The Hindu Business Line : Power projects in for cost squeeze

Benchmarking costs could be crucial for thermal projects set up through negotiated basis, where capital outlays form the basis for cost-plus tariff: CERC

Anil Sasi

New Delhi, Aug. 6 With the inflationary spiral threatening to derail project execution outlays across key infrastructure sectors, cost squeeze is the new buzzword in the power sector.

The Central Electricity Regulatory Commission plans to turn on the heat on developers by proposing prudence checks through capital cost benchmarking for upcoming thermal stations and transmission projects. This comes on the heels of the Centre advocating austerity in use of land for setting up of thermal power projects.

Tackling rising project costs is expected to have a bearing on future electricity tariffs from upcoming projects. While the cost of setting up a thermal power plant has traditionally been estimated roughly at Rs 4 crore per MW, there have been rising instances of newer projects coming up across the country where the per-MW project costs are higher, with developers citing higher input costs and project execution payouts.

According to CERC, benchmarking costs could be crucial for thermal projects — including coal-fired and petroleum-fuelled stations — set up through negotiated basis, where capital outlays form the basis for cost-plus tariff.

“The CERC has so far been relying on in-house analysis and audited accounts for this purpose. The data available shows that there is wide variation in the capital cost of a thermal or transmission project due to difference in site conditions, design parameters, terrain and year of placing of orders. By having benchmarks, it would be possible to arrive at completed costs of projects,” a Government official involved in the process said.

Once the benchmarks are in place, the actual costing of any new project could then be compared with the benchmark costs and in case of large variations between the two, CERC would resort to undertaking “detailed examination to ascertain the reason and justification for the variation.”

The Centre had earlier asked developers to optimise land requirement estimates for large-sized thermal power, especially for the upcoming Ultra Mega Power Projects (UMPPs). Project developers were asked to prune land usage for thermal stations in a phased manner by up to 40 per cent of current usage levels.

The twin-pronged advantages of a downward revision in land usage in setting up projects include faster project acquisition, besides lower project costs, according to Government officials involved in the exercise.

Land acquisition problems are plaguing a number of 4,000-MW UMPPs on the anvil, with at least three of these projects, namely Girye in Maharashtra, Tadri in Karnataka and Cheyyur in Tamil Nadu, reported to be facing difficulties in acquiring land.

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