they’re paying now and that may be outdoors the market. Additional, if the MCP is greater than the present variable price being paid, the generator will compensate the client and vice-versa. So, each the client and vendor face the identical variable price because it exists right now. The benefit of this method can be that the inefficient vegetation can be overlooked from dispatch.

There are a couple of points which come up right here. First, since there is no such thing as a capability funds envisaged within the scheme (as bidding is simply on variable price), there can be no incentives for builders to construct new vegetation. The present vegetation will get a set cost until they retire, however what about recent capability? Reliance solely on variable cost is just too dangerous for a developer as a result of there might be extensive variations.

Second, the scheme says that about 4% of the technology price might be saved via operationalising the MBED. This, nonetheless, is the gross saving. The discoms should pay the facility alternate upfront for the bidding, and this may have a carrying price. The web saving could also be round 2% solely. Whether or not it could be worthwhile to utterly change the mode of governance of the sector for such meagre financial savings is debatable.

Third, the states are going to oppose this scheme as a result of that is solely a precursor of issues that may comply with. Whereas a pilot will begin with NTPC vegetation, the concept is to carry all the sector beneath the gamut of the MBED. The scheme, as soon as prolonged to all turbines, will imply that a number of state turbines will flip idle as a result of their variable price could also be greater than the MCP, and this will result in some sort of unrest.

Having mentioned that, this mannequin is simply a thought as of now and there can be no hurt in testing the waters, particularly the response of the states.

The writer is Senior visiting fellow, Icrier, and former member, CEA